Ferro Chemicals, Inc. v.

Garcia
G.R. Nos. 168134, 5 October 2016

DOCTRINE: 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.

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."

FACTS:

The legal dispute between Antonio M. Garcia and Ferro Chemicals, Inc.
revolves around the sale and repurchase of shares of stock.

On July 15, 1988, Antonio Garcia purchased shares of stocks from Ferro
Chemicals through a Deed of Absolute Sale over 1,717,678 shares of capital
stock of Chemical Industries registered under his name for a consideration of
P79,207,331.28 (subject shares). Included as subjects of the sale were
Antonio Garcia’s 371,697 own shares of stocks. Antonio being the judgment
creditor of various banks (consortium) entered into a compromise agreement
with the consortium involving said shares of stocks.

The consortium was awarded through a court judgment of a notice of

garnishment of subject shares of stocks which led Ferro Chemicals and
Antonio to enter agreement so Antonio can have the right to repurchase his
shares from Ferro Chemicals. However when Antonio tried to repurchase
back his shares of stocks, the shares were already transferred to Chemphil
Export Inc. Antonio was only able to recover said shares through an action
of specific performance against Ferro. Aggrieved, Chemphil Export filed a
collection suit against Ferro for the value of the garnished shares.

The lower court finds Antonio Garcia and Chemical Industries liable for
fraud and breach of obligation in favor of Ferro Chemicals.

ISSUE:

Whether or not Antonio Garcia and Chemical Industries are liable for fraud
breach of obligation and possible damages in favor of Ferro Chemicals.
RULING:

Article 1344 provides that fraud must be serious to annul or avoid a contract
and render it voidable. This fraud or deception must be so material that had
it not been present, the defrauded party would not have entered into the
contract.

There is no liability for Antonio Garcia for fraud and breach of obligation.
Among the bases of the court’s decision are the two clearly crucial
evidentiary matters that were overlooked by the lower tribunals:

(1) the execution by Ferro Chemicals and Antonio Garcia of the Deed of
Right to Repurchase on 3 March 1989; and

(2) that on two separate occasions, Antonio Garcia conveyed in writing his
intent to buy back the shares in accordance with the terms of the repurchase
deed. These pieces of evidence, if appreciated in light of the allegation of
fraud, would overthrow the very foundation upon which the Ferro Chemicals
rested its case. Notably, Antonio Garcia’s right to repurchase the subject
shares, his attempts to exercise that right and Ferro Chemicals’ refusal to
honor it, as well as the legal actions taken by Antonio Garcia against Ferro
Chemicals, were duly pleaded as affirmative allegations in Antonio Garcia’s
Answer.

Fraud has been defined to include an inducement through insidious

machination. Insidious machination refers to a deceitful scheme or plot with
an evil or devious purpose. Deceit exists where the party, with intent to
deceive, conceals or omits to state material facts and, by reason of such
omission or concealment, the other party was induced to give consent that
would not otherwise have been given. These are allegations of fact that
demand clear and convincing proof. They are serious accusations that can be
so conveniently and casually invoked, and that is why they are never
presumed.

Applying the doctrines to the case at bar, a judgment on fraud requires

allegation and proof of facts and circumstances by which undue and
unconscionable advantage is taken by Antonio Garcia. Ramon Garcia failed
in this regard. In contrast, the succession of transaction between Antonio and
Ramon Garcia indicated that Ramon Garcia wanted to have a way out of his
failed business decision of holding on to his shares instead of selling it back
to Antonio Garcia when he had the opportunity to do so. He saw that it was
better to hold on to the shares he bought from Antonio Garcia. The Court
cannot save him from the fall that came from his own choice.
WHEREFORE, Antonio M. Garcia is discharged from liabilities.