What is the difference between fraud that voids a contract and fraud that only gives damages?

Causal fraud: the deceit that made you sign

Fraud is causal when, without it, you would not have entered into the contract at all. The lie went to the heart of the bargain — what the property was, what the business owned, what you were signing. The Code sets two requirements before that kind of fraud will make the contract voidable. It must be serious, meaning weighty enough to determine consent rather than a trivial exaggeration; and it must not have been employed by both contracting parties. The consequence is drastic: the contract can be annulled, and the parties return what they received. But it is voidable, not void — it stands as a valid contract unless and until it is annulled.

Incidental fraud: the deceit that only shifted the terms

Incidental fraud is the deceit that did not induce the contract but influenced its terms. You would have bought the vehicle anyway; the seller's misstatement about its service history simply got him a better price. Here the Code gives one remedy only — incidental fraud only obliges the person employing it to pay damages. The contract survives, obligations under it remain enforceable, and the injured party is compensated in money for the difference the deceit made. This is why a buyer who wants out of a deal, rather than a discount, must be able to show that the deceit reached the decision to contract at all.

When both sides deceived each other

The article's second requirement is easy to miss and often decisive. Fraud will not make a contract voidable if it has been employed by both contracting parties. Where each side misrepresented something material, neither can use the other's deceit as a lever to escape. The law will not assist a party who came to the transaction with unclean hands to undo it. This matters in disputes where both parties overstated their position — inflated valuations on one side, concealed liabilities on the other. Before demanding annulment, be honest with yourself and with counsel about what your own side represented, because the other party will raise it.

What this article does not decide

Seriousness is a question of fact judged against the whole transaction, not a label you can assign in advance, and the burden of proving fraud rests on the person alleging it. Fraud is never presumed; it must be established by evidence, which in practice means documents, correspondence and figures rather than recollection. The article also says nothing about deadlines: an action to annul a voidable contract is subject to a prescriptive period, and delay can extinguish the remedy even where the deceit was genuine. Nor does it address ratification — a party who confirms the contract after discovering the truth may lose the right to annul while keeping none of the leverage. If you believe you were misled into a significant agreement, book a consultation before the transaction is further performed.

Cases citing this provision

These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.

• Coca-Cola Bottlers Phils, Inc. vs. Spouses Efren and Lolita Soriano, G.R. No. 211232, April 11, 2018 — read the decision on LawPhil →
• Paradigm Development Corporation of the Philippines vs. Bank of the Philippine Islands, G.R. No. 191174, June 7, 2017 — read the decision on LawPhil →
• Nenita Carganillo vs. People of the Philippines, G.R. No. 182424, September 22, 2014 — read the decision on LawPhil →
• Spouses Carmen Tongson and Jose Tongson vs. Emergency Pawnshop Bula, Inc. et al, G.R. No. 167874, January 15, 2010 — read the decision on LawPhil →

Related provisions

• Civil Code, Article 1344 — Causal vs. Incidental Fraud