TANKEH v.
DEVT BANK OF THE PHILIPPINES *it is essential that such insidious words or machinations
[Topic] Fraud: Requisites
DOCTRINE:
Art. 1338. There is fraud when, through insidioua 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.
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been
employed by both contracting parties. Incidental fraud only
obliges the person employing it to pay damages.
*1338 - fraud in performance of a contract employed by a
party to the contract in securing the consent of the other
party
*1170 fraud in performance of an obligation employed by
the obligor in the performance of a pre-existing obligation.
Kinds of Fraud
Dolo Causante refers to those deceptions or
misrepresentations of a serious character employed by one
party and without which the party would not have entered
into the contract.
Dolo Incidente deceptions or misrepresentations which
are not serious in character and without which the other
party would still have entered into the contract.
Requisites:
(1) Fraud or insidious words or machinations must have
been employed by one of the contracting parties;
(2) The fraud or insidious words must have been serious;
(3) The fraud or insidious words must have induced the
other party to enter into the contract; and
(4) The fraud should not have been employed by both of
the contracting parties or by third persons.
must be prior to or contemporaneous with the birth or
perfection of a contract
VOCABULARY:
Fraud will render the contract voidable;
SHORT ANSWERS:
1. Who was chasing who: Alejandro Tankeh was chasing
Ruperto Tankeh
2. Where did the problem start: When Alejandro Tankeh
wrote a letter to Ruperto Tankeh saying that he was severing
all ties and terminating his involvement with Sterling
Shipping Lines
3. What is the contract in question: Assignment of
Shares of Stock with Voting Rights
FACTS:
Sometime in 1980, Alejandro was approached by his
brother, Ruperto (president of SSL) informing him that the
latter was operating a new shipping line business and
offered him 1000 shares worth P1M to be a director of the
business. Alejandro accepted the offer based on the
promised that he be part of the admin staff so that he can
oversee the operation of the business plus his son, who is a
practicing lawyer would be given a position in the company.
A loan was applied from DBP for financing of an
ocean-going vessel with the conditions that the first
mortgage is obtained over the vessel, the future earnings of
the mortgage including proceeds should be assigned to DBP
and DBP is assigned to no less than 67% of the voting
shares of the company. Alejandro signed the Assignment of
Shares of Stock with Voting Rights and the promissory note
making him liable jointly and severally for the amount of the
loan. After the vessel is acquired, a deed of assignment was
executed in favor of DBP. On 1983, upon realizing that he
was only being made a tool to realize the purposes of
Ruperto, Alejandro officially informed the company by
means of letter that he has severed his connection with the
company and asking the board to pass a resolution to
released him from his liabilities with DBP and notify the
latter about this.
On 1986, the account of SSL in the DBP were
transferred to Asset Privatization Trust by virtue of
Presidential Proclamation No. 50. The asset including loan in
favor of DBP were ordered to be transferred to the national
government. Despite the assignment and cash equity
contribution of SSL to cover part of the acquisition cost of
the vessel and the like, the promissory note still subsisted.
Hence, Alejandro is still bound as a debtor because of the
promissory note.
Alejandros contention: The promisorry note must be
declared as null and void and he be absolved from any
liability. Ruperto exercised deceit and fraud in causing him
to bind himself jointly and severally to pay DBP the amount
of the mortgage loan. All the money supposedly invested by
him were put by Ruperto, hence he had never invested any
money. He was invited to attend the board meeting only
once and he was never compensated by SSL for being called
director and stockholder. None of the promises of Ruperto
was complied with.
ISSUE:
WON the fraud perpetrated by Ruperto is serious enough to
warrant annulment of the contract?
HELD:
No. Only incidental fraud exists in this case. Therefore it is
not sufficient to warrant the annulment of the contracts
petitioner entered into but respondent Ruperto is liable to
pay him damages. The distinction between fraud as a
ground for rendering a contract voidable or as basis for an
award of damages is provided in Article 1344: In order that
fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting
parties. Incidental fraud only obliges the person employing it
to pay damages.
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. If there is fraud in the performance of the
contract, then this fraud will give rise to damages. If the
fraud did not compel the imputing party to give his or her
consent, it may not serve as the basis to annul the contract,
which exhibits dolo causante. However, the party alleging
the existence of fraud may prove the existence of dolo
incidente. This may make the party against whom fraud is
alleged liable for damages.
Article 1340 of the Civil Code recognizes the reality of some
exaggerations in trade which negates fraud. It reads: The
usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves
fraudulent.
Given the standing and stature of the petitioner, he was in a
position to ascertain more information about the contract.
The following facts show that petitioner was fully aware of
the magnitude of his undertaking: First, petitioner was fully
aware of the financial reverses that SSL had been
undergoing, and he took great pains to release himself from
the obligation. Second, his background as a doctor, as a
bank organizer, and as a businessman with experience in
the textile business and real estate should have apprised
him of the irregularity in the contract that he would be
undertaking. This meant that at the time petitioner gave his
consent to become a part of the corporation, he had been
fully aware of the circumstances and the risks of his
participation. Intent is determined by the acts. Finally, the
records showed that petitioner had been fully aware of the
effect of his signing the promissory note. The bare assertion
that he was not privy to the records cannot counteract the
fact that petitioner himself had admitted that after he had
severed ties with his brother, he had written a letter seeking
to reach an amicable settlement with respondent Rupert.
Petitioners actions defied his claim of a complete lack of
awareness regarding the circumstances and the contract he
had been entering.
The required standard of proof clear and convincing
evidence was not met. There was no dolo causante or
fraud used to obtain the petitioners consent to enter into
the contract. Petitioner had the opportunity to become
aware of the facts that attended the signing of the
promissory note. He even admitted that he has a lawyer-son
who the petitioner had hoped would assist him in the
administration of Sterling Shipping Lines, Inc. The totality of
the facts on record belies petitioners claim that fraud was
used to obtain his consent to the contract given his personal
circumstances and the applicable law.
However, in refusing to allow petitioner to participate in the
management of the business, respondent Ruperto V. Tankeh
was liable for the commission of incidental fraud. In
Geraldez, this Court defined incidental fraud as "those which
are not serious in character and without which the other
party would still have entered into the contract. Although
there was no fraud that had been undertaken to obtain
petitioners consent, there was fraud in the performance of
the contract.