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Fleischer v. Botica Nolasco Co. (1925) Chico-Nazario, J.Plaintif Appellee: Henry FleischerDeendant Appellant: Botica Nolasco Co., Inc.,Concept: Formation and Organization (By-laws)

Brie Facts: Fleischer was the transeree, or !al"a#leconsideration, o $ shares o stoc% o the BoticaNolasco Cor&, transerred to him #y 'an"el onzales.he Cor&oration howe!er denied to register the stoc%sin Flesicher*s name #y in!o%ing +rticle o itscor&orate #ylaws, which gi!es the cor&oration a&reerential right o the shares in "estion. /C held thatsaid +rticle o the #y-laws was inconsistent withe0isting law (sec 1$ o the then Cor&oration 2aw et al),go!erning among others the transer o its stoc%.

DOCTRINE: 3nder said section stoc%s are &ersonal&ro&erty and may #e transerred as therein &ro!ided. Itcontem&lates no restriction as to whom they may #etranserred or sold. It does not s"ggest that anydiscrimination may #e created #y the cor&oration ina!o"r or against a certain &"rchaser. he holder oshares, as owner o &ersonal &ro&erty, is at li#erty,"nder said section, to dis&ose o them in a!o"r o

whomsoe!er he &leases, witho"t any other limitation inthis res&ect, than the general &ro!isions o law.

FACTS:1. 'an"el onzalez was the original owner o the

4!e shares o stoc% in "estion, Nos. 5 - 6 othe Botica Nolasco, Inc.

2. on 'arch , 71, onzales assigned anddeli!ered said 4!e shares to the &lainti8, HenryFleischer in consideration o a large s"m omoney owed #y onzalez to Fleischer

3. on 'arch 1, 71, 9r. :d"ardo 'iciano, whowas the secretary-treas"rer o said cor&oration,o8ered to #"y rom Henry Fleischer, on #ehalo the cor&oration, said shares o stoc%, at their

&ar !al"e o ;66 a share, or ;$66< claimingthat #y !irt"e o article o the #y-laws oBotica Nolasco, Inc., said cor&oration had the&reerential right to #"y rom 'an"el onzalezsaid shares.

4. Fleischer re"sed the o8er and e!en re"estedthe /ec-reas"rer to register the stoc%s in hisname, to which the latter re"sed again.

$. Fleischer commenced an action in the CFI oOriental Negros on the =th day o +"g"st,71, against the #oard o directors o theBotica Nolasco., he &lainti8 &rayed that said#oard o directors #e ordered to register in the#oo%s o the cor&oration 4!e shares o its stoc%

in the name o Henry Fleischer, the &lainti8,and to &ay him the s"m o ;$66 or damages5. Botica Nolasco 4led a dem"rrer on the gro"nd

that the acts alleged in the com&laint did notconstit"te s">cient ca"se o action, and thatthe action was not #ro"ght against the &ro&er&arty, which was the Botica Nolasco, Inc. hedem"rrer was s"stained, and &lainti8 4led anamended com&laint.

?. he deendant again 4led a dem"rrer on thegro"nd that the amended com&laint did notstate acts s">cient to constit"te a ca"se oaction, and that said amended com&laint was

am#ig"o"s, "nintelligi#le, "ncertain, whichdem"rrer was o!err"led #y the co"rt.

@. +s a s&ecial deense, deendant alleged that&"rs"ant to article o its #y-laws, it had&reerential right to #"y rom the &lainti8 saidshares at the &ar !al"e o ;66 a share, andthat said o8er was re"sed #y the &lainti8. hedeendant &rayed or a A"dgment a#sol!ing itrom all lia#ility "nder the com&laint anddirecting the &lainti8 to deli!er to thedeendant the 4!e shares o stoc% in "estionand to &ay damages in the s"m o ;$66, andthe costs.

7. CFI decided in a!or o Fleischer. It said thaarticle o the #y-laws o the cor&orationwhich gi!es it &reerential right to #"y itsshares rom retiring stoc%holders, is in conictwith +ct No. =$7 (Cor&oration 2aw), es&eciallywith section 1$ thereo< and rendered aA"dgment ordering the deendant cor&orationto register in the #oo%s o said cor&oration thesaid 4!e shares o stoc% in the name o the&lainti8, Henry Fleischer. Hence, this a&&eal.

ISSUES:

. hether or not article o the #y-laws o thecor&oration is in conict with the &ro!isions o theCor&oration 2aw (+ct No. =$7).

HEDD (Ees), it is in conict, and the stoc%s in a!or oFleischer sho"ld #e registered.

RATIO:. he &artic"lar &ro!isions o the Cor&oration

2aw reerring to transer o shares o stoc% areas ollowsD

/:C. 1. :!ery cor&oration has the &owerD

0 0 0 0 0 0 0 0 0

(?) To !a"e #$%la&s' notinconsistent &it( an$ e)istin* la&' orthe 40ing or changing o the n"m#er o itso>cers and directors within the limits&rescri#ed #y law, and or t(e transerrin*o its stoc"' the administration o itscor&orate a8airs, etc.

