G.R. No. 168134 , 168183, 168196. October 05, 2016.
FERRO CHEMICALS, INC., Petitioner, vs. ANTONIO M. GARCIA, ROLANDO NAVARRO, JAIME Y. GONZALES AND CHEMICAL INDUSTRIES OF THE PHILIPPINES, INC., Respondents.

FACTS

Ferro Chemicals, Inc. (Ferro) purchased shares of stock in Chemical Industries of the Philippines, Inc. (Chemphil) from Antonio Garcia via a Deed of Absolute Sale dated July 15, 1988. Garcia warranted the shares were free from liens except those with Security Bank and Insular Bank. Ferro paid part of the price by tendering payment to Security Bank to settle Garcia’s obligation, which was eventually accepted after consignation. Unbeknownst to Ferro, prior to the sale, a Notice of Garnishment had been issued on July 19, 1985, over the same shares in favor of a consortium of banks (Consortium) in a separate case (First Consortium Case). This garnishment was not annotated on Chemphil’s stock and transfer books. Subsequently, Garcia entered into a Compromise Agreement with the Consortium in January 1989, wherein he agreed to deliver the very same Chemphil shares to them. Pursuant to this agreement, the RTC issued an Order directing the Corporate Secretary, Rolando Navarro, to cancel Garcia’s certificates and issue new ones in the Consortium’s name, which was done. This effectively deprived Ferro of the shares it had purchased.

ISSUE

Whether Antonio Garcia and Jaime Gonzales are solidarily liable to Ferro Chemicals for the value of the shares of stock.

RULING

Yes. The Supreme Court affirmed the Court of Appeals with modification, holding Antonio Garcia and Jaime Gonzales solidarily liable. Garcia, as seller, committed a breach of his warranty under the Deed of Sale that the shares were free from liens. The prior garnishment constituted a latent defect or encumbrance on the shares. His subsequent act of including the shares in the Compromise Agreement with the Consortium, knowing they had already been sold to Ferro, constituted fraud and evident bad faith. Gonzales, though not a party to the sale, was found to be a co-conspirator in the fraudulent scheme to deprive Ferro of the shares. The Court ruled that Gonzales, as a close financial advisor who actively facilitated the Compromise Agreement knowing the shares were no longer Garcia’s to convey, acted in conspiracy with Garcia. Their concerted actions directly caused the loss of the shares. Consequently, they are jointly and severally liable for damages equivalent to the value of the lost shares. The Court exonerated Navarro and Chemphil, as the Corporate Secretary and the corporation were merely complying with a lawful court order in transferring the shares to the Consortium and were not proven to have acted in bad faith or conspiracy.