Allen v. Biltmore Tissue Corp.

2. N.Y.2d 534, 161 N.Y.S.2d 418, 141 N.E.2d 812 (1957)

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Nature of the Case

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Facts

Biltmore Tissue Corp. (D) was organized with an authorized capitalization of 1,000 shares without par value, to manufacture and deal in paper and paper products. The bylaws contained provisions limiting the number of shares (originally 5, later 20) available to each stockholder and restricting stock transfers both during the life of the stockholder and in case of his death. Whenever a stockholder desires to sell or transfer his shares, he must, according to one bylaw give the corporation or other stockholders an opportunity to repurchase the stock at the price that was paid for the same to the Corporation at the time the Corporation issued the stock. If the option is not exercised, after 60 days, the holder may sell the stock to such person and under such circumstances as he sees fit. Harry Kaplan, paper jabber, was one of D's customers and some months after its incorporation purchased 5 shares of stock from the corporation at $5 a share. In 1936, Kaplan received a stock dividend of 5 more shares, and two years later purchased 10 additional shares for $100. On October 20, 1953, Kaplan wrote to the D that he wanted to sell his 20 shares of the stock and requested that he be given the price which the board of directors will consider. He died five days later. Some months thereafter, in February, his son and one of his executors (Ps), addressed a letter to D, inquiring whether it was still interested in acquisition and if so at what price. The same day, the attorney of the executors sent to D the three stock certificates, representing the 20 shares, and requested that a new certificate be issued in the name of the estate or the executor. Within 30 days, D's board of directors voted to exercise its option to purchase the stock and three weeks later notified executor's attorney of its actions. He was also informed that although the bylaws permit purchase at the original price, D decided to pay $20 a share. Executors declined to sell and insisted that the stock be transferred to them. D refused, and Ps brought this action to compel D to accept surrender of the decedent's stock certificate and to issue a new certificate for 20 shares to them. They contended that the bylaw is void as an unreasonable restraint. D interposed a counterclaim for specific performance based on the exercise of its option to purchase ten shares. The court at Special Term granted judgment to D on its counterclaim and dismissed the complaint. The Appellate Division reversed, rendered judgment directing the transfer of the stock to the Ps and dismissed the D's counterclaim upon the ground that the bylaw in question is void.