Taylor's Adm'r v. Taylor

• Decision Date: 15 February 1957
• Citation: 301 S.W.2d 579
• Parties: Robert D. TAYLOR'S ADMINISTRATOR (L. W. Taylor), et al., Appellants, v. T. Guthrie TAYLOR et al., Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 579

301 S.W.2d 579

Robert D. TAYLOR'S ADMINISTRATOR (L. W. Taylor), et al., Appellants, v. T. Guthrie TAYLOR et al., Appellees.

Court of Appeals of Kentucky.

Feb. 15, 1957.

Rehearing Denied May 24, 1957.

Wilbur Fields, Louisville, for appellant.

Henry E. McElwain, Jr., B. C. VanArsdale, Louisville, for appellee.

STANLEY, Commissioner.

The suit involves the right of the personal representative and the legatee of a deceased stockholder to have two shares of stock in a family corporation transferred on the records of the company to the legatee as the present owner without having first offered to sell the shares to other stockholders. The judgment recites that the amount involved is in excess of $2,500.

The Taylor Trunk Company was incorporated in January, 1929, as the successor of a family partnership. Joseph C. Taylor owned 126 shares and each of two sons, T. Guthrie and Leonard W. Taylor, owned 62 shares, a total issue of 250 shares. The father died about two months after the incorporation, and his stock was divided equally among the two named sons and a third son, Robert D. Taylor. In June, 1934, Robert sold 20 shares of his stock to each of his two brothers and retained two shares. The 40 shares of stock were duly transferred on the record of the corporation and new certificates issued the three parties. These three gentlemen continued to be the only stockholders. The business of the company was conducted by Guthrie and Leonard.

Robert died in 1938. He bequeathed his estate to his widow, Pauline. She, as executrix, closed the administration in due course, but the settlement did not include these two shares of stock, apparently because Mrs. Taylor did not know about them. This may have been due to the fact that Robert had delivered the certificate to his brother Leonard as security for a loan.

In 1953 Leonard W. Taylor qualified as administrator with will annexed of Robert's estate for the purpose of having the stock transferred to Robert's widow, now Pauline Taylor Brittain. Guthrie, as president of the corporation, declined to make the transfer on the records of the company. This suit was instituted by Robert's administrator c. t. a. and the legatee, Pauline T. Brittain, to require the corporation and its president, Guthrie Taylor, to transfer the stock to her. The defendants pleaded noncompliance with a provision of a restriction on the transfer of stock (hereinafter described) contained in the bylaws of the company. Guthrie Taylor entered a counterclaim alleging that Leonard had waived his right to have one of the shares offered to him under that restriction so that he, Guthrie, as the only other stockholder, had an option to acquire both shares. The plaintiffs contended no bylaws had ever been adopted. The trial court ruled that the restriction on the transfer was effective and that the defendants need not transfer the stock until the terms of the restriction had been complied with by Robert's administrator c. t. a. first offering to sell one of the shares to T. Guthrie Taylor and the other to Leonard W. Taylor individually. The counterclaim was dismissed. Leonard W. Taylor, as the personal representative, and Mrs. Brittain, as the legatee, appeal from the judgment. There is no cross-appeal from the order dismissing the counterclaim.

It is not unusual in a closed family organization for the formal or technical requirements in the organization or the management to be loosely observed. So it was here in the matter of adopting bylaws for the corporation. It is quite clear that drafts of bylaws were made, but no entry of adoption of any of them was entered in the corporation records. However, a loose copy of bylaws was kept in the record book. It contained these provisions:

'All Certificates of Stock of the Company shall be transferred only on the books of the Company by the holder thereof in person or by his attorney, subject to the following agreement, notice of which shall be endorsed on back of said Certificates when issued:

'That no transfer or sale of the stock of the Company can be made without first offering said stock for sale to the remaining stockholders at a price of 5% less than the book value of said stock for a period of 60 days upon a pro rata basis of their holdings at the time said offer is made.'

The chancellor found as a fact that the parties had recognized this bylaw as having been adopted and that it was effective, or, at least, that the provision constituted a mutual agreement. He held as a matter of law that Leonard W. Taylor was estopped to deny the validity or efficacy of the restrictive provisions. A judgment was entered to the effect that the provision restricting the transfer or sale of stock until the option had been given to the stockholders to acquire it was binding, and the defendants did not have to transfer the stock until it had been complied with. We accept the finding of fact of the court as to the practical adoption of the bylaw by the stockholders and the validity of the restriction generally.

Our statute, KRS 274.150, (being section 15 of the Uniform Stock Transfer Act) provides 'there shall be no restriction upon the transfer of shares' represented by a certificate of stock 'by virtue of any bylaws of such corporation, or otherwise, unless * * * the restriction is stated upon the certificate.' All of the transactions in this case, however, occurred before the enactment of the statute which impliedly permits restrictions to be placed upon the transfer or sale of stock in a corporation. There was no comparable legislative sanction before the enactment in 1944. See Ky.Stats. section 545; McKinney v. Mechanics' Trust & Savings Bank, 222 Ky. 264, 300 S.W. 631. There is a diversity of authority as to the validity of a bylaw which restricts the right of alienation of corporate stock where there is no statutory authority for it; but the tendency of the courts is to sustain such a restriction. The modern decisions are to the effect that if the restriction is reasonable and the stock has been accepted with knowledge of it, particularly a provision giving a close corporation or its stockholders an option or opportunity to purchase the stock, it is valid. 13 Am.Jur., Corporations, sections 329, 335, 338; 12 Fletcher on Corporations, sections 5453, 5454, 5456, pp. 215, 218, 221; Cook on Corporations, Vol. 3, section 622c, p. 2206; Annotations, 65 A.L.R. 1159; 117 A.L.R. 1360; 138 A.L.R. 650; 2 A.L.R.2d 747. See also Annotation, 29 A.L.R.2d 901, relating to the construction and effect of section 15 of the Uniform Stock Transfer Act.

It seems to us that the decision in this case must rest upon the question of the application to the transfer of the certificate for two shares of stock to the estate of Robert D. Taylor or his legatee. The terms of the bylaw are that 'no transfer or sale of the stock of the company can be made without first offering said stock for sale to the stockholders.' There has been no sale. Title passed by operation of law and the will of the shareholder. It is simply a case where the personal representative and legatee seek to have that title, as evidenced by the certificate of stock, recorded or transferred on the books of the company.

In Krebs v. McDonald's Ex'x, Ky., 266 S.W.2d 87, 89, we impliedly recognized the validity and applicability to an estate of a deceased shareholder of a collateral agreement by stockholders that they should severally have the...