WOODHOUSE VS.

HALILIFacts: Defendant Halili informed Woodhouse,plaintiff, of his desire to invest half a million dollars inthe bottling and distribution of Mission Soft Drinks.Woodhouse then relayed this message to Mission DryCorporation of Los Angeles, USA. Mission DryCorporation then gave plaintiff a thirty day option onexclusive bottling and distribution rights in thePhilippines (Exhibit J). Thereafter, plaintiff and defendant enteredinto a written agreement with the ff. pertinentprovisions: 1) they shall organize a partnership forthe bottling and distributing of Mission soft drinks,with plaintiff, Woodhouse, as industrial partner ormanager, and defendant, Halili, as capitalist;2)defendant was to decide matters of general policyregarding the business, while plaintiff was to attendthe operation and development of the bottling plant;3) plaintiff was to secure Mission soft drinks franchisefor and in behalf of the proposed partnership; and 4)plaintiff was to receive 30 percent of the net profitsof the business. This contract was signed and theparties to this case then went to the United States tofinalize the franchising agreement. Mission DryCorporation then granted the defendant theexclusive right, license, and authority to produce,bottle, distribute and sell Mission beverages in thePhilippines.When both parties went back to thePhilippines, the bottling plant began its operation. Atfirst, plaintiff was given advances, on account of theprofits, and allowances which however ceased aftertwo months. Moreover, when plaintiff demanded thatthe partnership papers be executed, defendantrefused to do so and instead suggested that they justenter into a settlement. As no settlement wasreached, the plaintiff filed a complaint in the CFI.In the CFI, plaintiff asks for execution of thecontract of partnership, accounting of the profits anda share thereof of 30 percent. Defendant on hisdefense claims that plaintiff misrepresented himself that he was about to become the owner of anexclusive bottling franchise when in fact franchisewas exclusively given to defendant, and that theplaintiff failed to contribute to the exclusive franchiseof the

partnership. CFI ordered defendant to renderan accounting of the profits of the business and topay plaintiff 15 percent thereof. But it held that theexecution of the contract could not be enforced andthe defense of fraud was not proved. Unsatisfied withthis ruling, both parties appealed to the SC.Issue: a) W/N plaintiff falsely represented that he hadan exclusive franchise to bottle Mission beverages. Yes. b) W/N this false representation amounts tofraud and may annul the agreement to form apartnershipHeld: a) As found by the SC, Exhibit J was used byplaintiff as an instrument with which to bargain withthe defendant and to close a deal with him, becauseif plaintiff claimed that all he had was an option toexclusively bottle and distribute Mission soft drinks inthe Philippines, he would have probably lost the dealitself. This is further supported by the fact that whendefendant learned that plaintiff did not have anexclusive franchise, he reduced plaintiffsparticipation in the profit to 15 percent, to which theplaintiff agreed.b) Article 1270 of the Spanish Civil Codedistinguished two kinds of fraud, causal fraud, whichmay be a ground for the annulment of a contract,and the incidental fraud, which only renders theparty who employs it liable for damages.As founded by the SC themisrepresentation of plaintiff does not amount tocausal fraud because it was not the principalinducement that led the plaintiff to enter into thepartnership agreement. As it was already noted, bothparties expressly agreed that they shall form apartnership.Lastly, the SC upheld the ruling of the trialcourt that the defendant may not be compelledagainst his will to carry out the partnership. The lawrecognizes the individuals freedom or liberty to doan act he has promised to do or not to do it as hepleases