Case Name: Henry G. Jarecki, Respondent, v. Shung Moo Louie et al., Appellants
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 2001-02-15
Citations: 95 N.Y.2d 665
Docket Number: 
Parties: Henry G. Jarecki, Respondent, v Shung Moo Louie et al., Appellants.
Judges: 
Reporter: New York Reports
Volume: 95
Pages: 665–670

Head Matter:
[745 NE2d 1006, 722 NYS2d 784]
Henry G. Jarecki, Respondent, v Shung Moo Louie et al., Appellants.
Argued January 9, 2001;
decided February 15, 2001
POINTS OF COUNSEL
Kane Kessler, P. C., New York City (Jeffrey H. Daichman of counsel), for appellants.
I. The option to purchase is nonassignable. (Gilbert v Van Kleeck, 284 App Div 611; Majestic Farms Supply v Surowiec, 160 AD2d 777; Gulf Oil Corp. v Buram Realty Co., 11 NY2d 223; Allhusen v Caristo Constr. Corp., 303 NY 446; Kaplan v Lippman, 75 NY2d 320; J. N. A. Realty Corp. v Cross Bay Chelsea, 42 NY2d 392; City of New York v Stack, 178 AD2d 355; Jamaica Sav. Bank v Sutton, 42 AD2d 856.) II. Once the option was exercised, it ceased to exist. (Toroy Realty Corp. v Ronka Realty Corp., 113 AD2d 882; Ludlum Stead v Rezza, 118 AD2d 628; Silverstein v United Cerebral Palsy Assn., 17 AD2d 160; Campos v 7 Hallock Landing Corp., 166 AD2d 549; Kaplan v Lippman, 75 NY2d 320; Cochran v Taylor, 273 NY 172; Bullock v Cutting, 155 App Div 825; 1020 Park Ave. v Raynor, 97 Misc 2d 288; Saltair Shinnecock, Inc. v Yarroll, 56 AD2d 625; Leegar Realty Corp. v Electromatic Mfg. Corp., 272 App Div 1069.) III. The purchase agreement superceded the sublease. (Shandler v Bauz, 121 AD2d 619; Finkelstein v Tainiter, 264 AD2d 587; Daiichi Seihan USA v Infinity USA, 214 AD2d 487; Bobrow & Co. v Loft Realty Co., 178 AD2d 175; GSG Holdings v Multi Boro Realty Corp., 240 AD2d 159; Austrian Lance & Stewart v Rockefeller Ctr., 163 AD2d 125; Matter of Primex Intl. Corp. v Wal-Mart Stores, 89 NY2d 594.)
Swidler Berlin Shereff Friedman, L. L. P., New York City (Earl H. Nemser and Gary J. Mennitt of counsel), for respondent.
I. Plaintiffs rights are assignable. (Allhusen v Caristo Constr. Corp., 303 NY 446; Rowe v Great Atl. & Pac. Tea Co., 46 NY2d 62; Saltair Shinnecock, Inc. v Yarroll, 56 AD2d 625; Leegar Realty Corp. v Electromatic Mfg. Corp., 272 App Div 1069; Kaplan v Lippman, 75 NY2d 320; Weisner v 791 Park Ave. Corp., 6 NY2d 426; House v Lalor, 119 Misc 2d 193; Board of Educ. v Statewide Vending Corp., 84 AD2d 754, 58 NY2d 718; J. N. A. Realty Corp. v Cross Bay Chelsea, 42 NY2d 392; United States v 110-118 Riverside Tenants Corp., 886 F2d 514.) II. Option rights do not cease to exist upon exercise. (Ludlam Stead v Rezza, 118 AD2d 628; Saltair Shinnecock, Inc. v Yarroll, 56 AD2d 625; Leegar Realty Corp. v Electromatic Mfg. Corp., 272 App Div 1069.) III. Plaintiff’s rights to the apartment survived cancellation of the purchase agreement. (Schwartz v National Computer Corp., 42 AD2d 123; Banque Arabe Et Internationale D'Investissement v Maryland Natl. Bank, 850 F Supp 1199, 57 F3d 146; Kaplan v Lippman, 75 NY2d 320; Matter of Primex Intl. Corp. v Wal-Mart Stores, 89 NY2d 594; Gem Corrugated Box Corp. v National Kraft Container Corp., 427 F2d 499; Board of Trustees v Centra, 983 F2d 495; Cavanagh v 133-22nd St. Jackson Hgts., 245 AD2d 481.)

Opinion:
OPINION OF THE COURT
Wesley, J.
Defendants Shung Moo Louie and Shung Mon Louie own shares in a cooperative apartment in Manhattan. In 1995, they entered into a three-year sublease agreement with plaintiff Henry Jarecki. The sublease included a rider that, among other things, contained an option to purchase the apartment for $600,000, subject to the approval of the cooperative board.
