G.R. No. 171428. November 11, 2013.

ALEJANDRO V. TANKEH, petitioner, vs.

DEVELOPMENT BANK OF THE PHILIPPINES,
STERLING SHIPPING LINES, INC., RUPERTO V.
TANKEH, VICENTE ARENAS, and ASSET
PRIVATIZATION TRUST, respondents.

Remedial Law; Civil Procedure; Appeals; Petition for Review

on Certiorari; In any case, even if the Petition is one for the special
civil action of certiorari, the Supreme Court has the discretion to
treat a Rule 65 Petition for Certiorari as a Rule 45 Petition for
Review on Certiorari.―In any case, even if the Petition is one for
the special civil action of certiorari, this Court has the discretion
to treat a Rule 65 Petition for Certiorari as a Rule 45 Petition for
Review on Certiorari. This is allowed if (1) the Petition is filed
within the reglementary period for filing a Petition for review; (2)
when errors of judgment are averred; and (3) when there is
sufficient reason to justify the relaxation of the rules. When this
Court exercises this discretion,

_______________

* THIRD DIVISION.

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20 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

there is no need to comply with the requirements provided for in

Rule 65. In this case, petitioner filed his Petition within the
reglementary period of filing a Petition for Review. His Petition
assigns errors of judgment and appreciation of facts and law on
the part of the Court of Appeals. Thus, even if the Petition was
designated as one that sought the remedy of certiorari, this Court
may exercise its discretion to treat it as a Petition for Review in
the interest of substantial justice.
 Civil Law; Contracts; Fraud; There are two types of fraud
contemplated in the performance of contracts: dolo incidente or
incidental fraud and dolo causante or fraud serious enough to
render a contract voidable.―There are two types of fraud
contemplated in the performance of contracts: dolo incidente or
incidental fraud and dolo causante or fraud serious enough to
render a contract voidable. In Geraldez v. Court of Appeals, 230
SCRA 320 (1994), this Court held that: This fraud or dolo which is
present or employed at the time of birth or perfection of a contract
may either be dolo causante or dolo incidente. The first, or causal
fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party
and without which the other party would not have entered into
the contract. Dolo incidente, or incidental fraud which is referred
to in Article 1344, are those which are not serious in character
and without which the other party would still have entered into
the contract. Dolo causante determines or is the essential cause of
the consent, while dolo incidente refers only to some particular or
accident of the obligation. The effects of dolo causante are the
nullity of the contract and the indemnification of damages, and
dolo incidente also obliges the person employing it to pay
damages.
Same; Same; Same; Voidable Contracts; Under Article 1344 of
the Civil Code, the fraud must be serious to annul or avoid a
contract and render it voidable.―Under Article 1344, the fraud
must be serious to annul or avoid a contract and render it
voidable. This fraud or deception must be so material that had it
not been present, the defrauded party would not have entered into
the contract. In the recent case of Spouses Carmen S. Tongson
and Jose C. Tongson, et al. v. Emergency Pawnshop Bula, Inc.,
610 SCRA 150 (2010), this Court provided some examples of what
constituted dolo causante or causal fraud: Some of the instances
where this Court found the

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Tankeh vs. Development Bank of the Philippines

existence of causal fraud include: (1) when the seller, who had no
intention to part with her property, was “tricked into believing”
that what she signed were papers pertinent to her application for
the reconstitution of her burned certificate of title, not a deed of
sale; (2) when the signature of the authorized corporate officer
was forged; or (3) when the seller was seriously ill, and died a
week after signing the deed of sale raising doubts on whether the
seller could have read, or fully understood, the contents of the
documents he signed or of the consequences of his act. (Citations
omitted) However, Article 1344 also provides that if fraud is
incidental, it follows that this type of fraud is not serious enough
so as to render the original contract voidable.
Same; Same; Same; If there is fraud in the performance of the
contract, then this fraud will give rise to damages.―To summarize,
if there is fraud in the performance of the contract, then this
fraud will give rise to damages. If the fraud did not compel the
imputing party to give his or her consent, it may not serve as the
basis to annul the contract, which exhibits dolo causante.
However, the party alleging the existence of fraud may prove the
existence of dolo incidente. This may make the party against
whom fraud is alleged liable for damages.
Same; Same; Same; Jurisprudence has shown that in order to
constitute fraud that provides basis to annul contracts, it must
fulfill two conditions. First, the fraud must be dolo causante or it
must be fraud in obtaining the consent of the party. Second, this
fraud must be proven by clear and convincing evidence.―The Civil
Code, however, does not mandate the quantum of evidence
required to prove actionable fraud, either for purposes of
annulling a contract (dolo causante) or rendering a party liable for
damages (dolo incidente). The definition of fraud is different from
the quantum of evidence needed to prove the existence of fraud.
Article 1338 provides the legal definition of fraud. Articles 1339 to
1343 constitute the behavior and actions that, when in conformity
with the legal provision, may constitute fraud. Jurisprudence has
shown that in order to constitute fraud that provides basis to
annul contracts, it must fulfill two conditions. First, the fraud
must be dolo causante or it must be fraud in obtaining the consent
of the party. Second, this fraud must be proven by clear and
convincing evidence. In Viloria v. Continental Airlines, 663 SCRA
57 (2012), this Court held that: Under Article

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Tankeh vs. Development Bank of the Philippines

1338 of the Civil Code, there is fraud when, through insidious

words or machinations of one of the contracting parties, the other
is induced to enter into a contract which, without them, he would
not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract. In Samson
v. Court of Appeals, causal fraud was defined as “a deception
employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other.” Also, fraud must be
serious and its existence must be established by clear and
convincing evidence.
Same; Same; Same; Requisites for Annulling a Contract
Based on Dolo Causante.―To annul a contract on the basis of dolo
causante, the following must happen: First, the deceit must be
serious or sufficient to impress and lead an ordinarily prudent
person to error. If the allegedly fraudulent actions do not deceive
a prudent person, given the circumstances, the deceit here cannot
be considered sufficient basis to nullify the contract. In order for
the deceit to be considered serious, it is necessary and essential to
obtain the consent of the party imputing fraud. To determine
whether a person may be sufficiently deceived, the personal
conditions and other factual circumstances need to be considered.
Second, the standard of proof required is clear and convincing
evidence. This standard of proof is derived from American
common law. It is less than proof beyond reasonable doubt (for
criminal cases) but greater than preponderance of evidence (for
civil cases). The degree of believability is higher than that of an
ordinary civil case. Civil cases only require a preponderance of
evidence to meet the required burden of proof. However, when
fraud is alleged in an ordinary civil case involving contractual
relations, an entirely different standard of proof needs to be
satisfied. The imputation of fraud in a civil case requires the
presentation of clear and convincing evidence. Mere allegations
will not suffice to sustain the existence of fraud. The burden of
evidence rests on the part of the plaintiff or the party alleging
fraud. The quantum of evidence is such that fraud must be clearly
and convincingly shown.
Same; Same; Same; Words and Phrases; The Supreme Court
defined incidental fraud as “those which are not serious in
character and without which the other party would still have
entered into the contract.”―In refusing to allow petitioner to
participate in the man-

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Tankeh vs. Development Bank of the Philippines

agement of the business, respondent Ruperto V. Tankeh was

liable for the commission of incidental fraud. In Geraldez, this
Court defined incidental fraud as “those which are not serious in
character and without which the other party would still have
entered into the contract.”
 Same; Same; Damages; Exemplary Damages; To justify an
award for exemplary damages, the wrongful act must be
accompanied by bad faith, and an award of damages would be
allowed only if the guilty party acted in a wanton, fraudulent,
reckless or malevolent manner.―To justify an award for exemplary
damages, the wrongful act must be accompanied by bad faith, and
an award of damages would be allowed only if the guilty party
acted in a wanton, fraudulent, reckless or malevolent manner. In
this case, this Court finds that respondent Ruperto V. Tankeh
acted in a fraudulent manner through the finding of dolo
incidente due to his failure to act in a manner consistent with
propriety, good morals, and prudence. Since exemplary damages
ensure that future litigants or parties are enjoined from acting in
a similarly malevolent manner, it is incumbent upon this Court to
impose the damages in such a way that will serve as a categorical
warning and will show that wanton actions will be dealt with in a
similar manner. This Court finds that the amount of two hundred
thousand pesos (P200,000.00) is sufficient for this purpose.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
   The facts are stated in the opinion of the Court.
  Alan Leynes for petitioner.
  Juan G. Ranola, Jr. for respondent APT/PMO.
  Arthur D. Lim Law Offices for respondent R.V. Tankeh.
  Office of the Legal Counsel for respondent DBP.

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24 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

LEONEN, J.:
This is a Petition for Review on Certiorari, praying that
the assailed October 25, 2005 Decision and the February 9,
2006 Resolution of the Court of Appeals1 be reversed, and
that the January 4, 1996 Decision of the Regional Trial
Court of Manila, Branch 32 be affirmed. Petitioner prays
that this Court grant his claims for moral damages and
attorney’s fees, as proven by the evidence.
Respondent Ruperto V. Tankeh is the president of
Sterling Shipping Lines, Inc. It was incorporated on April
23, 1979 to operate ocean-going vessels engaged primarily
in foreign trade.2 Ruperto V. Tankeh applied for a $3.5
million loan from public respondent Development Bank of
the Philippines for the partial financing of an ocean-going
vessel named the M/V Golden Lilac. To authorize the loan,
Development Bank of the Philippines required that the
following conditions be met:
1) A first mortgage must be obtained over the vessel,
which by then had been renamed the M/V Sterling
Ace;
2) Ruperto V. Tankeh, petitioner Dr. Alejandro V.
Tankeh, Jose Marie Vargas, as well as respondents
Sterling Shipping Lines, Inc. and Vicente Arenas
should become liable jointly and severally for the
amount of the loan;
3) The future earnings of the mortgaged vessel,
including proceeds of Charter and Shipping
Contracts, should be assigned to Development Bank
of the Philippines; and
4) Development Bank of the Philippines should be
assigned no less than 67% of the total subscribed and
outstanding voting shares of the company. The per-

_______________
1 C.A. G.R. CV No. 52643.
2 Rollo, p. 206.

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Tankeh vs. Development Bank of the Philippines

centage of shares assigned should be maintained at

all times, and the assignment was to subsist as long
as the assignee, Development Bank of the
Philippines, deemed it necessary during the existence
of the loan.3
According to petitioner Dr. Alejandro V. Tankeh,
Ruperto V. Tankeh approached him sometime in 1980.4
Ruperto informed petitioner that he was operating a new
shipping line business. Petitioner claimed that respondent,
who is also petitioner’s younger brother, had told him that
petitioner would be given one thousand (1,000) shares to be
a director of the business. The shares were worth
P1,000,000.00.5
On May 12, 1981, petitioner signed the Assignment of
Shares of Stock with Voting Rights.6 Petitioner then signed
the May 12, 1981 promissory note in December 1981. He
was the last to sign this note as far as the other signatories
were concerned.7 The loan was approved by respondent
Development Bank of the Philippines on March 18, 1981.
The vessel was acquired on September 29, 1981 for $5.3
million.8 On December 3, 1981, respondent corporation
Sterling Shipping Lines, Inc. through respondent Ruperto
V. Tankeh executed a Deed of Assignment in favor of
Development Bank of the Philippines. The deed stated that
the assignor, Sterling Shipping Lines, Inc.:

x  x  x does hereby transfer and assign in favor of the

ASSIGNEE (DBP), its successors and assigns, future
earnings of the mortgaged M/V “Sterling Ace,” including
proceeds of charter and shipping contracts, it being un-

