G.R. No. 167874; January 15, 2010
SPOUSES CARMEN S. TONGSON and JOSE C. TONGSON substituted by his children namely: JOSE TONGSON, JR., RAUL TONGSON, TITA TONGSON, GLORIA TONGSON, ALMA TONGSON, Petitioners, vs. EMERGENCY PAWNSHOP BULA, INC. and DANILO R. NAPALA, Respondents.

FACTS

In May 1992, respondent Danilo R. Napala offered to purchase petitioners Spouses Tongson’s 364-square meter parcel of land in Davao City for ₱3,000,000. The parties executed a Memorandum of Agreement dated 8 May 1992. On 2 December 1992, respondents’ lawyer prepared a Deed of Absolute Sale indicating the consideration as only ₱400,000. When petitioner Carmen Tongson complained about the low consideration, Napala assured her he would pay the taxes and she would receive the net amount of ₱3,000,000. The parties executed another Memorandum of Agreement conforming to the ₱400,000 consideration. Upon signing the Deed, Napala paid ₱200,000 cash and issued a postdated PNB check for ₱2,800,000 for the balance. The title was cancelled and issued in the name of respondent Emergency Pawnshop Bula, Inc. The PNB check was dishonored for “Drawn Against Insufficient Funds.” Despite demands, Napala failed to pay or return the land. The Spouses Tongson filed a Complaint for Annulment of Contract and Damages. Respondents countered that the ₱2,800,000 had been delivered, as evidenced by a receipt, and that the Spouses Tongson never returned the check, claiming it was misplaced.

ISSUE

1. Whether the contract of sale can be annulled based on the fraud employed by Napala.
2. Whether the Court of Appeals erred in reducing the amount of damages awarded by the trial court.

RULING

1. No, the contract of sale cannot be annulled. The Supreme Court found no causal fraud (dolo causante) to justify annulment. While Napala employed fraud by misrepresenting that the postdated check was fully funded, this was not the principal inducement for the Spouses Tongson to sign the Deed of Absolute Sale. The parties had already consented and agreed to the sale transaction before the check was issued. The Spouses Tongson willingly accepted Napala’s offer to purchase the property at ₱3,000,000. There was a meeting of the minds as to the object and consideration. The fraud was incidental (dolo incidente), not causal. Therefore, the contract of sale remains valid and binding.
2. The Supreme Court modified the damages. It affirmed the Court of Appeals’ reduction of moral damages from ₱100,000 to ₱50,000 and exemplary damages from ₱50,000 to ₱25,000, finding the original awards unconscionable. The Court further ordered respondents to pay the Spouses Tongson the balance of the purchase price of ₱2,800,000 plus legal interest of 6% per annum from the filing of the complaint on 11 February 1993 until finality of judgment, and 12% per annum thereafter until fully paid. The awards for attorney’s fees and costs were sustained. The entitlement to these amounts is subject to the condition that petitioners have not received equivalent amounts in a related criminal case for Violation of Batas Pambansa Bilang 22 against Napala.