Florete vs. Florete

In a close corporation, stockholders may waive strict compliance with procedural restrictions on the transfer of shares contained in the Articles of Incorporation through their actual knowledge of the transfer and acquiescence thereto for a substantial period; such waiver validates the transfer despite technical non-compliance with the formal notice requirements, and the corporation cannot refuse to register the transfer when all stockholders have effectively consented.

Marsal & Co., Inc. was organized in 1966 as a close corporation by members of the Florete family. Following the deaths of patriarch Marcelino Florete, Sr. and his daughter Teresita Florete Menchavez, disputes arose regarding the distribution of estate assets, including corporate shareholdings. A Compromise Agreement approved by the probate court transferred Teresita's shares to her brother Rogelio Florete, Sr. Seventeen years later, the remaining siblings sought to annul the transfer, claiming violation of preemptive rights under the Articles of Incorporation.

• Marsal & Co., Inc. was organized on October 7, 1966, as a close corporation by Marcelino Florete, Sr., Salome Florete, Rogelio M. Florete, Marcelino M. Florete, Jr., Ma. Elena F. Muyco, and Teresita F. Menchavez.
• Paragraph 7 of the Articles of Incorporation required any stockholder desiring to sell shares to notify the Board of Directors in writing, after which the Board must notify all stockholders within five days, granting them ten days to exercise a preemptive right to purchase at book value; any sale in violation is declared null and void.
• As of June 1, 1982, Teresita F. Menchavez held 3,464 shares in Marsal & Co., Inc.
• Teresita died on September 19, 1989; her husband Ephraim Menchavez was appointed special administrator of her estate.
• In 1995, Ephraim entered into a Compromise Agreement and Deed of Assignment with petitioner Rogelio M. Florete, Sr., transferring all of Teresita's shares in Marsal and other corporations to Rogelio.
• Atty. Raul A. Muyco, husband of respondent Ma. Elena F. Muyco, served as counsel for petitioner Rogelio and Marsal & Co., Inc. in the estate proceedings and signed the conformity to the Motion to Approve Compromise Agreement.
• The Probate Court approved the Compromise Agreement on February 14, 1995, and in the subsequent intestate proceedings for Marcelino Florete, Sr., the Order dated May 16, 1995, specifically noted the sale of Teresita's shares to Rogelio.
• Respondents Marcelino Jr. and Ma. Elena were heirs and stockholders who participated in the intestate proceedings but took no action to contest the sale for seventeen years.
• On February 21, 2012, respondents filed a complaint for annulment, claiming the sale violated Paragraph 7 of the Articles of Incorporation and deprived them of preemptive rights.

• The invalidation clause in Paragraph 7 of the Articles of Incorporation is void and unenforceable.
• Marsal & Co., Inc. is not a close corporation as defined under the Corporation Code, despite having previously admitted otherwise in pleadings.
• Assuming the restrictions are valid, they cannot apply to transfers between existing stockholders (not to outsiders).
• The action is barred by prescription under the Civil Code.
• The action is barred by laches due to respondents' seventeen years of inaction despite knowledge of the sale.
• Respondents are estopped by their conduct and participation in the probate proceedings from questioning the validity of the sale.
• The principle of res judicata applies because the probate court already approved the Compromise Agreement and noted the sale in its 1995 Order.

• The sale violated Paragraph 7 of the Articles of Incorporation because no written notice was given to the Board of Directors, and respondents were not formally notified of the offer to sell.
• The Articles of Incorporation constitute a contract between the corporation and its stockholders; breach of the transfer restrictions renders the sale null and void.
• Notice acquired through Atty. Muyco (counsel and husband of respondent Ma. Elena) does not satisfy the written notice requirement under Paragraph 7.
• Void contracts are imprescriptible and cannot be barred by laches, as the action for nullity may be brought at any time.
• The sale was to a third party (the estate of Teresita) and required compliance with preemptive rights.

• Procedural:
  • Whether the Supreme Court may review factual findings of the Court of Appeals in a petition for review under Rule 45.
• Substantive Issues:
  • Whether Marsal & Co., Inc. qualifies as a close corporation under the Corporation Code.
  • Whether the sale of Teresita Menchavez's shares to Rogelio Florete violated Paragraph 7 of the Articles of Incorporation.
  • Whether respondents waived their preemptive rights or are estopped from asserting violation of the transfer restrictions.
  • Whether the action for annulment is barred by prescription, laches, or res judicata.