_______________
3 Id., at p. 14.
4 Ibid.
5 Id., at p. 205.
6 Id., at p. 206.
7 Ibid.
8 Id., at p. 207.

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26 SUPREME COURT REPORTS ANNOTATED

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derstood that this assignment shall continue to subsist for

as long as the ASSIGNOR’S obligation with the herein
ASSIGNEE remains unpaid.9

On June 16, 1983, petitioner wrote a letter to

respondent Ruperto V. Tankeh saying that he was severing
all ties and terminating his involvement with Sterling
Shipping Lines, Inc.10 He required that its board of
directors pass a resolution releasing him from all liabilities,
particularly the loan contract with Development Bank of
the Philippines. In addition, petitioner asked that the
private respondents notify Development Bank of the
Philippines that he had severed his ties with Sterling
Shipping Lines, Inc.11
The accounts of respondent Sterling Shipping Lines, Inc.
in the Development Bank of the Philippines were
transferred to public respondent Asset Privatization Trust
on June 30, 1986.12
Presently, respondent Asset Privatization Trust is
known as the Privatization and Management Office. Asset
Privatization Trust was a government agency created
through Presidential Proclamation No. 50, issued in 1986.
Through Administrative Order No. 14, issued by former
President Corazon Aquino dated February 3, 1987, assets
including loans in favor of Development Bank of the
Philippines were ordered to be transferred to the national
government. In turn, the management and facilitation of
these assets were delegated to Asset Privatization Trust,
pursuant to Presidential Proclamation No. 50. In 1999,
Republic Act No. 8758 was signed into law, and it provided
that the corporate term of Asset Privatization Trust would
end on December 31, 2000. The same law empowered the
President of the Philippines to determine

_______________
9  Id., at p. 124.
10 Id., at p. 207.
11 Id., at pp. 65-66.
12 Id., at p. 45.

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Tankeh vs. Development Bank of the Philippines

which office would facilitate the management of assets held

by Asset Privatization Trust. Thus, on December 6, 2000,
former President Joseph E. Estrada signed Executive
Order No. 323, creating the Privatization Management
Office. Its present function is to identify disposable assets,
monitor the progress of privatization activities, and
approve the sale or divestment of assets with respect to
price and buyer.13
On January 29, 1987, the M/V Sterling Ace was sold in
Singapore for $350,000.00 by Development Bank of the
Philippines’ legal counsel Atty. Prospero N. Nograles.
When petitioner came to know of the sale, he wrote
respondent Development Bank of the Philippines to
express that the final price was inadequate, and therefore,
the transaction was irregular. At this time, petitioner was
still bound as a debtor because of the promissory note
dated May 12, 1981, which petitioner signed in December
of 1981. The promissory note subsisted despite Sterling
Shipping Lines, Inc.’s assignment of all future earnings of
the mortgaged M/V Sterling Ace to Development Bank of
the Philippines. The loan also continued to bind petitioner
despite Sterling Shipping Lines, Inc.’s cash equity
contribution of P13,663,200.00 which was used to cover
part of the acquisition cost of the vessel, pre-operating
expenses, and initial working capital.14
Petitioner filed several Complaints15 against
respondents, praying that the promissory note be declared
null and void and that he be absolved from any liability
from the mortgage of the vessel and the note in question.

_______________
13 <http://www.pmo.gov.ph/about.htm>, (last visited August 15, 2013).
14 Rollo, pp. 105-106.
15  Complaint dated July 22, 1987, Rollo, pp. 63-69; Amended
Complaint dated September 14, 1987, Rollo, pp. 76-82; Second Amended
Complaint dated October 30, 1987, Rollo, pp. 84-91; Amended Complaint
dated April 16, 1991, Rollo, pp. 102-109.

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In the Complaints, petitioner alleged that respondent

Ruperto V. Tankeh, together with Vicente L. Arenas, Jr.
and Jose Maria Vargas, had exercised deceit and fraud in
causing petitioner to bind himself jointly and severally to
pay respondent Development Bank of the Philippines the
amount of the mortgage loan.16 Although he had been made
a stockholder and director of the respondent corporation
Sterling Shipping Lines, Inc., petitioner alleged that he had
never invested any amount in the corporation and that he
had never been an actual member of the board of
directors.17 He alleged that all the money he had
supposedly invested was provided by respondent Ruperto
V. Tankeh.18 He claimed that he only attended one meeting
of the board. In that meeting, he was introduced to two
directors representing Development Bank of the
Philippines, namely, Mr. Jesus Macalinag and Mr. Gil
Corpus. Other than that, he had never been notified of
another meeting of the board of directors.
Petitioner further claimed that he had been excluded
deliberately from participating in the affairs of the
corporation and had never been compensated by Sterling
Shipping Lines, Inc. as a director and stockholder.19
According to petitioner, when Sterling Shipping Lines, Inc.
was organized, respondent Ruperto V. Tankeh had
promised him that he would become part of the
administration staff and oversee company operations.
Respondent Ruperto V. Tankeh had also promised
petitioner that the latter’s son would be given a position in
the company.20 However, after being designated as vice
president, petitioner had not been made an officer and had
been alienated from taking part in the respondent
corporation.21

_______________
16 Id., at p. 85.
17 Id., at pp. 64-65.
18 Id., at p. 65.
19 Id., at p. 124.
20 Id., at p. 125.
21 Id., at p. 207.

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Petitioner also alleged that respondent Development

Bank of the Philippines had been inexcusably negligent in
the performance of its duties.22 He alleged that
Development Bank of the Philippines must have been fully
aware of Sterling Shipping Lines, Inc.’s financial situation.
Petitioner claimed that Sterling Shipping Lines, Inc. was
controlled by the Development Bank of the Philippines
because 67% of voting shares had been assigned to the
latter.23 Furthermore, the mortgage contracts had
mandated that Sterling Shipping Lines, Inc. “shall furnish
the DBP with copies of the minutes of each meeting of the
Board of Directors within one week after the meeting.
[Sterling Shipping Lines, Inc.] shall likewise furnish DBP
its annual audited financial statements and other
information or data that may be needed by DBP as its
accomondations [sic] with DBP are outstanding.”24
Petitioner further alleged that the Development Bank of
the Philippines had allowed “highly questionable acts”25 to
take place, including the gross undervaluing of the M/V
Sterling Aces.26 Petitioner alleged that one day after
Development Bank of the Philippines’ Atty. Nograles sold
the vessel, the ship was re-sold by its buyer for double the
amount that the ship had been bought.27
As for respondent Vicente L. Arenas, Jr., petitioner
alleged that since Arenas had been the treasurer of
Sterling Shipping Lines, Inc. and later on had served as its
vice president, he was also responsible for the financial
situation of Sterling Shipping Lines, Inc.
Lastly, in the Amended Complaint dated April 16, 1991,
petitioner impleaded respondent Asset Privatization Trust
for being the agent and assignee of the M/V Sterling Ace.
 _______________
22 Id., at p. 90.
23 Id., at p. 89.
24 Id.
25 Id.
26 Id.
27 Id.

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In their Answers28 to the Complaints, respondents

raised the following defenses against petitioner:
Respondent Development Bank of the Philippines
categorically denied receiving any amount from Sterling
Shipping Lines, Inc.’s future earnings and from the
proceeds of the shipping contracts. It maintained that
equity contributions could not be deducted from the
outstanding loan obligation that stood at P245.86 million
as of December 31, 1986. Development Bank of the
Philippines also maintained that it is immaterial to the
case whether the petitioner is a “real stockholder” or
merely a “pseudo-stockholder” of the corporation.29 By
affixing his signature to the loan agreement, he was liable
for the obligation. According to Development Bank of the
Philippines, he was in pari delicto and could not be
discharged from his obligation. Furthermore, petitioner
had no cause of action against Development Bank of the
Philippines since this was a case between family members,
and earnest efforts toward compromise should have been
complied with in accordance with Article 222 of the Civil
Code of the Philippines.30
Respondent Ruperto V. Tankeh stated that petitioner
had voluntarily signed the promissory note in favor of
Development Bank of the Philippines and with full
knowledge of the consequences. Respondent Tankeh also
alleged that he did not employ any fraud or deceit to secure
petitioner’s involvement in the company, and petitioner
had been fully aware of company operations. Also, all that
petitioner had to do to avoid liability had been to sell his
shareholdings in the company.31
Respondent Asset Privatization Trust raised that
petitioner had no cause of action against them since Asset
Privatization Trust had been mandated under
Proclamation No. 50
 _______________
28 Id., at pp. 70-75, 92-98, 99-101, 111-118.
29 Id., at pp. 73-74.
30 Id., at pp. 70-75.
31 Id., at pp. 99-101.

