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LAM v. KEI LI

Appellate Division of the Supreme Court of New York, First Department
Dec 14, 1995
222 A.D.2d 290 (N.Y. App. Div. 1995)

Opinion

December 14, 1995

Appeal from the Supreme Court, New York County (Leland DeGrasse, J.).


Summary judgment in favor of defendants dismissing the complaint was warranted, although not for the reasons stated by the IAS Court. The agreement containing the option is unenforceable because it is an unreasonable restraint on alienation. The option permits plaintiff to purchase fifty percent of the shares of one of the defendant corporations for a total purchase price of $10, has no time limit and is binding on both parties, "their respective heirs, administrators, successors and assigns". "In New York certificates of stock are regarded as personal property and are subject to the rule that there be no unreasonable restraint on alienation." ( Rafe v Hindin, 29 A.D.2d 481, 484, affd 23 N.Y.2d 759, citing Allen v Biltmore Tissue Corp., 2 N.Y.2d 534, 540.) "`[T]he general rule that ownership of property cannot exist in one person and the right of alienation in another * * * has in this State been frequently applied to shares of corporate stock * * * and cognizance has been taken of the principle that "the right of transfer is a right of property, and if another has the arbitrary power to forbid a transfer of property by the owner that amounts to annihilation of property."'" (Supra, at 484.) On the other hand, restrictions such as a preemptive right of first refusal are not repugnant to the principle ( Allen v Biltmore Tissue Corp., supra, at 541; Matter of Gusman, 178 A.D.2d 597, lv denied 80 N.Y.2d 753). Thus, "what the law condemns is, not a restriction on transfer, a provision merely postponing sale during the option period, but an effective prohibition against transferability itself." ( Allen v Biltmore Tissue Corp., supra, at 542.)

Here, the restraint on alienation in the option agreement is unreasonable. The option does not have a specified time limit and the onerous terms of the option — the $10 purchase price and the percentage of shares involved — effectively prevent defendant from transferring the stock to anyone but plaintiff ( cf., Levey v Saphier, 54 A.D.2d 959, lv denied 41 N.Y.2d 805; Buffalo Seminary v McCarthy, 86 A.D.2d 435, affd 58 N.Y.2d 867). In light of the unenforceability of the option agreement, the complaint was properly dismissed, rendering plaintiff's remaining contentions on the appeals academic.

Concur — Ellerin, J.P., Ross, Nardelli, Williams and Mazzarelli, JJ.


Summaries of

LAM v. KEI LI

Appellate Division of the Supreme Court of New York, First Department
Dec 14, 1995
222 A.D.2d 290 (N.Y. App. Div. 1995)
Case details for

LAM v. KEI LI

Case Details

Full title:HUNG K. LAM, Also Known as SANDY H.K. LAM, Appellant, v. CHI KEI LI, Also…

Court:Appellate Division of the Supreme Court of New York, First Department

Date published: Dec 14, 1995

Citations

222 A.D.2d 290 (N.Y. App. Div. 1995)
635 N.Y.S.2d 26