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March 15, 1996


Appeal from the Circuit Court of Kane County. No. CH-KA-94-0011. Honorable R. Peter Grometer, Judge, Presiding.

Released for Publication April 15, 1996.

The Honorable Justice Geiger delivered the opinion of the court: Inglis and Colwell, JJ., concur.

The opinion of the court was delivered by: Geiger

JUSTICE GEIGER delivered the opinion of the court:

Both the plaintiff-counterdefendant, Wayland Phillips, and the defendant-counterplaintiff, Andrew McCullough, as executor of the estate of his mother, Mary McCullough, f/k/a Mary Josephine Phillips (the decedent), appeal from the trial court's entry of judgment in favor of the defendant on the plaintiff's complaint for specific performance and on the defendant's counterclaim for declaratory judgment. At issue on appeal is whether section 6.55 of the Business Corporation Act of 1983 (the Act) (805 ILCS 5/6.55 (West 1994)), which permits written restrictions on the transfer or registration of transfer of a security of a corporation, extends those restrictions to testamentary transfers. We affirm.

The plaintiff is the owner of one of the five issued and outstanding shares of common stock of H.A. Phillips & Co. (the Corporation), an Illinois corporation. At the time of her death on June 14, 1993, the decedent was the holder of 1 1/3 shares of the Corporation's common stock (the subject shares), which were registered in her maiden and married names. In her will, the decedent provided that the subject shares were to pass to the defendant individually, to the decedent's other two children, and to the defendant as trustee of a trust for his father, the decedent's ex-husband.

As set forth in a document dated September 7, 1960, the plaintiff, the decedent, and the two remaining shareholders, counterdefendants David Phillips and Jenny Phillips, entered into a written agreement (the Agreement), signed by each of them, which restricted the transferability of all five of the issued and outstanding shares of the Corporation. Section 1 of the Agreement provided, inter alia,:

"Before any sale, assignment, transfer or other disposition (whether voluntary or involuntary, and whether caused, permitted or occasioned by any act or sufferance, of any of the parties hereto, or otherwise) of any shares of stock of Company at the time owned or held by any of the parties hereto shall be made attempted or occur, the party whose share or shares of stock of Company are thus proposed to be sold, assigned, transferred or otherwise disposed of shall serve written notice thereof upon each of the other parties hereto no less than 60 days prior to the last day of the month in which any such proposed sale, assignment, transfer or other disposition is to take place."

Under section 2 of the Agreement, the parties receiving the notice required in section 1 would have the prior and exclusive right and option to purchase the shares proposed to be sold, assigned, transferred or otherwise disposed of. Section 2 provided further that a party seeking to exercise said right and option was required to serve notice in writing of such intention within one month after receipt of the notice given pursuant to section 1 of the Agreement at a purchase price equal to the book value of the shares or the purchase price made in any bona fide offer. Under section 7 of the Agreement, any "declaration, demand, request or notice of any kind or character, or for any purpose whatsoever, upon the other parties" was to be made in writing and sent by registered or certified mail.

Section 4 of the Agreement set forth the procedure for the purchase of shares of stock pursuant to the Agreement. Under that section, every such purchase of stock would be consummated "at such bank or trust company in Chicago, Illinois, as the purchasers may have designated for such purpose in the written notice of election to purchase such shares given pursuant to Section 2, and such purchase shall be deemed to have been completed upon the deposit by such purchasers on or before sixty (60) days from the date of purchase, of the entire purchase price, as set forth in Section 2 of this Agreement, in cash." Section 4 also required that, at or before the time provided for the deposits to be made by the purchasers, a certificate or certificates in transferable form representing the shares to be purchased, duly endorsed for transfer to the purchasing parties, together with the documentation required for the effective transfer of the stock, be deposited for delivery to the purchasers upon their deposit of the purchase price.

The Agreement further authorized and directed the Corporation to make reference to the Agreement and its restrictions in a written statement contained on all the Corporation's stock certificates, "whether now or hereafter to be issued." Additionally, section 8 of the Agreement noted that the rights, obligations and restrictions thereunder "shall extend to and bind or inure to the benefit of *** not only the parties hereto, but also their respective heirs, legal representatives, successors and assigns, and shall apply to any shares of stock of Company hereafter issued by Company (whether now or hereafter authorized), as well as to the shares of stock of Company now issued and outstanding (whether now owned or hereafter acquired by any parties hereto)." Finally, section 9 stated the provisions of the Agreement would be deemed to be continuing provisions and apply to every successive sale, assignment, transfer or other disposition of the shares of stock of the Corporation and that the fact that said provisions may not have been availed of in any instance "shall not be deemed to waive or dispense with any such provisions in any subsequent or other instance."

On July 19, 1993, the decedent's will was admitted to probate and the defendant was named executor of her estate. Thereafter, in a letter to the plaintiff dated August 23, 1993, the defendant stated, "You have expressed concern over the disposition of my mother's assets. Therefore, I am sending you a copy of her will." At trial, the plaintiff testified that she telephoned the defendant upon her receipt of his letter and informed him that she had already obtained a copy of the decedent's will.

By letter dated December 10, 1993, the plaintiff informed the defendant and the two counterdefendants of her intent to exercise her option to purchase the subject shares under the terms of the Agreement. The letter noted that the plaintiff would be depositing at least $26,656.95 in a shares and money escrow account, representing her proportionate interest in the subject shares based on a book value of $97,742.13 for said shares. The plaintiff further stated that if the counterdefendants did not exercise their option to purchase their respective portion of the shares, she would deposit all the funds necessary to purchase the shares herself. The plaintiff ultimately deposited $31,452.69 in an escrow account at the State Bank of Geneva and obtained a line of credit in the amount of $150,000 for the purchase of all of the subject shares.

In response to the plaintiff's letter, counsel for the estate sent a letter questioning the existence of any shareholders' agreement. Counsel stated that such an agreement had been mentioned to him a couple of years earlier. Since that time, he had asked on several occasions that the original Agreement be produced, if it existed, but none had been produced to date. Counsel also noted that several transfers between the plaintiff and counterdefendant Jenny, which had been made without compliance with any of the requirements implied in the plaintiff's letter, provided further evidence that the Agreement did not exist and had not existed for years. The letter concluded that, in ...

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