Smith v. The Queen, 87 DTC 5355, [1987] 2 CTC 138 (FCTD)

McNair, J.: —This is the taxpayer's appeal under section 172 of the Income Tax Act from the reassessment of his income in respect of the 1981 taxation year.

In 1959, the plaintiff saw an opportunity to purchase a quarry business in Amherstburg, Ontario, and in association with two business partners, Gene Labadie and Henry Marentette incorporated a company, Amherst Quarries Limited, to embark on the joint business venture. In 1961, the plaintiff bought out his two partners and became principal shareholder of the company. He continued to operate the quarry business, gradually involving his three sons, William, James and Alex in its operations, but with the plaintiff remaining the controlling shareholder and chief executive officer of the company. The plaintiff regarded the venture as a family business and led his sons to believe that it would one day be theirs.

In 1966, William Smith left and went to work for Ford Motor Company. About the same time Murray Smith was elected mayor of Amherstburg, a position which he held for the next 14 years and to which he devoted much time and attention. William’s departure created business problems and he was soon persuaded to return on a part-time basis. Eventually, the plaintiff was able to induce his son William to return in a full-time capacity on the understanding that the quarry business would ultimately be turned over in equal shares to the three sons. The sons were becoming increasingly restless to acquire an ownership interest in the quarry business. Against this contextual background, the plaintiff met with his accountant early in 1969 to discuss and develop plans for a corporate reorganization of the quarry business. The corporate reorganization quickly became a reality.

The quarry business was divided into two separate corporate entities. The original corporation, Amherst Quarries Limited, changed its name to Malden Quarries Limited. Amherst Quarries (1969) Limited was incorporated as a private company under the Corporations Act of Ontario. The plaintiff and his three sons were the incorporators. The letters patent set out the usual private company provisions, amongst which was the following restriction on the transfer of shares:

The right to transfer shares of the Company shall be restricted in that no shares shall be transferred without the express consent of a majority of the directors to be signified by a resolution passed by the Board; provided further that no such consent shall be required in the case of a transmission from a deceased shareholder to his executors or administrators.

Amherst Quarries (1969) Limited acquired the operating business of the former corporation. Malden retained title to the quarry land and buildings and leased these assets to Amherst. The plaintiff remained as the principal shareholder and a director of Malden. The plaintiff became a director and 28 per cent of Amherst Quarries (1969) Limited and each of the sons became a director and 24 per cent shareholder thereof. There were 64,000 issued and outstanding common shares without par value of Amherst Quarries (1969) Limited, held as follows:

On May 25, 1970 the four shareholders executed a buy-sell agreement whereby they agreed not to sell or transfer any of their shares in the company to a person not a party to the agreement “except in accordance with the terms of paragraph 2 hereof". The buy-sell agreement is a pivotal document in the case and the most relevant provisions from that standpoint are contained in paragraphs 2 and 4 thereof, which are set out hereunder:

2. If one or more of the parties hereto should desire or transfer his or their shares in the Company to someone not a party to this agreement then over and above the restriction contained in the Letters Patent of the Company requiring the vote of the majority of the Board of Directors before any transfers are granted such party or parties desiring to sell (hereinafter in this clause called the Vendor) shall first give to the other parties to this agreement an opportunity to purchase all the said shares owned by the Vendor at the Vendor's price. The Vendor shall notify the other parties hereto in writing of the price and terms upon which he or they is willing to sell his or their shares and the other parties hereto shall have thirty days from the date such notice is received to agree to purchase the said shares. In the event that more than one of such other parties is willing to agree to purchase the said shares the said shares shall be divided pro rata among the willing purchasers. In the event that all the other parties to this agreement should fail to offer to purchase the said shares then the Vendor may sell all of his or their shares to a third party on the same terms and conditions as they were offered to the other parties hereto. If the Vendor arranges a sale on terms different as to price or any other matter from those offered to the other parties to this agreement then the other parties to this agreement shall be given twenty days to purchase the shares on the new terms; otherwise the sale of all but not part of the shares of the Vendor may be completed to the Third Party on the new terms, subject always to the approval of the majority of the Board of Directors of the Company.

