GR 38684; (December, 1933) (Digest)
G.R. No. 38684, December 21, 1933
CYRUS PADGETT, plaintiff-appellee, vs. BABCOCK & TEMPLETON, INC., and W. R. BABCOCK, defendants-appellants.
FACTS
Plaintiff-appellee Cyrus Padgett was an employee of defendant-appellant Babcock & Templeton, Inc. He acquired 44 shares of the corporation’s stock, 35 purchased at par value and 9 received as bonuses. Each share certificate contained the word “nontransferable.” Upon leaving the company, Padgett requested the corporation to buy his shares at par value plus interest, as it had done for other employees. The corporation refused, offering instead to buy them at a discounted price. Padgett filed suit to compel the corporation to purchase his shares at par value and to remove the “nontransferable” restriction.
ISSUE
1. Whether the “nontransferable” restriction on the share certificates is valid.
2. Whether the corporation can be compelled to purchase the shares at par value.
RULING
1. On the validity of the restriction: The “nontransferable” restriction is null and void. It constitutes an unreasonable limitation on the right of ownership and is an illegal restraint on the alienation of property. Under the law, shares of stock are property, and the owner generally has the right to dispose of them freely. Any restriction on transfer must be strictly construed and is generally regarded as in restraint of trade unless a valid lien or specific, lawful restriction exists. The Court cited its prior ruling in Fleischer vs. Botica Nolasco Co., which held similar restrictions ultra vires and violative of shareholders’ property rights.
2. On the obligation to purchase the shares: The corporation cannot be compelled to purchase the shares at par value. There was no express or implied contract obligating the corporation to redeem the shares at par. Absent such a contractual obligation or a specific legal provision requiring it, imposing such a duty would be unjust and unreasonable.
DISPOSITIVE:
The appealed judgment was reversed. The “nontransferable” restriction on the certificates is declared null and void. The defendants are ordered to cancel the old certificates and issue new ones without any restriction. Costs against the defendants-appellants.
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