• Procedural:
  • The Supreme Court may review factual findings of the Court of Appeals when such findings are devoid of support by the evidence on record or when the judgment is based on a misapprehension of facts; the Court found the CA's conclusions were based on a misapprehension of the record.
• Substantive:
  • Marsal is a close corporation based on the judicial admission of petitioners in their pleadings and affidavits, which admissions are conclusive and cannot be contradicted except by showing palpable mistake.
  • While literal compliance with Paragraph 7 was lacking, there was substantial compliance because respondents had actual knowledge of the sale as early as 1995 through the probate proceedings, the participation of their counsel (Atty. Muyco), and the intestate court orders which specifically noted the sale.
  • Respondents waived their right to enforce the procedural requirements of Paragraph 7 by their inaction for seventeen years despite actual knowledge of the transfer; waiver is the voluntary relinquishment of a known right.
  • Under Section 99(5) of the Corporation Code, a transfer of stock in violation of restrictions is nonetheless valid if consented to by all stockholders; respondents' knowledge and acquiescence constitute consent, validating the transfer.
  • The Court need not rule on prescription, laches, estoppel, or res judicata as the transfer was valid ab initio due to waiver and consent.

• Judicial Admissions — Admissions made by a party in the course of judicial proceedings (in pleadings, during trial, or other stages) are conclusive and do not require proof; they may be contradicted only by showing palpable mistake. Petitioners' admission that Marsal is a close corporation in their Answer and Affidavit bound them and removed the issue from controversy.
• Waiver — The voluntary and intentional relinquishment of a known existing legal right. Stockholders in a close corporation may waive procedural requirements for the transfer of shares when such rights are intended for their sole benefit and the waiver does not infringe on public rights or contravene public policy.
• Substantial Compliance — Actual knowledge of a stock transfer by existing stockholders, acquired through participation in related judicial proceedings and through counsel, satisfies the notice requirements of transfer restrictions in the Articles of Incorporation, even if the formal procedural steps were not followed.
• Close Corporation Transfer Restrictions — Sections 97-99 of the Corporation Code allow close corporations to impose restrictions on stock transfers, but such restrictions may be waived by the stockholders' conduct, and transfers made with the consent of all stockholders are valid despite technical violations.

• "Waiver is defined as 'a voluntary and intentional relinquishment or abandonment of a known existing legal right, advantage, benefit, claim or privilege, which except for such waiver the party would have enjoyed...'" — Defining the doctrine of waiver as applied to preemptive rights in close corporations.
• "A party who judicially admits a fact cannot later challenge that fact as judicial admissions are a waiver of proof; production of evidence is dispensed with. A judicial admission also removes an admitted fact from the field of controversy." — Explaining the binding effect of petitioners' admission that Marsal is a close corporation.
• "Clearly, under the above-quoted provision [Section 99(5)], even if the transfer of stocks is made in violation of the restrictions enumerated under Section 99, such transfer is still valid if it has been 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." — Establishing that stockholder consent cures procedural defects in share transfers.

• Alfelor v. Halasan (520 Phil. 982) — Cited for the principle that judicial admissions in pleadings are conclusive against the pleader and cannot be contradicted.
• People v. Judge Donato (275 Phil. 145) — Cited for the definition of waiver as a voluntary relinquishment of a known right, applicable to rights and privileges of any character including those under contract or statute.
• Ayala Corporation v. Ray Burton Development Corporation (355 Phil. 475) — Cited for the scope of Rule 45 review, limiting the Supreme Court to errors of law except when factual findings are unsupported or based on misapprehension of facts.
• Spouses Binarao v. Plus Builders, Inc. (524 Phil. 361) — Cited for the rule on judicial admissions under Section 4, Rule 129 of the Revised Rules of Court.

• Section 4, Rule 129 of the Revised Rules of Court — Governs judicial admissions, providing that admissions made in judicial proceedings do not require proof and are conclusive unless shown to be made through palpable mistake.
• Section 97 of the Corporation Code — Allows close corporations to provide in their articles of incorporation for restrictions on the transfer of shares and qualifications for ownership.
• Section 98 of the Corporation Code — Requires restrictions on transfer to appear in the articles, by-laws, and stock certificates to be binding; restrictions must not be more onerous than granting existing stockholders or the corporation the option to purchase.
• Section 99(4) and (5) of the Corporation Code — Subsection (4) allows the corporation to refuse to register transfers in violation of restrictions, but Subsection (5) provides that such refusal is not applicable if the transfer has been consented to by all stockholders or if the articles have been amended.