Kerr v. Porvenir Corp.

• Decision Date: 27 December 1994
• Docket Number: No. 15429,15429
• Citation: 1994 NMCA 171,119 N.M. 262,889 P.2d 870
• Parties: Mike KERR, as Personal Representative of the Estate of Atherton Sinclair Burlingham, Deceased, Plaintiff-Appellee/Cross-Appellant, v. PORVENIR CORPORATION, a New Mexico Corporation, and George Kenneth Burlingham, Defendants-Appellants/Cross-Appellees.
• Court: Court of Appeals of New Mexico

Page 870

889 P.2d 870

119 N.M. 262

Mike KERR, as Personal Representative of the Estate of Atherton Sinclair Burlingham, Deceased Plaintiff-Appellee/Cross-Appellant, v. PORVENIR CORPORATION, a New Mexico Corporation, and George Kenneth Burlingham, Defendants-Appellants/Cross-Appellees.

No. 15429.

Court of Appeals of New Mexico.

Dec. 27, 1994.

Certiorari Denied Feb. 2, 1995.

[119 N.M. 263] D. Gregory Howard, Franch & Jarashow, P.A., Baltimore, MD, Clinton W. Marrs, Kemp, Smith, Duncan & Hammond, P.C., Albuquerque, for plaintiff-appellee/cross-appellant.

Kevin T. Riedel, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Las Cruces, for defendants-appellants/cross-appellees.

OPINION

PICKARD, Judge.

This case involves the applicability of stock transfer restrictions to testamentary dispositions of shares in closely-held corporations. Defendants, Porvenir Corporation (Porvenir) and George Kenneth Burlingham (George), appeal from the district court's grant of summary judgment in favor of Plaintiff, personal representative of the estate of Atherton Sinclair Burlingham (Atherton). The district court ruled that certain Porvenir stock transfer restrictions are not applicable to testamentary dispositions of Atherton's stock and directed Porvenir to issue new stock certificates to the beneficiary of Atherton's will. Plaintiff brought a cross-appeal from the district court's grant of Defendants' motion to reconsider summary judgment and receipt of additional evidence accompanying that motion, which consisted of an amended statement of the stock transfer restriction. The issue on appeal is whether either the original or amended stock transfer restrictions prohibit Plaintiff from transferring Atherton's stock to a third party in accordance with Atherton's will. We conclude that neither restriction prohibits the petitioned-for transfer of stock and affirm the ruling of the district court. Because we find that the second restriction does not prohibit Plaintiff from transferring the stock, we need not reach the cross-appeal. We affirm.

Atherton died testate on July 18, 1987. Plaintiff was appointed personal representative of Atherton's estate on January 7, 1988. Porvenir was incorporated in the State of New Mexico on December 16, 1974. At the time of Atherton's death, there were only three holders of Porvenir stock: Atherton owned 200,000 shares of non-voting stock; George owned 200,000 shares of non-voting stock; and the Hilda S. Burlingham Testamentary Trust, George Kenneth Burlingham, trustee, owned 100 shares of voting stock.

Atherton's stock certificates bear the following stock transfer restriction:

No shares of stock of the corporation shall be sold, pledged, or otherwise transferred by any shareholder without first offering such shares for sale to the corporation, and to the remaining shareholders. The offer shall be made in writing and shall set forth in detail all terms and conditions of any proposed sale, including the price, or any other disposition that the stockholder proposes to make of his shares. The corporation and the remaining shareholders shall have 30 days from the date of receipt of such written offer within which to acquire the shares of stock in question, and if the corporation and the remaining shareholders fail or refuse to acquire such shares, the shareholder shall be free to offer the same for sale or make such other disposition as he may desire.

This restriction was part of the original bylaws of Porvenir. The restriction in the bylaws of Porvenir was amended on August 5, 1990, after Atherton's death, to extend the time for response of the corporation and other shareholders to one hundred eighty days and to include the following additional restriction:

However, shares of stock (class A or B) may not be transferred by a fiduciary such as the trustee(s) of a trust, or the executor of an estate, until the fiduciary has first become an owner of record of these shares on the stock transfer books of the corporation. All restrictions on transfer apply each time ownership is transferred.

This additional restriction does not appear on Atherton's stock certificates.

After Plaintiff requested that Porvenir reissue stocks to the beneficiary of Atherton's will and Defendants refused that request, Plaintiff filed a declaratory action seeking a determination that the first restriction did not apply to testamentary dispositions and requesting a judgment ordering Porvenir to issue new stock certificates to the beneficiary. Both parties filed motions for summary judgment, and agreed to have the district court decide the case on the briefs with no oral argument. The district court, in entering its initial final judgment, considered the issue of "whether the restriction placed on the transferability of shares of stock applies to a testamentary transfer." The district court held that the restriction did not restrict Plaintiff's transfer of the Porvenir stocks to the beneficiary of Atherton's will and ordered Defendants to cooperate with Plaintiff in effectuating a transfer of the shares. Judgment was entered on October 19, 1993.

