The opinion of the court was delivered by: DOOLING
By cross-motions for summary judgment in an estate tax case the parties seek to determine whether one hundred fifty shares of stock that decedent owned in G. X. Mathews Co. should be valued (a) at book value on June 30, 1958, that being the value at which, under an agreement among stockholders, the remaining stockholders had a right of first refusal of decedent's stock if he sought to transfer it outside the Mathews blood; or (b) at a value determined under 26 U.S.C.A. 2031(b) without regard either (i) to the existence of the agreement granting the other stockholders a first refusal, or (ii) to the fact that the stock represented only 15% Of the total outstanding stock of G. X. Mathews Co. The value used by the Government in collecting the tax was $ 315,000; the book value of the stock was $ 57,700.50. It is concluded that the value of the stock for estate tax purposes is not determined at book value by the stockholders' agreement but that the agreement is a factor affecting the value of the stock and that the stock is not to be valued as if control of the corporation's management inhered in decedent's ownership of 15% Of the total corporate stock outstanding.
The Agreement among Stockholders in effect when decedent died on October 27, 1958, had been made on February 4, 1946, in modification and amendment of a similar agreement among stockholders made May 25, 1925. The Agreements recited the number of shares of G. X. Mathews Co. stock owned by each stockholder party and then the 1925 Agreement recited --
'WHEREAS it is the desire of all the parties hereto that said shares of capital stock shall not be transferred or sold by any of the parties hereto, without giving the other parties the opportunity to purchase the same.'
The 1946 Agreement contained the same recital followed by a clause reciting the making of the 1925 Agreement and stating that the 1925 Agreement was 'intended to remain in full force and effect except as modified and amended as hereinafter set forth.'
The 1925 Agreement provided that --
'* * * none of the parties hereto shall sell, transfer or assign the shares of capital stock of THE G. X. MATHEWS CO. held by him to anyone, without first giving ninety (90) days notice in writing to each of the other parties hereto * * * giving each of the other parties hereto the right to purchase said shares of capital stock at its book value * * *.'
The 1946 Agreement made two major changes. First, it prohibited only dispositions to those outside the Mathews' blood; it used this language --
'* * * none of the parties hereto shall sell, transfer or assign, excepting to lineal descendants, etc. * * *'
The right to purchase granted to the other stockholders in both Agreements is a right to purchase either in proportion to existing shareholdings (1946), or 'in equal proportions' (1925); however the lineal descendants are granted the right in the 1946 Agreement to acquire the whole of their ancestor's shares if those shares are offered to the other shareholders rather than transferred directly to the lineal descendants of the stockholder. Thus the 1946 Agreement made lineal descendants permissible transferees and, where the ancestor, planning a sale, was required to offer his shares to the other shareholders, his own lineal descendants could, to the exclusion of the other shareholders, claim all the shares at book value. The second major change introduced in 1946 was to give the G. X. Mathews Co. the right to buy any of the shares that the offeree shareholders failed to buy.
Both Agreements forbade the Company to transfer any shares until satisfied by affidavit that the provisions of the Agreement had been complied with; both Agreements required that all stock certificates issued by the Company have imprinted on them a statement that the transfer of the shares of stock was subject to the Agreement; both Agreements required all the signing stockholders to consent to dissolution of the Company if the holders of 50% Of the stock desired to dissolve the Company; and both Agreements contemplated that the Agreement would be filed with the Company. Cf. Personal Property Law, 176. The 1946 Agreement, additionally, provided that the Company should make a one year loan to any offeree stockholder who wanted to buy offered shares but was 'presently unable to purchase', the loan to be secured by the purchased stock.
The 1925 Agreement embraced all 1,000 shares of stock of G. X. Mathews Co. and was signed by seven stockholders. The parties to the 1946 Agreement held 995 of the 1,000 shares of G. X. Mathews Co. stock; there were, again, seven stockholders; five are persons who were signatories of the 1925 Agreement; two were not, but are evidently members of the Mathews family. Every one of the five persons signatory to both Agreements had changed his stockholdings, two decreasing, and three increasing, their holdings. There is no evidence to explain the 5 missing shares, or the occasions and mechanics of the transfers of shares that occurred between 1925 and 1946.
Decedent's will, made in 1954, bequeathed all his property in equal shares to his widow and son and he made them his executors. The will authorized the executors to retain and distribute in specie any property the decedent owned at death and empowered them to deliver the estate property 'in kind and species' in making distribution and indicated that decedent's 'investments shall be equally allocated in kind between' his widow and son. The Mathews stock evidently accounts for a good deal more than half the value of decedent's estate if treated as worth its full value rather than its book value.
The Government contends that the Agreements did not apply to the stock of decedent after his death; that the Agreements dealt only with decedent's sales of stock during his own life time and did not have application either to sales by the executors or to their distributions of stock under the will or to the legatees' sales of bequeathed stock. The executors contend that the stock is bound by the Agreements after as before the decedent died and cannot be transferred by the executors or the legatees except on the terms of the Agreements.
The first question then is what the Agreements mean. The question, it would seem, is not whether the contract 'binds' the decedent's executors or estate for, by the very definition of contract, it does; the problem is, rather to determine by interpretation the nature, application and duration of the rights and duties created by the Agreements; whatever they are, they benefit and obligate the decedent, his executors and his estate simply because they are contractual (and not delictual), although, as interpreted, they may chance not to confer any right or impose any duty that by its nature is capable of enjoyment or performance after the decedent's death. Cf. Chamberlain v. Dunlop, 1891, 126 N.Y. 45, 52, 26 N.E. 966; Gura v. Herman, 2d Dept. 1929, 227 App.Div. 452, 454, 238 N.Y.S. 230; Matter of Witkind, Surr.Ct.N.Y.Co.1938, 167 Misc. 885, 904, 4 N.Y.S.2d 933. So, the presence or absence in a contract of words like 'executors and assigns,' or of expressions to the effect that the contract is to bind the executors and estate of each party, do not operate, ex proprio vigore, to make the contract 'binding' on the executors after the contracting party's death (for it binds them without those words) but such words help in interpretation by indicating whether the parties intended contractual performances to continue beyond death even though, in some degree, they involved personal qualities or other (e.g., credit) elements that would otherwise have suggested an implicit limitation of performance to the life of the ...