Misplaced distrust

This is a case where the consent of one of the contracting parties was obtained by fraud. Among the issues raised here are: the nature of said contract, whether it is void or voidable, and the start of the period of prescription.

The case involved 6,299,179 shares of stock of a commercial bank (PCIB) owned by a holding company engaged in power generation and distribution, property development and manufacturing (FPHC) which it sold to a domestic corporation owned by the late dictator Marcos’ brother-in-law Kokoy Romualdez (TMEE) on May 24, 1984.

The said shares are part of the sequestered properties allegedly amassed by Romualdez during the 20-year reign of Marcos and are among the ill-gotten wealth sought to be recovered by PCGG in a civil case (No.0035) pending before the Sandiganbayan.

On December 28, 1988 FPHC filed a complaint-in-intervention in the said civil case claiming ownership of said shares. In its complaint FPHC repeatedly and persistently alleged that the sale of said shares to TMEE was approved by a dummy board after fraud and devious financial schemes attended the takeover of FPHC’s control and management employed by Romualdez and his cohorts. FPHC thus claimed that said sale was void ab initio.

TMEE however filed a motion to dismiss said complaint in intervention alleging among other things, that the action of FPHC had already prescribed. TMEE argued that under Article 1391 of the Civil Code FPHC had only four years from May 24, 1984 or until May 24 1988 within which to annul the sale on the ground of fraud. So its filing of the complaint in intervention on December 28, 1988 was seven months after the prescriptive period had lapsed.

In opposition, FPHC maintained that the sale of the PCIB shares was void initio since the transaction was approved by its dummy board and signed by its dummy officers so the action for declaration of its nullity does not prescribed. Besides even assuming that Article 1391 of the Civil Code was applicable, FPHC contended that the 4 year period should be reckoned from February 26, 1986 when Marcos was deposed from power and fled the country, for it was only from that date onwards when the cause of the vitiation of the consent, i.e. intimidation, violence and threats ceased. Was FPHC correct?

No. FPHC has repeatedly and persistently alleged that the root cause of the nullity of the sale was fraud. Contracts where consent is given through fraud are voidable or annullable (Article 1390 [2], Civil Code). These are not void ab initio since voidable contracts are existent, valid and binding although they can be annulled because of the vitiated consent of one of the parties. As the complaint-in-intervention substantially alleged that the contract was voidable, the four-year prescriptive period from discovery of the fraud under Article 1391 of the Civil Code will apply.

FPHC’s argument that the four-year period should be reckoned from February 24, 1986 when the threat and intimidation ceased is unconvincing because the ground relied upon is not threat or intimidation but fraud. Here, FPHC did not deny that it had actual knowledge of the fraud from the time the transaction took place on May 24, 1984. If indeed the transaction was questionable to its point of view, FPHC should have at least exerted token effort to assail its validity. Instead of immediately availing itself of the court, FPHC discounted judicial recourse as they looked upon the judiciary with indifference and distrust. This attitude is certainly inconsistent with that of a person who strongly believes in the veracity of his proprietary rights. Mistrust of the courts and judicial processes is no excuse for their non-observance of the prescriptive period as laid down by law (First Philippine Holdings vs. Trans Middle East Equities, G.R. 179505, December 4, 2009).

Note: Books containing compilation of my articles on Labor Law and Criminal Law (Vols. I and II) are now available. Call tel. 7249445.

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