766 SUPREME COURT REPORTS ANNOTATED

Fraud as a Basis for Annulment of a Deed of Sale/Contract

ANNOTATION

FRAUD AS A BASIS FOR ANNULMENT OF A DEED OF

SALE/CONTRACT
By *
ALICIA GONZALEZ-DECANO

_________________

Preliminary Statement:

In this petition before the Supreme Court, were raised the

following errors:

I. The Court of Appeals gravely erred in sustaining

the presumption of due execution of the questioned
Deed of Sale;
II. The Court of Appeals gravely erred in holding that
the questioned Deed of Sale is valid; and
III. The Court of Appeals gravely erred in not
upholding the conclusions and findings of facts by
the trial court.

The sole issue for resolution is whether or not the Deed of

Absolute Sale is valid.
The Petitioner claimed that the Deed of Absolute Sale
was not valid as there was fraud committed by the
respondents. The Supreme Court ruled though, that the
Deed of Absolute Sale is valid.
Because of the issue of fraud raised by the respondents,
it is but fitting and proper to give the definition of fraud.

_______________
 * Law Professor, University of Pangasinan and Consultant and
Professorial Lecturer, UST Graduate School of Law.

767

VOL. 451, FEBRUARY 17, 2005 767

Fraud as a Basis for Annulment of a Deed of Sale/Contract

Fraud Defined. According to the Philippine Legal

Encyclopedia by Sibal, fraud is the conduct which operates
prejudicially on the rights of others, and is so intended; It
is a deception practice to induce another to part with
property, or surrender some legal right, and which
accomplished the end desired. As commonly used, the word
implies deceit, deception, artifice, trickery. (People vs.
Yusingco, CA-G.R. Nos. 01044-45-R, September 7, 1962
cited by Sibal, supra)
In the law of contract or torts, it is a false statement
made with knowledge of its falsity, intended to be acted on.
In equity, a fraud is used in a broader sense and double
dealing, almost equivalent to the Roman dolus. Unless
damage or injury results from the fraud, no action will lie.
Remedies for such damage are rescission or an action for
damage.
The term „fraud‰ in its general sense, is deemed to
comprise anything calculated to deceive, including all acts,
missions, and concealment involving a breach of legal or
equitable duty, trust, or confidence, justly reposed,
resulting in damage to another, or by which an undue and
unconscientious advantage is taken of another. The term
„fraud‰ in its general sense, is deemed to comprise
anything calculated to deceive, including all acts,
omissions, and concealment involving a breach of legal or
equitable duty, trust, or confidence justly reposed, resulting
in damage to another, or by which an undue and
unconscientious advantage is taken of another. (Sibal,
Philippine Legal Encyclopedia, pp. 351-352.)

Kinds of Fraud

There are several kinds of fraud.

Fraud may be either criminal or civil. The swindling or
defrauding of the victim, who is the payee of the bouncing
check may be classified as criminal fraud. When a debt is
fraudulently contracted and at the time of contracting it
the debtor entertained an intention not to pay, or an
intention not to

768

768 SUPREME COURT REPORTS ANNOTATED

Fraud as a Basis for Annulment of a Deed of Sale/Contract

keep a collateral agreement regarding the disposition of the

property purchased on credit.
There are actual or positive frauds and legal or
constructive frauds. The former exists where there is
intentional and successful employment of any cunning
deception or artifice used to circumvent or deceive another;
the latter where the injury does not originate in any actual
or civil design or contrivance to perpetuate a fraud, but
where nevertheless the contract or act has a tendency to
deceive or mislead others or to violate public or private
confidence, and is consequently prohibited by law as a
matter of policy. Among constructive frauds may be noted
cases arising from some particular confidential or fiduciary
relation between the parties where advantage is taken of
that relation by the person to whom the trust or confidence
is reposed.
As to actual or positive frauds, they include
suppressions of material facts which one party is legally or
equitably bound to disclose another. (Philippine Legal
Encyclopedia by Sibal, supra).
Fraud may be extrinsic or intrinsic. Fraud is regarded as
extrinsic where it prevents a party from having a trial or
from presenting his entire case to the court, or where it
operates upon matters pertaining not to the judgment itself
but to the manner in which is procured (Teodoro vs. Court
of Appeals, 388 SCRA 527 [2002]).
Extrinsic fraud shall not be a valid ground if it was
availed of, or could have been availed of, in a motion for
new trial or petition for relief (Teodoro vs. Court of Appeals,
388 SCRA 527 [2002]).
Fraud may be shown from the actual facts and
circumstances of imposition from the intrinsic nature and
subject matter of the bargain itself, that is, if it is of such
character as no man in his senses and not under delusion
or imposition would make on the one hand and no honest
or fair man would accept as the other.
 769

VOL. 451, FEBRUARY 17, 2005 769

Fraud as a Basis for Annulment of a Deed of Sale/Contract

Effects of Fraud

Fraud is said to vitiate everything it touches. It

contaminates and renders void all contracts and
transactions so far as concerns the party against how the
fraud is committed. Collusion and covin are combinations
among two or more to work a fraud upon another and
deceit. Another means of perpetrating fraud, exists where
those is a misrepresentation or contrivance by words or
acts to deceive a third person who, relying there upon
without carelessness or neglect on his part, sustains
damage. If the party misrepresenting however, was himself
mistaken no blame can attach to him. Such fraud may
occur by a deliberate assertion of a falsehood to the injury
of another or by failure to disclose a latent defect or by
conceding an apparent defect, but the party deceived must
have been in such a situation as to have no means of
detecting the deceit. Where there is a combination of two or
more to practice fraud upon another, they may be charged
for conspiracy.

