Woodhouse vs.

Halili
July 31, 1953| Labrador, J.| Fraud or dolo (Art. 1171) Dolo incidente and dolo causante
PETITIONER: Charles Woodhouse
RESPONDENT: Fortunato Halili
SUMMARY: Woodhouse entered into a written agreement with Halili that a partnership shall be organized for the bottling and
distribution of Mission soft drinks. Halili would finance while Woodhouse would secure an exclusive franchise with Mission Dry
corporation. Woodhouse was only able to secure a temporary 30 day option for exclusive franchise and thus, Halili would not
execute the partnership agreement claiming that Woodhouses misrepresentation of an exclusive franchise annuls the agreement
between them. SC held that there was misrepresentation on Woodhouses part but this was not the principal consideration which
induced Halili to enter into a partnership.
DOCTRINE: Article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a
ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages.
This Court had held that 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.

FACTS:
1. Woodhouse entered into a written agreement with Halili
stating among others that: 1) that they shall organize a
partnership for the bottling and distribution of Mission
soft drinks, plaintiff to act as industrial partner or
manager, and the defendant as a capitalist, furnishing the
capital necessary therefore; 2) that plaintiff was to secure
the Mission Soft Drinks franchise for and in behalf of the
proposed partnership and 3) that the plaintiff was to
receive 30 per cent of the net profits of the business.
2. Before the partnership was actually established the Halili
required Woodhouse to secure an exclusive franchise for
the said venture.
3. The plaintiff sought to obtain the said exclusive franchise
but was only given a temporary one, "a 30 days" option
on exclusive bottling and distribution rights for the
Philippines".
4. The parties signed the agreement before they went to the
US. In the US, a formal franchise agreement was entered
into the Mission Dry Corp. and Halili and/or Woodhouse,
which granted defendant the exclusive right, license, and
authority to produce, bottle, distribute, and sell Mision
beverages in the Philippines.
5.
The defendant then found out about the temporary
franchise right given to the plaintiff, different from the
exclusive franchise rights they stipulated in their
contract.
6. When the bottling plant was already in operation, plaintiff
demanded that the partnership papers be executed.
Defendant Halili gave excuses and would not execute said
agreement, thus the complaint by the plaintiff
7.
Plaintiff prays for the: 1)execution of the contract of
partnership; 2) accounting of profits and 3)share thereof
of 30 percent.
8. The Defendant on the other hand claims that: 1) the
defendants consent to the agreement, was secured by the
representation of plaintiff that he was the owner, or was
about to become owner of an exclusive bottling franchise,

9.

which representation was false,and that plaintiff agreed to

contribute to the exclusive franchise to the partnership,
but plaintiff failed to do so.
CFI ruling: 1)accounting of profits and to pay plaintiff 15
% of the profits and that the 2) execution of contract
cannot be enforced upon parties. Lastly, the 3) fraud
wasnt proved

ISSUE/S:
1. WON plaintiff falsely represented that he had an exclusive
franchise to bottle Mission beverages YES
2. WON false representation, if it existed, annuls the
agreement to form the partnership-NO
RULING: Judgment appealed from AFFIRMED with
MODIFICATIONS
RATIO:
1.

Plaintiff did make false representations

and this can be seen through his letters
to Mission Dry Corporation asking for
the latter to grant him temporary
franchise so that he could settle the
agreement
with
defendant. The
defendant believed, or was made to
believe, that plaintiff was the grantee of
an exclusive franchise.

2.

The immediate reaction of defendant,

when in California he learned that
plaintiff did not have the exclusive
franchise, was to reduce, plaintiffs
participation in the net profits to one
half of that agreed upon. Also, he would
not have gone to Cali and incurred
expenses for the trip if he believed that
there is no exclusive privilege.

3.

Fraud was undoubtedly employed by

the plaintiff to secure the consent of the
defendant to enter into the contract with
him by representing himself as holder
of exclusive franchise rights when in
fact he only holds a temporary franchise
right good for 30 days.

4.

The record abounds with circumstances

indicative of 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. The original draft prepared
by defendants counsel was to the effect
that plaintiff obligated himself to secure
a franchise for the defendant.

5.

The fraud employed, however was not

such as to render the contract null and
void but only such as to hold the
plaintiff liable for damages. Such false
representation was not the causal
consideration,
or
the
principal
inducement, that led plaintiff to enter
into the partnership agreement. 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 per cent
granted him in the net profits of the
partnership business. Defendant agreed
to give plaintiff 30 per cent share in the
net profits because he was transferring
his exclusive franchise to the
partnership
6.

Having arrived at the conclusion that

the contract cannot be declared null and
void, may the agreement be carried out
or executed ? SC finds no merit in the
claim of plaintiff that the partnership
was already a fait accompli from the
time of the operation of the plant, as it
is evident from the very language of the
agreement that the parties intended that
the execution of the agreement to form
a partnership was to be carried out at a
later date. The defendant may not be
compelled against his will to carry out
the agreement nor execute the
partnership papers. The law recognizes
the individuals freedom or liberty to do
an act he has promised to do, or not to
do it, as he pleases."