Related Doctrine: Under a statute authorizing by-laws for the transfer of stock, a corporation can do no more than prescribe a general mode of transfer on the corporation books and cannot justify a restriction upon the right of sale.
Facts: Manuel Gonzalez was the original owner of the five shares of stock of the Botica Nolasco, Inc., which he subsequently sold, assigned, and delivered to Fleischer. Dr. Miciano, secretary-treasurer of Botica Nolasco, offered to buy the said shares of stock from Fleischer, on behalf of the corporation. By virtue of Art. 12 of the by-laws of Botica Nolasco, said corporation had the preferential right to buy from Gonzalez said shares. However, Fleischer refused to sell them and instead, he requested Dr. Miciano to register said shares in his name but Dr. Miciano refused to do so, saying that it would be in contravention of the by-laws of the corporation.
Issue: Whether Art. 12 of the by-laws of the corporation is in conflict with the provisions of the Corporation Code.
Decision: Yes. As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objective of the corporation and are not contradictory to the general policy of the laws of the land. Under a statute authorizing by-laws for the transfer of stock, a corporation can do no more than prescribe a general mode of transfer on the corporation books and cannot justify a restriction upon the right of sale.
SEC. 13. Every corporation has the power:
(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of the number of its officers and directors within the limits prescribed by law, and for the transferring of its stock, the administration of its corporate affairs, etc.
The by-law in question was adopted under the power conferred upon the corporation by SEC. 13, par. 7 of the Corporation Code, but in adopting said by-law the corporation has transcended the limits fixed by law in the same section and has not taken into consideration the provisions of SEC. 35 (now SEC. 63) of the Corporation Code.
Moreover, the by-laws now in question cannot have any effect on Fleischer. 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 privy to the contract created by said by-law between the shareholder Gonzalez and Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser.
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