4 No. 61
In the Matter of Dissolution of Penepent Corporation, Inc.
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Estate of Francis Penepent,
Respondent, Richard S. Penepent,
Appellant.
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2001 NY Int. 49
May 1, 2001
This opinion is uncorrected and subject to revision before publication
in the New York Reports.
K. Michael Sawicki, for appellant.
John M. Curran, for respondent.
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ROSENBLATT, J.:
A shareholder in a close corporation petitioned for dissolution
pursuant to Business Corporation Law § 1104-a. Invoking Business
Corporation Law § 1118, his brother, another shareholder, elected to
purchase his shares at fair value. After the election, but before a
determination as to fair value, the petitioning shareholder died. A
shareholder agreement provided that, upon the death of any
shareholder, the shareholder's estate must surrender the deceased's
stock to the corporation in exchange for a specified price. That price
was less than fair value. The issue before us is whether the brother
who elected to purchase the petitioning shareholder's stock at fair
value remains bound by that election. We hold that he does.
I.
Anthony Penepent started a family business in 1937. His four sons,
Richard, Francis, Angelo and Philip, helped him run it. In 1952,
father and sons formed Penepent Corporation, in which they each took a
20 percent interest.
After incorporating, the five shareholders and the corporation entered
into a shareholder agreement. It provided that upon the death of any
shareholder, Penepent Corporation "shall" pay to the deceased's estate
(either through a life insurance policy or directly) a set price for
all the deceased's corporate stock.(1) The agreement further
SNIPPETS:
A shareholder in a close corporation petitioned for dissolution pursuant to Business
Invoking Business Corporation Law § 1118, his brother, another shareholder, elected to
After the election, but before a determination as to fair value, the petitioning shareholder
A shareholder agreement provided that, upon the death of any shareholder, the shareholder's
The issue before us is whether the brother who elected to purchase the petitioning
His four sons, Richard, Francis, Angelo and Philip, helped him run it.
In 1952, father and sons formed Penepent Corporation, in which they each took a 20 percent
By the late 1980s, however, a rift had formed among the brothers over how to transfer the
Supreme Court permitted Angelo's estate to revoke his section 1118 election.
Although Supreme Court never fully consolidated Philip and Francis' dissolution proceedings,
Richard thereafter moved to dismiss Francis' dissolution proceeding for lack of standing,
The Appellate Division affirmed and remanded to Supreme Court for a determination as to the
Richard argues that Francis was still a shareholder when he died and, thus, pursuant to the
According to Richard, Francis remained subject to the mandatory buy-out provision until the
As a general rule, courts must enforce shareholder agreements according to their terms (see,
The amendment was prompted by concerns that majority shareholders could make section 1118
It will depend on the circumstances of each case (see, Matter of Seagroatt Floral Co.
a minority discount would deprive minority shareholders of their proportionate interest in
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