I.

CASE
Facts:

Client (owner) wants to sell a condominium unit.

Deed of Restrictions for sale of condo unit provides that:
o Developer of the condo has right of first refusal
Owner of condo unit already sent a notice of intention or offered to sell the unit to developer,
pursuant to the developers right of first refusal.
o The offer of the purchase price was net of taxes.
o The owners understanding of net of taxes is that the capital gains taxes is already
included.
Purchase price = P100M
Capital Gains Tax = P5M
So, the purchase price will be grossed up to P105M, then the owner would in
effect receive P100M in total.
The developer accepted the offer of the owner.
But, the condo unit was classified as an ordinary asset, thus the ordinary corporate gross
income tax was imposed on the condo unit.
Parties contentions
o Owner:
I committed a mistake at the time I made an offer of the condo unit, my
consent was vitiated. Thus, this is a ground to annul the contract.
o Developer
I already accepted the offer; thus, there is already a perfected contract to
sell.
Possible remedy:

specific performance (?)

Issue: Whether or not the owner committed a mistake which vitiated its consent, thus the contract can
be annulled.

Whether or not mistake on the meaning of net of taxes refers to the substance of the thing
which is the object of the contract, thus invalidating the owners consent.

II. RELEVANT LAWS

A. For the owner of the unit (seller)

Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally moved one
or both parties to enter into the contract.

B. For the developer (buyer)

Is specific performance for contract to sell with right of first refusal allowed?
o Ang Yu v. Asuncion

III. RELEVANT CASES

CASE NAME

TYPE OF MISTAKE

COURT RULING

RATIO

(1) Roman Catholic v. Pante (G.R. No. 174118 April 11, 2012)

For mistake as to the qualification of one of the parties to vitiate consent, two requisites must
concur:
o 1. the mistake must be either with regard to the identity or with regard to the qualification
of one of the contracting parties; and
o 2. the identity or qualification must have been the principal consideration for the
celebration of the contract. 16
In the present case, the Church contends that its consent to sell the lot was given on the
mistaken impression arising from Pante's fraudulent misrepresentation that he had been the
actual occupant of the lot. Willful misrepresentation existed because of its policy to sell its lands
only to their actual occupants or residents. Thus, it considers the buyer's actual occupancy or
residence over the subject lot a qualification necessary to induce it to sell the lot
Whether the facts, established during trial, support this contention shall determine if the contract
between the Church and Pante should be annulled. In the process of weighing the evidentiary
value of these established facts, the courts should consider both the parties' objectives and the
subjective aspects of the transaction, specifically, the parties' circumstances their condition,
relationship, and other attributes and their conduct at the time of and subsequent to the
contract. These considerations will show what influence the alleged error exerted on the parties
and their intelligent, free, and voluntary consent to the contract.
Contrary to the Church's contention, the actual occupancy or residency of a buyer over the
land does not appear to be a necessary qualification that the Church requires before it
could sell its land. Had this been indeed its policy, then neither Pante nor the spouses Rubi
would qualify as buyers of the 32-square meter lot, as none of them actually occupied or resided
on the lot. We note in this regard that the lot was only a 2x16-meter strip of rural land used as a
passageway from Pante's house to the municipal road.
The surrounding circumstances actually indicate that the Church was aware that Pante was using
the lot merely as a passageway. There could not have been a deliberate, willful, or fraudulent act
committed by Pante that misled the Church into giving its consent to the sale of the subject lot in
his favor. That Pante was not an actual occupant of the lot he purchased was a fact that the
Church either ignored or waived as a requirement. In any case, the Church was by no means led
to believe or do so by Pante's act; there had been no vitiation of the Church's consent to the sale
of the lot to Pante.

(2) Rural Bank v. CA G.R. No. L-32116. April 21, 1981

A contract may be annulled on the ground of vitiated consent, if deceit by a third person, even
without connivance or complicity with one of the contracting parties, resulted in mutual error on
the part of the parties to the contract. In the case at bar, therefore the promissory note signed by
Castro as co-maker for the Valencias may not be declared valid between the bank and Castro,
and the mortgage contract on Castro's property, insofar as it secures the Valencia's obligation,
binding on Castro. For, while the contracts may not be invalidated insofar as they affect the
bank and Castro on the ground of fraud because the bank was not a participant thereto,

such may however be invalidated on the ground of substantial mistake mutually

committed by them as a consequence of the fraud and misrepresentation inflicted by the
Valencias. If Castro had been aware of what she signed and the bank of the true qualifications of
the loan applicants, it is evident that they would not have given their consent to the contracts.
Although the amended complaint made no mention of mistake being incurred in by the bank and
Castro, such mention is not essential in order that the promissory note may be declared of no
binding effect between them and the mortgage valid up to the amount of P3,000.00 only. The
reason is that the mistake they mutually suffered was a mere consequence of the fraud
perpetrated by the Valencias against them. Thus, the fraud particularly averred in the
complaint, having been proven, is deemed sufficient basis for the declaration of the promissory
note invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract valid only up
to the amount of P3,000.00

City of Manila v. Entote

In this case, the consent of Entote was vitiated by mistake in believing that the City could validly
impose the conditions.
"The argument that Entote could have had the assistance of counsel, and that considering his
intelligence he could not have committed the mistake, is neither here nor there. Entote sincerely
believed that the respondents could legally impose the condition that the alley must always be
open to the public. He committed a mistake in good faith. Hence, he is entitled to relief from the
adverse effects of his mistake. . . ."
Atilano v. Atilano
the object thereof, as intended and understood by the parties, was that specific portion where the
vendee was then already residing, where he reconstructed his house at the end of the war, and
where his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and
that its designation as lot No. 535-E in the deed of sale was simple mistake in the drafting of the
document.1wphi1.et The mistake did not vitiate the consent of the parties, or affect the validity
and binding effect of the contract between them.