FLEISCHER v. BOTICA NOLASCO INC.

March 14, 1925 | Johnson, J. | Formation/Organization | Manalo

PETITIONERS: Henry Fleischer

RESPONDENTS: Botica oalsco Co., Inc.

SUMMARY: Gonzalez, in consideration of a large sum of money he owed to Henry Fleischer, sold his
shares of stock (Nos. 16, 17, 18, 19, and 20) to the latter. The secretary-treasurer of Botica Nolasco, Inc,
Dr. Eduardo Miciano (on behalf of the corporation), offered to buy from Henry Fleischer the shares of
stock at their par value of Php 100 / share (all for Php 500). Fleischer refused and asked Miciano to register
the shares in his name. Miciano refused arguing that if he acquiesced to the request of Fleischer, then it
would be in contravention of article 12 of the corporation’s by-laws, which states that the corporation has
the preferential right to buy from Gonzalez the said shares.

DOCTRINE: As a 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. They must not infringe the policy of the state, nor be
hostile to public welfare.

FACTS:
1. On March 11, 1923, Manuel Gonzalez, as owner of five (5) shares of stock (Nos. 16, 17, 18, 19,
and 20) of Botica Nolasco, Inc, assigned and delivered such shares to Henry Fleischer. Gonzalez
did so by accomplishing the form of endorsement and provided on the back, together with other
credits. All of which was in consideration of a large sum of money owed by Gonzalez to Henry
Fleischer.
2. The secretary-treasurer of Botica Nolasco, Inc, Dr. Eduardo Miciano (on behalf of the
corporation), offered to buy from Henry Fleischer the shares of stock at their par value of Php 100
/ share (all for Php 500).
3. He argued that by virtue of article 12 of its by-laws, the corporation has a preferential right to buy
from Manuel Gonzalez the shares of stock.
4. Henry Fleischer refused to sell to Botica Nolasco, Inc the shares of stock. He instead requested
Miciano to register the shares in his name. Miciano did not agree to do so, arguing that such would
be in contravention of the by-laws of the corporation, Botica Nolasco, Inc.

ISSUE:
1. WON the corporation has any power or authority to adopt such by-law in this case. NO.

RATIO:
1. 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 section 35 of the Corporation Law
(Act No. 1459).
2. 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.
3. Section 35 provides that the shares of stock "are personal property and may be transferred by
delivery of the certificate indorsed by the owner, etc." Under said section they are personal
property and may be transferred as therein provided. Said section contemplates no restriction as to
whom they may be transferred or sold.
4. As a 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. They must not infringe
the policy of the state, nor be hostile to public welfare.
5. They hold that the power of a corporation to enact by-laws restraining the sale and transfer of
shares, should not only be in harmony with the law or charter of the corporation, but such power
should be expressly granted in said law or charter.
6. The by-laws 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. Said by-law cannot operate to defeat his rights as a
purchaser.