4. In the event of the death of H. Murray Smith it is mutually agreed by all of the parties hereto that the shares of the Company now held by H. Murray Smith shall be divided in three equal parts, and one of such parts shall be sold or transferred to each of the three surviving parties to the agreement with the price to be paid by each surviving party to the estate of H. Murray Smith being fixed at the sum of One ($1.00) Dollar.

Paragraph 3 of the agreement provided that in the event of a sale of shares to a person other than the shareholder, the purchaser had to agree as a term of such sale to execute a new agreement with the remaining shareholders upon the same terms and conditions as the present agreement. In addition, the buy-sell agreement contained the usual penultimate clause making it binding upon the parties and their respective heirs, executors, administrators and assigns.

Following the 1970 agreement, the plaintiff and his sons continued the quarry operations and the business grew and prospered. With their father's advancing years and greater preoccupation with his civic duties, the sons became more directly involved in the day to day business operations of the quarry. William Smith gradually assumed the most prominent role and eventually took over most of the active management functions previously performed by his father.

On or about December 22, 1978, corporate decisions were taken at the instance of the plaintiff to transfer the ownership of the land company, Malden Quarries Limited, from the plaintiff to his three sons. This was accomplished by the transfer of the plaintiff's three beneficially owned common shares in the capital stock of Malden to his three sons at a total purchase price of $600,000. An agreement was executed to effectuate and formalize the transfer. The purchase price of $600,000 was repayable by ten consecutive annual instalments of $60,000 each, commencing on December 22, 1979 and ending on December 22, 1989, with interest at ten per cent per annum on the principal amount from time to time outstanding. This interest was later reduced and eventually waived. New share certificates were issued in the names of the purchasers and were endorsed for transfer to be held in escrow, pending payment in full of the purchase price and the due performance of the purchasers' obligations under the agreement.

In late 1980, the plaintiff was advised by his accountant that the impact of the capital gains tax legislation on the agreed price of $3 for his 28 per cent shareholding in Amherst might have the effect of wiping out the balance of the plaintiff's estate, leaving nothing for his wife and daughters. The plaintiff broached the subject to his sons, intimating that he might not be able to live up to the terms of the 1970 buy-sell agreement. The sons' immediate response was that he would have to. A deadlock ensued. The sons retained legal counsel and instructed him to take proceedings, if necessary. A compromise was eventually achieved through a triad of agreements.

The first of the triad was an agreement dated January 30, 1981 whereby the three sons, William E. Smith, James M. Smith and D. Alex Smith, assigned to Malden all their rights to acquire the plaintiff's shares of Amherst under paragraph 4 of the 1970 buy-sell agreement. The third of the series was an agreemnt of March 6,1981 that constituted the plaintiff's firm of solicitors as escrow agent to hold the certificate for the plaintiff's 17,920 common shares as collateral pledge to secure the purchasers' obligation to reimburse the plaintiff for any capital gains tax assessed against the disposition of such shares.

The principal agreement was a sale agreement, formally dated January 31, 1981 and executed on March 6,1981 whereby it was agreed that the plaintiff's 28 per cent share interest in Amherst would be transferred to Malden, now wholly owned by the plaintiff's three sons, for the price of $3. In consideration therefor, the purchasers agreed to reimburse the vendor for any income taxes "actually incurred and paid" by the latter on or before July 31,1986 in respect of the sale of the 17,920 shares covered by the agreement. In further considereation, the purchaser undertook that the plaintiff would continue as a director and as president or chairman of the board of Amherst for as long as he desired and his health permitted and that he would be entitled to a salary equivalent to that paid by Amherst to the three sons. The agreement recited that the plaintiff was effectively restricted by Amherst's charter and, by verbal commitment to his sons, was estopped from selling his shareholdings of Amherst to any other party during his lifetime. The parties to the agreement were H. Murray Smith, of the first part, James M. Smith, of the second part, William E. Smith,'of the third part, D. Alex Smith of the fourth part and Malden Quarries Limited [as purchaser] of the fifth part, the first four being signatories to the 1970 buy-sell agreement. The following paragraphs of the sale agreement are set out verbatim:

