TOPIC:Contracts;CausalFraudv.IncidentalFraudinContracts.

AlejandroV.Tankehv.DevelopmentBankofthePhilippines,SterlingShipping
Lines,Inc.,RupertoV.Tankeh,VicenteArenas,andAssetPrivatizationTrust
G.R.No.171428,November11,2013
Facts: PrivaterespondentRupertoV.TankehwasthepresidentofSterlingShipping
Lines,whichwasincorporatedwaybackin1979.In1980,petitionerDr.AlejandroV.
Tankeh, the older brother ofRuperto Tankeh, alleged that the latter approached him
whereintheformerinformedthelatterthathewasoperatinganewshippinglinebusiness
andofferedpetitioneronethousand(1,000)sharesworthP1,000,000.00tobeadirector
ofthebusiness.Petitioneracceptedhisbrothersofferandhebecameamemberofthe
corporationsboard.
In1981,petitionersignedtheAssignmentofSharesofStockwithVotingRightsand
promissorynotewhereheboundhimselfsolidarilyliablewiththeothercorporateofficers
as regards the loan obtained by Ruperto for the purchase of a vessel in order to
commence their business. However, the corporation failed to meet their obligations.
Sometime in 1987, the DBP sold the vessel to a Singaporean enterprise. DBP then
informedpetitionerthatitwouldstillpursueitsclaimovertheunpaidliabilitiesofthe
corporation.Hence,petitionerfiledaComplaintfortheannulmentofthecontractshe
signedin1981onthegroundthathewasfraudulentlydeceivedbyRuperto,theother
corporateofficersandDBPintosigningthesaidcontracts.

Issue:Whetherornotthefraudperpetratedbyrespondentsisseriousenoughtowarrant
annulmentofthecontract.

Held: No. Only incidental fraud exists in this case. Therefore it is not sufficient to
warranttheannulmentofthecontractspetitionerenteredintobutrespondentRupertois
liabletopayhimdamages.Thedistinctionbetweenfraudasagroundforrenderinga
contractvoidableorasbasisforanawardofdamagesisprovidedinArticle1344:
Inorderthatfraudmaymakeacontractvoidable,itshouldbeseriousandshould
nothavebeenemployedbybothcontractingparties.
Incidentalfraudonlyobligesthepersonemployingittopaydamages.
Therearetwotypesoffraudcontemplatedintheperformanceofcontracts:doloincidente
or incidental fraud and dolo causante or fraud serious enough to render a contract
voidable.Ifthereisfraudintheperformanceofthecontract,thenthisfraudwillgiverise
todamages.Ifthefrauddidnotcompeltheimputingpartytogivehisorherconsent,it
maynotserveasthebasistoannulthecontract,whichexhibitsdolocausante.However,
thepartyallegingtheexistenceoffraudmayprovetheexistenceofdoloincidente.This
maymakethepartyagainstwhomfraudisallegedliablefordamages.

Jurisprudencehasshownthatinordertoconstitutefraudthatprovidesbasistoannul
contracts,itmustfulfilltwoconditions.First,thefraudmustbedolocausanteoritmust

befraudinobtainingtheconsentoftheparty.Second,thisfraudmustbeprovenbyclear
andconvincingevidence.Inthiscase,itcannotbesaidthatfraudwasseriousenoughto
warranttheannulmentofthecontractbecausepetitionerknewofthecontentsofthe
contractsthathesigned.Therequiredstandardofproofclearandconvincingevidence
was not met. There was no dolo causante or fraud used to obtain the petitioners
consenttoenterintothecontract.Petitionerhadtheopportunitytobecomeawareofthe
factsthatattendedthesigningofthepromissorynote.Heevenadmittedthathehasa
lawyerson who the petitioner had hoped would assist him in the administration of
SterlingShippingLines,Inc.Thetotalityofthefactsonrecordbeliespetitionersclaim
thatfraudwasusedtoobtainhisconsenttothecontractgivenhispersonalcircumstances
andtheapplicablelaw.

However,inrefusingtoallowpetitionertoparticipateinthemanagementofthebusiness,
respondentRupertoV.Tankehwasliableforthecommissionofincidentalfraud.The
Court,inapreviouscase,definedincidentalfraudas"thosewhicharenotseriousin
characterandwithoutwhichtheotherpartywouldstillhaveenteredintothecontract."
Althoughtherewasnofraudthathadbeenundertakentoobtainpetitionersconsent,
therewasfraudintheperformanceofthecontract.Therecordsshowedthatpetitioner
hadbeenunjustlyexcludedfromparticipatinginthemanagementoftheaffairsofthe
corporation. This exclusion from the management in the affairs of Sterling Shipping
Lines,Inc.constitutedfraudincidentaltotheperformanceoftheobligation.Respondent
Ruperto V. Tankehs bare assertion that petitioner had access to the records cannot
discreditthefactthatthepetitionerhadbeeneffectivelydeprivedoftheopportunityto
actually engage in the operations of Sterling Shipping Lines, Inc. Petitioner had a
reasonable expectation that the same level of engagement would be present for the
durationoftheirworkingrelationship.Thiswouldincludeanundertakingingoodfaith
byrespondentRupertoV.Tankehtobetransparentwithhisbrotherthathewouldnot
automaticallybemadepartofthecompanysadministration.