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Tankeh vs. Development Bank of the Philippines

to take title to and provisionally manage and dispose the

assets identified for privatization or deposition within the
shortest possible period. Development Bank of the
Philippines had transferred and conveyed all its rights,
titles, and interests in favor of the national government in
accordance with Administrative Order No. 14. In line with
that, Asset Privatization Trust was constituted as trustee
of the assets transferred to the national government to
effect privatization of these assets, including respondent
Sterling Shipping Lines, Inc.32 Respondent Asset
Privatization Trust also filed a compulsory counterclaim
against petitioner and its co-respondents Sterling Shipping
Lines, Inc., Ruperto V. Tankeh, and Vicente L. Arenas, Jr.
for the amount of P264,386,713.84.
Respondent Arenas did not file an Answer to any of the
Complaints of petitioner but filed a Motion to Dismiss that
the Regional Trial Court denied. Respondent Asset
Privatization Trust filed a Cross Claim against Arenas. In
his Answer33 to Asset Privatization Trust’s Cross Claim,
Arenas claimed that he had been released from any further
obligation to Development Bank of the Philippines and its
successor Asset Privatization Trust because an extension
had been granted by the Development Bank of the
Philippines to the debtors of Sterling Shipping Lines, Inc.
and/or Ruperto V. Tankeh, which had been secured without
Arenas’ consent. The trial proceeded with the petitioner
serving as a sole witness for his case. In a January 4, 1996
Decision,34 the Regional Trial Court ruled:

Here, we find —
1. Plaintiff being promised by his younger brother, Ruperto V.
Tankeh, 1,000 shares with par value of P1 Million with all
the

_______________
32 Id., at pp. 113-114.
 33 Id., at pp. 121-122.
34 Id., at pp. 123-197.

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perks and privileges of being stockholder and director of

SSLI, a new international shipping line;
2. That plaintiff will be part of the administration and
operation of the business, so with his son who is with the
law firm Romulo Ozaeta Law Offices;
3. But this was merely the come-on or appetizer for the Real
McCoy or the primordial end of congregating the
incorporators proposed - - that he sign the promissory note
(Exhibit “C”), the mortgage contract (Exhibit “A”), and deed
of assignment so SSLI could get the US $3.5 M loan from
DBP to partially finance the importation of vessel M.V.
“Golden Lilac” renamed M.V. “Sterling ACE”;
4. True it is, plaintiff was made a stockholder and director
and Vice-President in 1979 but he was never notified of any
meeting of the Board except only once, and only to be
introduced to the two (2) directors representing no less than
67% of the total subscribed and outstanding voting shares
of the company. Thereafter, he was excluded from any
board meeting, shorn of his powers and duties as director or
Vice-President, and was altogether deliberately demeaned
as an outsider.
5. What kind of a company is SSLI who treated one of their
incorporators, one of their Directors and their paper Vice-
President in 1979 by preventing him access to corporate
books, to corporate earnings, or losses, and to any
compensation or remuneration whatsoever? Whose
President and Treasurer did not submit the required SEC
yearly report? Who did not remit to DBP the proceeds on
charter mortgage contracts on M/V Sterling Ace?
6. The M/V Sterling Ace was already in the Davao Port when
it was then diverted to Singa-

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pore to be disposed on negotiated sale, and not by public

bidding contrary to COA Circular No. 86-264 and without
COA’s approval. Sterling Ace was seaworthy but was sold
as scrap in Singapore. No foreclosure with public bidding
was made in contravention of the Promissory Note to
recover any deficiency should DBP seeks [sic] to recover it
on the outstanding mortgage loan. Moreover the sale was
done after the account and asset (nay, now only a liability)
were transferred to APT. No approval of SSLI Board of
Directors to the negotiated sale was given.
7. Plaintiff’s letter to his brother President, Ruperto V.
Tankeh, dated June 15, 1983 (Exhibit “D”) his letter thru
his lawyer to DBP (Exhibit “J”) and another letter to it
(Exhibit “K”) show no estoppel on his part as he
consistently and continuously assailed the several injurious
acts of defendants while assailing the Promissory Note
itself x  x  x (Citations omitted) applying the maxim:
Rencintiatio non praesumitur. By this Dr. Tankeh never
waived the right to question the Promissory Note contract
terms. He did not ratify, by concurring acts, express or
tacit, after the reasons had surfaced entitling him to render
the contract voidable, defendants’ acts in implementing or
not the conditions of the mortgage, the promissory note, the
deed of assignment, the lack of audit and accounting, and
the negotiated sale of MV Sterling Ace. He did not ratify
defendants [sic] defective acts (Art. 1396, New Civil Code
[NCC]).
The foregoing and the following essays, supported by evidence,
the fraud committed by plaintiff’s brother before the several
documents were signed (SEC documents, Promissory Note,
Mortgage [MC] Contract, assignment [DA]), namely:

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34 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

1. Ruperto V. Tankeh approaches his brother Alejandro to tell

the latter of his new shipping business. The project was
good business proposal [sic].
2. Ruperto tells Alejandro he’s giving him shares worth P1
Million and he’s going to be a Director.
3. He tells his brother that he will be part of the company’s
Administration and Operations and his eldest son will be in
it, too.
4. Ruperto tells his brother they need a ship, they need to buy
one for the business, and they therefore need a loan, and
they could secure a loan from DBP with the vessel brought
to have a first mortgage with DBP but anyway the other
two directors and comptroller will be from DBP with a 67%
SSLI shares voting rights.
 Without these insidious, devastating and alluring words,
without the machinations used by defendant Ruperto V. Tankeh
upon the doctor, without the inducement and promise of
ownership of shares and the exercise of administrative and
operating functions, and the partial financing by one of the best
financial institutions, the DBP, plaintiff would not have agreed to
join his brother; and the safeguarding of the Bank’s interest by its
nominated two (2) directors in the Board added to his agreeing to
the new shipping business. His consent was vitiated by the fraud
before the several contracts were consummated.
This alone convenes [sic] this Court to annul the Promissory
Note as it relates to plaintiff himself.
Plaintiff also pleads annulment on ground of equity. Article 19,
NCC, provides him the way as it requires every person, in the
exercise of his rights and performance of his duties, to act with
justice, give everyone his due, and observe honesty and good faith
(Velayo vs. Shell Co. of the Phils., G.R. L-7817, October 31, 1956).
Not to release him from the clutch of the Promissory Note when he
was never made a part of the operation of the SSLI, when

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Tankeh vs. Development Bank of the Philippines

he was not notified of the Board Meetings, when the

corporation nary remitted earnings of M/V Sterling Ace
from charter or shipping contracts to DBP, when the SSLI
did not comply with the deed of assignment and mortgage
contract, and when the vessel was sold in Singapore (he,
learning of the sale only from the newspapers) in
contravention of the Promissory Note, and which he
questioned, will be an injustice, inequitable, and even
iniquitous to plaintiff. SSLI and the private defendants did
not observe honesty and good faith to one of their
incorporators and directors. As to DBP, the Court cannot
put demerits on what plaintiff’s memorandum has pointed
out:
While defendant DBP did not exercise the caution and
prudence in the discharge of their functions to protect its
interest as expected of them and worst, allowed the
perpetuation of the illegal acts committed in contrast to the
virtues they publicly profess, namely: “palabra de honor,
delicadeza, katapatan, kaayusan, pagkamasinop at
kagalingan” Where is the vision banking they have for our
country?
Had DBP listened to a cry in the wilderness — that of the voice
of the doctor — the doctor would not have allowed the officers and
 board members to defraud DBP and he would demand of them to
hew and align themselves to the deed of assignment.
Prescinding from the above, plaintiff’s consent to be with SSLI
was vitiated by fraud. The fact that defendant Ruperto Tankeh
has not questioned his liability to DBP or that Jose Maria Vargas
has been declared in default do not detract from the fact that there
was attendant fraud and that there was continuing fraud insofar
as plaintiff is concerned. Ipinaglaban lang ni Doctor ang
karapatan niya. Kung wala siyang sense of righteous
indignation and fairness, tatahimik na lang siya, sira
naman ang pinangangalagaan niyang

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36 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

pangalan, honor and family prestige [sic] (Emphasis

provided).35
x x x x
All of the defendants’ counterclaims and cross-claims x  x  x
including plaintiff’s and the other defendants’ prayer for damages
are not, for the moment, sourced and proven by substantial
evidence, and must perforce be denied and dismissed.
WHEREFORE, this Court, finding and declaring the
Promissory Note (Exhibit “C”) and the Mortgage Contract (Exhibit
“A”) null and void insofar as plaintiff DR. ALEJANDRO V.
TANKEH is concerned, hereby ANNULS and VOIDS those
documents as to plaintiff, and it is hereby further ordered that he
be released from any obligation or liability arising therefrom.
All the defendants’ counterclaims and cross-claims and
plaintiff’s and defendants’ prayer for damages are hereby denied
and dismissed, without prejudice.
SO ORDERED.36

Respondents Ruperto V. Tankeh, Asset Privatization

Trust, and Arenas immediately filed their respective
Notices of Appeal with the Regional Trial Court. The
petitioner filed a Motion for Reconsideration with regard to
the denial of his prayer for damages. After this Motion had
been denied, he then filed his own Notice of Appeal.
In a Decision37 promulgated on October 25, 2005, the
Third Division of the Court of Appeals reversed the trial
court’s findings. The Court of Appeals held that petitioner
had no cause of action against public respondent Asset
Privatization Trust. This was based on the Court of
Appeals’ assessment of the case records and its findings
that Asset Privatization Trust did not commit any act
violative of the right of peti-

_______________
35 Id., at pp. 192-195.
36 Id., at pp. 195-196.
37 Id., at pp. 39-60.

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Tankeh vs. Development Bank of the Philippines

tioner or constituting a breach of Asset Privatization

Trust’s obligations to petitioner. The Court of Appeals
found that petitioner’s claim for damages against Asset
Privatization Trust was based merely on his own self-
serving allegations.38
As to the finding of fraud, the Court of Appeals held
that:

x x x x
In all the complaints from the original through the first,
second and third amendments, the plaintiff imputes fraud
only to defendant Ruperto, to wit:
4. That on May 12, 1981, due to the deceit and
fraud exercised by Ruperto V. Tankeh, plaintiff,
together with Vicente L. Arenas, Jr. and Jose Maria
Vargas signed a promissory note in favor of the
defendant, DBP, wherein plaintiff bound himself to
jointly and severally pay the DBP the amount of the
mortgage loan. This document insofar as plaintiff is
concerned is a simulated document considering that
plaintiff was never a real stockholder of Sterling
Shipping Lines, Inc. (Emphasis provided)
More allegations of deceit were added in the Second
Amended Complaint, but they are also attributed against
Ruperto:
6. That THE DECEIT OF DEFENDANT RUPERTO
V. TANKEH IS SHOWN BY THE FACT THAT when
the Sterling Shipping Lines, Inc. was organized in
1980, Ruperto V. Tankeh promised plaintiff that he
would be a part of the administration staff so that he
could oversee the operation of the company. He was
also promised that his son, a lawyer, would be given a
position in the company. None of these promsies [sic]
was complied with. In fact he was not even allowed to
 find out the data about the income and expenses of
the company.

_______________
38 Id., at pp. 49-51.

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38 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

7. THAT THE DECEIT OF RUPERTO V. TANKEH

IS ALSO SHOWN BY THE FACT THAT PLAINTIFF
WAS INVITED TO ATTEND THE BOARD
MEETING OF THE STERLING SHIPPING LINES,
INC. ONLY ONCE, WHICH WAS FOR THE SOLE
PURPOSE OF INTRODUCING HIM TO THE TWO
DIRECTORS OF THE DBP IN THE BOARD OF THE
STERLING SHIPPING LINES, INC., NAMELY, MR.
JESUS MACALINAG AND MR. GIL CORPUS.
THEREAFTER HE WAS NEVER INVITED AGAIN.
PLAINTIFF WAS NEVER COMPENSATED BY THE
STERLING SHIPPING LINES, INC. FOR HIS
BEING A SO-CALLED DIRECTOR AND
STOCKHOLDER.
x x x x
8-A THAT A WEEK AFTER SENDING THE
ABOVE LETTER PLAINTIFF MADE EARNEST
EFFORTS TOWARDS A COMPROMISE BETWEEN
HIM AND HIS BROTHER RUPERTO V. TANKEH,
WHICH EFFORTS WERE SPURNED BY RUPERTO
V. TANKEH, AND ALSO AFTER THE NEWS OF
THE SALE OF THE ‘STERLING ACE’ WAS
PUBLISHED AT THE NEWSPAPER, PLAINTIFF
TRIED ALL EFFORTS TO CONTACT RUPERTO V.
TANKEH FOR THE PURPOSE OF ARRIVING AT
SOME COMPROMISE, BUT DEFENDANT
RUPERTO V. TANKEH AVOIDED ALL CONTACTS
WITH THE PLAINTIFF UNTIL HE WAS FORCED
TO SEEK LEGAL ASSISTANCE FROM HIS
LAWYER.
In the absence of any allegations of fraud and/or
deceit against the other defendants, namely, the DBP,
Vicente Arenas, Sterling Shipping Lines, Inc., and the
Asset Privatization Trust, the plaintiff’s evidence
thereon should only be against Ruperto, since a
plaintiff is bound to prove only the allegations of his
complaint. In any case, no evidence of fraud or deceit
 was ever presented against defendants DBP, Arenas,
SSLI and APT.

