Florete v. Florete
REITERATIONFacts
The Antecedents: Marsal & Co., Inc. (Marsal) was organized as a close corporation on October 7, 1966. Its Articles of Incorporation (AOI), specifically paragraph 7, provided for a procedure for the sale of shares, granting existing stockholders a preemptive right to buy shares offered for sale, with any sale in violation thereof being null and void. Teresita F. Menchavez, a stockholder, died on September 19, 1989. In 1992, her husband, Ephraim Menchavez, as special administrator of her estate, entered into a Compromise Agreement and Deed of Assignment with petitioner Rogelio M. Florete, Sr., ceding Teresita's 3,464 shares in Marsal, among others, to Rogelio. This agreement was approved by the Probate Court on February 14, 1995. Separately, upon the death of Marcelino Florete, Sr. on October 3, 1990, an intestate proceeding was filed, and the probate court's Order dated May 16, 1995, noted the sale of Teresita's shares to Rogelio M. Florete, Sr. Procedural History: On February 21, 2012, respondents Marcelino M. Florete, Jr. and Ma. Elena F. Muyco filed a case with the Regional Trial Court (RTC), Branch 39, Iloilo City, for annulment/rescission of the sale of Teresita's Marsal shares and damages. They claimed the sale was void ab initio due to non-compliance with paragraph 7 of Marsal's AOI, which required written notice to the Board of Directors and subsequent notification to stockholders for the exercise of preemptive rights. On April 26, 2013, the RTC dismissed the complaint, ruling that the sale to an existing stockholder (Rogelio) did not trigger the restriction and that respondents' action was barred by laches and estoppel due to their 17-year inaction despite knowledge. Respondents appealed to the Court of Appeals (CA). On August 3, 2015, the CA reversed the RTC, declaring the conveyance of shares null and void, holding that the AOI was a contract and its violation rendered the sale void, and that actions for nullity of void contracts are imprescriptible and not barred by laches. The Petition: Petitioners Rogelio M. Florete, Sr. and the Estate of Teresita F. Menchavez filed a petition for review on certiorari with the Supreme Court, seeking to nullify the CA's Decision and Resolution. They argued that the CA grievously erred in refusing to rule on the validity of the invalidation clause itself, the enforceability of the restriction given Marsal's nature (which they initially claimed was not a close corporation), the inapplicability of the restriction to a sale to an existing stockholder, and that respondents' cause of action was barred by prescription, laches, estoppel, and res judicata. The pivotal issue for the Supreme Court's resolution was whether the CA erred in ruling that the sale of Teresita's Marsal shares to Rogelio violated paragraph 7 of Marsal's AOI and was therefore null and void.
Issue(s)
Whether the Court of Appeals erred in ruling that the sale of Teresita's 3,464 Marsal shares of stocks made by petitioner estate of Teresita to petitioner Rogelio was in violation of paragraph 7 of Marsal's Article of Incorporation and hence null and void and must be annulled or rescinded.
Ruling
The petition for review is GRANTED. The Decision dated August 3, 2015 and the Resolution dated February 19, 2016 rendered by the Court of Appeals in CA-G.R. SP No. 07673 are hereby REVERSED and SET ASIDE.
Ratio Decidendi
On Issue 1: The Supreme Court ruled in the affirmative, finding that the Court of Appeals (CA) erred. The Court first addressed petitioners' claim that Marsal is not a close corporation, noting that petitioners had judicially admitted it was a close corporation in their pleadings. Judicial admissions are conclusive and do not require proof, preventing a party from later challenging the admitted fact, as held in Alfelor v. Halasan. As a close corporation, Marsal is allowed under the Corporation Code to provide for restrictions on the transfer of its stocks, as outlined in Sections 97 and 98. While paragraph 7 of Marsal's Articles of Incorporation (AOI) outlines a procedure for selling shares, the Court found that respondents had nonetheless been informed of the sale and had given their consent through their inaction for 17 years. The Court highlighted that Atty. Raul A. Muyco, husband of respondent Ma. Elena and counsel for petitioner Rogelio and Marsal in Teresita's intestate proceedings, would have had a duty to inform respondents of the compromise agreement involving the shares. Furthermore, the sale of Teresita's shares was noted in the probate court's Order dated May 16, 1995, for Marcelino Florete, Sr.'s estate, which respondents were privy to. The Court applied the doctrine of waiver, defining it as a voluntary and intentional relinquishment of a known existing legal right, as explained in People v. Judge Donato, and found that respondents' inaction constituted consent and acquiescence to the acquisition. Citing Section 99(5) of the Corporation Code, the Court emphasized that even if a transfer of stocks violates restrictions, such transfer is still valid if consented to by all the stockholders of the close corporation, and the corporation cannot refuse to register the transfer of stock in the name of the transferee. Therefore, the sale of Teresita's 3,464 Marsal shares was deemed consented to by respondents and validly registered in petitioner Rogelio's name, thus no violation of paragraph 7 of Marsal's AOI occurred.
Main Doctrine
The Supreme Court clarified that while close corporations may impose restrictions on the transfer of shares, a transfer made in violation of such restrictions can still be deemed valid if all existing stockholders have actual knowledge of the transaction and, through their prolonged inaction, are deemed to have consented to it. This principle is reinforced by the doctrine of judicial admissions, where a party's prior admission of a corporate status (e.g., as a close corporation) is binding, and the doctrine of waiver, where a known legal right, such as a preemptive right, can be relinquished through conduct inconsistent with claiming it. Thus, strict procedural compliance with transfer restrictions in the Articles of Incorporation may be overcome by the collective consent and acquiescence of the stockholders.