ARTICLE 1342: FRAUD BY A THIRD PERSON
Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual.
Ang maling pagsasalarawan ng ikatlong tao sa kasunduan ay hindi kabawasan sa
kasunduan maliban kung ito ay malaking kaibahan sa dapat ay isinalarawan.
Explanation:
If someone not involved in a contract (a third person) lies or gives false information, it does
not invalidate the agreement — unless:
The lie caused a big mistake, and
Both parties were affected by that mistake (it was mutual).
In short: A third party’s lie only matters if it causes a big misunderstanding shared by both
sides.
Example:
Anna sells a painting to Ben. A third person, Carl, tells both Anna and Ben that the painting is an
original worth a lot of money. Because of that, they agree on a high price.
Later, they find out the painting is fake.
Since both Anna and Ben were misled by Carl's lie, and it caused a big mistake, the contract
can be invalidated under Article 1342.
Explanation:
In this case, Carl (a third person) lied and said the painting was original and valuable. Because
of that, Anna (seller) thought she was selling something expensive, and Ben (buyer) thought
he was buying something valuable.
So, both parties were misled by the same false info — this created a mutual and substantial
mistake.
Under Article 1342, this kind of situation can cancel the contract, because:
The misrepresentation was serious (about the value of the painting),
And both Anna and Ben believed it, not just one of them.
That’s what makes the misrepresentation enough to vitiate (invalidate) consent in this case.
ARTICLE 1343: EFFECT OF MISINTERPRETATION MADE IN GOOD FAITH
"Misrepresentation made in good faith is not fraudulent but may produce the same effect as
fraud."
Ang isang kasunduan ay walang bisa kung ang layunin nito ay labag sa batas, sa
moralidad, sa mabuting kaugalian, sa pampublikong kaayusan, o sa pampublikong
patakaran.
Explanation:
If someone gives wrong information in a contract but didn’t mean to lie (they truly believed it
was correct), it’s not fraud.
But — if that wrong info causes a big mistake in the agreement, it can still have the same effect
as fraud, like making the contract invalid.
Example:
Tom sells a car to Jake. Tom honestly thinks the car has never been in an accident. But later,
Jake finds out it was in a major crash.
Tom didn’t lie on purpose — he made a good faith mistake. Still, the wrong info was
important, so Jake might be allowed to cancel the deal.
Explanation:
Even if the lie wasn’t on purpose, if it caused a big problem, it can still break the contract —
just like real fraud would.
ARTICLE 1344: TWO KINDS OF FRAUD IN CONTRACTS, REQUISITES OF CASUAL
FRAUD
In order that fraud may make a contract voidable, it should be serious and should not have
been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
Upang malaman kung ang kontrata ay may kaakibat na panloloko, ito ay dapa na seryoso
and hindi kagagawan ng dalawang partido na nasa kontrata.
Ang insidente na panloloko ay nararapat lamang na obligado ang taong gumawa na
bayaran ang pinsala.
1. Causal Fraud (Dolo Causante)
o This is the kind of fraud that induces a party to enter into a contract.
o It affects the validity of consent.
o The contract becomes voidable if this type of fraud is proven.
Requisites:
The fraud must be serious or substantial.
It must be the determining cause of consent.
It must not have been employed by both parties.
2. Incidental Fraud (Dolo Incidente)
o This is fraud that does not influence the consent but happens during the performance
of the contract.
o The contract remains valid, but the guilty party is liable for damages.
Explanation:
1. Causal Fraud (Dolo Causante)
Meaning:
This is a type of fraud where one party lies or hides something important to trick the
other party into agreeing to a contract.
Effect:
It ruins the validity of the consent.
(Consent must be genuine; if you agreed because of a lie, your consent is not real.)
Result:
The contract can be voided (cancelled) because you were tricked into agreeing.
Requisites (Requirements):
o The fraud must be serious — not just a small lie; it must be big enough to affect
your decision.
o It must be the main reason why you agreed.
o Only one party should have used fraud. If both parties cheated each other, you
can't claim causal fraud.