1. WARRANTIES

HMS warrants:

(e) that HMS owns or has full power and authority to sell or he can cause the said shares to be sold hereunder, to receive the purchase price therefor and to agree to receive the purchase price therefor and to agree to the terms, conditions and provisions herein contained;

2. PURCHASE PRICE

(a) the purchase price shall be the aggregate sum of $3, considered as payment in full for the 17,920 common shares being transferred to the party of the fifth part pursuant to this agreement; it being mutually agreed that the purchase price so stipulated is consistent with the obligation morally and legally assumed by the party of the first part under the agreement dated May 28, 1970, rights to which purchase have been assigned by the parties of the second part and the party of the third part and the party of the fourth part to the party of the fifth part, it being provided that the purchase price will adjust under and pursuant to the exigencies covered in subparagraph 2(c) and paragraph 15 hereinafter;

(c) The Purchaser, Malden Quarries Limited, hereby engages and commits itself unequivocally to reimburse the party of the first part for any income taxes or any other types of taxes (and any interest payable thereon in each instance) actually incurred and paid by the party of the first part on or before July 31, 1986 in respect of the sale of the 17,920 shares covered by this agreement; the party of the first part shall be reimbursed by the Purchaser in respect of any such taxes and interest actually incurred and paid by him within thirty (30) days of his giving notice to the Purchaser of the amount thereof and evidence of payment thereof; it is understood and agreed by the parties hereto that if at any time all or part of the taxes actually incurred and paid by the party of the first part hereunder and repaid to the party of the first part by any taxing authority, all amounts so repaid to the party of the first part shall in turn be repaid by him to the Purchaser; any amounts paid hereunder to the party of the first part shall be added to and form part of the purchase price payable for the said 17,920 shares;

(e) that HMS owns or has full power and authority to sell or he can cause the said shares to be sold hereunder, to receive the purchase price therefor and to agree to receive the purchase price therefor and to agree to the terms, conditions and provisions herein contained;

10. THE PERIOD OF ESCROW

During the period of escrow and prior to the escrow expiry date referred to in subparagraph 2(e) hereof, during which time the shares of Amherst being sold by the party of the first part are still held in escrow:

(b) the vendor shall continue to vote the shares sold under this agreement until the said shares have been released from escrow.

15. FURTHER ADJUSTMENT TO PURCHASE PRICE

In the event that the sale of shares provided for herein is deemed and assessed by any income tax authorities to constitute a disposition by the party of the first part for proceeds of disposition in excess of the purchase price payable hereunder, then any escess [sic] of such deemed proceeds of disposition for tax purposes over the total consideration paid or payable by the party of the fifth part for the said shares under subparagraphs 2(a) and 2(c) hereof shall be considered to be a gift to the party of the fifth part pursuant to paragraph 69(1)(c) of The Income Tax Act (Canada).

In computing his 1981 income taxes, the plaintiff did not show any capital gain attributable to the sale of his 17,920 common shares of Amherst. In his notice of reassessment, the Minister determined that the deemed proceeds of disposition of the shares at the time of their sale to Malden was represented by their fair market value of $2,800,000 and that the adjusted cost base was $105,084. The net effect was a taxable capital gain of $1,347,458. The plaintiff filed a notice of objection and appealed the reassessment. Basically, the plaintiff contends that he was precluded by the buy-sell agreement of 1970 from disposing of his 17,920 shares of Amherst for anything in excess of $3. Variations of this theme were developed in the course of argument, of which more will be said later.

