Legaspi Oil Co., Inc. v Court of Appeals, GR No.

96505, 01 July 1993

Facts: Petitioner Legaspi Oil Company had several transactions with Oseraos through
the agents of the latter. The transactions involve the sale of copras (coconut husk) by
private respondent to the petitioner. The selling price of Oseraos for every 100 kilos
of copras depends on the prevailing market price at the time the contract was
entered into.
In one transaction, Oseraos committed to sell 100 tons of copra to Legaspi Oil for the
price of P82 per 100 kilos with delivery terms of 20 days effective 8 March 1975. After
the period to deliver had lapsed, Oseraos was only able to sell 46,334 kilos of copra
thus leaving a balance of 53,666 kilos as per running account. Accordingly, demands
were made upon Oseraos to deliver the balance with a final warning embodied in a
letter dated 6 October 1976 that failure to deliver will mean cancellation of the
contract, the balance to be purchased at open market and the price deferential to be
charged against Oseraos. Since there was still no compliance, Legaspi Oil purchased
the undelivered balance from the open market at the prevailing price of P168.00 per
100 kilos, or a price differential of P86.00 per 100 kilos, a net loss of P46,152.76
chargeable against private respondent.
Issue: WoN Oseraos is liable for damages arising from fraud or bad faith in
deliberately breaching the contract of sale entered into by the parties.
Held: Despite repeated demands by petitioner, private respondent failed to fulfill his
contractual obligation to deliver the remaining 53,666 kilograms of copra. Based on
the foregoing facts, the actuality of private respondents fraud cannot be gainsaid. In
general fraud may be defined as the voluntary execution of a wrongful act, or a willful
omission, knowing and intending the effects which naturally and necessarily arise
from such act or omission. The conduct of the private respondent clearly manifests
his deliberate faudulent intent to evade his contractual obligation for the price of
copra had in the meantime more than doubled from P82.00 to P168.00 per 100
kilograms. Under Art. 1170 of the Civil Code, those who in the performance of their
obligation are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages. Pursuant to said article, private
respondent is liable for damages.
Woodhouse v Halili, GR No L-4811 31 July 1953
Facts: The Plaintiff entered into an agreement with the defendant for the
establishment of a partnership for bottling and distribution of Mission soft drinks.
Before the partnership was actually established the defendant required the plaintiff
to secure an exclusive franchise for the said venture. In behalf of the said partnership
and upon obtaining the said exclusive franchise the defendant stipulated to pay the
plaintiff 30% of the profits. The plaintiff sought to obtain the said exclusive franchise
but was only given a temporary one, subject only to 30 days. The parties then
proceeded with the signing of the agreement. The partnership was still not initiated,
only the agreement to work with each other, with the plaintiff as manager and the
defendant as financer, was established.
Together the two parties went to the US to formally sign the contract of franchise with
Mission Dry Corporation. The defendant then found out about the temporary
franchise right given to the plaintiff, different from the exclusive franchise rights they
stipulated in their contract.

