CIVIL LAW

Arts. 1171, 1344 and 1348 of the Civil Code

Tankeh v. Development Bank of the Philippines, G.R. No. 171428, November 11, 2013 [Leonen, J.]

Types of Fraud in Contracts

Fraud is defined in Article 1338 of the Civil Code as:

x x x fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not
have agreed to.

Legal examples and illustrations of fraud

Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the
parties are bound by confidential relations, constitutes fraud. (n)

Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent. (n)

Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an
expert and the other party has relied on the former's special knowledge. (n)

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (n)

Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.

Distinction

The distinction between fraud as a ground for rendering a contract voidable or as basis
for an award of damages is provided in Article 1344:

In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.

Incidental fraud only obliges the person employing it to pay damages.

There are two types of fraud contemplated in the performance of contracts: dolo
incidente or incidental fraud and dolo causante or fraud serious enough to render a
contract voidable.

In Geraldez v. Court of Appeals (G.R. No. 108253, February 23, 1994), this Court held
that:

This fraud or dolo which is present or employed at the time of birth or perfection
of a contract may either be dolo causante or dolo incidente.

The first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and without
which the other party would not have entered into the contract.

Dolo incidente, or incidental fraud which is referred to in Article 1344, are

those which are not serious in character and without which the other party would
still have entered into the contract.

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 Dolo causante determines or is the essential cause of the consent, while dolo
incidente refers only to some particular or accident of the obligation.

The effects of dolo causante are the nullity of the contract and the
indemnification of damages, and dolo incidente also obliges the person
employing it to pay damages.

In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et al.( G.R. NO.

153535. July 28, 2005), this Court elaborated on the distinction between dolo causante
and dolo incidente:

Fraud refers to all kinds of deception -- whether through insidious machination,

manipulation, concealment or misrepresentation -- that would lead an ordinarily
prudent person into error after taking the circumstances into account. In
contracts, a fraud known as dolo causante or causal fraud is basically a
deception used by one party prior to or simultaneous with the contract, in order to
secure the consent of the other. Needless to say, the deceit employed must be
serious. In contradistinction, only some particular or accident of the obligation is
referred to by incidental fraud or dolo incidente, or that which is not serious in
character and without which the other party would have entered into the contract
anyway.

In the recent case of Spouses Carmen S. Tongson and Jose C. Tongson, et al., v.
Emergency Pawnshop Bula, Inc.( G.R. No. 167874, January 15, 2010 ), this Court
provided some examples of what constituted dolo causante or causal fraud:

1. when the seller, who had no intention to part with her property, was
"tricked into believing" that what she signed were papers pertinent to her
application for the reconstitution of her burned certificate of title, not a
deed of sale;
2. when the signature of the authorized corporate officer was forged; or
3. when the seller was seriously ill, and died a week after signing the deed
of sale raising doubts on whether the seller could have read, or fully
understood, the contents of the documents he signed or of the
consequences of his act

Woodhouse v. Halili (G.R. No. L-4811, July 31, 1953) provides for the classic example
of dolo incidente:

In this case, the plaintiff Charles Woodhouse entered into a written agreement
with the defendant Fortunato Halili to organize a partnership for the bottling and
distribution of soft drinks. However, the partnership did not come into fruition, and
the plaintiff filed a Complaint in order to execute the partnership. The defendant
filed a Counterclaim, alleging that the plaintiff had defrauded him because the
latter was not actually the owner of the franchise of a soft drink bottling operation.
Thus, defendant sought the nullification of the contract to enter into the
partnership. This Court concluded that:

x x x from all the foregoing x x x plaintiff did actually represent to defendant that
he was the holder of the exclusive franchise. The defendant was made to
believe, and he actually believed, that plaintiff had the exclusive franchise. x x x
The record abounds with circumstances indicative that the fact that the principal

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 consideration, the main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive
franchise to bottle and distribute for the defendant or for the partnership. x x x
The defendant was, therefore, led to the belief that plaintiff had the exclusive
franchise, but that the same was to be secured for or transferred to the
partnership.

