## Facts

- A Delaware corporation issued “Class B common stock” subject to charter and bylaw limits on transfer.
- Any Class B holder wishing to sell or transfer had to give written notice and trigger a three-appraiser valuation process, with a mechanism for judicial appointment of the third appraiser if needed.
- The charter required the appraisers to value the shares as of the appraisal date and specified that goodwill must not be considered in the valuation.
- After the appraisal report, the board had a 20-day option to purchase the shares for the corporation at the appraised value, paying by deposit to the holder’s credit upon surrender of certificates.
- Lawson acquired a certificate for 100 Class B shares registered to another person and endorsed to him, and he demanded that the corporation register the shares in his name.
- The corporation refused to transfer the shares on its books except in compliance with the charter procedure and asserted its rights under the option mechanism.
- In the Court of Chancery, the corporation admitted the material pleaded facts and defended only on the legal validity and applicability of the charter restrictions.

## Issues

1. Whether Delaware corporate law permits a charter to restrict transfer of a class of common stock through a mandatory appraisal procedure and a corporate option to purchase before transfer.
2. Whether a charter may require that goodwill be excluded from the appraisal valuation used to set the corporate purchase price.
3. Whether a transferee of a stock certificate is bound by these charter-based restrictions and may be denied registration of transfer absent compliance.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery’s decree for the corporation.
- Charter-based transfer restrictions for Class B shares, including the appraisal process and corporate purchase option, were valid under Delaware law.
- The valuation term excluding goodwill was lawful and enforceable.
- Lawson, as transferee and holder of the certificate, took the shares subject to the charter restrictions and could not compel registration of transfer on different terms.

## Legal Principles

- Delaware corporations may create classes of stock with rights, preferences, and limitations stated in the certificate of incorporation, so long as not prohibited by statute.
- Charter-authorized restrictions on alienation of stock, including appraisal-based purchase options in favor of the corporation, are enforceable when reasonable and consistent with statutory policy.
- A transferee is bound by charter-based restrictions reflected on or incorporated into the stock certificate; the corporation may refuse registration of transfer that would violate those restrictions.
- A charter may define an appraisal method for an internal purchase option that excludes goodwill; such terms are enforceable against those who acquire the stock subject to the charter.

## Conclusion

The court upheld a corporation’s power to issue a restricted class of stock whose transfer required appraisal and permitted a corporate purchase option at a price set by a charter-defined formula excluding goodwill, and it held that a transferee could not compel registration of transfer without complying with those charter terms.


Lawson v. Household Fin. Corp., 17 Del. Ch. 343, 152 A. 723 (Del. 1930)