When the operations of the business began he was paid P 2,000 and was allowed the
use of a car. But in the next month, the pay was decreased to P 1,000 and the car
was withdrawn from him.
The plaintiff demanded the execution of the partnership, but the defendant excused
himself, saying that there was no hurry to do so. The Court of First Instance ordered
the defendant to render an accounting of the profits and to pay the plaintiff 15% of
such amount. It also held that execution of the contract of partnership cannot be
enforced upon the defendant and that fraud as alleged by the defendant was also not
proved. Hence the present action.
Issues:
(1) WoN plaintiff falsely represented that he had an exclusive franchise to bottle
Mission beverages
(2) WoN the representation of the plaintiff in saying that he had exclusive
franchise rights rather than the actual temporary right he possessed
invalidated the contract
Held:
(1) Yes. Plaintiff did make false representations and this can be seen through his
letters to Mission Dry Corporation asking for the latter to grant him temporary
franchise so that he could settle the agreement with defendant. The trial court
reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the
agreement to secure the Mission Dry franchise for and in behalf of the proposed
partnership. The existence of this provision in the final agreement does not militate
against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. The defendant
believed, or was made to believe, that plaintiff was the grantee of an exclusive
franchise. Thus it is that it was also agreed upon that the franchise was to be
transferred to the name of the partnership, and that, upon its dissolution or
termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that
plaintiff did not have the exclusive franchise, was to reduce, as he himself testified,
plaintiffs participation in the net profits to one half of that agreed upon. He could not
have had such a feeling had not plaintiff actually made him believe that he(plaintiff)
was the exclusive grantee of the franchise.
(2) No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds
of (civil) fraud, the causal fraud, which may be ground for the annulment of a
contract, and the incidental deceit, which only renders the party who employs it
liable for damages only. The Supreme Court has held that 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.
The record abounds with circumstances indicative of the fact that the principal
consideration, the main cause that induced defendant to enter into the partnership
agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to
bottle and distribute for the defendant or for the partnership. The original draft
prepared by defendants counsel was to the effect that plaintiff obligated himself to
secure a franchise for the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the principal inducement,
that led plaintiff to enter into the partnership agreement. On the other hand, this
supposed ownership of an exclusive franchise was actually the consideration or price
plaintiff gave in exchange for the share of 30 per cent granted him in the net profits
of the partnership business. Defendant agreed to give plaintiff 30 per cent share in
the net profits because he was transferring his exclusive franchise to the partnership.

Having arrived at the conclusion that the contract cannot be declared null and void,
may the agreement be carried out or executed? The SC finds no merit in the claim of
plaintiff that the partnership was already a fait accompli from the time of the
operation of the plant, as it is evident from the very language of the agreement that
the parties intended that the execution of the agreement to form a partnership was
to be carried out at a later date. , The defendant may not be compelled against his
will to carry out the agreement nor execute the partnership papers. The law
recognizes the individuals freedom or liberty to do an act he has promised to do, or
not to do it, as he pleases.
Geraldez v CA 230 108253, 23 February 1994
Facts: Petitioner booked the Volare 3 tour with private respondent, Kenstar. The tour
covered a 22-day tour of Europe for $2,990.00 which she paid the total equivalent
amount of P190, 000.00 charged by private respondent for her and her sister,
Dolores. At the tour, petitioner claimed that what was alleged in the brochure was not
what they experienced. There was no European tour manager as stated in the
brochure, the hotels where they stayed in which were advertised as first class were
not (the hotels lacked basic amenities and were of considerable distance from the
city center), the UGC leather factory which was specifically included as a highlight of
the tour was not visited and The Filipino tour guide provided by Kenstar was a first
timer thus inexperienced. The Quezon City RTC rendered a decision ordering
respondent Kenstar to pay moral, nominal, and exemplary damages totaling P1,
000,000 and P50, 000 attorneys fees. On appeal, respondent Court of Appeals
deleted the award for moral and exemplary damages and reduced the nominal
damages and attorneys fees to P30,000 and P10,000 respectively.
Issue: WoN Kenstar acted with fraud or in bad faith or with gross negligence in
discharging its obligations in the contract
Held: The fraud or dolo, which is present or employed at the time of birth or
perfection of a contract, may either be dolo causante or dolo incidente. The first, or
causal fraud referred to in Article 1338, are those deceptions or misrepresentations of
a serious character employed by one party and without which the other party would
not have entered into the contract. Dolo incidente, or incidental fraud which is
referred to in Article 1344, are those, which are not serious in character and without
which the other party would still have entered into the contract. Dolo causante
determines or is the essential cause of the consent, while dolo incidente refers only
to some particular or accident of the obligations. The effects of dolo causante are the
nullity of the contract and the indemnification of damages, and dolo incidente also
obliges the person employing it to pay damages.
Kenstars choice of the tour guide is a manifest disregard of its specific assurances to
the tour group, and which deliberate omission is contrary to the rules of good faith
and fair play. Providing the Volare 3 group with an inexperienced first timer as a tour
guide, Kenstar manifested indifference to the satisfaction, convenience and peace of
mind to its clients. The election of the tour guide was a deliberate and conscious
choice on the part of Kenstar in order to afford her on-the job-training making the
tour group her unknowing guinea pigs, furthermore the inability to visit the UGC
leather factory is reflective of the ineptness and neglect of the tour guide. The failure
of Kenstar to provide a European Tour Manager although it specifically advertised and
promised to do so is also a contractual breach. Kenstar expressly stated in its
advertisement that a European Tour Manager would be present.

