Estate of Spaziani, Matter of

• Citation: 125 Misc.2d 901,480 N.Y.S.2d 854
• Parties: In the Matter of the Judicial Settlement of the Account of Josephine Marcinko, as Administratrix of the ESTATE OF Vincent SPAZIANI, Deceased. Surrogate's Court, Jefferson County
• Decision Date: 09 October 1984
• Court: New York Surrogate Court

Page 854

480 N.Y.S.2d 854

125 Misc.2d 901

In the Matter of the Judicial Settlement of the Account of Josephine Marcinko, as Administratrix of the ESTATE OF Vincent SPAZIANI, Deceased.

Surrogate's Court, Jefferson County.

Oct. 9, 1984.

Williams & Katzman, Watertown (Lawrence Katzman, Watertown, of counsel), for Josephine Marcinko, administratrix and distributee.

Giles, Marsh, Goodwin & Stone, P.C., Watertown (Clarence F. Giles, Jr., Watertown, of counsel), for estate of Peter Spaziani, distributee.

Anderson Wise, Watertown, for Silverio Spaziani, distributee.

Conboy, McKay, Bachman & Kendall, Watertown (Addison F. Vars III, Watertown, of counsel), for Henry Spaziani, distributee.

Oliver J. Wisner, Watertown, for New York State Department of Taxation and Finance, possible creditor.

OPINION OF THE COURT

HUGH A. GILBERT, Surrogate.

Issues of significant concern to practicing attorneys involved in either corporate or estate practice are raised herein. The question is raised herein as to whether a restriction on the transferability of stock binds the personal representative of a deceased stockholder.

The decedent, Vincent Spaziani, was one of the five original subscribers to the certificate of incorporation of Spaziani Bakeries, Inc. Paragraph Eleventh of the certificate states that "No certificate of stock or any interest therein of this corporation shall be transferred to any person, persons, partnership or corporation until it has first been offered for sale in writing by registered mail to this Corporation." The corporation seeks to have such clause enforced while the distributees of Vincent Spaziani demand distribution of the stock to them by his administratrix in equal shares.

A common objective of incorporation, especially in a closely held corporation, is the avoidance of personal liability. People ex rel. Winchester v. Coleman, et al. 133 N.Y. 279, 31 N.E. 96 (1892); Herman v. Siegmund, 102 A.D.2d 810, 476 N.Y.S.2d 590 (1984). Another primary objective is to guarantee and define the continuation of a family business, including the parties who are to be shareholders. Allstate Ins. v. Horowitz, 118 Misc.2d 787, 461 N.Y.S.2d 218 (1983). Clauses such as Paragraph Eleventh herein are inserted in the certificate of incorporation to accomplish this latter objective. However, it appears that draftsmen must pay particular attention to the language used in such a clause if it is to be binding upon the estate of a deceased shareholder.

The ownership of stock vests in a person an interest or right in the management, profits and assets of that corporation. Stockton v. Lucas, 482 F.2d 979 (1973). The stockholder has basic ownership rights to such stock, including the right to dispose of it as his self-interest dictates. Borden v. Guthrie, 23 A.D.2d 313, 260 N.Y.S.2d 769 (1965), affd. 17 N.Y.2d 571, 268 N.Y.S.2d 330, 215 N.E.2d 511 (1966); Matter of Petition of Argus Co. et al., 138 N.Y. 557, 34 N.E. 388 (1893). A close corporation generally will seek to define or limit such right of disposition in its certificate of incorporation. Robertson v. Nicholes Co., Inc., 141 Misc. 660, 253 N.Y.S. 76 (1931). As selected herein, one of the common methods of limiting such right of disposition is by requiring the stockholders to offer the stock first to the corporation or by giving it a right of refusal, before transferring the stock to another party. Penthouse Properties, Inc. v. 1158 Fifth Avenue Inc., 256 App.Div. 685, 11 N.Y.S.2d 417 (1939). Such restriction is pursuant to the objective of a close corporation to determine "the selection of a particular plan of ownership and classification of the interests of security holders." Matter of Brunner Air Compressor Corp., 287 F.Supp. 256, 266 (1968).

Therefore, there has evolved in the law a general principle that the courts will uphold and enforce restrictions on a stockholder's right of disposition of his stock, or his right of alienability, if reasonable and for a valid business purpose. Hassel v. Pohle, 214 App.Div. 654, 212 N.Y.S. 561 (1925); Cicero Ind. Dev. Corp. v. Roberts, 63 Misc 2d 565, 312 N.Y.S.2d 893 (1970); Stockton v. Lucas, 482 F.2d 979 (1973). A first option restricting, or right of first refusal, on behalf of the corporation or other stockholders has been determined to be a reasonable and valid business purpose. American Broadcasting Companies, Inc. v. Wolf, 76 A.D.2d 162, 430 N.Y.S.2d 275 (1980), affd. 52 N.Y.2d 394, 438 N.Y.S.2d 482, 420 N.E.2d 363 (1981); Rowlee v. Dietrich, 88 A.D.2d 751, 451 N.Y.S.2d 467 (1982).

Consequently, such a clause, as has been adopted by the incorporators of Spaziani Bakeries, Inc. herein, is valid and enforceable. Allen v. Biltmore Tissue Corp., 2 N.Y.2d 534, 161 N.Y.S.2d 418, 141 N.E.2d 812 (1...