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Tankeh vs. Development Bank of the Philippines

As to the evidence against Ruperto, the same consists

only of the testimony of the plaintiff. None of his
documentary evidence would prove that Ruperto was
guilty of fraud or deceit in causing him to sign the
subject promissory note.39
x x x x
Analyzing closely the foregoing statements, we find no
evidence of fraud or deceit. The mention of a new
shipping lines business and the promise of a free
1,000-share and directorship in the corporation do not
amount to insidious words or machinations. In any
case, the shipping business was indeed established,
with the plaintiff himself as one of the incorporators
and stockholders with a share of 4,000, worth
P4,000,000.00 of which P1,000,000.00 was reportedly
paid up. As such, he signed the Articles of
Incorporation and the corporation’s By-Laws which
were registered with the Securities and Exchange
Commission in April 1979. It was not until May 12,
1981 that he signed the questioned promissory note.
From his own declaration at the witness stand, the
plaintiff signed the promissory note voluntarily. No
pressure, force or intimidation was made to bear upon
him. In fact, according to him, only a messenger
brought the paper to him for signature. The promised
shares of stock were given and recorded in the
plaintiff’s name. He was made a director and Vice-
President of SSLI. Apparently, only the promise that
his son would be given a position in the company
remained unfulfilled. However, the same should have
been threshed out between the plaintiff and his
brother, defendant Ruperto, and its non-fulfillment
did not amount to fraud or deceit, but was only an
unfulfilled promise.
It should be pointed out that the plaintiff is a doctor
of medicine and a seasoned businessman. It cannot be
said that he did not understand the import of the

_______________
39 Id., at pp. 53-54.
 40

40 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

documents he signed. Certainly he knew what he was

signing. He should have known that being an officer
of SSLI, his signing of the promissory note together
with the other officers of the corporation was
expected, as the other officers also did. It cannot
therefore be said that the promissory note was
simulated. The same is a contract validly entered
into, which the parties are obliged to comply with.40
(Citations omitted) 

The Court of Appeals ruled that in the absence of any

competent proof, Ruperto V. Tankeh did not commit any
fraud. Petitioner Alejandro V. Tankeh was unable to prove
by a preponderance of evidence that fraud or deceit had
been employed by Ruperto to make him sign the
promissory note. The Court of Appeals reasoned that:

Fraud is never presumed but must be proved by clear and

convincing evidence, mere preponderance of evidence not
even being adequate. Contentions must be proved by
competent evidence and reliance must be had on the
strength of the party’s evidence and not upon the weakness
of the opponent’s defense. The plaintiff clearly failed to
discharge such burden.41 (Citations omitted)

With that, the Court of Appeals reversed and set aside

the judgment and ordered that plaintiff’s Complaint be
dismissed. Petitioner filed a Motion for Reconsideration
dated October 25, 2005 that was denied in a Resolution42
promulgated on February 9, 2006.
Hence, this Petition was filed.
In this Petition, Alejandro V. Tankeh stated that the
Court of Appeals seriously erred and gravely abused its
discretion in

_______________
40 Id., at pp. 56-57.
41 Id., at p. 58.
42 Id., at p. 61.

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 Tankeh vs. Development Bank of the Philippines

acting and deciding as if the evidence stated in the Decision

of the Regional Trial Court did not exist. He averred that
the ruling of lack of cause of action had no leg to stand on,
and the Court of Appeals had unreasonably, whimsically,
and capriciously ignored the ample evidence on record
proving the fraud and deceit perpetrated on the petitioner
by the respondent. He stated that the appellate court failed
to appreciate the findings of fact of the lower court, which
are generally binding on appellate courts. He also
maintained that he is entitled to damages and attorney’s
fees due to the deceit and machinations committed by the
respondent.
In his Memorandum, respondent Ruperto V. Tankeh
averred that petitioner had chosen the wrong remedy. He
ought to have filed a special civil action of certiorari and
not a Petition for Review. Petitioner raised questions of
fact, and not questions of law, and this required the review
or evaluation of evidence. However, this is not the function
of this Court, as it is not a trier of facts. He also contended
that petitioner had voluntarily entered into the loan
agreement and the position with Sterling Shipping Lines,
Inc. and that he did not fraudulently induce the petitioner
to enter into the contract.
Respondents Development Bank of the Philippines and
Asset Privatization Trust also contended that petitioner’s
mode of appeal had been wrong, and he had actually
sought a special civil action of certiorari. This alone
merited its dismissal.
The main issue in this case is whether the Court of
Appeals erred in finding that respondent Rupert V. Tankeh
did not commit fraud against the petitioner.
The Petition is partly granted.
Before disposing of the main issue in this case, this
Court needs to address a procedural issue raised by
respondents. Collectively, respondents argue that the
Petition is actually
42

42 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

one of certiorari under Rule 65 of the Rules of Court43 and

not a Petition for Review on Certiorari under Rule 45.44
Thus, petitioner’s failure to show that there was neither
appeal nor any other plain, speedy or adequate remedy
merited the dismissal of the Complaint.
Contrary to respondent’s imputation, the remedy
contemplated by petitioner is clearly that of a Rule 45
Petition for Review. In Tagle v. Equitable PCI Bank,45 this
Court made the distinction between a Rule 45 Petition for
Review on Certiorari and a Rule 65 Petition for Certiorari:

Certiorari is a remedy designed for the correction of errors

of jurisdiction, not errors of judgment. In Pure Foods
Corporation v. NLRC, we explained the simple reason for
the rule in this light: When a court exercises its jurisdiction,
an error committed while so engaged does not deprive it of
the jurisdiction being exercised when the error is committed
x x x. Consequently, an error of judgment

_______________
43 RULES OF COURT, Rule 65, Sec. 1:
Section 1. Petition for certiorari.—When any tribunal, board or officer
exercising judicial or quasi-judicial functions has acted without or in excess its or
his jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in
the ordinary course of law, a person aggrieved thereby may file a verified petition
in the proper court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental reliefs as law and justice may require.
44 RULES OF COURT, Rule 45, Sec. 1:
Section 1. Filing of petition with Supreme Court.—A party desiring to appeal
by certiorari from a judgment or final order or resolution of the Court of Appeals,
the Sandiganbayan, the Regional Trial Court or other courts whenever authorized
by law, may file with the Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of law which must be distinctly
set forth.
45 G.R. No. 172299, April 22, 2008, 552 SCRA 424, 440-441.

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Tankeh vs. Development Bank of the Philippines

that the court may commit in the exercise of its jurisdiction

is not correct[a]ble through the original civil action of
certiorari.
x x x x
Even if the findings of the court are incorrect, as long as it
has jurisdiction over the case, such correction is normally
beyond the province of certiorari. Where the error is not one
 of jurisdiction, but of an error of law or fact a mistake of
judgment, appeal is the remedy.

 
In this case, what petitioner seeks to rectify may be
construed as errors of judgment of the Court of Appeals.
These errors pertain to the petitioner’s allegation that the
appellate court failed to uphold the findings of facts of the
lower court. He does not impute any error with respect to
the Court of Appeals’ exercise of jurisdiction. As such, this
Petition is simply a continuation of the appellate process
where a case is elevated from the trial court of origin, to
the Court of Appeals, and to this Court via Rule 45.
Contrary to respondents’ arguments, the allegations of
petitioner that the Court of Appeals “committed grave
abuse of discretion”46 did not ipso facto render the intended
remedy that of certiorari under Rule 65 of the Rules of
Court.47

_______________
46 Rollo, p. 18.
47 RULES OF COURT, Rule 65, Section 1:
Section 1. Petition for certiorari.—When any tribunal, board or
officer exercising judicial or quasi-judicial functions has acted without or
in excess its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal, or any
plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental reliefs as law and justice may require.

44

44 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

In any case, even if the Petition is one for the special

civil action of certiorari, this Court has the discretion to
treat a Rule 65 Petition for Certiorari as a Rule 45 Petition
for Review on Certiorari. This is allowed if (1) the Petition
is filed within the reglementary period for filing a Petition
for review; (2) when errors of judgment are averred; and (3)
when there is sufficient reason to justify the relaxation of
the rules.48 When this Court exercises this discretion, there
is no need to comply with the requirements provided for in
Rule 65.
 In this case, petitioner filed his Petition within the
reglementary period of filing a Petition for Review.49 His
Petition assigns errors of judgment and appreciation of
facts and law on the part of the Court of Appeals. Thus,
even if the Petition was designated as one that sought the
remedy of certiorari, this Court may exercise its discretion
to treat it as a Petition for Review in the interest of
substantial justice.
We now proceed to the substantive issue, that of
petitioner’s imputation of fraud on the part of respondents.
We are required by the circumstances of this case to review
our doctrines of fraud that are alleged to be present in
contractual relations.
Types of Fraud in Contracts
Fraud is defined in Article 1338 of the Civil Code as:

_______________
48  China Banking Corporation v. Cebu Printing and Packaging
Corporation, G.R. No. 172880, August 11, 2010, 628 SCRA 154, 168 citing
Tagle v. Equitable PCI Bank, G.R. No. 172299, April 22, 2008, 552 SCRA
424.
49 The petitioner received the denial of his Motion for Reconsideration
on February 15, 2006. Petitioner had until March 2, 2006 within which to
file the Petition. Petitioner filed a Motion for Extension of Time to File
Petition for a period of thirty (30) days, which was granted by the Court.
Petitioner had until April 2, 2006 to file his Petition. The Court received
the Petition on March 20, 2006.

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Tankeh vs. Development Bank of the Philippines

x x x fraud when, through insidious words or machinations

of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not
have agreed to.

This is followed by the articles which provide legal

examples and illustrations of fraud.

