Tu-Vu Drive-In Corp. v. Ashkins

TOBRINER, J. This case presents the issue of whether a corporation may enforce a bylaw restricting alienation of stock against a nonconsenting stockholder who acquired his stock prior to the enactment of the bylaw. We have concluded that the corporation may enforce such a bylaw. Defendants raise additional issues of waiver and estoppel which, as we point out below, are without merit.

Plaintiff Russo owns 54 per cent of the stock of the Tu-Vu Drive-In Corporation. Defendant Ashkins owns 39 per cent of the stock; a third party owns 7 per cent. All three stockholders acquired their shares when the corporation was organized in 1958. The corporation, by the written consent of Russo as majority stockholder, adopted the contested bylaw on June 24, 1960. As amended on June 23, 1961, it stipulated that Tu-Vu shares could be transferred to an outsider provided that the owner of the shares first offered them to the [285]other shareholders and that, if the shareholders declined to purchase the stock, the owner offer it to the corporation, at the price and under the same terms as offered to the outsider. On July 8, 1960, the board of directors of Tu-Vu adopted a resolution providing for application to the commissioner of corporations for approval of replacement of the original shares with certificates containing the new bylaws. At a meeting on October 14, 1960, the board ordered that the written assent of the majority stockholder adopting the bylaw be filed in the corporate minute book.

On December 7, Russo obtained an option to purchase Ash-kins’ stock. Russo relinquished the option on January 7, 1961. Tu-Vu issued new stock certificates containing the bylaw restriction and on January 31 placed them in escrow with the commissioner of corporations. Neither Russo nor the corporation gave Ashkins actual notice of the bylaw.

On May 1, 1961, Ashkins granted to defendant Sero Amusement Company, a business competitor of Tu-Vu, an option to purchase her stock in Tu-Vu. Sero did not exercise this option and it expired on April 30,1963.1

Plaintiffs initiated the instant action on July 20, 1961, seeking a declaratory judgment sustaining the validity of the bylaw which regulated the transfer of Tu-Vu shares. The trial court entered judgment that Ashkins possessed a vested right to retain her shares free of restrictions upon alienation. Plaintiffs appeal that judgment.

In determining the validity of the bylaw we must answer two questions: first, whether the Corporations Code authorizes the adoption of the bylaw, and second, assuming such authorization, whether the bylaw unconstitutionally impairs defendant Ashkins ’ contract with the corporation.