Fraud in performance of obligation

Article 1170 of the Civil Code states the grounds for liability which may entitle an injured party for damages, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101) (Emphasis supplied)
The term fraud used in Article 1170 is the deliberate and intentional evasion of the normal fulfillment of obligation.[1] Fraud implies some kind of malice or dishonesty and it cannot cover cases of mistake and errors of judgment made in good faith.[2] It is synonymous to bad faith in that it involves a design to mislead or deceive another.[3]

There are two kinds of fraud: a) dolo incidente, or those that are committed in the performance of pre-existing obligation; and b) dolo causante, or the fraud to induced the other party to enter into a contract. The former gives rise to an action for damages while the latter makes the contract voidable and the remedy of the party is to seek the annulment of the contract.

[1] Legaspi Oil v. CA, G.R. No. 96505, July 1, 1993.

[2] O’leary Macondray & Co., 45 Phil. 812 (1924); Solid Bank Corp. vs. Mindanao Ferroalloy Corp., 464 SCRA 409 (2005).

[3] Cathay Pacific Airways, Ltd. vs. Vasquez, 399 SCRA 207 (2003).