On October 20, 1993, Defendants moved for reconsideration of summary judgment, seeking to introduce the second transfer restriction, and claiming that in order to transfer the stock to the beneficiary of Atherton's will, a two-part transfer would have to be effectuated--from Atherton to Plaintiff and then from Plaintiff to the beneficiary. Defendants argued that when the stock was reissued to Plaintiff, the new restriction would be placed on the new certificates, which precluded the second transfer because of the restriction against testamentary transfers contained in the second restriction. Defendants conceded that the first transfer, from Atherton to Plaintiff, would not be subject to the second transfer restriction because "there is no evidence that [Atherton] consented to the modification of the stock transfer restriction language."

Plaintiff opposed Defendants' motion for reconsideration, contending that Defendants had failed to state adequate grounds for relief from the judgment pursuant to SCRA 1986, 1-060 (Repl.1992), or for a new trial pursuant to SCRA 1986, 1-059 (Repl.1992). The district court granted the motion for reconsideration, considered arguments and evidence from both parties including the new evidence submitted by Defendants, and again entered final judgment for Plaintiff. Defendants' cross motion for summary judgment was denied. Both parties filed timely notices of appeal.

Summary judgment is proper only if there are no disputed issues of material fact and the movant is entitled to judgment as a matter of law. Koenig v. Perez, 104 N.M. 664, 665, 726 P.2d 341, 342 (1986). The parties agree that no issues of fact exist, and the only question before the district court and this court is the applicability of the stock transfer restrictions to the petitioned-for transfer as a matter of law. "If the facts are not in dispute, but only the legal effect of the facts is presented for determination, then summary judgment may properly be granted." Id. at 666, 726 P.2d at 343.

The sole issue on appeal is whether either of the stock transfer restrictions prohibit the transfer of Atherton's stock to the beneficiary in Atherton's will without first offering the stock to Defendants. Stated more succinctly, the issue is whether either of the stock transfer restrictions apply to prohibit Atherton's testamentary transfer.

New Mexico adheres to the doctrine that "restrictions on the alienation or transfer of corporate stock are not viewed with favor and are strictly construed." Lett v. Westland Dev. Co., 112 N.M. 327, 329, 815 P.2d 623, 625 (1991). We have not previously considered the issue of whether general restrictions on the transfer of stock apply to testamentary transfers without specific reference to testamentary transfers. We therefore look to other jurisdictions for guidance on this issue.

While there are a limited number of cases that have considered the issue, there is a majority and a minority position. See generally Joseph T. Bockrath, Annotation, Restrictions on Transfer of Corporate Stock as Applicable to Testamentary Dispositions Thereof, 61 A.L.R.3d 1090 (1975 & Supp.1994). The minority either implicitly rejects the rule of strict construction of restrictions on the transfer of stock, see id. Sec. 3, at 1093 n. 23; Boston Safe Deposit & Trust Co. v. North Attleborough Chapter of Am. Red Cross, 330 Mass. 114, 111 N.E.2d 447, 449 (1953); Colbert v. Hennessey, 351 Mass. 131, 217 N.E.2d 914, 920, 921 (1966); Chadwick v. Fuller, 867 P.2d 480, 481 (Okla.Ct.App.1993), cert. denied (Jan. 12, 1994), or relies upon state corporation law and legislative history to find that testamentary transfers are contemplated by general transfer language contained in stock transfer restrictions. Dixie Pipe Sales, Inc. v. Perry, 834 S.W.2d 491, 493-94 (Tex.Ct.App.1992). Other jurisdictions, the majority, adhering to the rule of strict construction, have held that absent a specific provision for testamentary transfers, restrictions on the transfer of stock do not apply to testamentary transfers. Bockrath, supra, Sec. 3, at 1093-94.

In implicitly rejecting the rule of strict construction, the Boston Safe Deposit court held that "[t]he language of the restriction is sufficiently broad to apply to all transfers of stock...." Boston Safe Deposit, 111 N.E.2d at 449. The court based its holding, in part, on the proposition that "[the executors] have no greater rights in the stock than did the testatrix and they hold the shares subject to the same restrictions on transfer which were in effect at the time of her death." Id. Because the decedent could not transfer the stocks without reference to the restriction within her lifetime, the court reasoned, her executor should not be able to do so either. Id. Massachusetts courts have also relied upon a " 'modern liberal attitude,' "...