Counsel for the parties attended a pre-trial conference on February 25, 1987 and requested that the trial of the action by way of appeal be conducted in two stages. The first stage would have the parties proceed to trial on all issues of law and fact joined on the pleadings, except as to the issue of the fair market value of the plaintiff's shares of Amherst at the time of their sale and transfer. It is conceded by the parties that the effective date of sale and transfer was March 6, 1981. The issue as to the fair market value of such shares was to be held in abeyance, pending the outcome of the first stage issues, and would be tried, if necessary, in a separate, second stage hearing. The presiding judge granted an order in that behalf for the trial of the action by stages.

The first stage of the action came on before me for trial on May 26,1987 and I immediately raised the question as to the Court's jurisdiction to deal with an income tax appeal in this manner. There was some discussion regarding the possible interrelation between subsection 173(1) of the Income Tax Act and subsection 17(3) of the Federal Court Act with the result that I became reasonably convinced that I had jurisdiction to proceed with the trial of phase one. This was predicated on counsel's undertaking to file an agreement in writing to comply with the statutory provisions aforesaid. Such agreement was filed several days afterwards.

Subsection 173(1) of the Income Tax Act reads as follows:

173.(1) Where the Minister and a taxpayer agree in writing that a question of law, fact, or mixed law and fact arising under this Act should be determined by the Federal Court, that question shall be determined by the Court pursuant to subsection 17(3) of the Federal Court Act.

It is unnecessary to set out paragraph 17(3)(b) of the Federal Court Act, which is much to the same effect.

The issues in the case are contained in four questions of mixed law and fact, which read as follows:

1. Did the agreement dated May 25, 1970 create a trust whereby Murray Smith constituted himself a trustee of his shares in Amherst Quarries (1969) Limited for the benefit of his three sons equally but retaining a life interest in the shares?

2. If no trust was created, was Murray Smith bound by the agreement of May 25, 1970 to transfer upon his death the shares held at the date of the agreement to his surviving sons for $3?

3. Did the May 25, 1970 agreement effectively:

(a) restrict or restrain, or

(b) prevent or prohibit

Murray Smith from selling his shares to a stranger during his lifetime?

4. Did the May 25, 1970 agreement effectively:

(a) restrict or restrain, or

(b) prevent or prohibit

Murray Smith from selling his shares to any of his sons during his lifetime for more than $3 without the consent of all of the sons?

An affirmative answer to the first question would likely conclude the case in favour of the plaintiff inasmuch that he could not be deemed to have incurred a capital gain on the transfer of his shares in 1981. If the first question evoked a negative answer then it would become necessary to answer the three remaining questions.

I turn now to an analysis of the four questions in the order in which they are put.

Did the 1970 Agreement Create a Trust?

The principal submission is that the 1970 shareholders' agreement created by implication a trust whereby the plaintiff constituted himself a trustee of his 17,920 shares of Amherst for the benefit of his three sons, reserving to himself a life interest in the shares. This implication stems in the main from the restriction on transfer provisions of the agreement which, the plaintiff argues, effectively precludes him from disposing of his shares to anyone other than his three sons. While paragraph 2 of the agreement does not specifically preclude the sale of shares to a stranger, it must nevertheless be read in context of the agreement as a whole. Paragraph 2 does nothing more than provide a methodology for the sale of shares to a party other than a shareholder. It is not in itself permissive. According to the plaintiff, the inference must be drawn that none of his sons would ever agree to his selling his shares to anyone else. By the terms of paragraph 3 of the agreement, any third party purchaser was bound to enter into a new buy-sell agreement on identical terms. The plaintiff submits that nobody else would ever want to buy his shares, given that the penultimate paragraph of the agreement would require any third party purchaser of the plaintiff's shares to transfer the same to the three sons at the stipulated price of $3 on the plaintiff's death. In the result, the plaintiff must be deemed to have held the shares in trust for the benefit of his sons. This conclusion is entirely in keeping [with] the plaintiff's wish that Amherst remain a family business.

