Florete Sr. vs Florete Jr.
(2018) void ab initio for violating the procedure for sale or
J. Peralta
_____________________________________________________________
I. FACTS
On October 7, 1966, Marsal & Co. (Marsal) was
organized as a close corporation by Marcelino Florete
Sr., and 5 others all surnamed Florete (children of
Marcelino Sr.). Since incorporation, its authorized
capital stock had been amended several times to
increase from P500,000 to P5,000,000.
Notwithstanding such agreements, par. 7 of their AOI
provided for procedure in the sale of shares of stocks
of a stockholder:
1. Any stockholder who has intention to sell
shall notify the BOD
2. Within 5 days of receipt of notice, BOD shall
inform stockholders
3. Within 10 days of receipt of written notice,
any stockholder may exercise pre-emptive
right
4. Any sale or transfer in violation of this
procedure shall be null and void
The capital structure of Marsal looks like this:
a. Marcelino Sr. – 7,569 shares
b. Rogelio – 3,489 shares
c. Ma. Elena Muyco – 3,489 shares
d. Marcelino Jr. – 3,489 shares
e. Teresita Menchavez – 3,464 shares
On Sept. 19, 1989, Teresita Menchavez died.
On Oct. 3, 1990, Marcelino Sr. died. Rogelio was
appointed administrator. In the partition, ½ was
given to Rogelio, and ¼ each to Ma. Elena and
Marcelino Jr.
In 1995, Ephraim Menchavez, her husband, who was
eventually appointed as administrator after due
opposition by other Floretes, entered into a
compromise agreement and deed of assignment with
petitioner Rogelio for the shareholdings of Teresita in
various corporations owned by Florete family,
including Marsal. This was done with conformity of
Atty. Raul Muyco, counsel of Marsal. The agreement
was approved by probate court.
17 YEARS LATER: On Feb. 21, 2012, respondents
Marcelino Jr. and Ma. Elena filed with RTC or
annulment/rescission of sale of shares of stock of
Teresita in favor of Rogelio. They claimed that it is
transfer of shares of stock in accordance to par. 7 of
Marsal’s AOI.
RTC as special commercial court dismissed the
complaint. It found that there was no violation
because Rogelio is one of the incorporators and
stockholders of Marsal at the time of the sale, and
that only sale to outsiders will trigger a violation of
the procedure. RTC also found that they are barred
by estoppel and laches because 17 years has elapsed.
Appeal to the CA was successful as the appellate
court found that it was inconsequential that the
transfer was made to one of the existing
stockholders. The CA ruled that anent Atty. Muyco’s
conformity, he admitted that he did not know of
Rogelio’s intention to acquire such shares, and that
there was no notice to stockholders as what is meant
under par. 7 of the AOI. Also, a void contract is
imprescriptible, and laches is unavailing as it had
been jurisprudentially provided that the courts
should not apply it earlier than the expiration of time
limited for the commencement of action at law.
MR was denied. Hence, this petition.
II. ISSUE:
W/N the CA 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 - YES
III. RATIO:
As a close corporation, Marsal is allowed under the
Corporation Code to provide for restrictions on the
transfer of its stocks.
Under Sec. 97(1), it states that the AOI may provide
for a classification of shares or rights and the
qualifications for owning or holding the same and
restrictions on their transfers as may be stated
therein.
Under Sec. 98, restrictions on the right to transfer
shares must appear in the articles of incorporation
and in the by-laws as well as in the certificate of
stock.
Still, the SC found that the argument that the violation
of the procedure provided under par. 7 of the AOI
renders the sale to Rogelio as null and void deserves
scant consideration.
First, as Atty. Muyco was not just the acting counsel
of Rogelio but also of Marsal, it would be impossible
for him, who has the duty to protect Marsal’s interest
in Teresita’s intestate proceedings, not to have
informed respondents of such compromise
agreement since they are the stockholders and BOD
of Marsal who would be deprived of their preemptive
right.
persons permitted by its articles of incorporation to
hold stock of the corporation, or (c) that the transfer
of stock is in violation of a restriction on transfer of
stock, the corporation may, at its option, refuse to
register the transfer of stock in the name of the
transferee.
5. The provisions of subsection (4) shall not
applicable if the transfer of stock, though contrary to
subsections (1), (2) of (3), has been consented to by
all the stockholders of the close corporation, or if the
close corporation has amended its articles of
incorporation in accordance with this Title.’

Second, the sale of all of Teresita’s shares had been
made known to respondents in the intestate
proceedings to settle estate of Marcelino Sr. In the
order dated May 16, 1995, the probate court stated
that ‘All the shares of Teresita F. Menchavez,
however, which she inherited from her parents were
sold by Ephraim Menchavez, the special
administrator of the estate of Teresita Menchavez, to
petitioner Rogelio M. Florete. The sale was duly
approved by the intestate court.’
There was already substantial compliance with Par. 7
of the AOI when respondents obtained actual
knowledge of the sale of Teresita’s 3,464 shares to
petitioner as early as 1995. Their inaction for 17
years despite knowledge of the sale is a waiver of the
procedure of the stockholder’s sale of stocks under
par. 7 of the AOI.
The above provision means that 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.
In the case at bar, the sale has already been
consented to by the respondents. Therefore, it may
be registered in the name of Rogelio.
IV. DISPOSITIVE:
PETITION GRANTED.

Moreover, Sec. 99 of the Corp. Code provides that:

“Sec. 99. Effects of issuance or transfer of stock in

breach of qualifying conditions. —

xxx xxx xxx

3. If a stock certificate of any close corporation

conspicuously shows a restriction on transfer of
stock of the corporation, the transferee of the stock is
conclusively presumed to have notice of the fact that
he has acquired stock in violation of the restriction, if
such acquisition violates the restriction.

4. Whenever any person to whom stock of a close

corporation has been issued or transferred has, or is
conclusively presumed under this section to have,
notice either (a) that he is a person not eligible to be
a holder of stock of the corporation, or (b) that
transfer of stock to him would cause the stock of the
corporation to be held by more than the number of