FONTANA RESORT V.

TAN 664 SCRA 382

1330-1344 – Defects of the Will

FACTS: In March 1997, respondent spouses Tan bought from petitioner RN Development Corp. (RNDC) two class “D” shares of stock
in petitioner Fontana Resort and Country petitioner Fontana Resort and Country Club, Inc. worth P387,300.

These bought stocks entail a promise that Fontana Resort would construct a park with first-class leisure facilities in Clark Field,
Pampanga, to be called Fontana Leisure Park (FLP).

It was also promised that FLP would be fully developed and operational by the first quarter of 1998 and that Fontana Resort Class D
shareholders would be admitted to one membership in the country club, which entitled them to use park facilities and stay at a two-
bedroom villa for “five (5) ordinary weekdays and two (2) weekends every year for free.”

Two years later, respondents filed before the Securities and Exchange Commission a complaint for the refund of purchase price of the
bought stocks from the petitioners.

Respondents alleged that they had been deceived into buying Fontana Resorts shares because of petitioner’s fraudulent
misrepresentations. That construction of FLP turned out to be still unfinished and the policies, rules, and regulations of the country club
were obscure. But FLP said, at that time, most of the amenities are operational.

The spouses narrated that they were able to book and avail themselves of free accommodations at an FLP villa on a Saturday in the month
of September. They requested that an FLP Villa again be reserved for their free use on another Saturday in October for their daughter’s
18th Birthday but were refused by the petitioners saying that the petitioners could only avail of 5 ORDINARY DAYS, 1 SATURDAY and
1 SUNDAY, annually, and that respondents had consumed their free Saturday pass for the said year.

Spouses Tan, on the other hand, said that they were not informed of said rule regarding their free accommodation at FLP, and had they
known about it, they would not have availed themselves of the free accommodations during Saturday last September. But this was
countered by Fontana Resort saying that the respondents were duly informed of the privileges given to them as seen in the promotional
materials for the country club, the Articles of Incorporation, and the By-Laws of FRCCI.

In January 1999, respondents attempted once more to book and reserve an FLP villa for their free use on April 1, 1999, a Thursday. Their
reservation was confirmed by a certain Murphy Magtoto, and that later, another employee called them that the said reservation was
cancelled because the FLP was already fully booked.

FLP countered the said allegation by saying that there was no confirmation to speak of because as early as the start of the year, FLP is
already fully booked, and that there was no reservation number issued in favor of the Spouses Tan.

ISSUE: WON there Fontana Resort committed fraud during the selling of stocks which would warrant the annulment or rescission of
the contract which the parties entered into?

RULING: Article 1390 of the Civil Code states that contracts are voidable and annullable when the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud. However, they are susceptible of ratification.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.

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. In simple words, the fraud must be the determining cause of the contract or must have
cause the consent to be given.

The general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation with full, real, and convincing
evidence because the presumption is the contract is has been entered into fairly and regularly.

In this case Spouses Tan have miserably failed to prove how petitioners employed fraud to induce them to buy the subject shares. It can
only be expected that petitioners will advertise FLP in the most positive light in order to attract investor-members. There is no showing
that in their sales talk to respondents, petitioner actually used insidious words or machination which led the respondents to buy the said
shares. They appeared to be literate could not be easily deceived into parting with a substantial amount of money.

What is apparent to us is that respondents knowingly and willingly consented to buying the shares and were later on disappointed with
the actual facilities and club membership benefits.

Similarly, we find no evidence on record that petitioners defaulted on any of their obligations that would have called for the rescission of
the sale of the FRCCI shares to respondents.

As to the issue of cancellation of the alleged confirmed reservation, the SC concluded that there is mix-up in the reservation process of
petitioners. This demonstrates mere negligence on the part of the petitioners but not willful intention to deprive the spouses of their
benefits. More so, it does not constitute default on the part of FLP to warrant recission of the contract. At most, Spouses Tan can only be
awarded Nominal Damages as to the mix-up in the reservation process.

Respondents’ complaint sufficiently alleged a cause of action for the annulment of the contract. However, it was dismissed for lack of
merit since they were not able to establish by preponderance of evidence that they are entitled to such annulment.