Prescriptive Period for Annulment of Contract (Part 2)

Under Article 1391 of the Civil Code, an action for annulment of a contract must be brought within 4 years.

In Associated Bank vs. Spouses Justiniano S. Montano, Sr. and Ligaya Montano, et al, G.R. No. 166383, October 16, 2009, the Supreme Court ruled that under the circumstances of that case, an action for the annulment of a sale contract based on threat and intimidation allegedly committed by cronies of then President Marcos may be brought within 4 years from February 21, 1986, when President Marcos was ousted from power (see posting of November 22, 2009).  In Associated Bank, the respondents claimed that Tres Cruces Agro-Industrial Corporation was only forced to sell the properties to ICCI because of threats and intimidation allegedly employed by Marcos’ cronies upon the relatives of the Montanos while the latter were on self-exile outside the country.   The Montanos filed their complaint on September 15, 1989.

In First Philippine Holdings Corporation vs. Trans Middle East (Phils.) Equities Inc., G.R. No. 179505. December 4, 2009, First Philippine Holdings Corporation (FPHC) argued that the prescriptive period for the annulment of the sale of its PCI Bank shares to Trans Middle East (Phils.) Equities Inc. (TMEE) should be reckoned from February 24, 1986, the date when President Marcos left the country.   Here, FPHC sold its PCI Bank shares to TMEE on May 24, 1984.   FPHC filed its complaint to annul the sale on December 28, 1988 (which is more than 4 years after the date of the sale but within 4 years from the date President Marcos left the country).

The Supreme Court ruled that FPHC’s complaint was filed beyond the 4-year prescriptive period provided in Article 1391 of the Civil Code. Why is the result different from Associated Bank?

In the case of FPHC, the Supreme Court noted that FPHC’s complaint for annulment was based on fraud, not threat or intimidation. The Supreme Court stated:

FPHC, however, contends that the four-year prescriptive period should be reckoned from 24 February 1986, the date when former President Marcos left the country, as it was only then that the threat and intimidation against the Lopezes ceased.

This argument is unconvincing. Based on FPHC’s Petition for Review and its Complaint-in-Intervention, the ground relied upon by petitioner is fraud. FPHC’s petition partly reads:

PCIBank shares were obtained xxx by means of fraud and acts contrary to law, morals and public policy x x x.

In its Complaint-in-Intervention, it is alleged:

32.    Said sale, is therefore, void or voidable on said ground, in addition to having been obtained fraudulently with the connivance of defendant Kokoy Romualdez’s dummy directors and officers in plaintiff-intervenors’ Board and Executive Committee, in breach of their fiduciary obligations to plaintiff-intervenor and its stockholders under the Corporation Code. x x x.

Since the complaint alleged fraud as the ground for annulment of the sale contract, the Supreme Court ruled that the action has prescribed:

Under Article 1391 of the Civil Code, a suit for the annulment of a voidable contract on account of fraud shall be filed within four years from the discovery of the same, thus:

Article 1391. An action for annulment shall be brought within four years.

This period shall begin: In case of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

Here, from the time the questioned sale transaction on 24 May 1984 took place, FPHC did not deny that it had actual knowledge of the same. Simply, petitioner was fully aware of the sale of the PCIB shares to TMEE. Despite all this knowledge, petitioner did not question the said sale from its inception and some time thereafter. It was only after four years and seven months had lapsed following the knowledge or discovery of the alleged fraudulent sale that petitioner assailed the same. By then, it was too late for petitioner to beset the same transaction, since the prescriptive period had already come into play.

On the other hand, the complaint in Associated Bank alleged threat and intimidation as grounds for annulment of the sale contract:

We do not, however, subscribe to the RTC’s ruling that the action has already prescribed.

It is true that an action for reconveyance of real property resulting from fraud may be barred by the statute of limitations, which requires that the action shall be filed within four (4) years from the discovery of the fraud. The RTC, however, seemed to have overlooked the fact that the basis of respondents’ complaint for reconveyance is not fraud but threat, duress and intimidation, allegedly employed by Marcos’ cronies upon the relatives of the Montanos while the latter were on self-exile. In fact, fraud was neither specifically alleged nor remotely implied in the complaint.