## Facts

- Two individuals formed a closely held real-estate development corporation in 1963, each owning 50% of the shares.
- Each shareholder held one stock certificate bearing an identical restrictive legend, signed by both, stating that shares were transferable only to the other shareholder unless the other shareholder gave written consent to a third-party transfer.
- The legend contained no clause requiring consent to be reasonable or barring unreasonable withholding of consent.
- In 1967, one shareholder, facing financial difficulty, obtained a third-party offer to buy his 50% interest for $44,000.
- He offered to sell to the other shareholder at the same price, but the other shareholder refused to purchase and refused to consent to the third-party sale.
- The selling shareholder sued for a declaration that the restriction was void or unenforceable and that he could sell to the third party.
- Defendants sought a declaration enforcing the restriction and, alternatively, dissolution of the corporation.
- The trial court denied the selling shareholder’s motion for summary judgment, and he appealed.

## Issues

1. Whether a stock transfer restriction in a closely held corporation requiring the other 50% shareholder’s written consent for any third-party transfer is valid and enforceable when the restriction contains no express limit on withholding consent.
2. Whether a court should imply a “consent not unreasonably withheld” term into an unqualified consent requirement appearing on, and signed on, the stock certificates.
3. Whether the restriction could be treated as an improper restraint on alienation such that summary judgment should permit the third-party sale.

## Decision

- The appellate court affirmed the order denying the plaintiff’s motion for summary judgment.
- The court held the restrictive legend valid and enforceable as a binding agreement between the shareholders.
- The court concluded that the nonconsenting shareholder’s refusal to consent was effective to bar the proposed third-party transfer.
- The court declined to rewrite the parties’ agreement by implying a reasonableness limitation on withholding consent.

## Legal Principles

- Shareholders in a closely held corporation may validly agree to restrictions on stock transferability, including restrictions designed to prevent unwanted third parties from becoming co-owners.
- A stock certificate legend, signed by the shareholders and clearly stating transfer restrictions, may operate as an enforceable agreement governing transfer.
- Where an agreed transfer restriction requires written consent and contains no express qualification, a court will not insert a “not unreasonably withheld” condition merely to soften the restriction.
- The fact that a restriction substantially limits alienability does not alone render it invalid where it reflects the owners’ chosen structure for a close, personal business association and is not shown to violate statute or public policy.

## Conclusion

The court enforced an unqualified consent-to-transfer restriction in a two-owner close corporation, holding that a shareholder who signed the restriction could be barred from selling to an outside purchaser when the other shareholder refused both to buy the shares and to consent to the transfer.


Rafe v. Hindin, 29 A.D.2d 481, 288 N.Y.S.2d 662 (N.Y. App. Div. 2d Dep’t 1968)