In February 1998, plaintiff notified defendants that he was exercising his option. Thereafter, the parties executed a contract of sale, which included an anti-assignment provision and a standard merger clause, and reiterated that plaintiff's right to purchase was subject to approval by the cooperative board. In May 1998, the cooperative board rejected plaintiffs application to purchase defendants' shares; plaintiff did not challenge the determination. Pursuant to the contract of sale, the board's denial of plaintiffs purchase application automatically cancelled the contract. A rider to the contract further provided that in the event of the cancellation of the contract, plaintiff would remain in the apartment until the end of the sublease.
Plaintiff then attempted to present a second candidate for purchase of the apartment, claiming that he had a right to assign his option to purchase the apartment. Plaintiff asserted that having exercised the option, he continued to have the right to purchase the apartment and propose other occupants. Defendants countered that the option had been converted into a contract of sale that was cancelled by the board's refusal to approve the contract.
Plaintiff commenced this action for specific performance alleging breach of contract, and tortious interference with prospective business and contractual relations. Both sides moved for summary judgment. Supreme Court granted defendants' motion, and dismissed the complaint. The court held that none of the documents granted any continuing right to plaintiff to purchase the apartment after the cooperative board's rejection. Moreover, the court determined that none of the documents established plaintiff's beneficial interest in defendants' shares.
The Appellate Division reversed the judgment, granted plaintiff's cross motion for specific performance and directed defendants to provide plaintiff with an assignable contract of sale. According to the Appellate Division, the failure of the board to grant its approval vitiated the contract of sale, which was nonassignable, but did not invalidate the option contract which remained in effect. We now reverse.
Plaintiff claims that once he exercised his option under the sublease, an assignable "bilateral contract" arose between him and defendants for purchase of the cooperative apartment. While the terms of this bilateral contract were reduced to a writing — the contract of sale — plaintiff contends that the bilateral contract to purchase the apartment nevertheless maintained a separate existence apart from the written agreement. Accordingly, when the cooperative board disapproved of the sale of the apartment to plaintiff resulting in the cancellation of the written contract, the "implied" bilateral contract survived and could be assigned to a third party. We disagree.
" 'An option contract is an agreement to hold an offer open; it confers upon the optionee, for consideration paid, the right to purchase at a later date' " (Kaplan v Lippman, 75 NY2d 320, 324, citing Leonard v Ickovic, 79 AD2d 603, affd 55 NY2d 727). Once an optionee gives notice of intent to exercise the option in accordance with the agreement, "the unilateral option agreement ripens into a fully enforceable bilateral contract" (id., at 325; see also, 1 Williston, Contracts § 5:16, at 721 [4th ed]). Both parties here concede that once an option is exercised, the option itself ceases to exist and an enforceable bilateral contract is formed (see, Ludlam Stead v Rezza, 118 AD2d 628, 629-630). The parties disagree, however, on the effect of their subsequent written contract of sale on the life of the bilateral contract.
In this case, the principal documents before us include the sublease containing the option and the written contract of sale. Beyond these documents, there is no evidence of a separate bilateral contract. Indeed, it is undisputed that after plaintiff exercised his option, the parties reduced the terms of their agreement to writing and entered into a formal contract of sale which contained a merger clause.
The purpose of a merger clause is to require the full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to alter, vary or contradict the terms of the writing (Matter of Primex Intl. Corp. v Wal-Mart Stores, 89 NY2d 594, 599). The merger clause accomplishes this purpose by evincing the parties' intent that the agreement "is to be considered a completely integrated writing" (id., at 600).
Because the terms of the purchase agreement were merged and integrated into the written contract of sale, the bilateral contract to purchase the apartment was terminated when the contract of sale was cancelled. Having memorialized the terms of the bilateral contract in a writing that provided for its cancellation if the cooperative board did not approve the sale, plaintiff cannot now seek recourse based on an agreement that no longer exists.
Moreover, contrary to plaintiff's contention, there is no evidence in the record that the parties intended the bilateral contract to maintain an existence separate from the sublease. "It is possible to draft the provision so as to give the lessee an option to purchase as an independent contractual right, separable from the lease, but such a provision would be an unusual one" (Gilbert v Van Kleeck, 284 App Div 611, 616). An option found in a lease generally runs with the land and, absent unequivocal language to the contrary, may not be exercised beyond the lease term if such exercise creates an unreasonable result (id., at 617; see also, Campos v 7 Hallock Landing Corp., 166 AD2d 549, 550).
Such is the case here. To permit plaintiff to wield a "phantom" or "shadow" bilateral contract at his whim for an indeterminate time even after the end of the sublease would unreasonably undermine the alienability of defendants' property and would significantly impede their ability to sublet the apartment to a third party (see, Symphony Space v Pergola Props., 88 NY2d 466, 479; see also, Buffalo Seminary v McCarthy, 86 AD2d 435, affd for reasons stated 58 NY2d 867).
Accordingly, the Appellate Division order should be reversed, with costs, and the judgment of Supreme Court reinstated.
Chief Judge Kaye and Judges Smith, Levine, Ciparick, Rosenblatt and Graffeo concur.
Order reversed, etc.
The merger clause provides: "All prior oral or written representations, understandings and agreements had between the Parties with respect to the subject matter of this Contract are merged in this Contract, which alone fully and completely expresses their agreement."