Art. 1339. Failure to disclose facts, when there is a duty

to reveal them, as when the parties are bound by
confidential relations, constitutes fraud. (n)
Art. 1340. The usual exaggerations in trade, when the
other party had an opportunity to know the facts, are not in
themselves fraudulent. (n)
 Art. 1341. A mere expression of an opinion does not
signify fraud, unless made by an expert and the other party
has relied on the former’s special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error. (n)

The distinction between fraud as a ground for rendering

a contract voidable or as basis for an award of damages is
provided in Article 1344:

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. (1270)

There are two types of fraud contemplated in the

performance of contracts: dolo incidente or incidental fraud
and dolo causante or fraud serious enough to render a
contract voidable.

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46 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

In Geraldez v. Court of Appeals,50 this Court held that:

This fraud or dolo which is present or employed at the time

of birth or perfection of a contract may either be dolo
causante or dolo incidente. The first, or causal fraud
referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one
party and without which the other party would not have
entered into the contract. Dolo incidente, or incidental fraud
which is referred to in Article 1344, are those which are not
serious in character and without which the other party
would still have entered into the contract. Dolo causante
determines or is the essential cause of the consent, while
dolo incidente refers only to some particular or accident of
the obligation. The effects of dolo causante are the nullity of
the contract and the indemnification of damages, and dolo
incidente also obliges the person employing it to pay
damages.51
 In Solidbank Corporation v. Mindanao Ferroalloy
Corporation, et al.,52 this Court elaborated on the
distinction between dolo causante and dolo incidente:

Fraud refers to all kinds of deception — whether through

insidious machination, manipulation, concealment or
misrepresentation — that would lead an ordinarily prudent
person into error after taking the circumstances into
account. In contracts, a fraud known as dolo causante or
causal fraud is basically a deception used by one party prior
to or simultaneous with the contract, in order to secure the
consent of the other. Needless to say, the deceit employed
must be serious. In contradistinction, only some particular
or accident of the obligation is referred to

_______________
50 G.R. No. 108253, February 23, 1994, 230 SCRA 320.
51 Id., at p. 336 citing A.M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE

CIVIL CODE OF THE PHILIPPINES 509 (VOL. IV, 1986) AND JURADO, COMMENTS AND

JURISPRUDENCE ON OBLIGATIONS AND CONTRACTS, 438 (1987 Ed.).

52 502 Phil. 651, 669; 464 SCRA 409, 425-426 (2005).

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Tankeh vs. Development Bank of the Philippines

by incidental fraud or dolo incidente, or that which is not

serious in character and without which the other party
would have entered into the contract anyway.53

Under Article 1344, the fraud must be serious to annul

or avoid a contract and render it voidable. This fraud or
deception must be so material that had it not been present,
the defrauded party would not have entered into the
contract. In the recent case of Spouses Carmen S. Tongson
and Jose C. Tongson, et al. v. Emergency Pawnshop Bula,
Inc.,54 this Court provided some examples of what
constituted dolo causante or causal fraud:

Some of the instances where this Court found the existence

of causal fraud include: (1) when the seller, who had no
intention to part with her property, was “tricked into
believing” that what she signed were papers pertinent to
her application for the reconstitution of her burned
certificate of title, not a deed of sale; (2) when the signature
of the authorized corporate officer was forged; or (3) when
the seller was seriously ill, and died a week after signing
the deed of sale raising doubts on whether the seller could
 have read, or fully understood, the contents of the
documents he signed or of the consequences of his act.55
(Citations omitted)

However, Article 1344 also provides that if fraud is

incidental, it follows that this type of fraud is not serious
enough so as to render the original contract voidable.
A classic example of dolo incidente is Woodhouse v.
Halili.56 In this case, the plaintiff Charles Woodhouse
entered into a written agreement with the defendant
Fortunato Halili to organize a partnership for the bottling
and distribution of soft

_______________
53 Id., at p. 669; pp. 425-426.
54 G.R. No. 167874, January 15, 2010, 610 SCRA 150.
55 Id., at p. 160.
56 93 Phil. 526 (1953).

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48 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

drinks. However, the partnership did not come into

fruition, and the plaintiff filed a Complaint in order to
execute the partnership. The defendant filed a
Counterclaim, alleging that the plaintiff had defrauded him
because the latter was not actually the owner of the
franchise of a soft drink bottling operation. Thus,
defendant sought the nullification of the contract to enter
into the partnership. This Court concluded that:

x  x  x from all the foregoing x  x  x plaintiff did actually

represent to defendant that he was the holder of the
exclusive franchise. The defendant was made to believe, and
he actually believed, that plaintiff had the exclusive
franchise. x  x  x The record abounds with circumstances
indicative that the fact that the principal consideration, the
main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of
plaintiff to get the exclusive franchise to bottle and
distribute for the defendant or for the partnership. x  x  x
The defendant was, therefore, led to the belief that plaintiff
had the exclusive franchise, but that the same was to be
secured for or transferred to the partnership. The plaintiff
no longer had the exclusive franchise, or the option thereto,
at the time the contract was perfected. But while he had
 already lost his option thereto (when the contract was
entered into), the principal obligation that he assumed or
undertook was to secure said franchise for the partnership,
as the bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was guilty of a
false representation, this was not the causal consideration,
or the principal inducement, that led plaintiff to enter into
the partnership agreement.
But, on the other hand, this supposed ownership of an
exclusive franchise was actually the consideration or price
plaintiff gave in exchange for the share of 30 percent
granted him in the net profits of the partnership business.
Defendant agreed to give plaintiff 30 percent share in the
net profits because he was transferring his exclusive
franchise to the partnership. x x x.

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Tankeh vs. Development Bank of the Philippines

Plaintiff had never been a bottler or a chemist; he never

had experience in the production or distribution of
beverages. As a matter of fact, when the bottling plant
being built, all that he suggested was about the toilet
facilities for the laborers.
We conclude from the above that while the
representation that plaintiff had the exclusive franchise did
not vitiate defendant’s consent to the contract, it was used
by plaintiff to get from defendant a share of 30 per cent of
the net profits; in other words, by pretending that he had
the exclusive franchise and promising to transfer it to
defendant, he obtained the consent of the latter to give him
(plaintiff) a big slice in the net profits. This is the dolo
incidente defined in article 1270 of the Spanish Civil Code,
because it was used to get the other party’s consent to a big
share in the profits, an incidental matter in the
agreement.57

Thus, this Court held that the original agreement may

not be declared null and void. This Court also said that the
plaintiff had been entitled to damages because of the
refusal of the defendant to enter into the partnership.
However, the plaintiff was also held liable for damages to
the defendant for the misrepresentation that the former
had the exclusive franchise to soft drink bottling
operations.
To summarize, if there is fraud in the performance of the
contract, then this fraud will give rise to damages. If the
fraud did not compel the imputing party to give his or her
consent, it may not serve as the basis to annul the contract,
which exhibits dolo causante. However, the party alleging
the existence of fraud may prove the existence of dolo
incidente. This may make the party against whom fraud is
alleged liable for damages.

_______________
57 Id., at pp. 536-538.

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50 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

Quantum of Evidence to Prove

the Existence of Fraud and the
Liability of the Parties
The Civil Code, however, does not mandate the quantum
of evidence required to prove actionable fraud, either for
purposes of annulling a contract (dolo causante) or
rendering a party liable for damages (dolo incidente). The
definition of fraud is different from the quantum of
evidence needed to prove the existence of fraud. Article
1338 provides the legal definition of fraud. Articles 1339 to
1343 constitute the behavior and actions that, when in
conformity with the legal provision, may constitute fraud.
Jurisprudence has shown that in order to constitute
fraud that provides basis to annul contracts, it must fulfill
two conditions. First, the fraud must be dolo causante or it
must be fraud in obtaining the consent of the party.
Second, this fraud must be proven by clear and convincing
evidence. In Viloria v. Continental Airlines,58 this Court
held that:

Under Article 1338 of the Civil Code, there is fraud when,

through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to.
In order that fraud may vitiate consent, it must be the
causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract. In
Samson v. Court of Appeals, causal fraud was defined as “a
deception employed by one party prior to or simultaneous to
the contract in order to secure the consent of the other.”
Also, fraud must be serious and its existence must be
established by clear and convincing evidence. (Citations
omitted)59
 _______________
58 G.R. No. 188288, January 16, 2012, 663 SCRA 57.
59 Id., at p. 81.

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In Viloria, this Court cited Sierra v. Court of Appeals60

stating that mere preponderance of evidence will not
suffice in proving fraud.

Fraud must also be discounted, for according to the Civil

Code:
Art. 1338. There is fraud when, through insidious
words or machinations of one of the contracting
parties, the other is induced to enter into a contract
which without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have
been employed by both contracting parties.
To quote Tolentino again, the “misrepresentation
constituting the fraud must be established by full, clear,
and convincing evidence, and not merely by a
preponderance thereof. The deceit must be serious. The
fraud is serious when it is sufficient to impress, or to lead
an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity.
The circumstances of each case should be considered, taking
into account the personal conditions of the victim.”61

Thus, to annul a contract on the basis of dolo causante,

the following must happen: First, the deceit must be
serious or sufficient to impress and lead an ordinarily
prudent person to error. If the allegedly fraudulent actions
do not deceive a prudent person, given the circumstances,
the deceit here cannot be considered sufficient basis to
nullify the contract. In order for the deceit to be considered
serious, it is necessary and essential to obtain the consent
of the party imputing

_______________
60 G.R. No. 90270, July 24, 1992, 211 SCRA 785.
61 Id., at p. 793 citing A.M. TOLENTINO, COMMENTARIES ON THE CIVIL CODE
508, 514 (Vol. IV, 1991).

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52 SUPREME COURT REPORTS ANNOTATED
Tankeh vs. Development Bank of the Philippines

fraud. To determine whether a person may be sufficiently

deceived, the personal conditions and other factual
circumstances need to be considered.
Second, the standard of proof required is clear and
convincing evidence. This standard of proof is derived from
American common law. It is less than proof beyond
reasonable doubt (for criminal cases) but greater than
preponderance of evidence (for civil cases). The degree of
believability is higher than that of an ordinary civil case.
Civil cases only require a preponderance of evidence to
meet the required burden of proof. However, when fraud is
alleged in an ordinary civil case involving contractual
relations, an entirely different standard of proof needs to be
satisfied. The imputation of fraud in a civil case requires
the presentation of clear and convincing evidence. Mere
allegations will not suffice to sustain the existence of fraud.
The burden of evidence rests on the part of the plaintiff or
the party alleging fraud. The quantum of evidence is such
that fraud must be clearly and convincingly shown.
The Determination of the
Existence of Fraud in the
Present Case
We now determine the application of these doctrines
regarding fraud to ascertain the liability, if any, of the
respondents.
Neither law nor jurisprudence distinguishes whether it
is dolo incidente or dolo causante that must be proven by
clear and convincing evidence. It stands to reason that both
dolo incidente and dolo causante must be proven by clear
and convincing evidence. The only question is whether this
fraud, when proven, may be the basis for making a contract
voidable (dolo causante), or for awarding damages (dolo
incidente), or both.

