ARTICLE 1325 to ARTICLE 1346
Asiain v. Jalandoni
FACTS:
The records show that the plaintiff offered to sell to the defendant a certain hacienda for
P55,000. During the negotiation, he told the defendant that it contained between 25 and 30
hectares and that the cane then planted would produce 2,000 piculs of sugar. Although doubtful
of the extent of the land, the defendant finally accepted the offer, paid P30,000 of the purchase
price and took possession of the land. While thus in possession, he discovered that the land was
only about 18 hectares and the cane only about 800 piculs of sugar. Because of this discovery,
he refused to pay the balance of the purchase price. As a consequence, plaintiff commenced this
action to recover the said balance. To the complaint, defendant filed an answer and a counter
complaint, asking that the contract be annulled.
RULING:
“Coordinating more closely the law and the facts in the instant case, we reach the following
conclusions: This was not a contract of hazard. It was a sale in gross in which there was a
mutual mistake as to the quantity of land sold and as to the amount of the standing crop.
The mistake of fact as disclosed not alone by the terms of the contract but by the attendant
circumstances, which it is proper to consider in order to throw light upon the intention of the
parties, is, as it is sometimes expressed, the efficient cause of the concoction.
The mistake with reference to the subject matter of the contract is such that, at the
option of the purchaser, the contract is rescissible (voidable). Without such mistake the
agreement would not have made and since this is true, the agreement is inoperative. It is
not deception but is more nearly akin to bilateral mistake for which relief should be
granted. Specific performance of the contract can therefore not be allowed at the instance
of the vendor. The ultimate result is to put the parties back in exactly their respective
positions before they became involved in the negotiation and before accomplishment of
the agreement. This was the decision of the trial judge and we think that decision conforms to
the facts and the principles of equity.’’
Martinez v. Hongkong & Shanghai Bank
FACTS:
This is an action to annul a contract on the ground that plaintiff’s consent thereto was
obtained under duress. Under this contract, she agreed to a conveyance of several properties to
Aldecoa & Co. and the Hongkong and Shanghai Bank as settlement of their claims against her
and against her husband, who in order to escape criminal charges, had escaped to Macao, a
territory not covered by any extradition treaty. It was established at the trial that during the period
of negotiation, representations were made to her by the defendants and concurred in by her
lawyers, that if she assented to the requirements of the defendants, the civil suit against herself
and her husband would be dismissed and the criminal charges against the latter withdrawn, but
if she refused, her husband must either spend the rest of his life in Macao or be criminally
prosecuted. The question now is whether or not there was duress which would invalidate the
contract.
RULING:
From the whole case, SC is of the opinion that the finding of the court below that the
plaintiff executed the contract in suit of her own free will and choice and not from duress is fully
sustained by the evidence.
Reluctant consent is the consent just the same. She may have given her consent
reluctantly but the fact remains that she did give her consent after all. (Macale)
Poole-Blunden v. Union bank (2017)
FACTS:
Poole came across an advertisement placed by Union Bank in the Manila Bulletin. The ad
was for the public auction of certain properties. One of these properties was a condominium unit
advertised to have an area of 95 square meters. Thinking that it was sufficient and spacious
enough for his residential needs, Poole decided to register for the sale and bid on the unit.
On the day of the auction, Poole won the unit. Thus, eventually, Poole entered into a
Contract to Sell with Union Bank. The contract stipulated that Poole would pay 10% of the
purchase price as down payment and that the balance shall be paid over a period of 15 years in
equal instalments with interest.
Poole started occupying the unit in June 2001. By July 20, 2003, he was able to fully pay
the unit. In late 2003, Poole decided to construct two (2) additional bedrooms in the unit. Upon
examining it, he noticed apparent problems in its dimensions. He took rough measurements of
the unit, which indicated that its floor area was just about 70 squares, not 95 square meters, as
advertised by Union Bank.
Poole got in touch with an officer of Union Bank to raise the matter, but no action was
taken. Poole wrote the Union Bank, informing it of the discrepancy. He asked for the cancellation
of the Contract to Sell, along with a refund of the amounts he had paid, in the event that it was
conclusively established that the area unit was less than 95 square meters.
ISSUE: Whether respondent Union Bank committed such a degree of fraud as would entitle
petitioner Poole-Blunden to the voiding of the Contract to Sell of the condominium unit (YES)
RULING:
There are two types of fraud contemplated in the performance of contracts: dolo
incidente or incidental fraud and dolo causante or fraud serious enough to render a
contract voidable." The fraud required to annul or avoid a contract "must be so material
that had it not been present, the defrauded party would not have entered into the contract.”
The fraud must be "the determining cause of the contract, or must have caused the
consent to be given.
Petitioner's contention on how crucial the dimensions and area of the Unit are to
his decision to proceed with the purchase is well-taken. The significance of space and
dimensions to any buyer of real property is plain to see. This is particularly significant to
buyers of condominium units in urban areas, and even more so in central business
districts, where the scarcity of space drives vertical construction and propels property
values. It would be immensely guileless of this Court to fail to appreciate how the
advertised area of the Unit was material or even indispensable to petitioner's consent. As
petitioner emphasized, he opted to register for and participate in the auction for the Unit
only after determining that its advertised area was spacious enough for his residential
needs. Causal fraud exists in this case.
Eguaras v. Great Eastern Life (1916)
FACTS:
This is an action for the collection of the value of an insurance policy. The records show
that Dominador Albay filed an application for an insurance on his life with the defendant company;
that since Albay was in poor health, the person who presented himself for medical examination
to the company physician was not the applicant, but Castor Garcia, who posed as Dominador
Albay; that as a result of the favorable report of the physician, the defendant company executed
the contract of insurance; that a short time thereafter the insured died. In this action, the company
contends that the contract should be annulled on the ground of fraud.