The plaintiff further submits that the sale agreement of 1981 did not supersede the 1970 trust arrangement. Rather, the subsequent agreement merely expedited, with the consent of the trust beneficiaries, the commitments of the 1970 trust agreement. In other words, the 1981 sale agreement did nothing more than “crystallize” the earlier trust.

The defendant totally rejects the plaintiff's contention that the 1970 buysell agreement created a trust in favour of the sons, with the plaintiff retaining a life interest in his shares. Instead, the defendant submits that the 1970 agreement was a conditional contract to sell the shares to the sons at a future time. The defendant contends that no transfer of any beneficial interest in the shares occurred as a result of the execution of the agreement in 1970. The defendant submits that there was no certainty of any intention to create a trust. The bottom line submission is that the 1970 buy-sell agreement was a contract and not a trust. The shares were only required to be sold to the sons in the event of the plaintiff's death.

It would be useful at this stage to look briefly to the principles of the law of trusts applicable to the present case.

Maitland’s Equity and Forms of Action gives the following classic definition of a trust at p. 44:

When a person has rights which he is bound to exercise upon behalf of another or for the accomplishment of some particular purpose he is said to have those rights in trust for that other or for that purpose and he is called a trustee.

Another good definition of a trust is found in Underhill's Law of Trusts and Trustees, Tith ed., at p. 3:

A trust is an equitable obligation, binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property), for the benefit of persons (who are called the beneficiaries or cestuis que trust), of whom he may himself be one, and anyone of whom may enforce the obligation.

The Underhill definition was judicially approved by Cohen, J., in Re Marshall's Will Trusts, [1945] Ch. 217 at 219; [1945] 1 All E.R. 550 at 551, by Romer, L.J., in Green v. Russell, [1959] 2 All E.R. 525 at 531 (C.A.), and by Disbery, J., in Tobin Tractor (1957) Ltd. v. Western Surety Co. (1963), 40 D.L.R.

(2d) 231 at 239 (Sask.). This definition is, however, to some extent incomplete because it takes no account of trust purposes, unlike Maitland’s definition. See also 48 Halsburys, Laws of England, 4th ed., para. 501; Keeton, The Law of Trusts, 9th ed., p. 5; and Waters, The Law of Trusts in Canada, 2nd ed., pp. 4-6.

Three characteristics are essential to the creation of a valid trust. These have been appropriately termed the "three certainties". Waters, op cit, treats of them in this manner at p. 99:

For a trust to come into existence, it must have three essential characteristics. As Lord Langdale M.R. remarked in Knight v. Knight! [1] in words adopted by Barker, J. in Renehan v. Malone [2] and considered fundamental in common law Canada, first, the language of the alleged settlor must be imperative; secondly, the subject matter or trust property must be certain; thirdly, the objects of the trust must be certain. This means that the alleged settlor, whether he is giving the property on the terms of a trust or is transferring property on trust in exchange for consideration, must employ language which clearly shows his intention that the recipient should hold on trust.

the interest of the sons with respect to the plaintiff's shares on the latter's death, if any, was contingent at best, depending as it did on the fact of their surviving the plaintiff and the further condition that neither the company nor any of the parties to the agreement were adjudged bankrupt or insolvent. In my view, there are just too many 'ifs' and 'buts' militating against the construction that the 1970 agreement effectuated an immediate vesting of a contingent interest in the plaintiff's shares.

