G.R. No. 178523; June 16, 2010
MAKATI SPORTS CLUB, INC., Petitioner, vs. CECILE H. CHENG, MC FOODS, INC., and RAMON SABARRE, Respondents.

FACTS

Petitioner Makati Sports Club, Inc. (MSCI) authorized the sale of its unissued shares. Respondent Cecile H. Cheng was a director and treasurer. In July 1995, a prospective buyer, Hodreal, expressed interest to MSCI in buying a share and requested to be on the waiting list. In November 1995, respondent Mc Foods, Inc. purchased one Class A share directly from MSCI for ₱1.8 Million. A deed of sale was executed in December 1995, and a stock certificate was issued in January 1996.
Simultaneously, negotiations occurred between Mc Foods and Hodreal. Hodreal paid Mc Foods ₱2.8 Million for the same share in two installments, in November and December 1995, before Mc Foods even received its stock certificate from MSCI. MSCI later discovered this quick resale at a significant profit. MSCI filed a complaint for damages, alleging that Cheng, utilizing her insider position, facilitated a scheme where Mc Foods acted as a conduit to purchase the club’s share at the official price only to immediately resell it to the waiting Hodreal at a much higher market price, thereby defrauding MSCI of the price difference.

ISSUE

Whether the respondents, particularly Cecile H. Cheng, defrauded Makati Sports Club, Inc. by orchestrating the sale and immediate resale of an unissued share, depriving MSCI of the opportunity to sell directly to the end buyer at a higher price.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ dismissal of the complaint. The legal logic centered on the absence of clear and convincing evidence of fraud or breach of duty by Cheng. The Court found that the transaction between MSCI and Mc Foods was a valid, consummated sale. MSCI received the full consideration it set (₱1.8M) and voluntarily transferred ownership. There was no evidence Cheng influenced the board’s pricing or that Mc Foods was a mere dummy. A corporation has the right to sell its unissued shares, and the buyer acquires the right to subsequently resell them.
The Court ruled that the profit made by Mc Foods in the secondary sale to Hodreal was not illicit. Once MSCI sold the share to Mc Foods, the latter became the absolute owner and could resell it at any price. MSCI’s claim was essentially for a lost opportunity to gain more profit, not for a legally compensable damage caused by fraud. The by-laws provision on a right of first refusal for the club applies to resales by existing members, not to the corporation’s own initial sale of unissued shares. The Court upheld the factual findings of the trial and appellate courts that MSCI failed to prove by preponderant evidence that Cheng breached her fiduciary duty or that the transactions were fraudulent.