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Hence, there is a need to examine all the circumstances

thoroughly and to assess the personal circumstances of the
party alleging fraud. This may require a review of the case
facts and the evidence on record.
 In general, this Court is not a trier of facts. It makes its
rulings based on applicable law and on standing
jurisprudence. The findings of the Court of Appeals are
generally binding on this Court provided that these are
supported by the evidence on record. In the recent case of
Medina v. Court of Appeals,62 this Court held that:

It is axiomatic that a question of fact is not appropriate

for a petition for review on certiorari under Rule 45. This
rule provides that the parties may raise only questions of
law, because the Supreme Court is not a trier of facts.
Generally, we are not duty-bound to analyze again and
weigh the evidence introduced in and considered by the
tribunals below. When supported by substantial
evidence, the findings of fact of the Court of Appeals
are conclusive and binding on the parties and are not
reviewable by this Court, unless the case falls under
any of the following recognized exceptions: (1) When
the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) When the inference made is
manifestly mistaken, absurd or impossible; (3) Where there
is a grave abuse of discretion; (4) When the judgment is
based on a misapprehension of facts; (5) When the
findings of fact are conflicting; (6) When the Court of
Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both
appellant and appellee; (7) When the findings are contrary
to those of the trial court; (8) When the findings of fact are
conclusions without citation of specific evidence on which
they are based; (9) When the facts set forth in the petition
as well as in the petitioner’s main and reply briefs are not
disputed by the respondents; and

_______________
62 G.R. No. 137582, August 29, 2012, 679 SCRA 191.

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54 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

(10) When the findings of fact of the Court of Appeals are

premised on the supposed absence of evidence and
contradicted by the evidence on record. (Emphasis
provided)63

The trial court and the Court of Appeals had appreciated

the facts of this case differently.
 The Court of Appeals was not correct in saying that
petitioner could only raise fraud as a ground to annul his
participation in the contract as against respondent Rupert
V. Tankeh, since the petitioner did not make any
categorical allegation that respondents Development Bank
of the Philippines, Sterling Shipping Lines, Inc., and Asset
Privatization Trust had acted fraudulently. Admittedly, it
was only in the Petition before this Court that the
petitioner had made the allegation of a “well-orchestrated
fraud”64 by the respondents. However, Rule 10, Section 5 of
the Rules of Civil Procedure provides that:

Amendment to conform to or authorize presentation of

evidence.—When issues not raised by the pleadings are
tried with the express or implied consent of the parties they
shall be treated in all respects as if they had been raised in
the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at
any time, even after judgment; but failure to amend does
not effect the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within
the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if
the presentation of the merits of the action and the ends of
substantial justice

_______________
63 Id. citing Cirtek Employees Labor Union-Federation of Free Workers v. Cirtek
Electronics, Inc., G.R. No. 190515, June 6, 2011, 650 SCRA 656, 660.
64 Rollo, p. 15.

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Tankeh vs. Development Bank of the Philippines

will be subserved thereby. The court may grant a

continuance to enable the amendment to be made. (5a)

In this case, the commission of fraud was an issue that

had been tried with the implied consent of the respondents,
particularly Sterling Shipping Lines, Inc., Asset
Privatization Trust, Development Bank of the Philippines,
and Arenas. Hence, although there is a lack of a categorical
allegation in the pleading, the courts may still be allowed
to ascertain fraud.
The records will show why and how the petitioner
agreed to enter into the contract with respondent Ruperto
V. Tankeh:
ATTY. VELAYO:  How did you get involved in the business of the
Sterling Shipping Lines, Incorporated” [sic]
DR. TANKEH:  Sometime in the year 1980, I was approached by
Ruperto Tankeh mentioning to me that he is operating a new
shipping lines business and he is giving me free one thousand
shares (1,000) to be a director of this new business which is worth
one million pesos (P1,000,000.00).
ATTY. VELAYO: Are you related to Ruperto V. Tankeh?
DR. TANKEH: Yes, sir. He is my younger brother.
ATTY. VELAYO: Did you accept the offer?
DR. TANKEH:        I accepted the offer based on his promise to me that
I will be made a part of the administration staff so that I can
oversee the operation of the business plus my son, the eldest one
who is already a graduate lawyer with a couple of years of
experience in the law firm of Romulo Ozaeta

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56 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

Law Offices (TSN, April 28, 1988, pp. 10-11.).65

The Second Amended Complaint of petitioner is

substantially reproduced below to ascertain the claim:

x x x x
2. That on May 12, 1981, due to the deceit and fraud
exercised by Ruperto V. Tankeh, plaintiff, together with
Vicente L. Arenas, Jr. and Jose Maria Vargas, signed a
promissory note in favor of the defendant DBP, wherein
plaintiff bound himself to jointly and severally pay the DBP
the amount of the mortgage loan. This document insofar as
plaintiff is concerned is a simulated document considering
that plaintiff was never a real stockholder of the Sterling
Shipping Lines, Inc.
3. That although plaintiff’s name appears in the records of
Sterling Shipping Lines, Inc. as one of its incorporators, the
truth is that he had never invested any amount in said
corporation and that he had never been an actual member
of said corporation. All the money supposedly invested by
him were put by defendant Ruperto V. Tankeh. Thus, all
the shares of stock under his name in fact belongs to
Ruperto V. Tankeh. Plaintiff was invited to attend the
board meeting of the Sterling Shipping Lines, Inc. only
once, which was for the sole purpose of introducing him to
the two directors of the DBP, namely, Mr. Jesus Macalinag
and Mr. Gil Corpus. Thereafter he was never invited again.
 Plaintiff was never compensated by the Sterling Shipping
Lines, Inc. for his being a so-called director and stockholder.
It is clear therefore that the DBP knew all along that
plaintiff was not a true stockholder of the company.
4. That THE DECEIT OF DEFENDANT RUPERTO V.
TANKEH IS SHOWN BY THE FACT THAT when the
Sterling Shipping Lines, Inc. was organized in 1980,
Ruperto V. Tankeh promised plaintiff that he would be a

_______________
65 Rollo, pp. 205-206.

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part of the administration staff so that he could oversee the

operation of the company. He was also promised that his
son, a lawyer, would be given a position in the company.
None of these promises was complied with. In fact, he was
not even allowed to find out the data about the income and
expenses of the company.
5. THAT THE DECEIT OF RUPERTO V. TANKEH IS
ALSO SHOWN BY THE FACT THAT PLAINTIFF WAS
INVITED TO ATTEND THE BOARD MEETING OF THE
STERLING SHIPPING LINES, INC. ONLY ONCE,
WHICH WAS FOR THE SOLE PURPOSE OF
INTRODUCING HIM TO THE TWO DIRECTORS OF THE
DBP IN THE BOARD OF THE STERLING SHIPPING
LINES, INC., NAMELY, MR. JESUS MACALINAG AND
MR. GIL CORPUS. THEREAFTER HE WAS NEVER
INVITED AGAIN. PLAINTIFF WAS NEVER
COMPENSATED BY THE STERLING SHIPPING LINES,
INC. FOR HIS BEING A SO-CALLED DIRECTOR AND
STOCKHOLDER.
6. That in 1983, upon realizing that he was only being
made a tool to realize the purposes of Ruperto V. Tankeh,
plaintiff officially informed the company by means of a
letter dated June 15, 1983 addressed to the company that
he has severed his connection with the company, and
demanded among others, that the company board of
directors pass a resolution releasing him from any liabilities
especially with reference to the loan mortgage contract with
the DBP and to notify the DBP of his severance from the
Sterling Shipping Lines, Inc.
8-A. THAT A WEEK AFTER SENDING THE ABOVE
LETTER, PLAINTIFF MADE EARNEST EFFORTS
 TOWARDS A COMPROMISE BETWEEN HIM AND HIS
BROTHER RUPERTO V. TANKEH, WHICH EFFORTS
WERE SPURNED BY RUPERTO V. TANKEH, AND ALSO
AFTER THE NEWS OF THE SALE OF THE “STERLING
ACE” WAS PUBLISHED AT THE NEWSPAPER [sic],
PLAINTIFF TRIED ALL EFFORTS TO CONTACT
RUPERTO V. TANKEH FOR THE PURPOSE OF
ARRIVING AT SOME COMPROMISE, BUT DEFENDANT
RUPERTO V. TANKEH AVOIDED ALL

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58 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

CONTACTS [sic] WITH THE PLAINTIFF UNTIL HE WAS

FORCED TO SEEK LEGAL ASSISTANCE FROM HIS
LAWYER.66

In his Answer, respondent Ruperto V. Tankeh stated

that:

COMES NOW defendant RUPERTO V. TANKEH, through the

undersigned counsel, and to the Honorable Court, most
respectfully alleges:
x x x x
3. That paragraph 4 is admitted that herein answering
defendant together with the plaintiff signed the promissory
note in favor of DBP but specifically denied that the same
was done through deceit and fraud of herein answering
defendant the truth being that plaintiff signed said
promissory note voluntarily and with full knowledge of the
consequences thereof; it is further denied that said
document is a simulated document as plaintiff was never a
real stockholder of the company, the truth being those
alleged in the special and affirmative defenses;
4. That paragraphs 5,6,7,8 and 8-A are specifically denied
specially the imputation of deceit and fraud against herein
answering defendant, the truth being those alleged in the
special and affirmative defenses;
xxxx
SPECIAL AND AFFIRMATIVE DEFENSES x x x
8. The complaint states no cause of action as against herein
answering defendant;
9. The Sterling Shipping Lines, Inc. was a legitimate
company organized in accordance with the laws of the
Republic of the Philippines with the plaintiff as one of the
incorporators;
 _______________
66 Id., at pp. 85-87.

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10. Plaintiff as one of the incorporators and directors of the

board was fully aware of the by-laws of the company and if
he attended the board meeting only once as alleged, the
reason thereof was known only to him;
11. The Sterling Shipping Lines, Inc. being a corporation
acting through its board of directors, herein answering
defendant could not have promised plaintiff that he would
be a part of the administration staff;
12. As member of the board, plaintiff had all the access to the
data and records of the company; further, as alleged in the
complaint, plaintiff has a son who is a lawyer who could
have advised him;
13. Assuming plaintiff wrote a letter to the company to sever
his connection with the company, he should have been
aware that all he had to do was sell all his holdings in the
company;
14. Herein answering defendant came to know only of
plaintiff’s alleged predicament when he received the
summons and copy of the complaint; x x x.67

An assessment of the allegations in the pleadings and

the findings of fact of both the trial court and appellate
court based on the evidence on record led to the conclusion
that there had been no dolo causante committed against
the petitioner by Ruperto V. Tankeh.
The petitioner had given his consent to become a
shareholder of the company without contributing a single
peso to pay for the shares of stock given to him by Ruperto
V. Tankeh. This fact was admitted by both petitioner and
respondent in their respective pleadings submitted to the
lower court.

