G.R. No. L-1940-42 - People vs. Lagata

Case Summary (G.R. No. L-1940-42)

Factual Background

Construction of the condominium project began in 1995. Printed advertisements represented the project as being located in Makati City despite actual construction in Pasay City. Respondent paid a reservation fee in December 1995, continued making payments, and on June 18, 1996, executed a notarized Contract to Sell that identified the project as located in Pasay City. On October 30, 1998 respondent demanded return of P422,500.00 upon discovering the discrepancy between advertising and actual location. Petitioner replied on November 30, 1998, notifying respondent that the unit was ready for inspection and occupancy.

Administrative Proceedings and Intermediate Appeals

Respondent filed a complaint with the HLURB ENCRFO seeking annulment of the contract, refund, and damages. On September 30, 2005, the ENCRFO dismissed the complaint for lack of merit and ordered the parties to resume performance under their sales contract. The HLURB Board of Commissioners affirmed on April 25, 2006. The Office of the President affirmed on June 21, 2007 and denied reconsideration on August 29, 2007. Respondent then petitioned the Court of Appeals.

Court of Appeals Ruling and Further Review

On July 21, 2010 the Court of Appeals reversed the administrative rulings, annulled the Contract to Sell, and ordered petitioner to refund P422,500.00 with legal interest at 12% per annum from filing of the action. The Court of Appeals found that petitioner employed fraud and machinations and even expressed doubt about the due execution of the Contract to Sell. The CA denied reconsideration on March 15, 2011, prompting petitioner’s certiorari petition to the Supreme Court.

Issues Presented to the Supreme Court

Primary legal issues raised: (1) whether petitioner committed fraud sufficient to vitiate consent and annul the Contract to Sell; (2) whether the Court of Appeals erred in awarding legal interest at 12% per annum from filing rather than applying the statutory or appropriate legal rate.

Governing Legal Principles Adopted by the Courts

Article 1338 defines fraud as the use of insidious words or machinations by one party to induce the other into a contract; Article 1390 renders a contract voidable when consent is vitiated by mistake, violence, intimidation, undue influence or fraud; Article 1344 requires that fraud be serious and not mutually employed. Jurisprudence requires two elements for fraud to annul a contract: (a) causal fraud (dolo causante) — fraud in obtaining consent and sufficiently serious to mislead an ordinarily prudent person, considering the victim’s personal circumstances; and (b) proof by clear and convincing evidence, not merely a preponderance. Notarized instruments enjoy a presumption of regularity and verity absent clear, convincing and contemporaneous evidence to the contrary. Ratification doctrines under Articles 1392–1396 provide that tacit ratification, by acts manifesting approval or acceptance of benefits after knowledge of the vitiating cause, extinguishes the action to annul and cleanses defects.

Supreme Court’s Finding on Misrepresentation Versus Causal Fraud

The Supreme Court unanimously found that petitioner made a misrepresentation in printed advertisements by indicating Makati City while the project was in Pasay City. The Court condemned those misrepresentations. However, the Court concluded that such misrepresentation did not constitute causal fraud (dolo causante) sufficient to annul the Contract to Sell. The dispositive factual finding was that respondent executed a notarized Contract to Sell which expressly indicated Pasay City and continued to make payments thereafter, demonstrating that the alleged advertising misrepresentation was not the decisive inducement to enter the contract.

Evidentiary Assessment and Presumption of Regularity

The Court upheld the presumption of regularity attached to the notarized Contract to Sell and found respondent failed to overcome that presumption with clear and convincing evidence. Respondent’s allegation that she signed a contract with blank spaces and that petitioner supplied essential details was unsupported by contemporaneous proof and was not established during administrative proceedings; an affidavit submitted belatedly did not remedy the deficiency. The Court reiterated the rule that mere allegation is not evidence and emphasized the reliability and conclusiveness of notarized instruments absent clear convincing contrary proof.

Ratification and Its Effect on the Annulment Claim

The Court held that respondent’s conduct—signing the Contract to Sell that showed the correct Pasay location and continuing payments for more than two years before seeking rescission—constituted tacit ratification. Under Article 1393 ratification may be tacit through silence, acquiescence or acceptance of benefits, and Article 1392–1396 provide that ratification extinguishes the action to annul and retroactively cures the contract’s defects. Consequently, even if the misrepresentation had been a ground for avoidance, respondent’s subsequent acts amounted to waiver or ratification, barring annulment.

