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Galler v. Galler - 32 Ill. 2d 16, 203 N.E.2d 577 (1964)

Rule:

A close corporation is one in which the stock is held in a few hands, or in a few families, and wherein it is not at all, or only rarely, dealt in by buying or selling. Moreover, it should be recognized that shareholder agreements are often, as a practical consideration, quite necessary for the protection of those financially interested in the close corporation. While the shareholder of a public-issue corporation may readily sell his shares on the open market should management fail to use, in his opinion, sound business judgment, his counterpart of the close corporation often has a large total of his entire capital invested in the business and has no ready market for his shares should he desire to sell. He feels, understandably, that he is more than a mere investor and that his voice should be heard concerning all corporate activity. Without a shareholder agreement, specifically enforceable by the courts, insuring him a modicum of control, a large minority shareholder might find himself at the mercy of an oppressive or unknowledgeable majority.

Facts:

Plaintiff Emma Galler and her late husband Benjamin Galler entered into an agreement with defendants Isadore A. Galler and his wife, Rose. Benjamin and Isadore Galler, brothers, were equal partners in the Galler Drug Company, a wholesale drug concern. The agreement granted Emma equal control of corporation with defendant upon the death of her husband, including the power to vote his shares and a support income. Isadore and Rose attempted to destroy copies of the agreement, and refused to honor the agreement upon the death of Benjamin. The trial court granted specific performance, but the intermediate appellate court found that the agreement was unenforceable. 

Issue:

In a close corporation, are public policy and statute preventing agreements granting non-board member management powers applicable where enforcement harmed no one?

Answer:

No

Conclusion:

The court found that, because the case involved a close corporation, public policy and statute preventing agreements granting non-board member management powers was inapplicable where enforcement harmed no one. Looking to the terms of the agreement, the court found them reasonable, and supplied a term that limited the duration of the agreement to Emma’s life to effectuate the purpose of the agreement.

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