Kenstars contention that the European Tour Manager does not refer to a natural
person but a juridical personality does not hold because a corporate entity could not
possibly accompany the tour group. Lastly Kenstar committed grave
misrepresentation when it assured in its tour package that the hotels provided would
provide complete amenities and would be conveniently located along the way for the
daily itineraries. The testimonies by petitioner and private respondent show that the
hotels were unsanitary and sometimes did not even provide towels and soap. Further
testimonies claim that the hotels were also located in locations far from the city
making it difficult to go to. The fact that Kenstar could only book them in such hotels
because of budget constraints is not the fault of the tour group. Kenstar should not
have promised such accommodations if they couldnt afford it. Kenstar should have
increased the price to ensure accommodations.
Petitioners therefore should be awarded moral damages because of breach of
contract because the obligor acted fraudulently or in bad faith.
International Corporate Bank v Gueco, GR No 141968, 12 February 2001

Facts: Respondent Gueco spouses obtained a loan from petitioner International

Corporate Bank (now Union Bank of Philippines) to purchase a car Nissan Sentra
1989 model. In consideration, spouses executed promissory note which were payable
in monthly installment & chattel mortgage over the car.

The spouses defaulted payment. In the ensuing events Dr. Gueco had a meeting with
petitioner to negotiate for the payment of the unpaid installment of P184,000
(balance of the loan). The load was eventually reduced to P150,000. However, the car
was detained by the bank pending its payment.
When Dr. Gueco delivered the managers check amounting to P150,000, the car was
not released because of his refusal to sign the Joint Motion to Dismiss.The bank
insisted that the Joint Motion to Dismiss is a standard operating procedure to effect a
compromise & to preclude future filing of claims or suits for damages.
The Gueco spouses, on the other hand, maintain that no such requirement was
agreed upon during the negotiation for the payment of the loan. As a result, Gueco
filed an action against the bank for fraud, failing to inform them regarding Joint
Motion to Dismiss requiment during the meeting & for failing to release the car
despite payment of the P150,000 obligation.
Issues: WoN the bank was guilty of fraud?

Held: No. Fraud has been defined as the deliberate intention to cause damage or
prejudice. It is the voluntary execution of a wrongful act, or a willful omission,
knowing and intending the effects which naturally and necessarily arise from such act
or omission. the fraud referred to in Article 1170 of the Civil Code is the deliberate
and intentional evasion of the normal fulfillment of obligation.

Petitioners act of requiring respondents to sign the Joint Motion to Dismiss can not be
said to be a deliberate attempt on the part of petitioner to renege on the compromise
agreement of the parties. The motion to dismiss was in fact also for the benefit of Dr.
Gueco, as the case filed by petitioner against it before the lower court would be
dismissed with prejudice. The whole point of the parties entering into the
compromise agreement was in order that Dr. Gueco would pay his outstanding
account and in return petitioner would return the car and drop the case for money
and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a
natural consequence of the compromise agreement and simply stated that Dr. Gueco
had fully settled his obligation, hence, the dismissal of the case. Petitioners act of
requiring Dr. Gueco to sign the joint motion to dismiss cannot be said to be a
deliberate attempt on the part of petitioner to renege on the compromise agreement
of the parties.

The law presumes good faith. Dr. Gueco failed to present an iota of evidence to
overcome this presumption. In fact, the act of petitioner bank in lowering the debt of
Dr. Gueco from P184,000.00 to P150,000.00 is indicative of its good faith and sincere
desire to settle the case. If respondent did suffer any damage, as a result of the
withholding of his car by petitioner, he has only himself to blame. Necessarily, the
claim for exemplary damages must fail. In no way, may the conduct of petitioner be
characterized as wanton, fraudulent, reckless, oppressive or malevolent.