Fleischer Vs Botica Nolasco Digest

[G.R. No. 23241. March 14, 1925.
HENRY FLEISCHER vs. BOTICA NOLASCO CO., INC.,
Syllabus
CORPORATIONS; CORPORATE STOCK; RIGHT OF CORPORATIONS TO IMPOSE A

LIMITATION ON TRANSFERS OF STOCK. A stock corporation in adopting by-laws
governing the transfer of shares of stock should take into consideration the specifc
provisions of the Corporation Law. The by-laws of corporations should be made to
harmonize with the provisions of the Corporation Law. By-laws must not be
inconsistent with the provisions of the Corporation Law. By-laws of a corporation are
valid if they are reasonable and calculated to carry into effect the objects of the
corporations provided they are not contradictory to the general policy of the laws of
the land.
TRANSFER OF SHARES OF STOCK. The power to enact by-laws restraining the sale
and transfer of stock must be found in the governing statute or charter.
Facts:
This action was commenced in the Court of First Instance of the Province of
Oriental Negros on the 14th day of August, 1923, against the board of
directors of the Botica Nolasco, Inc., a corporation duly organized and existing
under the laws of the Philippine Islands.
plaintiff prayed that said board of directors be ordered to register in the
books of the corporation fve shares of its stock in the name of Henry
Fleischer, the plaintiff, and to pay him the sum of P500 for damages
sustained by him resulting from the refusal of said body to register the share
of stock in question.
defendant fled the demurrer on the ground that the facts alleged in the
complaint did not constitute suffcient cause of action, and that the action
was not brought against the proper party, which was the Botica Nolasco, Inc.
the demurrer was sustained, and the plaintiff was granted fve days to
amend his complaint.
the plaintiff fled an amended complaint against the Botica Nolasco, Inc.,
alleging that he became the owner of fve shares of stock of said corporation,
by purchase from their original owner, one Manuel Gonzalez; that the said
shares were fully paid; and that the defendant refused to register said shares
in his name in the books of the corporation in spite of repeated demands to
that effect made by him upon said corporation, which refusal caused him
damages amounting to P500.
Plaintiff prayed for a judgment ordering the Botica Nolasco, Inc. to register in
his name in the books of the corporation the fve shares of stock recorded in
said books in the name of Manuel Gonzales, and to indemnity him in the sum
of P500 as damages, and to pay the costs.
The defendant again fled a demurrer in the ground that the amended
complaint did not state facts suffcient to constitute a cause of action, and
that said amended complaint was ambiguous, unintelligence, uncertain,
which demurrer was overruled by the court
defendant answered the amended complaint denying generally and
specifcally each material allegation thereof, and, as a special defense,
alleged that the defendant, pursuant to article 12 of its by-laws, had
preferential right to buy from the plaintiff said shares at the par value of P100
a share, plus P90 as dividends corresponding to the year 1922, and that said
offer was refused by the plaintiff. The defendant prayed for a judgment
absolving it from all liability under the complaint and directing the plaintiff to
deliver to the defendant the fve shares of stock in question, and to pay
damages in the sum of P500, and the costs.
RTC: Judge held that, in his opinion, article 12 of the by-laws of the corporation
which gives it preferential right to buy its shares from retiring stockholders, is in
confict with Act No. 1459 (Corporation Law), especially with section 34 thereof; and
rendered a judgment ordering the defendant corporation, through its board of
directors, to register in the books of said corporation the said fve shares of stock in
the name of the plaintiff, Henry Fleischer, as the shareholder or owner thereof
instead of the original owner, Manuel Gonzalez, with costs against the defendant.
RECANTATION OF FACTS: (you can skip this for recit. For further reading lang
naman)
Manuel Gonzalez was the original owner of the fve shares of stock in
question, he assigned and delivered said fve shares to the plaintiff, Henry
Fleischer, together with other credits, in consideration of a large sum of
money owed by Gonzalez to Fleischer. Dr. Eduardo Miciano, who was the
secretary-treasurer of said corporation, offered to buy from Henry Fleischer,
on behalf of the corporation, said shares of stock, at their par value of P100 a
share, for P500; that by virtue of article 12 of the by-laws of Botica Nolasco,
Inc., said corporation had the preferential right to buy from Manuel Gonzalez
said shares that the plaintiff refused to sell them to the defendant; that the
plaintiff requested Doctor Miciano to register said shares in his name; that
Doctor Miciano refused to do so, saying that it would be in contravention of
the by-laws of the corporation.
It also appears from the record that two days after the assignment of the
shares to the plaintiff, Manuel Gonzalez made a written statement to the
Botica Nolasco, Inc., requesting that the fve shares of stock sold by him to
Henry Fleischer be not transferred to Fleischer's name. He also acknowledged
in said written statement the preferential right of the corporation to buy said
fve shares. Gonzalez wrote a letter to the Botica Nolasco, withdrawing and
cancelling his written statement, which letter the Botica Nolasco replied,
declaring that his written statement was in conformity with the by-laws of the
corporation that his letter of June 14th was of no effect, and that the shares in
question had been registered in the name of the Botica Nolasco, Inc.,
ISSUE: whether or not article of the by-laws of the Botica Nolasco, Inc., is in confict
with the provisions of the Corporation Law (Act No. 1459)
HELD: YES.
The particular provisions of the Corporation Law referring to transfer of shares of

