Opinion ID: 479208
Heading Depth: 1
Heading Rank: 4

Heading: Transferable

Text: 19 We now turn to the analysis of whether Robinson's stock was transferable according to Sec. 83(a) prior to the expiration of the sellback provision. Under Sec. 83, rights in property are transferable only if the rights in such property of any transferee are not subject to a substantial risk of forfeiture. Sec. 83(c)(2). 6 We have already held that the sellback provision subjected Robinson's interest in the stock to a substantial risk of forfeiture. The transferability question hinges on whether Robinson can transfer the stock free of this risk. 20 Under Delaware law a purchaser of stock who has knowledge of a sale restriction on the stock is bound by the restriction. See, e.g., Joseph E. Seagram & Sons, Inc. v. Conoco, Inc., 519 F.Supp. 506, 514 n. 6 (D.Del.1981). Accordingly, only a purchaser who was unaware of the sellback provision would not be bound by it. In order to sell the stock to an unknowing purchaser, the Tax Court found that Robinson would have faced several hurdles which he could have surmounted in only extraordinarily unusual circumstances. 21 First, he would have had to violate the option agreement forbidding him to sell the shares to anyone without offering them first to Centronics at his original cost. Robinson testified, and the Commission does not dispute, that such a breach would have threatened his continued employment with Centronics. Second, the stock certificate carried a legend 7 that the Tax Court concluded limited lawful transfer of the restricted securities ... [to] an exempt private resale unless the Option Stock were registered. As the Tax Court found, a purchaser in a private resale must be an informed person, frequently represented by counsel. Finally, the stop transfer order prohibited the transfer of the official stock certificate without Centronics' approval. 22 These hurdles rendered the stock nontransferable until the sellback provision lapsed. The Tax Court's contrary finding was not based upon evidence of the practical workings of the securities markets, but rather upon a hypothetical, back-door transfer in breach of the option agreement. This was error. Transferability under Sec. 83(a) depends on standard practices and assumes observance of contracts, not hypothetical sub rosa violations. 23 Accordingly, the order of the Tax Court is reversed.