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CORPO - 023 Fleischer v Botica Nolasco Co. Inc.

A by-law of a corporation which provides that transfers of stock shall not be valid without board approval cannot defeat the rights of third persons. Facts: 1. Manuel Gonzales assigned his 5 shares of Botica Nolasco stock to Fleischer in consideration of a debt he owed to the latter. Gonzales requested Botica Nolasco to transfer the shares to Fleischers name. . !he treasurer of Botica Nolasco offered to bu" the shares from Fleischer for #1$$ each %total #5$$&. Fleischer refused the offer. '. Fleischer filed an action for mandamus against the board of directors of Botica Nolasco. (. Fleischer wanted Botica Nolasco to a. )egister in its books 5 shares of stock under his name b. #a" him the sum of #5$$ for damages 5. Botica Nolasco refused to accede to Fleischers demands *ursuant to article 1 of its b"+ laws %,*referential right to bu" shares from retiring stockholders-&. a. .ccording to article 1 / it had the *referential right to bu" the shares from Fleischer at the *ar 0alue of #1$$ *er share/ with #1$ as di0idends/ and that Fleischer refused the offer 2. !he lower court ruled that article 1 was in conflict with the *ro0isions of the 3or*oration 4aw a. .rticle 1 creates in fa0or of Botica Nolasco a *referential right to bu" the shares of a retiring shareholder %in this case/ Botica Nolasco has a *referential right to bu" Gonzales shares o0er Fleischer.& Issue/s: 1. 5s article 1 in conflict with the 3or*oration 4aw6 789 Held/Ratio: . B!-la" article 2 is in con#lict "ith the Cor$oration %a" &ecause it is a restraint o# trade not conte'$lated &! (ec 3) o# the Cor$oration %a". *hile it "as validl! created under the $rovisions o# (ec 3+,-. it is not in har'on! "ith (ec 3). 2. /oreover. Fleischer had no 0no"led1e o# article 2 "hen 2on3ales assi1ned the shares to hi'. He "as not a $riv! to the contract and o&tained the shares in 1ood #aith and #or valua&le consideration. '. .ccording to 9ec 1'%:& and 9ec '5 of the 3or*oration 4aw/ b"+laws relating to transfer of stock should be in harmon" with the law on the sub;ect of transfer of stock. a. 1'%:& 983. 1'. 80er" cor*oration has the *ower< %:& !o make b"+laws/ not inconsistent with an" e=isting law/ for the fi=ing or changing of the number of its officers and directors within the limits *rescribed b" law/ and #or the trans#errin1 o# its stoc0. the ad'inistration o# its cor$orate a##airs. etc. b. '5

983. '5. !he ca*ital stock of stock cor*orations shall de di0ided into shares for which certificates signed b" the *resident or the 0ice+*resident/ countersigned b" the secretar" or clerk and sealed with the seal of the cor*oration/ shall be issued in accordance with the b"+laws. 9hares of stock so issued are *ersonal *ro*ert" and ma" be transferred b" deli0er" of the certificate indorsed b" the owner or his attorne" in fact or other *erson legall" authorized to make the transfer. No transfer/ howe0er/ shall be 0alid/ e=ce*t as between the *arties/ until the transfer is entered and noted u*on the books of the cor*oration so as to show the names of the *arties to the transaction/ that date of the transfer/ the number of the certificate/ and the number of shares transferred. No share of stock against which the cor*oration holds an" un*aid claim shall be transferable on the books of the cor*oration. 9ec '5 *ro0ides no restriction as to whom shares ma" be transferred or sold. !he shareholder/ as owner of shares/ which are *ersonal *ro*ert"/ is free to dis*ose of them in fa0or of an" one. !he onl" restraint in 9ec '5 is that the transfer will onl" be 0alid if it is entered and noted u*on the books of the cor*oration. 5n this case/ article 1 was consistent with 1'%:& but not with '5. B"+laws of a cor*oration are 0alid if the" are reasonable and calculated to carr" into effect the ob;ects of the cor*oration and are not contradictor" to the laws of the land. a. B"+laws are subordinate to the constitution and the laws of the land. b. !he" should not infringe state *olic" or be hostile to *ublic welfare. c. !he" cannot disturb 0ested rights or im*air the obligation of a contract d. !he" cannot take awa" or abridge the rights of stockholders or members/ affect *ro*ert" rights/ or create obligations unknown to law . cor*oration cannot *re0ent or restrain transfers of its shares unless it is e=*ressl" authorized in its charter or go0erning statute. a. >?76 B"+laws or other regulations restraining transfers are regarded as im*ositions in restraint of trade . b"+law of a cor*oration which *ro0ides that transfers of stock shall not be 0alid without board a**ro0al cannot defeat the rights of third *ersons.


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