stock are as follows:
Sec 13. Every corporation has the power:
(7) To make by-laws, not inconsistent with any existing law , for the fxing or
changing of the number of its offcers and directors within the limits prescribed by
law, of its corporate affairs, etc.
Sec 35. The capital stock corporations shall be divided into shares for which
certifcate signed by the president or the vice-president, countersigned by the
secretary or clerk and sealed of the corporation, shall be issued in accordance with
the by-laws. Share of stock so issued are personal property and may be transferred
by delivery of the certifcate indorsed by the owner or his attorney in fact or other
person legally authorized to make transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is entered and noted upon the
books of the corporation so as to show the names of the parties to the transaction,
the date of the transfer, the number of the certifcate, and the number of shares
transferred.
No share of stock against which the corporation holds any unpaid claim shall be
transferable on the books of the corporation
Section 13, paragraph 7, above-quoted, empowers a corporation to make by-

laws, not inconsistent with any existing law, for the transferring of its stock. It
follows from said provision, that a by-law adopted by a corporation relating to
transfer of stock should be in harmony with the law in the subject of transfer
of stock. The law on this subject is found in section 35 of Act No. 1459 above
quoted. Said section 35 specifcally provides that the shares of stock "are
personal property and may be transferred by delivery of the certifcate
indorsed by the owner, etc.
As general rule, the by-laws of a corporation are valid if they are reasonable
and calculated to carry into effect the objects of the corporation, and are not
contradictory to the general policy of the laws of the land. On the other hand,
it is equally well settled that by-laws of a corporation must be reasonable and
for a corporate purpose, and always within the charter limits. They must
always be strictly subordinate to the constitution and the general laws of the
land.
This restriction is necessary in order that the offcers of the corporation may
know who are the stockholders, but any restriction of the nature of that
imposed in the by-law now in question, is ultra vires, violative of the property
rights of shareholders, and in restraint of trade.
the by-law now in question cannot have any effect on the appellee. He had
no knowledge of such by-law when the shares were assigned to him. He
obtained them in good faith and for a valuable consideration. He was not a
privy to the contract created by said by-law between the shareholder Manuel
Gonzalez and the Botica Nolasco, Inc.

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[G.R. No. 23241. March 14, 1925.

HENRY FLEISCHER vs. BOTICA NOLASCO CO., INC.,

CORPORATIONS; CORPORATE STOCK; RIGHT OF CORPORATIONS TO IMPOSE A

The particular provisions of the Corporation Law referring to transfer of shares of

Sec 13. Every corporation has the power:

Section 13, paragraph 7, above-quoted, empowers a corporation to make by-

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