We conclude from the above that while the representation that plaintiff had the
exclusive franchise did not vitiate defendant's consent to the contract, it was used
by plaintiff to get from defendant a share of 30 per cent of the net profits; in other
words, by pretending that he had the exclusive franchise and promising to
transfer it to defendant, he obtained the consent of the latter to give him (plaintiff)
a big slice in the net profits. This is the dolo incidente defined in article 1270 of
the Spanish Civil Code, because it was used to get the other party's consent to a
big share in the profits, an incidental matter in the agreement.

To summarize, if there is fraud in the performance of the contract, then this fraud will give rise
to damages. If the fraud did not compel the imputing party to give his or her consent, it may not
serve as the basis to annul the contract, which exhibits dolo causante. However, the party
alleging the existence of fraud may prove the existence of dolo incidente. This may make the
party against whom fraud is alleged liable for damages.

Quantum of Evidence to Prove the Existence of Fraud and the Liability of the Parties

In order to constitute fraud that provides basis to annul contracts, it must fulfill two
conditions:
1. First, the fraud must be dolo causante or it must be fraud in obtaining the
consent of the party.

In order for the deceit to be considered serious, it is necessary and essential

to obtain the consent of the party imputing fraud. To determine whether a
person may be sufficiently deceived, the personal conditions and other
factual circumstances need to be considered.

2. Second, this fraud must be proven by clear and convincing evidence.

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 DE LEON
ARTICLE 1170 (1) Fraud (deceit or dolo). — As
ARTICLE 1171 used in Article 1170, it is the
deliberate or intentional evasion
of the normal fulfillment of an
obligation. (see 8 Manresa 72.)
xxx
(b) Article 1170 refers to
incidental fraud (dolo
incidente) committed in the
performance of an obligation
already existing because of
contract. It is to be
differentiated from causal
fraud (dolo causante) or fraud
employed in the execution of a
contract under Article 1338,
which vitiates consent and
makes the contract voidable
and to incidental fraud under
Article 1344 also employed for
the purpose of securing the
consent of the other party to
enter into the contract but
such fraud was not the
principal inducement to the
making of the contract.
(c) Under Article 1170, the
fraud is employed for the
purpose of evading the normal
fulfillment of an obligation and
its existence merely results in
breach thereof giving rise to a
right by the innocent party to
recover damages. The Civil
Code refers to civil fraud.
Criminal fraud gives rise to
criminal liability.
PARAS
(1) Liability for Fraud or Dolo
xxx
(b) According to meaning, fraud
may be classified as follows:
1) fraud in obtaining consent
(may be causal or merely
incidental)
2) fraud in performing a
contract (inaccurately referred
to by some as incidental fraud).
Fraud here may be either:
a) dolo causante (causal fraud)
b) dolo incidente (incidental
fraud)
(2) While dolo causante is so
important a fraud that vitiates
consent (allowing therefore
annulment), dolo incidente is not
important.
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JURADO STA. MARIA
Voluntary Breach Through Fraud The dolo or fraud which is
or Dolo. — The second kind of committed to induce a party to
voluntary breach of an obligation enter into a contract, thereby
regulated by the Civil Code is that making the agreement annullable
which takes place by reason of is NOT the one contemplated by
fraud or dolo. According to Article 1171. The dolo or fraud
Manresa, fraud or dolo consists under Article 1171 necessarily
in the conscious and involves a valid agreement but,
intentional proposition to evade in the performance of the same,
the normal fulfillment of an fraud is committed.
obligation. This type of fraud,
which is present during the
performance of an obligation,
must not be confused with the
causal or incidental fraud,
which is present at the time of
the birth of an obligation. Under
our legal system, fraud in general
may be classified into civil and
criminal fraud. Civil fraud, in
turn, may be classified into the
following: first, the fraud or
dolo in the performance of an
obligation; and second, the
fraud or dolo in the constitution
or establishment of an
obligation.
The two may be distinguished
from each other as follows: (1)
The first is present only during
the performance of a
preexisting obligation, while the
second is present only at the
time of the birth of the
obligation. (2) The first is
employed for the purpose of
evading the normal fulfillment of
an obligation, while the second is
employed for the purpose of
securing the consent of the other
party to enter into the contract.
(3) The first results in the

