ECE Realty and Development Inc. vs. Mandap

Misrepresentation in property advertisements does not constitute causal fraud (dolo causante) warranting annulment where the buyer subsequently executes a notarized contract correctly stating the true facts and continues to perform obligations thereunder; such conduct constitutes implied ratification that extinguishes the right to annul and cleanses the contract of defects.

ECE Realty and Development Inc., engaged in condominium development, advertised its "Central Park Condominium" project as located in Makati City when the actual construction site was along Jorge St., Pasay City. Rachel G. Mandap paid reservation fees, downpayment, and monthly installments after viewing these advertisements. On June 18, 1996, the parties executed a Contract to Sell which correctly indicated the condominium's location as Pasay City.

• The Misrepresentation: Petitioner printed advertisements indicating that the Central Park Condominium project was located in Makati City, when in fact the project was being constructed along Jorge St., Pasay City.
• Contract Execution: On June 18, 1996, respondent and petitioner executed a Contract to Sell which correctly stated that the condominium was located in Pasay City. The contract was notarized.
• Payments and Delayed Objection: Respondent paid a total of ₱422,500.00 representing reservation fee, downpayment, and monthly installments. She continued making payments for more than two years after contract execution.
• Demand for Annulment: On October 30, 1998, respondent demanded the return of her payments, claiming she had discovered the project was in Pasay City rather than Makati City. Petitioner responded with a letter dated November 30, 1998, informing her that her unit was ready for inspection and occupancy.
• Lower Court Findings: The HLURB Arbiter, Board of Commissioners, and Office of the President all found that respondent failed to substantiate that the Makati location was the essential and moving factor inducing her to purchase, and noted the two-year delay in raising the location issue.

• Lack of Causal Fraud: Petitioner argued that the misrepresentation in advertisements did not constitute dolo causante because respondent failed to prove that the Makati location was the essential and moving factor (causa) that induced her consent; the Contract to Sell correctly indicated Pasay City.
• Presumption of Regularity: The notarized Contract to Sell enjoyed the presumption of regularity; respondent's allegation that she signed blank spaces lacked clear and convincing evidence required to overcome such presumption.
• Implied Ratification: Respondent's execution of the contract with knowledge of the true location, and her continued payments for over two years without objection, constituted tacit ratification under Article 1393 of the Civil Code, extinguishing her right to annul under Article 1392.
• Interest Rate: The Court of Appeals erred in awarding legal interest at 12% per annum when the proper rate should be 6%.

• Fraudulent Inducement: Respondent maintained that petitioner employed fraud and machinations through its printed advertisements to induce her to enter into the contract.
• Defective Contract Execution: Respondent argued that she signed the Contract to Sell with several blank spaces and that the location was not indicated at the time of signing, casting doubt on its due execution.
• Principal Inducement: The Makati location was the causal consideration or principal inducement which led her to buy the unit; without this misrepresentation, she would not have entered the contract.

• Causal Fraud: Whether petitioner's misrepresentation regarding the condominium's location constituted causal fraud (dolo causante) sufficient to annul the Contract to Sell.
• Due Execution: Whether the Court of Appeals erred in doubting the due execution of the notarized Contract to Sell.
• Implied Ratification: Whether respondent's acts constituted implied ratification that extinguished her right to annul the contract.

• Causal Fraud: The misrepresentation did not constitute causal fraud. Under Articles 1338 and 1344 of the Civil Code, fraud that vitiates consent must be serious and must constitute the determining cause (dolo causante) of the contract—sufficient to impress or lead an ordinarily prudent person into error. Respondent failed to prove that the Makati location was the principal inducement; she signed the Contract to Sell indicating Pasay City and continued payments for over two years without objection, demonstrating that the misrepresentation was not the causal factor.
• Due Execution: The presumption of regularity accorded to the notarized Contract to Sell was not overcome. Absent clear and convincing proof to the contrary, a notarized document is conclusive as to the truthfulness of its contents. Respondent's bare allegation of signing blank spaces, belatedly raised and unsupported by evidence, was insufficient to rebut this presumption.
• Implied Ratification: Even assuming arguendo that fraud existed, respondent's signature on the contract with actual knowledge of the property's location in Pasay City, coupled with her continued acceptance of benefits through installment payments, effected tacit ratification under Article 1393 of the Civil Code. Pursuant to Article 1392, such ratification extinguished the action to annul; under Article 1396, it cleansed the contract from all defects from the moment it was constituted.

• Causal Fraud (Dolo Causante) — Fraud that vitiates consent and renders a contract voidable under Article 1390 of the Civil Code must constitute the determining cause (causa) of the contract. The deceit must be serious, sufficient to impress or lead an ordinarily prudent person into error, taking into account the personal conditions of the victim. Mere misrepresentation is insufficient; it must be proven by clear and convincing evidence that without such fraud, the injured party would not have entered the contract.
• Presumption of Regularity of Notarized Documents — Notarized documents enjoy a presumption of regularity and are conclusive as to the truthfulness of their contents. This presumption can only be overcome by evidence that is clear, convincing, and more than merely preponderant.
• Tacit Ratification — Under Article 1393 of the Civil Code, ratification may be effected tacitly if, with knowledge of the reason which renders the contract voidable, the person executes an act which necessarily implies an intention to waive the right to invoke the defect. Acceptance and retention of benefits flowing from the contract, such as continued payment of installments, constitute implied ratification which extinguishes the action to annul under Article 1392 and cleanses the contract from all defects from the moment it was constituted under Article 1396.

• "There is 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."
• "The fraud must be dolo causante or it must be fraud in obtaining the consent of the party... The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity."
• "Absent any clear and convincing proof to the contrary, a notarized document enjoys the presumption of regularity and is conclusive as to the truthfulness of its contents."
• "It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right."

• Tankeh v. Development Bank of the Philippines, G.R. No. 171428, November 11, 2013 — Cited as controlling precedent for the definition of causal fraud (dolo causante) and the requirement that fraud be proven by clear and convincing evidence.
• Viloria v. Continental Airlines, Inc., G.R. No. 188288, January 16, 2012 — Cited as controlling precedent for the standard of serious fraud and the doctrine of implied ratification under Article 1393.
• Palada v. Solidbank Corporation, G.R. No. 172227, June 29, 2011 — Cited as controlling precedent for the presumption of regularity accorded to notarized documents.

• Article 1338, Civil Code — Defines fraud as insidious words or machinations inducing a party to enter a contract which, without them, he would not have agreed to.
• Article 1344, Civil Code — Provides that fraud must be serious and not employed by both contracting parties to render a contract voidable.
• Article 1390, Civil Code — Lists contracts where consent is vitiated by mistake, violence, intimidation, undue influence, or fraud as voidable or annullable.
• Article 1392, Civil Code — States that ratification extinguishes the action to annul a voidable contract.
• Article 1393, Civil Code — Defines ratification as express or tacit, the latter occurring when a person with knowledge of the voidable defect executes an act necessarily implying an intention to waive the right.
• Article 1396, Civil Code — Provides that ratification cleanses the contract from all its defects from the moment it was constituted.

Presbitero J. Velasco, Jr. (Chairperson), Lucas P. Bersamin, Martin S. Villarama, Jr., and Bienvenido L. Reyes.