RULING:
“The fraud which gave rise to the mistaken consent given by the defendant company to
the application for insurance made by Albay and to the execution of the contract through deceit,
is plain and unquestionable. The fraud consisted in the substitution at the examination of
Castor Garcia in place of the insured Dominador Albay, and as the deceit practiced in the
said contract is of a serious nature, the same is also ipso facto void and ineffective
(voidable), in accordance with the provision of Article 1270 (now Art. 1344) of the Civil
Code.
He knew that the he will not be able to pass the physical and medical examinations
because he was aware that he was suffering from so many illnesses so he ask somebody
to take his place. That is dolo causante. (Macale)
Woodhouse v. Halili (1953)
FACTS:
Woodhouse and Halili entered into a contract whereby it was agreed that they shall
organize a partnership for the bottling and distribution of Mission soft drinks, plaintiff to act as
industrial partner and manager, and defendant as capitalist partner; that Woodhouse was to
secure the Mission soft drinks franchise for and in behalf of the partnership; and that he was to
receive 30% of the net profits of the business. Because of the alleged failure of defendant to
comply with this contract after the bottling plant was already in operation, plaintiff brought this
action against him praying for the execution of the agreed contract of partnership, an accounting
of the profits of the business, as well as damages amounting to P200,000. Defendant, in his
answer, alleged that his consent to the contract was secured through plaintiff’s false
representation that he had the exclusive bottling franchise of the Mission Dry Corporation in the
Philippines and that, although such franchise was later on obtained from the Mission Dry
Corporation, it was he, the defendant, and not the plaintiff, who obtained it. He also presented a
counterclaim for P200,000 as damages.
RULING:
We conclude from the above that while the representation that plaintiff had the
exclusive franchise did not vitiate defendant’s consent to the contract, it was used by
plaintiff to get from defendant a share of 30% of the net profits; in other words, by
pretending that he had the exclusive franchise and promising to transfer it to defendant,
he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This
is the dolo incidente defined in Article 1270 (now Art. 1344) of the Civil Code, because it
was used to get the other party’s consent to a big share in the profits, an incidental matter
in the agreement.
This is merely a case of incidental fraud. In other words, under the circumstances, Mr.
Halili would still have entered into the contract with Woodhouse even if he had known that
Woodhouse did not actually hold the local franchise. But, Mr. Halili would not have agreed to
give Woodhouse a 30% share of the net profits if he had known that. It is merely a case of
dolo incidente which merely had the effect of inducing Halili to agree to give Woodhouse
slice of the profits. Mr Halili therefore is merely titled to the award of damages. (Macale)
Rural Bank of Caloocan v. CA (1981)
FACTS:
An old woman went to the bank because she wanted to borrow money and as security for
her loan, she intended to mortgage her land, there was a supposed good samaritan within the
bank premises who pretended to help her and this good samaritan made her sign several
documents. It turned out that he was also borrowing money from the same bank and as security
for his own loan, the old woman who was made to sign to documents showed that she was also
mortgaging her property not only for her own loan but also for the loan being secured by her
impostor.
RULING:
Supreme court declare the promissory note valid between the bank and Castro and
the mortgage contract binding on Castro beyond the amount of P3,000.00 for while
contracts may not be in may not be invalidated insofar as they affect the bank and Castro
on the ground of fraud because the bank was not a participant thereto such may however
be invalidated on the ground of substantial mistake mutually committed but them as a
consequence of the fraud and misrepresentation inflicted by the Valencias.
This is clearly covered by Art 1342, the misrepresentation by the third person has
created mutual substantial error on the part of the old woman and on the part of the bank.
(Macale)
Loyola v. CA (2000)
FACTS:
The case involve a parcel of land which they inherited. The controversy began when one
of the heirs Gaudencia allegedly sold her share in the parcel of land for P34, 000.00. The sale
was evidenced by a notarized document denominated as "Bilihang Tuluyan ng Kalahati (1/2) ng
Isang Lagay na Lupa." One of the contentions of the petitioner, that at the time of the sale,
Gaudencia was already 94 years old; that she was already weak; that she was living to one
Romana; and was dependent upon the latter for her daily needs, such that under these
circumstances, fraud or undue influence was exercised by Romana to obtain Gaudencia's
consent to the sale.
RULING:
The Supreme Court ruled that Simulation is "the declaration of a fictitious will, deliberately
made by agreement of the parties, in order to produce, for the purposes of deception, the
appearances of a juridical act which does not exist or is different what that which was really
executed." The parties clearly intended to be bound by the contract of sale, an intention they did
not deny. The requisites for simulation are: (a) an outward declaration of will different from the will
of the parties; (b) the false appearance must have been intended by mutual agreement; and (c)
the purpose is to deceive third persons.
The rule on fraud is that it is never presumed, but must be both alleged and proved.
For a contract to be annulled on the ground of fraud, it must be shown that the vendor never gave
consent to its execution. If a competent person has assented to a contract freely and fairly, said
person is bound. There also is a disputable presumption, that private transactions have been fair
and regular. Applied to contracts, the presumption is in favor of validity and regularity. Also, in
the present case, petitioners failed to show that Romana used her aunt's reliance upon her
to take advantage or dominate her and dictate that she sell her land. Undue influence is
not to be inferred from age, sickness, or debility of body, if sufficient intelligence remains.
Petitioners never rebutted the testimony of the notary public that he observed Gaudencia
still alert and sharp.