Galler v. Galler
203 N.E.2d 577



PROCEDURE:Plaintiff challenged an order from the Appellate Court for the First District (Illinois) that reversed the trial court's order granting her request for specific performance of a shareholder agreement purporting to grant to plaintiff her husband's share of a close corporation following his death.

FACTS:Plaintiff and her late husband entered into an agreement with defendants, with whom husband had been a shareholder of a close corporation. The agreement granted plaintiff equal control of corporation with defendant upon the death of her husband, including the power to vote his shares and a support income. Defendants attempted to destroy copies of the agreement, and refused to honor the agreement upon the death of plaintiff's husband.

ISSUE: Whether recognition and enforcement of shareholder agreements in a close corporation violate public policy?

RULE: Shareholder agreements that relate to the management of a close corporation will be upheld, even if the agreements violate corporate norms.

HOLDING:The trial court granted specific performance, but the intermediate appellate court found that the agreement was unenforceable. On further appeal, 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 plaintiff's life to effectuate the purpose of the agreement.