0 0 0 0 0 0 0 0 0

/:C. 1$. he ca&ital stoc% o stoc%cor&orations shall de di!ided into shares orwhich certi4cates signed #y the &resident orthe !ice-&resident, co"ntersigned #y thesecretary or cler% and sealed with the seal

o the cor&oration, shall #e iss"ed inaccordance with the #y-laws. S(ares ostoc" so iss+ed are personal propert$and !a$ #e transerred #$ deli,er$ ot(e certi-cate indorsed#y the owner orhis attorney in act or other &erson legallya"thorized to ma%e the transer. Notranser' (o&e,er' s(all #e ,alid'e)cept as #et&een t(e parties' +ntilt(e transer is entered and noted +pont(e #oo"s o t(e corporation so as tos(o& t(e na!es o t(e parties to t(etransaction' t(at date o t(e transer't(e n+!#er o t(e certi-cate' and t(en+!#er o s(ares transerred.

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No share o stoc% against which thecor&oration holds any "n&aid claim shall #etransera#le on the #oo%s o thecor&oration.

0 0 0 0 0 0 0 0 0

It ollows rom said &ro!ision that a #y-law ado&ted #ya cor&oration relating to transer o stoc% sho"ld #e inharmony with the law on the s"#Aect o transer ostoc%. 3nder said section stoc%s are &ersonal &ro&erty

and may #e transerred as therein &ro!ided. Itcontem&lates no restriction as to whom they may #etranserred or sold. It does not s"ggest that anydiscrimination may #e created #y the cor&oration ina!o"r or against a certain &"rchaser. he holder oshares, as owner o &ersonal &ro&erty, is at li#erty,"nder said section, to dis&ose o them in a!o"r owhomsoe!er he &leases, witho"t any other limitation inthis res&ect, than the general &ro!isions o law. Inado&ting said #y-law the cor&oration has transcendedthe limits 40ed #y law in the same section.

It is e"ally well settled that #y-laws o a cor&orationm"st #e reasona#le and or a cor&orate &"r&ose, andalways within the charter limits. hey m"st always #e

strictly s"#ordinate to the constit"tion and the generallaws o the land.

By-laws are intended merely or the &rotection o thecor&oration, and &rescri#e reg"lation and notrestriction< they are always s"#Aect to the charter othe cor&oration. he cor&oration, in the a#sence os"ch a &ower, cannot ordinarily in"ire into or &ass"&on the legality o the transaction #y which its stoc%&asses rom one &erson to another, nor can it "estionthe consideration "&on which a sale is #ased. A #$%la& cannot ta"e a&a$ or a#rid*e t(e s+#stantialri*(ts o stoc"(older. 3nder a stat"te a"thorizing#y- laws or the transer o stoc%' a corporation cando no !ore t(an prescri#e a *eneral !ode otranser on t(e corporate #oo"s and cannot/+sti$ an +nreasona#le restriction +pon t(eri*(t o sale.

he right to im&ose any restraint in this res&ect !+st#e conerred "&on the cor&oration either #$ t(e*o,ernin* stat+te or #$ t(e articles o t(ecorporation. It cannot #e done #$ a #$%la&&it(o+t stat+tor$ or c(arter a+t(orit$. Co"rt citing- - (= hom&son on Cor&orations,)

. he only restraint im&osed #y the Cor&oration2aw "&on transer o shares is o"nd in section1$ o +ct No. =$7, "oted a#o!e, as ollowsD

GNo transer, howe!er, shall #e !alid, e0ce&t as#etween the &arties, "ntil the transer isentered and noted "&on the #oo%s o thecor&oration so as to show the names o the&arties to the transaction, the date o thetranser, the n"m#er o the certi4cate, and then"m#er o shares transerred.G his restrictionis necessary in order that the o>cers o thecor&oration may %now who are thestoc%holders, which is essential in cond"ctingelections o o>cers, in calling meeting ostoc%holders, and or other &"r&oses. #"t anyrestriction o the nat"re o that im&osed in the#y-law now in "estion, is "ltra !ires, !iolati!eo the &ro&erty rights o shareholders, and inrestraint o trade.

1. he #y-laws now in "estion cannot ha!e anye8ect on the a&&ellee. He had no %nowledge os"ch #y-law when the shares were assigned tohim. He o#tained them in good aith and or a!al"a#le consideration. He was not a &ri!y tothe contract created #y said #y-law #etweenthe shareholder 'an"el onzalez and theBotica Nolasco, Inc. /aid #y-law cannot o&erateto deeat his rights as a &"rchaser.

/"#-Iss"eD ON that the &lainti8 does not ha!e anyright o action against the deendant cor&oration, #"tagainst the &resident and secretary thereo, inasm"chas the signing and registration o shares is inc"m#ent"&on said o>cers &"rs"ant to section 1$ o theCor&oration 2aw. his contention cannot #e s"stainednow. he "estion sho"ld ha!e #een raised in the lowerco"rt. Besides, as stated a#o!e, the cor&oration wasmade deendant in this action "&on the dem"rrer othe attorney o the original deendant in the loweco"rt, who contended that the Botica Nolasco, Inc.sho"ld #e made the &arty deendant in this action+ccordingly, "&on order o the co"rt, the com&laint wasamended and the said cor&oration was made the &arty

deendant.

Dispositi,e: hene!er a cor&oration re"ses totranser and register stoc% in cases, mandam"s will lieto com&el the o>cers o the cor&oration to transersaid stoc% "&on the #oo%s o the cor&orationIn !iew o all the oregoing, we are o the o&inion, andso hold, that the decision o the lower co"rt is inaccordance with law and sho"ld #e and is here#ya>rmed, with costs. /o ordered.