Thank You For Submiting Feedback!
Under N.Y. Pers. Prop. Law § 176, which is identical with § 15 of the Uniform Stock Transfer Act, there shall be no restriction upon the transfer of shares represented by a stock certificate by virtue of any bylaw of such corporation, unless the restriction is stated upon the certificate. However, the terms of the statute do not require the restriction to be set out either verbatim or in substance, and courts find noncompliance only where the stock certificate gives no notice whatever of the restriction sought to be enforced.
Decedent purchased stock in appellant corporation that gave appellant an option to repurchase the stock upon decedent's death. However, the stock certificate itself did not specify that restriction. Upon decedent's death, appellant exercised its repurchase option. Appellee executors of decedents declined to sell to the appellant, insisting that the stock which had been in the decedent's name be transferred to them. When their demand was refused, appellees brought the present action to compel appellant to accept surrender of the decedent's stock certificate and to issue a new certificate for 20 shares to them. Appellees contended that the restriction was invalid under N.Y. Pers. Prop. Law § 176, which required restrictions on a stock's transfer to be stated on the certificate. Appellees also argued that the corporate restriction allowing appellees to repurchase the stock at the same price decedent paid was unreasonable. The court at Special Term granted judgment to the appellant corporation on its counterclaim and dismissed the complaint. The Appellate Division reversed, rendered judgment directing the transfer of the stock to the appellees and dismissed the appellants counterclaim upon the ground that the by-law in question was void.
Was the appellant’s restriction on the transferability of its stock illegal and/or unreasonable?
The court reversed the decision of the Appellate Division. The court followed the weight of judicial authority in holding that the restriction itself need not be printed verbatim on the certificate, as long as a legend was printed indicating the stock was subject to a restriction on transferability and noting where the restriction may be found. The court also held appellant's price condition was not sufficiently unreasonable as to invalidate the restriction on transferability. To be invalid, more than mere disparity between option price and current value of the stock must be shown.