2. Incidental Fraud (Dolo Incidente)
Meaning:
This kind of fraud happens after the contract is already agreed upon. It doesn’t affect
the decision to enter into the contract.
Effect:
The contract is still valid because the fraud didn’t cause the other person to agree
wrongly.
Result:
The guilty party must pay damages (money for the harm caused), but the contract itself
is not canceled.
Causal Fraud = Contract can be cancelled because you agreed due to the fraud.
Incidental Fraud = Contract stays, but the liar pays for the damage they caused.
Example:
Scenario: Buying a Second-Hand Car
Causal Fraud (Dolo Causante) – Contract is voidable
Ana is looking to buy a second-hand car. Ben, the seller, tells her:
“This car has never been in an accident and is in perfect condition.”
Ana believes him and buys the car.
Later, she finds out the car had serious frame damage from a major accident, and Ben
intentionally hid this information.
This is causal fraud because:
Ana wouldn’t have bought the car if she knew the truth.
Ben's deception was serious and intentional.
It influenced her decision to enter into the contract. Ana can go to court and ask to
void the contract and get her money back.
Incidental Fraud (Dolo Incidente) – Contract is valid, but damages may be claimed
In a different case, suppose Ana and Ben agreed to a sale where the car is clearly second-hand
and Ana was able to inspect it.
After the sale, Ben deliberately gives Ana fake service records to make it look like he
maintained the car regularly—even though this didn’t influence her decision to buy, since she
already agreed based on her own inspection.
This is incidental fraud because:
Ana already gave consent to the sale before the fraud.
The deception happened after the contract was perfected.
It did not affect the validity of the contract.
Ana cannot void the contract, but she may sue Ben for damages due to the dishonesty.
ARTICLE 1345-1346: SIMULATION OF A CONTRACT, KINDS OF SIMULATION
ARTICLE 1345:
"Contracts are perfected by mere consent, and from that moment, the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage, and law."
ARTICLE 1346:
An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their real agreement.
Kinds of Simulation:
Absolute Simulation – Is one where the parties do not intend to be bound by the
contract. It is not really intended to produce any legal effect, nor does it alter the juridical
situation of the parties.
Relative Simulation – Is one where the parties conceal their real agreement by
disguising it under another contract.
Explanation:
ARTICLE 1345:
A contract becomes valid and binding as soon as both parties agree (give their consent) to it.
From that moment, they must follow what they agreed on and act honestly and fairly, based
on common customs and the law — even if some things aren't written down.
Example:
Juan tells Pedro: “I will sell you my laptop for ₱20,000.” Pedro says: “Deal!” Even if Juan hasn't
given the laptop yet, and Pedro hasn't paid yet, the contract is already valid because they both
agreed. Why? Because the law says once there is consent (agreement), the contract is already
perfected (born).
ARTICLE 1346:
When people pretend to make a contract (but really don’t mean it), the contract is invalid
(void).
But if people hide the real deal under a different contract (but they still truly agree on
something), the contract is valid — as long as no one gets hurt and it’s not illegal or wrong.
Kinds of Simulation:
1. Absolute Simulation (Totally Fake Contract):
o The parties don’t really want to be bound.
o It's just for show.
o Result: Contract is VOID (useless).
2. Relative Simulation (Hiding the True Deal):
o The parties do want to be bound but they hide the real agreement behind a
fake-looking contract.
o Result: Real agreement is VALID if it’s not illegal and doesn't harm others.
Example:
1. Absolute Simulation (Totally Fake Contract):
Maria and Juan pretend that Maria sold her land to Juan, but really, Maria still owns it and Juan
didn’t pay anything.
2. Relative Simulation (Hiding the True Deal):
Leo and Mark agree that Mark will buy Leo’s car for ₱300,000, but they write ₱100,000 in the
contract to make it look cheaper.
Real sale for ₱300,000 = Valid if no law is broken.
