Mancini v. Patrizi

California Court of Appeal Dec 10, 1927 No. Docket No. 5716.Published

Before: Cashin

AI Brief

AI-generated · verify before citing

Holding. A corporate by-law requiring a shareholder to offer stock to the corporation before transferring it is invalid and unenforceable when the corporation is prohibited by statute from purchasing its own shares.

Issues

Whether a corporate by-law requiring a right of first refusal for the corporation is valid under California law.
Whether a corporation may purchase its own shares when such a purchase would result in an illegal withdrawal of capital stock.

Disposition. affirmed

Quotations verified verbatim against the opinion

“a by-law which requires or purports to authorize the officers of a corporation to make purchases of its own capital stock except under those conditions is inconsistent with the provisions of the statute and void.”

“a by-law which prescribes as a condition to the right to transfer stock, that an offer be made the acceptance of which is forbidden is manifestly unreasonable and consequently invalid.”

CASHIN, J.

An appeal from a judgment entered against defendant in an action for the recovery of liquidated damages as provided by section 324 of the Civil Code.

The facts shown by the record are that on February 11, 1925, the defendant was the president of L ’Italia Press

[437]

Co., a corporation organized and existing under the laws of California, with a capital stock of one hundred thousand dollars divided into four thousand shares of the par value of twenty-five dollars each; that on or about August 1, 1908, Emilio Chirone was the holder and owner of eight shares of the capital stock of the corporation, which stock was> represented by certificate No. 19; that thereafter Chirone sold the stock and indorsed the certificate to Buffalo Brewing Co., a corporation; that the shares were sold by the latter and the certificate indorsed to one Savio, who in the year 1912' sold the same and by indorsement transferred the certificate to the plaintiff, who has ever since been the owner and holder thereof.

The plaintiff on or about February 11, 1925, presented the certificate to the defendant as president of L ’Italia Press Co., and demanded that the shares represented thereby be transferred on the books of the corporation and a certificate therefor be issued to the plaintiff, which demand was refused.

It is claimed by the defendant that the refusal to make the transfer was excused by the failure to comply with a certain by-law adopted by the corporation on October 14, 1909, which reads as follows: “No share of stock in this corporation is transferable without the holder thereof first presenting the same to the office of the corporation and offering the same for sale to said corporation.” The defendant offered to prove that the by-law was adopted with the knowledge and consent of Chirone, and that the corporation was ready, willing, and able to purchase the stock at its par value. Plaintiff admits that no offer to sell the stock to the corporation was made by Chirone or by any one of those to whom the certificate was indorsed, but contends that the indorsees were not charged with notice of the by-law, and further that the same was invalid.

As contended by the defendant, similar by-laws have been sustained in other jurisdictions as being reasonably necessary for the protection of the corporation and its stockholders against rivals in business or others who might purchase its shares for the purpose of acquiring information which might thereafter be used against the interests of the company; and, as provided by section 354 of the Civil Code, “Every corporation as such has the power (11) to

Mancini v. Patrizi

AI Brief

CASHIN, J.

More from California Court of Appeal

Related research

AI Brief