_______________
67 Id., at pp. 99-100.

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60 SUPREME COURT REPORTS ANNOTATED

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 In his Amended Complaint,68 the petitioner admitted
that “he had never invested any amount in said corporation
and that he had never been an actual member of said
corporation. All the money supposedly invested by him
were put up by defendant Ruperto V. Tankeh.”69 This fact
alone should have already alerted petitioner to the gravity
of the obligation that he would be undertaking as a
member of the board of directors and the attendant
circumstances that this undertaking would entail. It also
does not add any evidentiary weight to strengthen
petitioner’s claim of fraud. If anything, it only strengthens
the position that petitioner’s consent was not obtained
through insidious words or deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of
some exaggerations in trade which negates fraud. It reads:

Art. 1340. The usual exaggerations in trade, when the

other party had an opportunity to know the facts, are not in
themselves fraudulent.

Given the standing and stature of the petitioner, he was

in a position to ascertain more information about the
contract.
Songco v. Sellner70 serves as one of the key guidelines in
ascertaining whether a party is guilty of fraud in obtaining
the consent of the party claiming that fraud existed. The
plaintiff Lamberto Songco sought to recover earnings from
a promissory note that defendant George Sellner had made
out to him for payment of Songco’s sugar cane production.
Sellner claimed that he had refused to pay because Songco
had promised that the crop would yield 3,000 piculs of
sugar, when in fact, only 2,017 piculs of sugar had been
produced. This Court held that Sellner would still be liable
to pay the promissory note, as follows:

_______________
68 Id., at p. 76.
69 Id., at p. 78.
70 37 Phil. 254 (1917).

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Notwithstanding the fact that Songco’s statement as to

the probable output of his crop was disingenuous and
uncandid, we nevertheless think that Sellner was bound
 and that he must pay the price stipulated. The
representation in question can only be considered matter of
opinion as the cane was still standing in the field, and the
quantity of the sugar it would produce could not be known
with certainty until it should be harvested and milled.
Undoubtedly Songco had better experience and better
information on which to form an opinion on this question
than Sellner. Nevertheless the latter could judge with his
own eyes as to the character of the cane, and it is shown
that he measured the fields and ascertained that they
contained 96 1/2 hectares.
x x x x
The law allows considerable latitude to seller’s
statements, or dealer’s talk; and experience teaches that it
is exceedingly risky to accept it at its face value. The refusal
of the seller to warrant his estimate should have
admonished the purchaser that that estimate was put forth
as a mere opinion; and we will not now hold the seller to a
liability equal to that which would have been created by a
warranty, if one had been given.
x x x x
It is not every false representation relating to the subject
matter of a contract which will render it void. It must be as
to matters of fact substantially affecting the buyer’s
interest, not as to matters of opinion, judgment, probability,
or expectation. (Long vs. Woodman, 58 Me., 52; Hazard vs.
Irwin, 18 Pick. [Mass.], 95; Gordon vs. Parmelee, 2 Allen
[Mass.], 212; Williamson vs. McFadden, 23 Fla., 143, 11
Am. St. Rep., 345.) When the purchaser undertakes to make
an investigation of his own, and the seller does nothing to
prevent this investigation from being as full as he chooses
to make it, the purchaser cannot afterwards allege that the
seller made misrepresentations. (National Cash Register
Co. vs. Townsend, 137 N. C., 652, 70 L. R. A., 349;
Williamson vs. Holt, 147 N. C., 515.)

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We are aware that where one party to a contract, having

special or expert knowledge, takes advantage of the
ignorance of another to impose upon him, the false
representation may afford ground for relief, though
otherwise the injured party would be bound. But we do not
think that the fact that Songco was an experienced farmer,
 while Sellner was, as he claims, a mere novice in the
business, brings this case within that exception.71

The following facts show that petitioner was fully aware

of the magnitude of his undertaking:
First, petitioner was fully aware of the financial reverses
that Sterling Shipping Lines, Inc. had been undergoing,
and he took great pains to release himself from the
obligation.
Second, his background as a doctor, as a bank organizer,
and as a businessman with experience in the textile
business and real estate should have apprised him of the
irregularity in the contract that he would be undertaking.
This meant that at the time petitioner gave his consent to
become a part of the corporation, he had been fully aware
of the circumstances and the risks of his participation.
Intent is determined by the acts.
Finally, the records showed that petitioner had been
fully aware of the effect of his signing the promissory note.
The bare assertion that he was not privy to the records
cannot counteract the fact that petitioner himself had
admitted that after he had severed ties with his brother, he
had written a letter seeking to reach an amicable
settlement with respondent Rupert V. Tankeh. Petitioner’s
actions defied his claim of a complete lack of awareness
regarding the circumstances and the contract he had been
entering.
The required standard of proof — clear and convincing
evidence — was not met. There was no dolo causante or
fraud used to obtain the petitioner’s consent to enter into
the con-

_______________
71 Id., at pp. 257-259.

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tract. Petitioner had the opportunity to become aware of

the facts that attended the signing of the promissory note.
He even admitted that he has a lawyer-son who the
petitioner had hoped would assist him in the
administration of Sterling Shipping Lines, Inc. The totality
of the facts on record belies petitioner’s claim that fraud
was used to obtain his consent to the contract given his
personal circumstances and the applicable law.
 However, in refusing to allow petitioner to participate in
the management of the business, respondent Ruperto V.
Tankeh was liable for the commission of incidental fraud.
In Geraldez, this Court defined incidental fraud as “those
which are not serious in character and without which the
other party would still have entered into the contract.”72
Although there was no fraud that had been undertaken
to obtain petitioner’s consent, there was fraud in the
performance of the contract. The records showed that
petitioner had been unjustly excluded from participating in
the management of the affairs of the corporation. This
exclusion from the management in the affairs of Sterling
Shipping Lines, Inc. constituted fraud incidental to the
performance of the obligation.
This can be concluded from the following circumstances.
First, respondent raised in his Answer that petitioner
“could not have promised plaintiff that he would be a part
of the administration staff”73 since petitioner had been fully
aware that, as a corporation, Sterling Shipping Lines, Inc.
acted through its board of directors. Respondent admitted
that petitioner had been “an incorporator and member of
the board of directors”74 and that petitioner “was fully
aware of the by-laws of the company.”75 It was incumbent
upon respondent to act in good faith and to ensure that
petitioner would

_______________
72 Geraldez v. Court of Appeals, supra note 50, at p. 336.
73 Rollo, p. 100.
74 Id.
75 Id.

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Tankeh vs. Development Bank of the Philippines

not be excluded from the affairs of Sterling Shipping Lines,

Inc. After all, respondent asserted that petitioner had
entered into the contract voluntarily and with full consent.
Second, respondent claimed that if petitioner was intent
on severing his connection with the company, all that
petitioner had to do was to sell all his holdings in the
company. Clearly, the respondent did not consider the fact
that the sale of the shares of stock alone did not free
petitioner from his liability to Development Bank of the
Philippines or Asset Privatization Trust, since the latter
had signed the promissory and had still been liable for the
loan. A sale of petitioners’ shares of stock would not have
negated the petitioner’s responsibility to pay for the loan.
Third, respondent Ruperto V. Tankeh did not rebuff
petitioner’s claim that the latter only received news about
the sale of the vessel M/V Sterling Ace through the media
and not as one of the board members or directors of
Sterling Shipping Lines, Inc.
All in all, respondent Ruperto V. Tankeh’s bare
assertion that petitioner had access to the records cannot
discredit the fact that the petitioner had been effectively
deprived of the opportunity to actually engage in the
operations of Sterling Shipping Lines, Inc. Petitioner had a
reasonable expectation that the same level of engagement
would be present for the duration of their working
relationship. This would include an undertaking in good
faith by respondent Ruperto V. Tankeh to be transparent
with his brother that he would not automatically be made
part of the company’s administration.
However, this Court finds there is nothing to support
the assertion that Sterling Shipping Lines, Inc. and Arenas
committed incidental fraud and must be held liable.
Sterling Shipping Lines, Inc. acted through its board of
directors, and the liability of respondent Tankeh cannot be
imposed on Sterling Shipping Lines, Inc. The shipping line
has a separate and distinct personality from its officers,
and petitioner’s assertion that the corporation conspired
with the respondent Ruperto
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V. Tankeh to defraud him is not supported by the evidence

and the records of the case.
As for Arenas, in Lim Tanhu v. Remolete,76 this Court
held that:

[In] all instances where a common cause of action is alleged

against several defendants, some of whom answer and the
others do not, the latter or those in default acquire a vested
right not only to own the defense interposed in the answer
of their co-defendant or co-defendants not in default but
also to expect a result of the litigation totally common with
them in kind and in amount whether favorable or
unfavorable. The substantive unity of the plaintiffs’ cause
against all the defendants is carried through to its adjective
 phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself.77

As such, despite Arenas’ failure to submit his Answer to

the Complaint or his declaration of default, his liability or
lack thereof is concomitant with the liability attributed to
his co-defendants or co-respondents. However, unlike
respondent Ruperto V. Tankeh’s liability, there is no action
or series of actions that may be attributed to Arenas that
may lead to an inference that he was liable for incidental
fraud. In so far as the required evidence for both Sterling
Shipping Lines, Inc. and Arenas is concerned, there is no
basis to justify the claim of incidental fraud.
In addition, respondents Development Bank of the
Philippines and Asset Privatization Trust or Privatization
and Management Office cannot be held liable for fraud.
Incidental fraud cannot be attributed to the execution of
their actions, which were undertaken pursuant to their
mandated functions under the law. “Absent convincing
evidence to the contrary,

_______________
76 G.R. No. L-40098, August 29, 1975, 66 SCRA 425.
77 Id., at p. 458.

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66 SUPREME COURT REPORTS ANNOTATED

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the presumption of regularity in the performance of

official functions has to be upheld.”78
The Obligation to Pay Damages
As such, respondent Ruperto V. Tankeh is liable to his
older brother, petitioner Alejandro, for damages. The
obligation to pay damages to petitioner is based on several
provisions of the Civil Code.
Article 1157 enumerates the sources of obligations.

Article 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)

This enumeration does not preclude the possibility that

a single action may serve as the source of several
obligations to pay damages in accordance with the Civil
Code. Thus, the liability of respondent Ruperto V. Tankeh
is based on the law, under Article 1344, which provides
that the commission of incidental fraud obliges the person
employing it to pay damages.
In addition to this obligation as the result of the contract
between petitioner and respondents, there was also a
patent abuse of right on the part of respondent Tankeh.
This abuse of right is included in Articles 19 and 21 of the
Civil Code which provide that:

Article 19. Every person must, in the exercise of his

rights and in the performance of his duties, act with jus-

_______________
78 People v. Lapura, 325 Phil. 346, 352; 255 SCRA 85, 92 (1996).

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tice, give everyone his due, and observe honesty and good
faith.
Article 21. Any person who wilfully causes loss or injury
to another in manner that is contrary to morals, good
customs or public policy shall compensate the latter for the
damage.