ARTICLE 1338 Causal fraud or dolo causante is
the fraud employed by one party
prior to or simultaneous with the
creation of the contract to secure
the consent of the other. It is the
fraud used by a party to induce
the other to enter into a contract
without which the latter would
not have agreed to, taking into
account the circumstances of the
case.
The fraud must be that which
determines or is the essential
cause of the contract. (Caram,
Jr. vs. Laureta, 103 SCRA 7
[1981].) The fraud contemplated
in this article and mentioned in
Article 1330 is causal fraud
involving the use of deceit or
deception. It must be
distinguished from the fraud
dealt with in Article 1170.
(1) Kinds of Fraud
(a) Fraud in the CELEBRATION
of the contract (this is fraud
proper):
1) Dolo causante (or causal
fraud): Here, were it not for the
fraud, the other party would not
have consented. (This is the
fraud referred to in Art. 1338, Civil
Code.)
Effect of this kind of fraud: The
contract is VOIDABLE.
2) Dolo incidente (or incidental
fraud): Here, even without the
fraud the parties would have
agreed just the same, hence
the fraud was only incidental in
causing consent. Very likely
though, different terms would
have been agreed upon. Effect
of this kind of fraud: The
contract is valid, but there can
be an action for damages.
(b) Fraud in the PERFORMANCE
of the obligations stipulated in the
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nonfulfillment or breach of the
obligation, while the second, if it is
the reason for the other party
upon whom it is employed for
entering into the contract, results
in the vitiation of his consent. (4)
The first gives rise to a right of the
creditor or obligee to recover
damages from the debtor or
obligor, while the second gives
rise to a right of the innocent party
to ask for the annulment of the
contract if the fraud is causal or to
recover damages if it is incidental.
Fraud. — Fraud which will render Generally, fraud, either at law or
a contract voidable refers to those in equity, is a false representation
insidious words or machinations of material fact made by word or
employed by one of the conduct with knowledge of its
contracting parties in order to falsehood or reckless disregard of
induce the other to enter into a its truth, in order to induce and
contract, which, without them, he actually inducing another to act
would not have agreed to. thereon to his inquiry.
Kinds of fraud. — The fraud
which is defined in Art. 1338
must not be confused with the
fraud which is mentioned in
Arts. 1170 and 1171 of the
Code. Fraud or dolo under the
Civil Code, as distinguished
from fraud or dolo under the
Revised Penal Code, may,
therefore, be classified as
either fraud in the perfection of
a contract (Art. 1338) or fraud in
the performance of an
obligation (Art. 1170). The first is
the fraud which is employed by a
party to the contract in securing
the consent of the other party,
while the second is the fraud
which is employed by the obligor
in the performance of a pre-
existing obligation. Fraud or dolo
contract. (NOTE: This kind of
fraud presupposes the existence
of an already perfected contract.)
(2) Dolo Causante
This is the use of insidious words
and machinations by one of the
contracting parties to induce the
other party to enter into contract,
which, without them, he would not
have agreed to (Art. 1338, Civil
Code).
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which is present or employed at
the time of the birth or
perfection of a contract, on the
other hand, may be subdivided
into dolo causante and dolo
incidente. Dolo causante or
causal fraud refers to those
deceptions or misrepresentations
of a serious character employed
by one party and without which
the other party would not have
entered into the contract. This is
the fraud which is defined in Art.
1338. Dolo incidente or
incidental fraud refers to those
deceptions or mispresentations
which are not serious in
character and without which
the other party would still have
entered into the contract.
This is the fraud referred to in Art.
1344. The two may be
distinguished from each other as
follows:
(1) The first refers to a fraud
which is serious in character,
while the second is not serious.
(2) The first is the cause which
induces the party upon whom it is
employed in entering into the
contract, while the second is not
the cause.
(3) The effect of the first is to
render the contract voidable, while
the effect of the second is to
render the party who employed it
liable for damages.
Requisites. — It is evident from
the provisions of Arts. 1338 to
1344 of the Code that in order that
the consent of a party to a
contract is vitiated by fraud, it is
 essential that the following
requisites must concur:
(1) Fraud or insidious words or
machinations must have been
employed by one of the
contracting parties;
(2) The fraud or insidious words or
machinations must have been
serious;
(3) The fraud or insidious words or
machinations must have induced
the other party to enter into the
contract; and
(4) The fraud should not have
been employed by both of the
contracting parties or by third
persons.

