A contract of sale cannot be annulled or rescinded for alleged fraud or default if the party seeking such relief fails to establish by full, clear, and convincing evidence the existence of dolo causante or a substantial and fundamental breach that defeats the object of the parties in making the agreement; mere negligence, while not justifying rescission, may entitle the aggrieved party to nominal damages.

Respondent spouses purchased two class "D" shares of stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI) from petitioner RN Development Corporation (RNDC), allegedly enticed by promises of first-class leisure facilities at Fontana Leisure Park (FLP) to be fully operational by the first quarter of 1998, and specific accommodation privileges. Disputes arose when respondents experienced difficulties in availing their free accommodations and perceived the FLP development as incomplete and the club rules as obscure and changing.

• In March 1997, respondent spouses Roy S. Tan and Susana C. Tan purchased two class “D” shares of stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI) from petitioner RN Development Corporation (RNDC) for P387,300.00.
• Respondents were allegedly enticed by petitioners' sales agents with promises that FRCCI would construct Fontana Leisure Park (FLP) with first-class leisure facilities, fully operational by the first quarter of 1998.
• Class “D” shareholders were entitled to use park facilities and stay at a two-bedroom villa for “five (5) ordinary weekdays and two (2) weekends every year for free.”
• Respondents booked and used a free villa on Saturday, September 5, 1998.
• Their subsequent request for a free villa on Saturday, October 17, 1998, was refused by petitioners, who stated respondents had exhausted their free Saturday pass for the year, as the entitlement was for one week annually (five ordinary days, one Saturday, one Sunday).
• Respondents claimed they were not informed of this specific rule regarding weekend stays.
• In January 1999, respondents booked a villa for April 1, 1999 (Thursday), which was confirmed by Murphy Magtoto.
• On March 3, 1999, another employee, Shaye, informed respondents their April 1 reservation was cancelled because FLP was fully booked.
• In March 1999, respondents filed a complaint with the SEC for a refund, alleging fraudulent misrepresentations regarding FLP's completion and obscure club policies.
• Petitioners, in their answer, asserted that respondents were duly informed of privileges, citing promotional materials, Articles of Incorporation, and By-Laws which specified the "one week annually consisting of 5 weekdays, one Saturday and one Sunday" rule.
• Petitioners denied unjustly cancelling the April 1, 1999 reservation, stating Holy Week was a peak season, reservations were on a priority basis, and no confirmation number was issued to respondents, who were merely "wait-listed."
• The SEC-SICD Hearing Officer found for respondents, noting many promised facilities were not completed and rules were not communicated, constituting gross misrepresentation.
• The SEC En Banc affirmed the Hearing Officer's decision.
• The Court of Appeals found no fraudulent misrepresentation but agreed the sale should be rescinded due to petitioners' default on promises regarding FLP development and accommodation privileges, modifying the interest rate to 12% per annum.

• The SEC judgment, ordering a refund without ordering respondents to return the shares, was not a declaration of rescission or annulment consistent with Articles 1385 and 1398 of the Civil Code.
• The Court of Appeals erred in ordering FRCCI, which was not the seller (RNDC was), to return the purchase price.
• The imposition of 12% interest per annum was devoid of legal basis as the obligation was not a loan or forbearance of money.
• Respondents were duly informed of the accommodation privileges as explicitly provided in promotional materials, Articles of Incorporation, and By-Laws of FRCCI.
• The cancellation of the April 1, 1999 reservation was justified as it was Holy Thursday, a peak season, and respondents were only wait-listed without a confirmation number.
• When respondents were first accommodated, only minor construction works were left, and club facilities were already operational.

• Petitioners deceived them into buying shares through fraudulent misrepresentations about FLP's timely completion and clear accommodation rules.
• The construction of FLP was still unfinished, and club policies were obscure and changed arbitrarily.
• They were not informed of the specific rule limiting free weekend stays to one Saturday and one Sunday annually before their purchase.
• Their confirmed reservation for April 1, 1999, was unreasonably cancelled.
• Both petitioners (FRCCI and RNDC) should be held liable as owners and developers of FLP, with FRCCI primarily liable and RNDC subsidiarily liable.
• The imposition of 12% interest per annum was correct as the obligation was in the nature of a forbearance of money.
• The petition raised questions of fact, not law, making it unsuitable for review under Rule 45.

• Whether the respondents' complaint sufficiently stated a cause of action for annulment of a voidable contract of sale based on fraud or rescission of a reciprocal obligation.
• Whether petitioners committed fraud or defaulted on their promises sufficient to justify the annulment or rescission of the contract of sale of FRCCI shares.
• Whether the Court of Appeals erred in ordering FRCCI to refund the purchase price and imposing 12% interest per annum.
• Whether respondents are entitled to any form of damages.

• The Supreme Court granted the petition, reversing and setting aside the Court of Appeals' Decision and Resolution.
• The Court held that respondents' complaint sufficiently alleged a cause of action for annulment of a voidable contract of sale based on fraud (Article 1390, Civil Code) and/or rescission of a reciprocal obligation (Article 1191, Civil Code).
• However, respondents failed to prove by full, clear, and convincing evidence that petitioners employed dolo causante (causal fraud) to induce them to buy the FRCCI shares. Petitioners' presentation of FLP in a positive light was expected in sales efforts, and there was no proof of insidious words or machinations.
• Respondents also failed to establish a substantial and fundamental breach by petitioners that would warrant rescission. The rules on accommodation (one Saturday, one Sunday per year) were explicitly stated in FRCCI's Articles of Incorporation, By-Laws, and promotional materials which respondents admitted receiving.
• While respondents alleged unfinished FLP facilities, they did not present competent proof of the extent of incompleteness to determine if petitioners were unable to deliver on their promise of a first-class leisure park.
• The cancellation of the April 1, 1999 reservation, though possibly due to a mix-up or negligence by petitioners' employees, did not constitute default warranting rescission.
• For the negligence in cancelling the confirmed reservation for April 1, 1999, respondents are entitled to nominal damages of P5,000.00.
• The complaint, insofar as annulment or rescission of the contract of sale of FRCCI shares is concerned, was dismissed for lack of merit.

