## Facts

- Frederick Triggs, Sr. founded a closely held family corporation with 254 voting shares issued by 1963.
- Frederick Sr. owned 149 shares; each of his three sons, including Ransford D. Triggs, owned 35 shares.
- In 1963, Frederick Sr. and Ransford executed a written shareholder agreement that (1) committed them to vote to elect specified directors and officers and to set certain officer salaries, and (2) granted Ransford an option to buy Frederick Sr.’s shares upon Frederick Sr.’s death at a stated price/formula.
- The corporation and Frederick Sr. later entered a separate stock-repurchase-at-death agreement, which was canceled about a year later.
- Over time, the corporation’s condition declined under Ransford’s management and Frederick Sr.’s salary was reduced; Frederick Sr. later executed a codicil bequeathing his remaining shares to his other sons and declaring the 1963 agreement “void.”
- After Frederick Sr.’s death, Ransford attempted to exercise the option; the executor refused, asserting the 1963 agreement was illegal and wholly unenforceable.
- Ransford sued for specific performance compelling the estate to sell the shares under the option.

## Issues

1. Whether a shareholder agreement containing provisions that would unlawfully restrict the board’s statutory management authority renders the entire agreement unenforceable, including an otherwise valid stock purchase option.
2. Whether the stock purchase option may be enforced where the challenged governance/salary provisions were not enforced in practice and the option was not shown to be contingent on compliance with those provisions.

## Decision

- The Court of Appeals of New York affirmed the judgment granting specific performance of the stock purchase option.
- The court held that the option provision was enforceable even if other provisions regarding election of officers and fixed compensation would have been illegal if implemented without unanimous shareholder approval.
- The court relied on findings that, during the agreement’s life, there was no actual intrusion on the board’s management because the parties ignored and did not attempt to enforce the problematic provisions.
- The court further found no evidence that enforcement of the stock option was conditioned on observance of the illegal portions of the agreement.

## Legal Principles

- Shareholder agreements that dictate officer selection or compensation can be illegal if they improperly fetter the board’s statutory authority to manage corporate affairs, particularly absent approval by all shareholders.
- An agreement containing illegal terms is not automatically void in its entirety; lawful provisions may be enforced when they are severable from the unlawful parts.
- Severability is supported where (1) the unlawful provisions were not enforced, (2) corporate management was not actually displaced, and (3) the parties did not treat the lawful provision’s performance as dependent on the unlawful terms.
- Specific performance may be granted to enforce a lawful stock purchase option in a closely held corporation when equitable factors favor holding the estate to the bargained-for obligation.

## Conclusion

The court enforced the decedent’s stock purchase option in favor of his son, concluding that potentially illegal shareholder-control provisions did not bar relief because they were not implemented, did not affect board governance, and were not shown to be a condition of the option, making the option provision severable and specifically enforceable.


Triggs v. Triggs, 46 N.Y.2d 305, 385 N.E.2d 1254 (N.Y. 1978)