ARTICLE 1344 Two kinds of fraud in the making
of a contract.
Article 1344 distinguishes two
kinds of (civil) fraud in the
making of a contract, to wit:
(1) causal fraud, or fraud
employed to secure the consent
of the other party, which is a
ground for the annulment of a
contract (par. 1.), although it
may also give rise to an action
for damages; and
(2) incidental fraud, or fraud
likewise employed to secure the
consent of the other party but
which only renders the party who
employs it liable for damages.
(par. 2.) This kind of fraud must
not be confused with the fraud in
Articles 1170 and 1171 which
refers to that occurring in the
performance of a pre-existing
obligation under a contract
without affecting the validity of
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Magnitude of Fraud. — The
second indispensable requisite in
order that the fraud employed by
one of the contracting parties will
vitiate the consent of the other is
that it should be serious in
character. This requisite is
expressly stated in the first
paragraph of Art. 1344 of the
Code.
According to Manresa, the serious
character of the fraud refers not to
its influence, but to its importance
or magnitude. By virtue of this
requisite, the annulment of a
contract cannot, therefore, be
invoked just because of the
presence of minor or common
acts of fraud whose veracity could
easily have been investigated;
neither can such annulment be
invoked because of the presence
of ordinary deviations from the
truth, deviations, which are almost
inseparable from ordinary
To annul a contract, the fraud
must be dolo causante which
refers to the very cause why the
other party entered into the
contract. It must not be dolo
incidente which is incidental fraud
and collateral fraud which does
not necessarily bear on the
decision of the party defrauded to
enter into a contract and only
entitles the aggrieved party to
merely damages.
This fraud or dolo which is present
or employed at the time of birth or
perfection of a contract may either
be dolo causante or dolo
incidente. The first, or causal
fraud referred to in Article 1338,
are those deceptions or
misrepresentations of a serious
character employed by one party
and without which the other party
would not have entered into the
contract. Dolo incidente, or
incidental fraud which is referred
the contract. Both kinds of commercial transactions,
incidental fraud do not vitiate particularly those taking place in
consent. fairs or markets.
Relation Between Fraud and
Consent. — The third
indispensable requisite in order
that the fraud employed by one of
the contracting parties will vitiate
consent is that it should have
induced the other party to enter
into the contract. In other words,
such fraud must be the principal
or causal inducement or
consideration for the consent of
the party who is deceived in the
sense that he would never have
given such consent were it not for
the fraud. This is the fraud which
Spanish commentators call dolo
causante (dolus causamdans).
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to in Article 1344, are those which
are not serious in character and
without which the other party
would still have entered into the
contract. Dolo causante
determines or is the essential
cause of the consent, while dolo
incidente refers only to some
particular or accident of the
obligations. The effects of dolo
causante are the nullity of the
contract and the indemnification of
damages,and dolo incidente also
obliges the person employing it to
pay damages. (Ibid., at 504;
Geraldez v. CA, G.R. No. 108253,
February 23, 1994; Tankeh v.
DBP, G.R. No. 171428,
November 11, 2013)
Fraud refers to all kinds of
deception -- whether through
insidious machination,
manipulation, concealment or
misrepresentation -- that would
lead an ordinarily prudent person
into error after taking the
circumstances into account.
contracts, a fraud known as dolo
causante or causal fraud is
basically a deception used by one
party prior to or simultaneous with
the contract, in order to secure the
consent of the other. Needless to
say, the deceit employed must be
serious. In contradistinction, only
some particular or accident of the
obligation is referred to by
incidental fraud or dolo incidente,
or that which is not serious in
character and without which the
other party would have entered
into the contract anyway
(Solidbank Corporation v.
 Mindanao Ferroalloy Corporation,
G. R. No. 153535, July 28, 2005).

To summarize, if there is fraud in

the performance of the contract,
then this fraud will give rise to
damages. If the fraud did not
compel the imputing party to give
his consent, it may not serve as
the basis to annul the contract,
which exhibits dolo causante.
However, the party alleging the
existence of fraud may prove the
existence of dolo incidente.

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