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Corporate Law Case Digest: Lambert v. Fox (1914)

G.R. No. L-7991            January 29, 1914
Lessons Applicable: Restriction on Transfer (Corporate Law)

  • Early in 1911: John R. Edgar & Co., engaged in the retail book and stationery business was taken over by its creditors including Lambert and Fox
  • Lambert and Fox became the 2 largest stockholders in the new corporation called John R. Edgar & Co., Incorporated
  • Lambert and Fox entered into an agreement wherein they mutually and reciprocally agree not to sell, transfer, or otherwise dispose of an part of the stock until after 1 year from the agreement date unless consented in writing
    • violation: P1,000 pesos as liquidated damages
  • October 19, 1911:  Fox sold his stock E. C. McCullough & Co. of Manila, a strong competitor 
    • sale was made by the defendant against the protest 
    • Foz offered to sell his shares of stock to the Lambert for the same sum that McCullough was paying them less P1,000, the penalty specified in the contract
  • Trial Court: dismissed
ISSUE: W/N Fox should be penalized

HELD: YES.  The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and against the defendant for P1,000, with interest; without costs in this instance.
  • parties expressly stipulated that the contract should last one year regardless of the objective it should be applied
    • parties who are competent to contract may make such agreements within the limitations of the law and public policy as they desire, and that the courts will enforce them according to their terms
  • The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation as well as of the individual parties to the contract, and is reasonable as to the length of time of the suspension.