WOODHOUSE v.

HALILI
G.R. No. L-4811
July 31, 1953

LABRADOR, J.

Facts:

The petitioner, Woodhouse, and the respondent, Halili, had a written agreement that, in the
future, they shall establish a partnership for the bottling and distribution of Mission soft
drinks with the petitioner acting as the industrial partner or administrator, and the
respondent as the financier.

The agreement was entered into after the plaintiff implied to the defendant that he had an
exclusive franchise of the bottling and distribution of the said soft drinks, and that it would
be reassigned to the partnership or the plaintiff after going to main base of operations in
California. Unfortunately, upon arrival, the defendant came to know that the exclusive rights
for the plaintiff had not yet been secured and was only about to be secured. Thus, the
defendant refused to go further with the agreement. The plaintiff then filed a complaint for
the execution of a contract of partnership and a share of 30 percent from the profit.

Issue:
Does false representation annul the agreement to form the partnership?
Ruling:
No. The Supreme Court held that in order that fraud may vitiate consent, it must be the
causal, and not merely the incidental inducement to the making of the contract. Article 1270
of the Civil Code differentiates the two kinds of civil fraud, the causal fraud, which is the
ground for the annulment of a contract, and the incidental deceit, which only renders the
party who makes use of it liable for damages.

In the present case, if the plaintiff was ever guilty of false representation, it was not the
causal consideration that led plaintiff to enter into the partnership agreement. The main
cause that prompted the defendant to enter into the partnership agreement with plaintiff,
was the ability of the plaintiff to get the exclusive franchise to bottle and distribute for the
defendant or for the partnership.