• Dolo Causante (Causal Fraud) — Deception used by one party prior to or simultaneous with the execution of a contract to secure the consent of the other, without which such consent would not have been given. The Court found that respondents failed to prove petitioners employed dolo causante, as there was no showing of insidious words or machinations that determined respondents' consent to buy the shares.
• Rescission of Contract (Article 1191, Civil Code) — The right to rescind a contract arises when one party defaults in the performance of their obligation. Rescission is not permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. The Court ruled that respondents failed to establish such a substantial default by petitioners concerning accommodation rules or facility completion.
• Burden of Proof for Fraud and Default — He who alleges fraud or mistake in a transaction must substantiate his allegation. One who alleges defect or lack of valid consent due to fraud must establish by full, clear, and convincing evidence such specific acts. The Court held that respondents failed to discharge this burden.
• Nominal Damages (Articles 2221 and 2222, Civil Code) — Adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, not for indemnifying the plaintiff for any loss suffered. The Court awarded P5,000.00 in nominal damages to respondents for the petitioners' negligence in inexcusably cancelling their confirmed reservation for April 1, 1999, recognizing a technical injury to their right.
• Nature of Action Determined by Allegations in Complaint — The nature of an action instituted is determined by the allegations in the complaint. The Court found respondents' complaint sufficiently stated a cause of action for annulment or rescission, even if the prayer only sought a refund.
• Review of Factual Findings (Rule 45) — Generally, only questions of law are reviewed under Rule 45. Exceptions include when factual findings are devoid of support in records, or when findings of the administrative agency and the Court of Appeals are contradictory. The Court applied this exception due to contradictory findings on fraud between the SEC and the CA.

• "There is fraud when one party is induced by the other to enter into a contract, through and solely because of the latter's insidious words or machinations. But not all forms of fraud can vitiate consent. Under Article 1330, fraud refers to dolo causante or causal fraud, in which, prior to or simultaneous with the execution of a contract, one party secures the consent of the other by using deception, without which such consent would not have been given."
• "The right to rescind a contract arises once the other party defaults in the performance of his obligation. Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreement."
• "[N]ominal damages may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating or recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him."

• Bulao v. Court of Appeals — Cited for the principle that the allegations in the complaint determine the nature of the action instituted.
• Leonardo v. Court of Appeals — Cited for the general rule that appeal by certiorari under Rule 45 contemplates only questions of law, and its exceptions, such as when factual findings are devoid of support or based on misapprehension of facts.
• Tiu v. Pasaol, Sr. — Cited for the exception to the general rule on factual findings review, specifically when findings of the administrative agency and the Court of Appeals are contradictory.
• Archipelago Management and Marketing Corporation v. Court of Appeals — Referenced for the definition of dolo causante (causal fraud) under Article 1330 of the Civil Code.
• Rural Bank of Sta. Maria Pangasinan v. Court of Appeals — Cited to explain that fraud must be the determining cause of the contract.
• Perpetua Vda. de Ape v. Court of Appeals — Cited for the general rule that one who alleges fraud must substantiate the allegation, as private dealings are presumed fair and regular.
• Heirs of William Sevilla v. Sevilla — Cited for the requirement that defect or lack of valid consent due to fraud must be established by full, clear, and convincing evidence.
• Solar Harvest, Inc. v. Davao Corrugated Carton Corporation — Referenced for the principle that the right to rescind a contract arises once the other party defaults in performance.
• Development Bank of the Philippines v. Court of Appeals — Cited for the rule that rescission is permitted only for substantial and fundamental breach, not slight or casual ones.
• Almeda v. Cariño — Cited extensively to explain the nature and propriety of awarding nominal damages for the vindication of a violated right, even without actual loss.
• Savellano v. Northwest Airlines — Cited for the principle that the amount of nominal damages is addressed to the sound discretion of the court.

• Civil Code, Article 1191 — The power to rescind obligations is implied in reciprocal ones. The Court analyzed whether petitioners' actions constituted a default under this article.
• Civil Code, Article 1330 — Defines consent vitiated by mistake, violence, intimidation, undue influence, or fraud. The Court discussed dolo causante in relation to this article.
• Civil Code, Article 1385 — Rescission creates the obligation to return things which were the object of the contract, with fruits and price with interest. The Court noted the CA's order for mutual restitution was consistent with this.
• Civil Code, Article 1390 — Enumerates voidable contracts, including those where consent is vitiated by fraud. The Court found respondents' complaint alleged a cause of action under this article.
• Civil Code, Article 1398 — Upon annulment, contracting parties shall restore to each other the subject matter of the contract, with fruits, and price with interest. The Court considered this in relation to the relief sought.
• Civil Code, Article 2221 — Nominal damages are adjudicated to vindicate a right, not to indemnify for loss. This was the basis for awarding P5,000.00 to respondents.
• Civil Code, Article 2222 — The court may award nominal damages in every obligation arising from any source enumerated in Article 1157, or where any property right has been invaded. This supported the award of nominal damages.
• Rules of Court, Rule 45 — Governs appeals by certiorari to the Supreme Court, typically limited to questions of law. The Court discussed exceptions applicable to the case.