G.R. Nos. 168134, 5 October 2016

FACTS:

Ferro Chemicals Incorporated (Ferro Chemicals), is a domestic corporation duly authorized by existing law to engage in business in the Philippines. It is represented in the action by its President, Ramon M. Garcia.

Chemical Industries of the Philippines Inc. (Chemical Industries), on the other hand, is also a domestic corporation duly organized and existing by virtue of Philippine laws. Antonio Garcia, one of the parties in the instant case, is the Chairman of the Board of Directors (BOD) of Chemical Industries and a brother of Ferro Chemical’s President, Ramon Garcia. Rolando Navarro is the Corporate Secretary of Chemical Industries while Jaime Gonzales is a close financial advisor of Antonio Garcia.

Antonio Garcia purchased shares of stocks from Ferro Chemicals through a Deed of Absolute Sale over 1,717,678 shares of capital stock of Chemical Industries registered under his name for a consideration of P79,207,331.28 (subject shares). Included as subjects of the sale were Antonio Garcia’s 371,697 own shares of stocks. Antonio being the judgment creditor of various banks (consortium) enterd into a compromise agreement with the consortium involving said shares of stocks.

The consortium was awarded through a court judgment of a notice of garnishment of subject shares of stocks which led Ferro Chemicals and Antonio to enter agreement so Antonio can have the right to repurchase his shares from Ferro Chemicals. However when Antonio tried to repurchase back his shares of stocks, the shares were already transferred to Chemphil Export Inc. Antonio was only able to recover said shares through an action of specific performance against Ferro. Aggrieved, Chemphil Export filed a collection suit against Ferro for the value of the garnished shares.

The lower court finds Antonio Garcia and Chemical Industries liable for fraud and breach of obligation in favor of Ferro Chemicals.

ISSUE:

Whether or not Antonio Garcia and Chemical Industries are liable for fraud breach of obligation and possible damages in favor of Ferro Chemicals.

RULING:

The petition of Ferro Chemicals was DENIED, the Decision of the Court of Appeals is modified. Antonio Garcia and Chemical Industries of the Philippines, Inc. including Rolando Navarro and Jaime Gonzales were exonerated from liabilities. The cost of the suit and expenses of litigation in the Consortium Case was also scrapped.

The court reiterated that there is no liability for Antonio Garcia for fraud and breach of obligation. Among the bases of the court’s decision are the two clearly crucial evidentiary matters that were overlooked by the lower tribunals:

(1) the execution by Ferro Chemicals and Antonio Garcia of the Deed of Right to Repurchase on 3 March 1989; and

(2) that on two separate occasions, Antonio Garcia conveyed in writing his intent to buy back the shares in accordance with the terms of the repurchase deed. These pieces of evidence, if appreciated in light of the allegation of fraud, would overthrow the very foundation upon which the Ferro Chemicals rested its case. Notably, Antonio Garcia’s right to repurchase the subject shares, his attempts to exercise that right and Ferro Chemicals’ refusal to honor it, as well as the legal actions taken by Antonio Garcia against Ferro Chemicals, were duly pleaded as affirmative allegations in Antonio Garcia’s Answer.

*Case Digest by Jelyn C. Ondong, Refresher, Andres Bonifacio College, SY: 2019-2020