Theis vs. Court of Appeals

A contract is voidable where consent is vitiated by a mistake that refers to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. The Court held that the vendor's mistaken belief that it owned the lot it sold invalidated its consent, warranting annulment, and the vendees' insistence on receiving a different lot containing a house would constitute unjust enrichment.

Private respondent Calsons Development Corporation owned three adjacent parcels of land (Parcels 1, 2, and 3) in Tagaytay City. In 1985, it built a two-storey house on Parcel 3. A 1985 survey erroneously indicated that the house stood on Parcel 1, and that the idle lands were Parcel 4 (which Calsons did not own) and Parcels 2 and 3. Unaware of this error, Calsons, through its representative, sold Parcel 4 to petitioners in 1987, delivering Transfer Certificate of Title (TCT) Nos. 15516 and 15684. Petitioners later discovered Parcel 4 was owned by another, and the TCTs actually covered Parcels 2 and 3 (the latter containing the house). Petitioners insisted on Parcel 3 (the house and lot) or Parcel 4, rejecting Calsons' offers of its actual vacant lots or double reimbursement.

• Ownership and Erroneous Survey: Private respondent Calsons Development Corporation owned three adjacent parcels of land in Tagaytay City: Parcel 1 (TCT No. 15515), Parcel 2 (TCT No. 15516), and Parcel 3 (TCT No. 15684). In 1985, Calsons built a two-storey house on Parcel 3. A survey conducted that same year erroneously indicated that the house stood on Parcel 1, while the idle lands were Parcel 4 (which Calsons did not own) and Parcels 2 and 3.
• The Sale: Unaware of the survey error, and upon being informed by a surveyor that Parcel 4 was covered by TCT Nos. 15516 and 15684, Calsons sold Parcel 4 to petitioners on October 26, 1987. The Deed of Sale stated a purchase price of P130,000.00, although the actual agreed price was P486,000.00, which was deposited in escrow and released to Calsons on December 4, 1987. Petitioners registered the sale and obtained new titles (TCT Nos. 17041 and 17042) in their names, but did not take possession of the property and left for Germany.
• Discovery of Error: In early 1990, petitioners returned to the Philippines and discovered that Parcel 4 was owned by another person. They also discovered that the TCTs delivered to them actually covered Parcels 2 and 3. Parcel 3 contained the two-storey house constructed by Calsons in 1985, the construction cost of which (P1,500,000.00) far exceeded the purchase price paid by petitioners.
• Remedies Offered and Refused: Petitioners insisted on taking Parcel 4 or, alternatively, Parcel 3 (the house and lot), relying on the TCTs issued in their names. Private respondent, realizing its honest mistake, offered petitioners Parcels 1 and 2 (the actual vacant lots it owned and intended to sell) or double the purchase price as reimbursement. Petitioners refused both offers, prompting private respondent to file an action for annulment of the deed of sale and reconveyance.

• Petitioners maintained that they relied on the technical descriptions of TCT Nos. 15516 and 15684 appearing in the deed of sale.
• Petitioners argued that because the titles had been cancelled and new ones issued in their name, they were entitled to the properties covered thereby, specifically insisting on Parcel 3 (the house and lot) and Parcel 2.
• Petitioners persisted in claiming that they were entitled to Parcel 4, the vacant lot adjacent to Parcel 3, despite private respondent not owning it.

• Respondent countered that there was an honest mistake in the identity of the object of the sale, which vitiated its consent.
• Respondent argued that it could not have possibly sold Parcel 4 as it did not own it, and it could not have intended to sell Parcel 3, which had a house valued at P1,500,000.00, for the price of P486,000.00.
• Respondent maintained that the mistake warranted the annulment of the contract, and that its offers of substitute vacant lots or double reimbursement demonstrated good faith.

• Procedural Issues:
  • N/A
• Substantive Issues:
  • Whether the mistake in the identity of the parcel of land sold vitiated the consent of the vendor, rendering the contract of sale voidable.
  • Whether petitioners are entitled to insist on receiving the parcel of land containing the vendor's house under the disputed TCTs.

• Procedural:
  • N/A
• Substantive:
  • The Court ruled that the mistake vitiated the vendor's consent, rendering the contract voidable. Pursuant to Article 1331 of the Civil Code, mistake invalidates consent when it refers to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. The Court found that private respondent committed an honest mistake in selling Parcel 4, which it did not own. This mistake fell under the concept of "mistake properly speaking"—a wrong conception about the thing—which invalidated its consent. Consequently, the contract is voidable under Article 1390 of the Civil Code.
  • The Court ruled that petitioners could not insist on taking Parcel 3. The Court found that petitioners intended to buy a vacant lot, as evidenced by their own testimony and the circumstances of the sale. To allow petitioners to take a lot with a house worth P1,500,000.00 when they only paid P486,000.00 for vacant lots would constitute unjust enrichment.

• Mistake vitiated consent (Art. 1331, Civil Code) — Mistake invalidates consent when it refers to the substance of the thing that is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. The concept of mistake includes both ignorance (absence of knowledge) and mistake properly speaking (a wrong conception about a thing or a belief in the existence of a circumstance that does not exist). The Court applied this by holding that the vendor's mistaken belief that it owned the vacant lot sold (Parcel 4) constituted a mistake on the substance of the object, as the parties intended to buy and sell a vacant lot owned by the vendor.
• Unjust Enrichment — The principle that a person shall not be allowed to profit or enrich oneself unjustly at the expense of another. The Court applied this by ruling that allowing the vendees to acquire a lot with a house valued at P1,500,000.00 for a purchase price of P486,000.00 would unjustly enrich them at the expense of the vendor.

• "In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract." (Quoting Article 1331 of the Civil Code)
• "The mistake committed by the private respondent in selling parcel no. 4 to the petitioners falls within the second type. Verily, such mistake invalidated its consent and as such, annulment of the deed of sale is proper."
• "Thus, to allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment. Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to accept the offer of the private respondent to give them two (2) other vacant lots in exchange, as well as their insistence on parcel no. 3, which is a house and lot, is manifestly unreasonable."

• Mariano vs. Court of Appeals, 220 SCRA 716 (1993) — Cited as controlling authority for the proposition that a contract may be annulled where the consent of one of the contracting parties was procured by mistake.
• Security Bank and Trust Company v. Court of Appeals, 249 SCRA 206 (1995) — Cited as controlling authority for the principle that allowing a party to acquire a constructed building at a price far below its actual construction cost constitutes unjust enrichment.

• Article 1390, Civil Code — Defines voidable contracts, including those where consent is vitiated by mistake, violence, intimidation, undue influence, or fraud. Applied to classify the deed of sale as voidable due to the vendor's mistake in the identity of the object.
• Article 1331, Civil Code — Defines when mistake invalidates consent. Applied to determine that the vendor's mistake regarding the ownership and identity of the lot sold referred to the substance of the thing, thereby vitiating consent.

Padilla, Belosillo, Vitug, and Kapunan, JJ.