I. CASE

Facts:

Client (owner) wants to sell a condominium unit. Deed of Restrictions for sale of condo unit provides that:

o Developer of the condo has right of first refusal Owner of condo unit already sent a notice of intention or offered to sell the unit to developer,

pursuant to the developer’s right of first refusal.o The offer of the purchase price was “net of taxes”. o The owner’s understanding of “net of taxes” is that the capital gains taxes is already

included. Purchase price = P100M Capital Gains Tax = P5M So, the purchase price will be grossed up to P105M, then the owner would in

effect receive P100M in total. The developer accepted the offer of the owner. But, the condo unit was classified as an ordinary asset, thus the ordinary corporate gross

income tax was imposed on the condo unit. Parties’ contentions

o Owner: I committed a mistake at the time I made an offer of the condo unit, my

consent was vitiated. Thus, this is a ground to annul the contract.o Developer

I already accepted the offer; thus, there is already a perfected contract to sell.

Possible remedy: specific performance (?)

Issue: Whether or not the owner committed a mistake which vitiated its consent, thus the contract can be annulled.

Whether or not mistake on the meaning of “net of taxes” refers to the substance of the thing which is the object of the contract, thus invalidating the owner’s consent.

II. RELEVANT LAWS

A. For the owner of the unit (seller)

Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.

B. For the developer (buyer)

Is specific performance for contract to sell with right of first refusal allowed? o Ang Yu v. Asuncion

III. RELEVANT CASES

CASE NAME TYPE OF MISTAKE COURT RULING RATIO

(1) Roman Catholic v. Pante (G.R. No. 174118 April 11, 2012)

For mistake as to the qualification of one of the parties to vitiate consent, two requisites must concur:

o 1. the mistake must be either with regard to the identity or with regard to the qualification of one of the contracting parties; and

o 2. the identity or qualification must have been the principal consideration for the celebration of the contract. 16

In the present case, the Church contends that its consent to sell the lot was given on the mistaken impression arising from Pante's fraudulent misrepresentation that he had been the actual occupant of the lot. Willful misrepresentation existed because of its policy to sell its lands only to their actual occupants or residents. Thus, it considers the buyer's actual occupancy or residence over the subject lot a qualification necessary to induce it to sell the lot

Whether the facts, established during trial, support this contention shall determine if the contract between the Church and Pante should be annulled. In the process of weighing the evidentiary value of these established facts, the courts should consider both the parties' objectives and the subjective aspects of the transaction, specifically, the parties' circumstances — their condition, relationship, and other attributes — and their conduct at the time of and subsequent to the contract. These considerations will show what influence the alleged error exerted on the parties and their intelligent, free, and voluntary consent to the contract.

Contrary to the Church's contention, the actual occupancy or residency of a buyer over the land does not appear to be a necessary qualification that the Church requires before it could sell its land. Had this been indeed its policy, then neither Pante nor the spouses Rubi would qualify as buyers of the 32-square meter lot, as none of them actually occupied or resided on the lot. We note in this regard that the lot was only a 2x16-meter strip of rural land used as a passageway from Pante's house to the municipal road.

The surrounding circumstances actually indicate that the Church was aware that Pante was using the lot merely as a passageway. There could not have been a deliberate, willful, or fraudulent act committed by Pante that misled the Church into giving its consent to the sale of the subject lot in his favor. That Pante was not an actual occupant of the lot he purchased was a fact that the Church either ignored or waived as a requirement. In any case, the Church was by no means led to believe or do so by Pante's act; there had been no vitiation of the Church's consent to the sale of the lot to Pante.

(2) Rural Bank v. CA G.R. No. L-32116. April 21, 1981 A contract may be annulled on the ground of vitiated consent, if deceit by a third person, even

without connivance or complicity with one of the contracting parties, resulted in mutual error on the part of the parties to the contract. In the case at bar, therefore the promissory note signed by Castro as co-maker for the Valencias may not be declared valid between the bank and Castro, and the mortgage contract on Castro's property, insofar as it secures the Valencia's obligation, binding on Castro. For, while the contracts may not be invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was not a participant thereto, such may however be invalidated on the ground of substantial mistake mutually committed by them as a consequence of the fraud and misrepresentation inflicted by the

Valencias. If Castro had been aware of what she signed and the bank of the true qualifications of the loan applicants, it is evident that they would not have given their consent to the contracts.

Although the amended complaint made no mention of mistake being incurred in by the bank and Castro, such mention is not essential in order that the promissory note may be declared of no binding effect between them and the mortgage valid up to the amount of P3,000.00 only. The reason is that the mistake they mutually suffered was a mere consequence of the fraud perpetrated by the Valencias against them. Thus, the fraud particularly averred in the complaint, having been proven, is deemed sufficient basis for the declaration of the promissory note invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract valid only up to the amount of P3,000.00

City of Manila v. Entote In this case, the consent of Entote was vitiated by mistake in believing that the City could validly

impose the conditions. "The argument that Entote could have had the assistance of counsel, and that considering his

intelligence he could not have committed the mistake, is neither here nor there. Entote sincerely believed that the respondents could legally impose the condition that the alley must always be open to the public. He committed a mistake in good faith. Hence, he is entitled to relief from the adverse effects of his mistake. . . ."

Atilano v. Atilano the object thereof, as intended and understood by the parties, was that specific portion where the

vendee was then already residing, where he reconstructed his house at the end of the war, and where his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and that its designation as lot No. 535-E in the deed of sale was simple mistake in the drafting of the document.1âwphi1.ñet The mistake did not vitiate the consent of the parties, or affect the validity and binding effect of the contract between them.