The trial court found that the purchase price of the subject property has not been fully paid and that Napala’s assurance to the Spouses Tongson that the PNB check would not bounce constituted fraud that induced the Spouses Tongson to enter into the sale. Without such assurance, the Spouses Tongson would not have agreed to the contract of sale. Accordingly, there was fraud within the ambit of Article 1338 of the Civil Code, justifying the annulment of the contract of sale, the award of damages and attorney’s fees, and payment of costs. Respondent appealed to the Court of Appeals.
The Court of Appeals agreed with the trial court’s finding that Napala employed fraud when he misrepresented to the Spouses Tongson that the PNB check in the amount of P2,800,000 would be properly funded at its maturity. However, the Court of Appeals found that the issuance and delivery of the PNB check and fraudulent representation made by Napala could not be considered as the determining cause for the sale of the subject parcel of land. Hence, such fraud could not be made the basis for annulling the contract of sale. Nevertheless, the fraud employed by Napala is a proper and valid basis for the entitlement of the Spouses Tongson to the balance of the purchase price in the amount of P2,800,000 plus interest at the legal rate of 6% per annum computed from the date of filing of the complaint on 11 February 1993.
The Spouses Tongson filed a partial motion for reconsideration which was denied by the Court of Appeals in its Resolution dated 10 March 2005. Hence, this petition for review before the SC.
Issue: Whether or not the contract of sale can be annulled based on the fraud employed by Napala.
Held: The petition has merit.
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.
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. 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.
Some of the instances where this Court found the existence of causal fraud include: (1) when the seller, who had no intention to part with her property, was “tricked into believing” that what she signed were papers pertinent to her application for the reconstitution of her burned certificate of title, not a deed of sale; (2) when the signature of the authorized corporate officer was forged; or (3) when the seller was seriously ill, and died a week after signing the deed of sale raising doubts on whether the seller could have read, or fully understood, the contents of the documents he signed or of the consequences of his act. Suffice it to state that nothing analogous to these badges of causal fraud exists in this case.
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.
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