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Case Syllabus (G.R. No. L-1940-42)

Case Caption, Reported Citation and Ponente

Reported as 742 PHIL. 164, Third Division, G.R. No. 196182, decision date September 1, 2014.
Decision authored (ponencia) indicated as PERALTA, J.
Concurring Justices named in the decision: Velasco, Jr. (Chairperson), Bersamin, Villarama, Jr., and Reyes, JJ.
Administrative note: Designated Acting Member in lieu of Associate Justice Francis H. Jardeleza per Special Order No. 1777 dated September 1, 2014 is referenced in the clerk’s notice; Division Clerk of Court acknowledged receipt of the original decision on September 9, 2014 at 10:10 a.m.

Parties and Nature of the Petition

Petitioner: ECE Realty and Development, Inc., a corporation engaged in the building and development of condominium units.
Respondent: Rachel G. Mandap, purchaser of a condominium unit from petitioner’s project.
Relief sought before the Supreme Court: petition for review on certiorari assailing the Court of Appeals’ Decision dated July 21, 2010 and its Resolution dated March 15, 2011 (CA-G.R. SP No. 100741).

Factual Background

Petitioner began construction in 1995 of a condominium project named Central Park Condominium Building, physically located along Jorge St., Pasay City.
Printed advertisements for the project indicated that the project was to be built in Makati City.
In December 1995, respondent agreed to buy a unit by paying a reservation fee, thereafter paying downpayment and monthly installments.
On June 18, 1996, respondent and petitioner’s representatives executed a Contract to Sell which expressly indicated the condominium project’s location as Pasay City.
More than two years after executing the Contract to Sell, respondent, through counsel, sent petitioner a letter dated October 30, 1998 demanding the return of P422,500.00 representing payments made, on the ground that she discovered the project was in Pasay City and not Makati City as advertised.
Petitioner replied with a written communication dated November 30, 1998 informing respondent that her unit was ready for inspection and occupancy.
Respondent treated petitioner’s November 30, 1998 letter as a denial of her demand for return of payments and filed a complaint with the Expanded National Capital Region Field Office (ENCRFO) of the Housing and Land Use Regulatory Board (HLURB) seeking annulment of the contract, return of payments, and damages.

Administrative and Lower Tribunal Proceedings

September 30, 2005: ENCRFO dismissed respondent’s complaint for lack of merit and directed the parties to resume fulfillment of their sales contract, holding respondent failed to substantiate legal grounds of fraudulent or malicious dealing by petitioner.
April 25, 2006: HLURB Board of Commissioners rendered judgment dismissing respondent’s complaint and affirming the ENCRFO decision, giving credence to the written Contract to Sell and noting that rights and duties are found in the written contract.
June 21, 2007: Office of the President dismissed respondent’s appeal and affirmed in toto the HLURB Board of Commissioners’ decision.
Respondent filed a Motion for Reconsideration with the Office of the President, which was denied by Resolution dated August 29, 2007.
Respondent elevated the matter to the Court of Appeals by filing a petition for review.

Court of Appeals Decision and Relief Granted

July 21, 2010: Court of Appeals promulgated the decision reversing and setting aside the Office of the President’s decisions, annulling the contract between Rachel G. Mandap and ECE Realty.
CA ordered ECE Realty to return the total amount of P422,500.00 representing payments made by respondent, with legal interest at 12% per annum from the date of filing of the action until fully paid.
CA found that petitioner employed fraud and machinations to induce respondent to enter into the contract and also expressed doubt on the due execution of the Contract to Sell.
Petitioner’s motion for reconsideration before the CA was denied in a March 15, 2011 Resolution.

Issues Presented to the Supreme Court (Assignments of Error)

Assignment I: The Court of Appeals erred in ruling there was fraud in the execution of the Contract to Sell, annulling it and ordering refund of payments.
Assignment II: The Court of Appeals erred in awarding legal interest at 12% per annum from the filing of the complaint until fully paid, contending legal interest should have been pegged at 6%.

Legal Standards on Fraud, Voidability and Burden of Proof Cited by the Court

Article 1338, Civil Code: Defines fraud as occurring when through insidious words or machinations of one contracting party, the other is induced to enter into a contract which, without them, he would not have agreed to.
Article 1390, Civil Code: A co