Respondent Ruperto V. Tankeh abused his right to

pursue undertakings in the interest of his business
operations. This is because of his failure to at least act in
good faith and be transparent with petitioner regarding
Sterling Shipping Lines, Inc.’s daily operations.
In National Power Corporation v. Heirs of Macabangkit
Sangkay,79 this Court held that:

When a right is exercised in a manner not conformable with

the norms enshrined in Article 19 and like provisions on
human relations in the Civil Code, and the exercise results
to [sic] the damage of [sic] another, a legal wrong is
committed and the wrongdoer is held responsible.80

The damage, loss, and injury done to petitioner are

shown by the following circumstances.
First, petitioner was informed by Development Bank of
the Philippines that it would still pursue his liability for
the payment of the promissory note. This would not have
happened if petitioner had allowed himself to be fully
apprised of Sterling Shipping Lines, Inc.’s financial straits
and if he felt that he could still participate in the
company’s operations. There is no evidence that respondent
Ruperto V. Tankeh showed an earnest effort to at least
allow the possibility of making petitioner part of the
administration a reality. The

_______________
79 G.R. No. 165828, August 24, 2011, 656 SCRA 60.
80 Id., at p. 83, citing Cebu Country Club, Inc. v. Elizagaque, G.R. No.
160273, January 18, 2008, 542 SCRA 65, 74-75.

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68 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

respondent was the brother of the petitioner and was also

the primary party that compelled petitioner Alejandro
Tankeh to be solidarily bound to the promissory note.
Ruperto V. Tankeh should have done his best to ensure
that he had exerted the diligence to comply with the
obligations attendant to the participation of petitioner.
Second, respondent Ruperto V. Tankeh’s refusal to enter
into an agreement or settlement with petitioner after the
latter’s discovery of the sale of the M/V Sterling Ace was an
action that constituted bad faith. Due to Ruperto’s refusal,
his brother, petitioner Alejandro, became solidarily liable
for an obligation that the latter could have avoided if he
had been given an opportunity to participate in the
operations of Sterling Shipping Lines, Inc. The simple sale
of all of petitioner’s shares would not have solved
petitioner’s problems, as it would not have negated his
liability under the terms of the promissory note.
Finally, petitioner is still bound to the creditors of
Sterling Shipping Lines, Inc., namely, public respondents
Development Bank of the Philippines and Asset
Privatization Trust. This is an additional financial burden
for petitioner. Nothing in the records suggested the
possibility that Development Bank of the Philippines or
Asset Privatization Trust through the Privatization
Management Office will not pursue or is precluded from
pursuing its claim against the petitioner. Although
petitioner Alejandro voluntarily signed the promissory note
and became a stockholder and board member, respondent
should have treated him with fairness, transparency, and
consideration to minimize the risk of incurring grave
financial reverses.
In Francisco v. Ferrer,81 this Court ruled that moral
damages may be awarded on the following bases:

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81 405 Phil. 741; 353 SCRA 261 (2001).

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Tankeh vs. Development Bank of the Philippines

To recover moral damages in an action for breach of

contract, the breach must be palpably wanton, reckless,
malicious, in bad faith, oppressive or abusive.
Under the provisions of this law, in culpa contractual or
breach of contract, moral damages may be recovered when
the defendant acted in bad faith or was guilty of gross
negligence (amounting to bad faith) or in wanton disregard
of his contractual obligation and, exceptionally, when the
act of breach of contract itself is constitutive of tort
resulting in physical injuries.
Moral damages may be awarded in breaches of contracts
where the defendant acted fraudulently or in bad faith.
Bad faith does not simply connote bad judgment or
negligence, it imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of known
duty through some motive or interest or ill will that
partakes of the nature of fraud.
x x x x
The person claiming moral damages must prove the
existence of bad faith by clear and convincing evidence for
the law always presumes good faith. It is not enough that
one merely suffered sleepless nights, mental anguish,
serious anxiety as the result of the actuations of the other
party. Invariably such action must be shown to have been
willfully done in bad faith or with ill motive. Mere
allegations of besmirched reputation, embarrassment and
sleepless nights are insufficient to warrant an award for
moral damages. It must be shown that the proximate cause
thereof was the unlawful act or omission of the [private
respondent] petitioners.
An award of moral damages would require certain
conditions to be met, to wit: (1) first, there must be an
injury, whether physical, mental or psychological, clearly
sustained by the claimant; (2) second, there must be
 culpable act or omission factually established; (3) third, the
wrongful act or omission of the defendant is the proximate
cause of the injury sustained by the claimant; and (4)
fourth, the award of damages is predicated on any of

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70 SUPREME COURT REPORTS ANNOTATED

Tankeh vs. Development Bank of the Philippines

the cases stated in Article 2219 of the Civil Code. (Citations

omitted)82

In this case, the four elements cited in Francisco are

present. First, petitioner suffered an injury due to the
mental duress of being bound to such an onerous debt to
Development Bank of the Philippines and Asset
Privatization Trust. Second, the wrongful acts of undue
exclusion done by respondent Ruperto V. Tankeh clearly
fulfilled the same requirement. Third, the proximate cause
of his injury was the failure of respondent Ruperto V.
Tankeh to comply with his obligation to allow petitioner to
either participate in the business or to fulfill his fiduciary
responsibilities with candor and good faith. Finally, Article
221983 of the Civil Code provides that moral damages may
be awarded in case of acts and actions referred to in Article
21, which, as stated, had been found to be attributed to
respondent Ruperto V. Tankeh.
In the Appellant’s Brief,84 petitioner asked the Court of
Appeals to demand from respondents, except from
respondent Asset Privatization Trust, the amount of five
million pesos (P5,000,000.00). This Court finds that the
amount of five hundred thousand pesos (P500,000.00) is a
sufficient amount of moral damages.

_______________
82 Id., at pp. 748-750; pp. 265-266.
83 CIVIL CODE, Article 2219. Moral damages may be recovered in the
following and analogous cases:
(1) A criminal offense resulting in physical injuries; (2) Quasi-delicts
causing physical injuries; (3) Seduction, abduction, rape, or other
lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary
detention or arrest; (6) Illegal search; (7) Libel, slander or any other form
of defamation; (8) Malicious prosecution; (9) Acts mentioned in Article
309; (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32,
34, and 35.
84 Rollo, p. 214.

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Tankeh vs. Development Bank of the Philippines

In addition to moral damages, this Court may also

impose the payment of exemplary damages. Exemplary
damages are discussed in Article 2229 of the Civil Code, as
follows:

ART. 2229. Exemplary or corrective damages are

imposed, by way of example or correction of the public good,
in addition to moral, temperate, liquidated or compensatory
damages.

Exemplary damages are further discussed in Articles

2233 and 2234, particularly regarding the pre-requisites of
ascertaining moral damages and the fact that it is
discretionary upon this Court to award them or not:

ART. 2233. Exemplary damages cannot be recovered as a

matter of right; the court will decide whether or not they
should be adjudicated.
ART. 2234. While the amount of the exemplary damages
need not be proven, the plaintiff must show that he is
entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not
exemplary damages should be awarded x x x

The purpose of exemplary damages is to serve as a

deterrent to future and subsequent parties from the
commission of a similar offense. The case of People v.
Rante85 citing People v. Dalisay86 held that:

Also known as ‘punitive’ or ‘vindictive’ damages, exemplary

or corrective damages are intended to serve as a deterrent
to serious wrong doings, and as a vindication of undue
sufferings and wanton invasion of the rights of an injured or
a punishment for those guilty of outrageous conduct. These
terms are generally, but not always, used interchangeably.
In common law, there is preference in the use of exemplary
damages when the award is to ac-

_______________
85 G.R. No. 184809, March 29, 2010, 617 SCRA 115.
86 G.R. No. 188106, November 25, 2009, 605 SCRA 807.

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72 SUPREME COURT REPORTS ANNOTATED

 Tankeh vs. Development Bank of the Philippines

count for injury to feelings and for the sense of indignity

and humiliation suffered by a person as a result of an injury
that has been maliciously and wantonly inflicted, the theory
being that there should be compensation for the hurt caused
by the highly reprehensible conduct of the defendant —
associated with such circumstances as willfulness,
wantonness, malice, gross negligence or recklessness,
oppression, insult or fraud or gross fraud — that intensifies
the injury. The terms punitive or vindictive damages are
often used to refer to those species of damages that may be
awarded against a person to punish him for his outrageous
conduct. In either case, these damages are intended in good
measure to deter the wrongdoer and others like him from
similar conduct in the future.87

To justify an award for exemplary damages, the

wrongful act must be accompanied by bad faith, and an
award of damages would be allowed only if the guilty party
acted in a wanton, fraudulent, reckless or malevolent
manner.88 In this case, this Court finds that respondent
Ruperto V. Tankeh acted in a fraudulent manner through
the finding of dolo incidente due to his failure to act in a
manner consistent with propriety, good morals, and
prudence.
Since exemplary damages ensure that future litigants or
parties are enjoined from acting in a similarly malevolent
manner, it is incumbent upon this Court to impose the
damages in such a way that will serve as a categorical
warning and will show that wanton actions will be dealt
with in a similar manner. This Court finds that the amount
of two hundred thousand pesos (P200,000.00) is sufficient
for this purpose.

_______________
87 Id., at pp. 126-127.
88 Cervantes v. Court of Appeals, G.R. No. 125138, March 2, 1999, 304
SCRA 25, 33 citing J. C. SANGCO, PHILIPPINE LAW ON TORTS AND DAMAGES,
1034 (Vol. II, 1993).

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Tankeh vs. Development Bank of the Philippines

In sum, this Court must act in the best interests of all

future litigants by establishing and applying clearly
 defined standards and guidelines to ascertain the existence
of fraud.
WHEREFORE, this Petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals as to the
assailed Decision in so far as the finding of fraud is
SUSTAINED with the MODIFICATION that respondent
RUPERTO V. TANKEH be ordered to pay moral damages
in the amount of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) and the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00) by way of exemplary
damages.
SO ORDERED.

Velasco, Jr. (Chairperson), Abad, Villarama, Jr.**  and

Mendoza, JJ., concur.

Petition partially granted, judgment sustained with

modification.

Notes.―A suit for the annulment of a voidable contract

on account of fraud shall be filed within four years from the
discovery of the same. (First Philippine Holdings
Corporation vs. Trans Middle East [Phils.] Equities, Inc.,
607 SCRA 605 [2009])
Voidable contracts may be ratified expressly or
impliedly. Implied ratification may take diverse forms,
such as by silence or acquiescence; by acts showing
approval or adoption of the contract; or by acceptance and
retention of benefits flowing therefrom. (Viloria vs.
Continental Airlines, Inc., 663 SCRA 57 [2012])
――o0o―― 

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**  Designated Member per Raffle dated February 4, 2013.

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