The aforequoted allegations in respondents’ Complaint sufficiently state a cause of action for the annulment of a voidable contract of sale based on fraud under Article 1390, in relation to Article 1398, of the Civil Code, and/or rescission of a reciprocal obligation under Article 1191, in relation to Article 1385, of the same Code. Said provisions of the Civil Code are reproduced below:
Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:
1. Those where one of the parties is incapable of giving consent to a contract;
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
Article 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
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 the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
Article 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 return.
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.
In this case, indemnity for damages may be demanded from the person causing the loss.
It does not matter that respondents, in their Complaint, simply prayed for refund of the purchase price they had paid for their FRCCI shares,[26] without specifically mentioning the annulment or rescission of the sale of said shares. The Court of Appeals treated respondents’ Complaint as one for annulment/rescission of contract and, accordingly, it did not simply order petitioners to refund to respondents the purchase price of the FRCCI shares, but also directed respondents to comply with their correlative obligation of surrendering their certificates of shares of stock to petitioners.
Now the only issue left for us to determine – whether or not petitioners committed fraud or defaulted on their promises as would justify the annulment or rescission of their contract of sale with respondents – requires us to reexamine evidence submitted by the parties and review the factual findings by the SEC and the Court of Appeals.
As a general rule, “the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only questions of law and not issues of fact. This rule, however, is inapplicable in cases x x x where the factual findings complained of are absolutely devoid of support in the records or the assailed judgment of the appellate court is based on a misapprehension of facts.”[27] Another well-recognized exception to the general rule is when the factual findings of the administrative agency and the Court of Appeals are contradictory.[28] The said exceptions are applicable to the case at bar.
There are contradictory findings below as to the existence of fraud: while Hearing Officer Bacalla and the SEC en banc found that there is fraud on the part of petitioners in selling the FRCCI shares to respondents, the Court of Appeals found none.
There is fraud when one party is induced by the other to enter into a contract, through and solely because of the latter’s insidious words or machinations. But not all forms of fraud can vitiate consent. “Under Article 1330, fraud refers to dolo causante or causal fraud, in which, prior to or simultaneous with the execution of a contract, one party secures the consent of the other by using deception, without which such consent would not have been given.”[29] “Simply stated, the fraud must be the determining cause of the contract, or must have caused the consent to be given.”[30]
“[T]he general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation as the presumption is that a person takes ordinary care for his concerns and that private dealings have been entered into fairly and regularly.”[31] One who alleges defect or lack of valid consent to a contract by reason of fraud or undue influence must establish by full, clear and convincing evidence such specific acts that vitiated a party’s consent, otherwise, the latter’s presumed consent to the contract prevails.[32]
In this case, respondents have miserably failed to prove how petitioners employed fraud to induce respondents to buy FRCCI shares. It can only be expected that petitioners presented the FLP and the country club in the most positive light in order to attract investor-members. There is no showing that in their sales talk to respondents, petitioners actually used insidious words or machinations, without which, respondents would not have bought the FRCCI shares. Respondents appear to be literate and of above-average means, who may not be so easily deceived into parting with a substantial amount of money. What is apparent to us is that respondents knowingly and willingly consented to buying FRCCI shares, but were later on disappointed with the actual FLP facilities and club membership benefits.
Similarly, we find no evidence on record that petitioners defaulted on any of their obligations that would have called for the rescission of the sale of the FRCCI shares to respondents.
“The right to rescind a contract arises once the other party defaults in the performance of his obligation.”[33] “Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreement.”[34] In the same case as fraud, the burden of establishing the default of petitioners lies upon respondents, but respondents once more failed to discharge the same.
