## Facts

- Galler Drug Company was a family-owned close corporation in the wholesale drug business.
- Brothers Benjamin and Isadore Galler each held one-half of the company’s outstanding shares after incorporation, and their respective families constituted the shareholder groups.
- In 1955, Benjamin and his wife Emma, and Isadore and his wife Rose, executed a shareholder agreement intended to preserve equal control between the two family groups and provide financial security to the deceased brother’s family.
- The agreement provided for equal family representation on the board (including a board position for the deceased brother’s widow), salary-continuation payments to the widow equivalent to the deceased brother’s salary, and minimum annual dividends conditioned on the corporation maintaining a specified earned surplus level.
- Benjamin died in 1957, after which Isadore and Rose refused to perform the agreement’s governance and payment terms.
- Emma, as Benjamin’s widow and trustee of his shares, sued in equity seeking an accounting and specific performance of the shareholder agreement.
- Emma also asserted an equitable right to acquire half of certain shares originally sold to an employee (Rosenberg) and later purchased by Isadore and Rose, to maintain the intended parity of control.

## Issues

1. Whether a shareholder agreement in a closely held corporation that fixes director elections, mandates dividends, and otherwise constrains corporate governance is unenforceable for conflict with statutes allocating management authority to the board.
2. Whether such an agreement is void as against public policy because it restricts director discretion and has an effectively indefinite duration.
3. Whether the agreement should be enforced when all shareholders assented and enforcement would not harm minority shareholders, creditors, or the public.
4. Whether specific performance and related equitable relief, including relief concerning later-acquired shares, is an appropriate remedy to protect agreed control rights in a close corporation.

## Decision

- The Illinois Supreme Court affirmed in part and reversed in part, reinstating enforcement of the 1955 shareholder agreement through specific performance (with adjustments to the decree) and addressing the accounting and related relief.
- The court held the agreement valid and enforceable in the close-corporation setting presented, rejecting the view that statutory nonconformity alone required invalidation.
- The court concluded the challenged provisions (board representation, salary continuation, and dividend policy) were enforceable where all shareholders were parties and no injury to creditors, the public, or the corporation was shown.
- The court approved equitable relief designed to prevent circumvention of the agreement’s purpose of equal control, including relief related to share acquisitions inconsistent with that purpose.

## Legal Principles

- Shareholder agreements in closely held corporations may be enforced even when they depart from standard statutory governance norms, when all shareholders assent and enforcement does not harm minority interests, creditors, the public, or the corporation.
- Courts may refuse to treat statutory allocations of director authority as a rigid bar to private ordering in a close corporation absent fraud, public injury, or manifest unreasonableness.
- Public-policy objections based on director discretion and duration are weakened where the agreement is practically bounded by the parties’ lives and the corporation’s financial condition, and where performance does not impair capital or prejudice creditors.
- Specific performance is an appropriate remedy for close-corporation agreements when the central interest is control and participation in governance, which cannot be adequately protected by money damages alone.
- Equity may grant relief to preserve agreed parity of control when later share transactions would otherwise defeat the agreement’s essential purpose.

## Conclusion

The court enforced a comprehensive close-corporation shareholder agreement governing control and distributions, holding that consensual private arrangements among all shareholders will be upheld unless they are fraudulent, unreasonable, or harmful to creditors, the public, or nonconsenting owners, and that equitable remedies may be used to protect bargained-for control rights.


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