Indeed, I find that the evidence is inconsistent with the submission that the plaintiff was a trustee of his shares of Amherst, following the execution of the 1970 agreement. From this time until the execution of the triad of agreements in 1981, the plaintiff continued to regard himself as the owner of his shares. The tripartite agreement of January 30, 1981 that assigned the sons' rights under the 1970 buy-sell agreement to Malden recited that the three assignors and the party of the third part, H. Murray Smith, were the registered and beneficial owners of all the issued and outstanding common shares of Amherst Quarries (1969) Limited. The 1981 sale agreement further corroborated this by reciting that the plainitff owned “17,920 of the issued and fully paid common shares of Amherst, representing 28% of the issued and outstanding shares of that company; with the parties of the second part, and the third part, and the fourth part, each being the registered owner of 15,360 common shares of Amherst, representing 24% of the fully paid and issued capital of Amherst". There was, it is true, a further recital to the effect that the plaintiff was restricted by the company's charter and was estopped by verbal commitment to his sons from selling his shareholdings of Amherst to any other party during his lifetime but this falls far short, in my view, of stating an avowed intention that the 1970 shareholders' agreement created a trust in respect of the plaintiff's shares. Moreover, the plaintiff warranted in the 1981 sale agreement that he had full power and authority to sell his Amherst shares to Malden, the wholly owned company of his sons. Apart from this, the plaintiff acted at all times as though he were the beneficial owner of the shares up until the time of sale in 1981. He voted his shares, he took what few dividends were declared, and he reported those dividends in his income tax returns.

In my opinion, paragraph 4 of the 1970 buy-sell agreement imported at best a conditional obligation to transfer the plaintiff's shares in Amherst at a future time. In the result, the first question must be answered in the negative; the 1970 agreement did not create a trust of the plaintiff's shares of Amherst.

The Remaining Three Questions

The 1970 buy-sell agreement was an elaboration and further engrafting on the letters patent restriction against the transfer of the shares of Amherst without the majority consent of the directors, subject to the proviso that no such consent was required in the case of a transmission from a deceased shareholder to his executors or administrators.

In Edmonton Country Club Ltd. v. Case, [1975] 1 S.C.R. 534; 44 D.L.R. (3d) 554, Dickson, J., in dealing with restrictions on the right to transfer shares, cited with approval a passage from Gower, Modern Company Law, which is identical to the one contained in the 4th edition of that work at page 445:

These restrictions may take any form, but in pracice they normally either give the existing members a right of pre-emption or first refusal, or confer a discretion on the directors to refuse to pass transfers.

In the famous case of Ontario Jockey Club v. McBride, [1927] A.C. 916; [1927] 4 D.L.R. 30 (P.C.), Lord Wrenbury made this statement at page 923 (D.L.R. 35):

That restrictions may be placed upon a shareholder's right of transfer of his shares cannot be questioned. The cases are numerous in which such restrictions have been upheld. Shares are prima facie transferable. But there is no law which precludes the shareholders from contracting for value that they shall each submit to any reasonable restriction which they choose to agree to. It may be for the benefit of the company that, for instance, shares shall not be transferred to rivals in the company's trade. A restriction which precludes a shareholder altogether from transferring may be invalid, but a restriction which does no more than give a right of pre-emption is valid.

See also Emerson v. Provincial Secretary-Treasurer, [1941] 2 D.L.R. 232 (N.B.C.A.).