Cases of Fraud

The following cases are illustrative of some decisions of the

Supreme Court with respect to fraud in the execution of
contracts, deed of sale, etc.
In the case of Mangahas vs. Court of Appeals, et al., G.R
No. 95815, March 10, 1999, 304 SCRA 375, the Supreme
Court held:

„x x x As regards the issue of fraud tainting the acquisition of the

questioned Free Patent, the Court discerns no basis for disturbing
the finding by the lower court as affirmed by the Court of Appeals.
Findings of fact by the trial court are not to be disturbed on appeal,
except for cogent reasons, as when the findings of fact are not duly
supported by evidence. On the other hand, findings by the Court of
Appeals on factual questions are conclusive and ought not to be
disregarded. But the rule admits of some exceptions as when
findings of fact are contrary to what the trial court found. Mere
allegation of error without more will not prevail over the findings by
the trial court, especially when affirmed by the Court of Appeals.

770

770 SUPREME COURT REPORTS ANNOTATED

Fraud as a Basis for Annulment of a Deed of Sale/Contract

The Supreme Court continued:

„x x x Petitioner has not adduced before the lower court a

preponderance of evidence of fraud. It is well-settled that a party
who alleges a fact has the burden of proving it. Thus, whoever
alleges fraud or mistake affecting a transaction must substantiate
his allegation, since it is presumed that a person takes ordinary
care of his concerns and private transactions have been fair and
regular x x x.‰

In the case of Cuison vs. Court of Appeals (260 SCRA 641

[1966]), the Supreme Court held:

„We are not, however, inclined to toe the line of the trial courtÊs
finding that private respondents are liable for fraud. Fraud is the
deliberate or intentional evasion of the normal fulfillment of an
obligation. The mere failure of private respondents to execute a
deed of sale because they demanded first an accounting of the lots
used as collaterals by petitioner and the amount of loans secured
could not be considered as fraud. Fraud is never presumed. It must
be alleged and proven. Fraus is obiosa et non praesumenda.‰ Fraud
is negated when private respondents had partially performed their
obligation when they executed a deed of sale over lot No. 800 A IB.‰

The case of Nelia A. Constantino vs. Court of Appeals, et al.,

G.R. No. 116018, November 13, 1996, 264 SCRA 59,
enumerates the elements of fraud vitiating consent for
purposes of annulling a contract which are: (a) It was
employed by a contracting party upon the other; (b) It
induced the other party to enter into the contract; (c) It was
serious; and, (d) It resulted in damages and injury to the
party seeking annulment.
In the above-quoted case, the Supreme Court further
ruled:

„x x x Quite obviously, when respondents affixed their signatures on

the deed, it was still incomplete since petitioner who caused it to be
prepared left several spaces blank, more particularly as regards the
dimensions of the property to be sold. The heirs were persuaded to
sign the document only upon the assurance of petitioner that
respondent Roque, pursuant to their understanding, would be
present when the property would be surveyed after obtain-

771

VOL. 451, FEBRUARY 17, 2005 771

Fraud as a Basis for Annulment of a Deed of Sale/Contract

ing permission from the Bureau of Lands. As it surfaced, the

supposed understanding was merely a ruse of petitioner to induce
respondents to sign the deed without which the latter would not
have given their conformity thereto. Apparently, petitioner deceived
respondents by filling the blank spaces in the deed, having the lots
surveyed and subdivided, and then causing the issuance of transfer
certificates of title without their knowledge much less consent.
Thus, all the elements of fraud vitiating consent for purposes of
annulling a contract concur x x x‰

In another case captioned MC Engineering, Inc. vs. Court of

Appeals, et al., G.R. No. 104047, April 3, 2002, 380 SCRA
116, the Supreme Court held:

„x x x Fraud is never presumed but must be established by clear

and convincing evidence. There is no evidence to show that
petitioner misled, deceived or coerced respondent GerentÊs president
into signing the affidavit. A mere preponderance of evidence is not
even adequate to prove fraud. Thus, in Maestrado vs. Court of
Appeals, the Court held: ÂThe deceit employed must be serious. It
must be sufficient to impress or lead an ordinary prudent person
into error, taking unto account the circumstances of each case.
Silence or concealment by itself, does not constitute fraud, unless
there is a special duty to disclose certain facts. Moreover, the bare
existence of confidential relation between the parties, standing
alone, does not raise the presumption of fraud.Ê ‰

In still another case entitled Riviera Filipina, Inc. vs. Court

of Appeals, et al., G.R. No. 117355, April 5, 2002, 380 SCRA
245, the Highest Tribunal reiterated its ruling in the
number 4 case above-mentioned. Said the Supreme Court:

„x x x Silence or concealment, by itself does not constitute fraud,

unless there is a special duty to disclose certain facts, or unless
according to good faith and the usages of commerce the
 communication should be made. (Art. 1339 of the Civil Code).‰

The Supreme Court continued:

„x x x Neither abstract justice nor the rule of liberal construction

justifies the creation of a contract for the parties which they did

772

772 SUPREME COURT REPORTS ANNOTATED

Fraud as a Basis for Annulment of a Deed of Sale/Contract

not make themselves or the imposition upon one party to a contract

of an obligation not assumed.‰

CONCLUSION

From these readings, therefore, it is safe to imply that

though a fraudulent contract is void from the beginning as
against any party intended to be defrauded or against the
public if it is interested, the party committing the fraud can
not avoid the contract and may be held to it or be held
accountable for damages for the breach by any party in
interest desiring to so hold him. (Phil. Legal Encyclopedia
by Sibal, supra).

··o0o··

© Copyright 2016 Central Book Supply, Inc. All rights reserved.