Sunday, July 19, 2015

Fraud; vitiated consent; rescission of reciprocal contract.



"x x x.

A contract is a meeting of the minds between two persons, whereby one is bound to give something or to render some service to the other. A valid contract requires the concurrence of the following essential elements: (1) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (2) determinate subject matter; and (3) price certain in money or its equivalent.”

x x x

“Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract.[19] Additionally, the fraud must be serious.

We find no causal fraud in this case to justify the annulment of the contract of sale between the parties. It is clear from the records that the Spouses Tongson agreed to sell their 364-square meter Davao property to Napala who offered to pay P3,000,000 as purchase price therefor. Contrary to the Spouses Tongson’s belief that the fraud employed by Napala was “already operational at the time of the perfection of the contract of sale,” the misrepresentation by Napala that the postdated PNB check would not bounce on its maturity hardly equates to dolo causante. Napala’s assurance that the check he issued was fully funded was not the principal inducement for the Spouses Tongson to sign the Deed of Absolute Sale. Even before Napala issued the check, the parties had already consented and agreed to the sale transaction. The Spouses Tongson were never tricked into selling their property to Napala. On the contrary, they willingly accepted Napala’s offer to purchase the property at P3,000,000. In short, there was a meeting of the minds as to the object of the sale as well as the consideration therefor.”

x x x

“However, while no causal fraud attended the execution of the sales contract, there is fraud in its general sense, which involves a false representation of a fact, when Napala inveigled the Spouses Tongson to accept the postdated PNB check on the representation that the check would be sufficiently funded at its maturity. In other words, the fraud surfaced when Napala issued the worthless check to the Spouses Tongson, which is definitely not during the negotiation and perfection stages of the sale. Rather, the fraud existed in the consummation stage of the sale when the parties are in the process of performing their respective obligations under the perfected contract of sale. In Swedish Match, AB v. Court of Appeals, the Court explained the three stages of a contract, thus:

In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.

Indisputably, the Spouses Tongson as the sellers had already performed their obligation of executing the Deed of Sale, which led to the cancellation of their title in favor of EPBI. Respondents as the buyers, on the other hand, failed to perform their correlative obligation of paying the full amount of the contract price. While Napala paid P200,000 cash to the Spouses Tongson as partial payment, Napala issued an insufficiently funded PNB check to pay the remaining balance of P2.8 million. Despite repeated demands and the filing of the complaint, Napala failed to pay the P2.8 million until the present. Clearly, respondents committed a substantial breach of their reciprocal obligation, entitling the Spouses Tongson to the rescission of the sales contract. The law grants this relief to the aggrieved party, thus:

Article 1191 of the Civil Code provides:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

Article 1385 of the Civil Code provides the effects of rescission, viz:

ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

While they did not file an action for the rescission of the sales contract, the Spouses Tongson specifically prayed in their complaint for the annulment of the sales contract, for the immediate execution of a deed of reconveyance, and for the return of the subject property to them. The Spouses Tongson likewise prayed “for such other reliefs which may be deemed just and equitable in the premises.” In view of such prayer, and considering respondents’ substantial breach of their obligation under the sales contract, the rescission of the sales contract is but proper and justified. Accordingly, respondents must reconvey the subject property to the Spouses Tongson, who in turn shall refund the initial payment of P200,000 less the costs of suit.

Napala’s claims that rescission is not proper and that he should be given more time to pay for the unpaid remaining balance of P2,800,000 cannot be countenanced. Having acted fraudulently in performing his obligation, Napala is not entitled to more time to pay the remaining balance of P2,800,000, and thereby erase the default or breach that he had deliberately incurred. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by Napala, an attitude repugnant to the stability and obligatory force of contracts.”

X x x.”