Ling & Co. v. Trinity Sav. & Loan Ass'n, 5043

• Decision Date: 02 September 1971
• Docket Number: No. 5043,5043
• Citation: Ling & Co. v. Trinity Sav. & Loan Ass'n, 9 UCCRep.Serv. 1109, 470 S.W.2d 441 (Tex. Ct. App. 1971)
• Parties: 9 UCC Rep.Serv. 1109 LING AND COMPANY, Inc., Appellant, v. TRINITY SAVINGS AND LOAN ASSN., Appellee.
• Court: Texas Civil Court of Appeals

Page 441

470 S.W.2d 441

9 UCC Rep.Serv. 1109

LING AND COMPANY, Inc., Appellant, v. TRINITY SAVINGS AND LOAN ASSN., Appellee.

No. 5043.

Court of Civil Appeals of Texas Waco.

Sept. 2, 1971.

Rehearing Denied Sept. 16, 1971.

Geary, Brice, Barron & Stahl, J. Christopher Bird, Dallas, for appellant.

Freedman, Day & Waters, Jimmy D. Ivy, Dallas, for appellee.

OPINION

JAMES, Justice.

This is an appeal from a summary judgment. Appellant Ling and Co., Inc. had issued to one Bruce W. Bowman, Certificate No. A62 consisting of 1500 shares of class A common stock. Appellant Ling and Co. contends that the transferability of this share was and is restricted basically to the extent that the holder must grant an option of first refusal to Ling and Co.; but that Bowman did not observe such restrictions and transferred and assigned the stock certificate to appellee Trinity Savings and Loan Assn. as collateral for his promissory note to Trinity.

Bowman defaulted on payment of his note, following which appellee Trinity brought this suit (as plaintiff in the trial court) against Bowman as well as Ling and Co. to recover the unpaid balance of the note and to foreclose on Bowman's collateral, which is the stock certificate above referred to.

Bowman defaulted in the suit, and both appellant Ling and Co. and appellee Trinity filed their respective motions for Summary Judgment . Trinity's Motion was based on the contention that the transfer restrictions on the stock certificate in question were invalid and contrary to the laws of the State of Texas. Ling and Co.'s motion was based on the contention that the transfer from Bowman to Trinity violated the transferability restrictions set forth on the stock certificate.

The trial court sustained Trinity's motion for summary judgment and denied Ling and Co.'s motion and final judgment was entered accordingly. Appellant Ling and Co. has appealed from said judgment .

Disposition of this case turns on whether the stock certificate was subject to any valid restrictions on its transfer or pledge, insofar as Bowman's transfer and pledge to appellee Trinity was concerned. In an endeavor to solve this problem, let us first examine the pertinent wording recited on the front and back of the stock certificate. At the outset, let us point out that the pertinent wording upon which appellant relies on both the front and back are in the smallest print on their respective sides of the certificate, such print being commonly referred to as 'fine print'. The only exception was the word 'Notice' as the first word hereinafter quoted on the back side, which word is in capital letters.

The first side recites the following language:

'The shares represented by this certificate are subject to all the terms, conditions and provisions of the Articles of Incorporation of the Corporation, as the same may be amended from time to time, which Articles are incorporated herein by reference as though fully set forth herein. Copies of the Articles of Incorporation may be obtained from the Secretary of State of the State of Texas or upon written request therefor from the Secretary of the Corporation.'

And then the next paragraph says:

'See reverse side hereof for specific references to provisions setting forth preferences, limitations and restrictions.'

Then on the back side of the certificate is the following language:

'NOTICE: The shares represented by this certificate are subject to all the terms, conditions and provisions of the Articles of Incorporation of the Corporation, as the same may be amended from time to time, which Articles are incorporated herein by reference as though fully set forth herein. Copies of the Articles of Incorporation may be obtained from the Secretary of State of the State of Texas or upon written request therefor from the Secretary of the Corporation. Reference is specifically made to the provisions of Article Four of the Articles of Incorporation which set forth the designations, preferences, limitations and relative rights of the shares of each class of capital stock authorized to be issued, which deny pre-emptive rights, prohibiting cumulative voting, restrict the transfer, sale, assignment, pledge, hypothecation or encumbrance of any of the shares represented hereby under certain conditions, and which under certain conditions require the holder hereof to grant options to purchase the shares represented hereby first to the Corporation and then pro rata to the other holders of the Class A common stock, all as set forth in said Article Four.'

Let us consider the language of some of the appropriate statutes bearing on this problem. Article 2.22 of the Texas Business Corporation Act, Subsection A, as amended in 1957, V.A.T.S., provides as follows:

'A. Any corporation may impose restrictions on the sale or other disposition of its shares and on the transfer thereof, Which do not unreasonably restrain or prohibit transferability (italics ours), if each such restriction is expressly set forth in the articles of incorporation or by-laws of the corporation and is copied at length or in summary form on the face or so copied on the back and referred to on the face of each certificate representing shares, to the transfer of which the restriction applies.'

The pertinent portion of Subsection B (passed in 1955) of Art. 2.22 provides:

'B. In addition to any other restrictions which may reasonably be imposed on the transfer of its shares by any corporation, in accordance with the foregoing provisions of this Article, any of the following restrictions may be so imposed:

(2) Restrictions reasonably defining rights and obligations of the holders of shares of any class, in connection with buy-and-sell agreements binding on all holders of shares of that class, so long as there are no more than twenty (20) holders of record of such class.'

Then Subsection E of Article 2.22 as amended in 1967 provides:

'E. Except as otherwise expressly provided in this Article, no provision of Article 8--Investment Securities of the Uniform Commercial Code of this State shall be deemed to be amended or repealed by any provision of this Act.'

Now going to Article 8 of the Investment Securities portion of the Uniform Commercial Code, we observe 8.204 entitled 'Effect of Insurer's Restrictions on Transfer' which reads:

'Unless noted conspicuously on the security a restriction on transfer imposed by the issuer even though otherwise lawful is ineffective except against a person with actual knowledge of it.'

The word 'conspicuous' is defined by subsection 10 of Article 1.201 of the Uniform Commercial Code as follows:

'(10) 'Conspicuous': A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: Non-Negotiable Bill of Lading) is conspicuous. Language in the body of a form is 'conspicuous' if it is in larger or other contrasting type or color. But in a telegram any stated term is 'conspicuous.' Whether a term or clause is 'conspicuous' or not is...