Collectively, these three questions are directed to the matter of the transferability of the plaintiff's 17,920 shares of Amherst for whatever bearing that may ultimately have on their valuation for income tax purposes. Paragraph 11 of the 1970 agreement provided that it might be amended in whole or in part or terminated at any time by mutual agreement in writing of the parties thereto. The questions are predicated on the assumption that the agreement would never be so amended or mutually terminated. In this context, the questions verge dangerously close to the realm of the abstract and purely hypothetical. From a purely practical standpoint, there is an additional hypothetical connotation and flavour arising from the fact of what actually happened. The truth of the matter is that the 1970 agreement was entirely superseded by the triad of agreements of 1981 and the sale of the plaintiff's shares of Amherst to Malden for $3 plus the additional consideration contemplated by paragraphs 2(c) and 15 of the 1981 sale agreement. The triad of agreements of 1981 were born out of the confrontation between the parties in respect of the 1970 agreement, coupled with the general consensus that the business would one day go to the sons and the parties' desire to effect the immediate consummation of the commitment embodied in the buy-sell agreement whereby the plaintiff's shares of Amherst were to pass to his sons at his death. Notwithstanding this, the thrust of the remaining questions is to have the 1970 agreement continue to rule us from the grave. Having ventured this far on an academic voyage, I will endeavour to answer the three questions submitted. Were it not for this, I would have been inclined to regard the restriction embodied in paragraph 4 of the 1970 buy-sell agreement as being unreasonable from the standpoint of the plaintiff qua the other shareholders and from the further fact that the letters patent provision in its present form would not seem to contemplate any restriction on the transmission of shares on the death of a shareholder.

Question 2 asks whether the plaintiff or his estate was bound by virtue of paragraph 4 of the 1970 agreement to transfer the Amherst shares upon the plaintiff's death to his surviving sons for the price of $3. In my view, he would only be bound to do so in the event that certain conditions obtained. The agreement was, after all, a buy-sell agreement giving the existing shareholders a right of pre-emptive first refusal on the sale of shares to an outsider. There is some question whether a purchaser of the plaintiff's shares would be bound to convey the purchased shares to the sons at the plaintiff's death. It is a trite principle of law that a person cannot be subjected to the burden of a contract to which he is not a party. On the other hand, paragraph 3 of the 1970 agreement states, in the case of the sale of shares to a person not a party thereto, that “such person shall agree as a term of the sale to execute a new agreement with the remaining parties to this agreement upon the same terms as this agreement". Seemingly, a purchaser taking with notice of this and the other restrictive provisions of the agreement and the charter would be bound to convey the shares to the sons at the time of Murray Smith's death for the stipulated price of $3. But the matter is by no means free of doubt.

The other conditions under the agreement that would have to be met are: (i) that the sons survived the plaintiff; and (ii) that neither the company nor any of the parties to the agreement were adjudged bankrupt or insolvent. As to (i), it seems to me that paragraph 4 of the agreement would only be triggered in the event of the survivorship of the three sons. In my opinion, these two above mentioned conditions are part and parcel of the agreement and cannot be sloughed off and ignored with a view to creating a hypothetical factual vacuum. For the foregoing reasons, I am of the opinion that the only proper answer to question 2 is this: no, the 1970 agreement did not absolutely bind the plaintiff to transfer his 17,920 shares of Amherst to his surviving sons at his death for the price of $3.

Much of question 3 has already been answered, especially with respect to the conditional aspects of the 1970 agreement. Given that an outsider would be bound to sell and convey the purchased shares to the sons at the plaintiff's death, this could only serve to impose a partial restraint on the saleability of the shares, depending on the outsider's willingness to invest in a profitable, going concern. Consequently, my answer to the question is: no, the 1970 agreement would at most hinder but not effectively prohibit or prevent the plaintiff from selling his shares of Amherst to a stranger during his lifetime.

This brings me to the fourth question, which is even more hypothetical, having regard to what actually occurred in 1981.

On the construction that paragraph 4 of the 1970 agreement gave each surviving son a contractual right to purchase one-third of the shares of Amherst held by the plaintiff at the time of his death for $1, this would at first glance seem to effectively preclude the plaintiff from selling his shares to any of his sons during his lifetime for more than $3 without the consent of all. However, this must be predicated again on the same two conditions of survivorship and bankruptcy or insolvency. In my opinion, the proper answer to question 4 is this: to a certain degree, yes, but not absolutely.

As I see it, this sufficiently disposes of the four questions of mixed law and fact that were submitted. Counsel may submit a draft judgment if they require a formal pronouncement of judgment in accordance with these reasons. Costs are reserved for the final disposition of the case.

Judgment accordingly.