CASE DIGEST: FPHC v. TMEE (G.R. No. 179505)

G.R. NO. 179505, DECEMBER 04, 2009
TRANS MIDDLE EAST (PHILS.) EQUITIES INC., Respondent.Facts: FPHC is a power-generating and distributing company. In 1984, FPHC allegedly sold its more than 6 million shares in PCIB (bank) to TMEE allegedly owned by Benjamin (Kokoy) Romualdez who was then facing a charge in the Sandiganbayan for ill-gotten wealth. FPHC wants the sale of shares to be declared void because, allegedly, FPHC’s officers and board directors were allegedly dummies of Romualdez and, thus, obtained through fraud and acts contrary to morals, good customs and public policy. When FPHC attempted to intervene in the Sandiganbayan, it failed because the Sandiganbayan said that it was too late to question the fraud-element of the contract, the case having been on December 28, 1988, instead of May 24, 1988 (counted from May 24, 1984, or date of sale). On the other hand, FPHC said that it could only file the case when Marcos was ousted in February 1986.

FPHC filed a motion for reconsideration, maintaining that the sale of PCIB shares was void ab initio, since the said transaction was allegedly approved by the dummy board and signed by the dummy officers of FPHC, which was denied.

Issue: Is the sale of shares valid, void or voidable, considering the alleged “dummy board” of directors of FPHC and the question on its legal capacity to enter into a contract with third persons?

Held: Even assuming the allegations are true, the sale is only voidable, not void.

A sale obtained through fraud is voidable, not void. Hence, it can be ratified and it can only be questioned within four years from perfection. Moreover, a corporation can only act through its board of directors by either ratifying or reversing its decision.

The mere allegation of FPHC that the contract was entered into by mere dummies does not even make the contract void, even if true. Hence, it is now too late to question the fraud element of the contract and, therefore, the sale cannot be nullified.