## Facts

- Bruce W. Bowman owed Trinity Savings and Loan Association on a promissory note.
- Bowman pledged a certificate for 1,500 shares of Class A common stock of Ling and Company, Inc. as collateral.
- Trinity sued Bowman for the note balance and sought foreclosure on the pledged shares; Bowman defaulted and did not appeal.
- Ling was joined because it asserted that transfer and encumbrance restrictions in its articles of incorporation limited Trinity’s ability to foreclose and sell the shares.
- The articles imposed (1) a requirement of written New York Stock Exchange approval for any sale or encumbrance while Ling was an Exchange member corporation, and (2) a right-of-first-refusal procedure requiring the shareholder to offer shares first to the corporation, then pro rata to other holders of the same class at a formula price.
- It was undisputed that no offer had been made to other class holders and that NYSE approval of the pledge had not been obtained.
- The certificate contained a notice on its face directing attention to restrictions described on the reverse side and in the articles, including a statement that transfer or encumbrance was restricted by an option in favor of the corporation and other stockholders.
- The trial court granted summary judgment for Trinity, ordered foreclosure and sale, and held the restrictions invalid; the court of civil appeals affirmed on multiple invalidity grounds.

## Issues

1. Whether the stock certificate satisfied the Texas Business Corporation Act’s requirements for disclosing and stating transfer restrictions on certificates.
2. Whether the restrictions were “noted conspicuously” on the certificate as required by statute.
3. Whether the transfer restrictions were unreasonable restraints on alienation invalid as a matter of law on the summary-judgment record.

## Decision

- The Supreme Court of Texas reversed and remanded.
- The Court held the certificate’s notice and references satisfied statutory content requirements for transfer restrictions.
- The Court held the restrictions were noted conspicuously because the face of the certificate contained language sufficient to alert a reasonable person that restrictions existed and to locate them.
- The Court held the record contained no proof supporting a finding that the restrictions were unreasonable; therefore, they could not be invalidated as unreasonable on summary judgment.

## Legal Principles

- Stock transfer restrictions authorized by statute are enforceable when set out in the articles and copied on the certificate (in full or summary) or incorporated by reference through an adequate notation directing the holder to the articles or to text printed on the certificate.
- A restriction is “noted conspicuously” if something on the face of the certificate would attract the attention of a reasonable person and signal that transferability is limited.
- The reasonableness of transfer restrictions (including rights of first refusal and approval conditions) generally requires an evidentiary record; absent proof of unreasonableness, courts should not invalidate such provisions as a matter of law at the summary-judgment stage.

## Conclusion

The court enforced the statutory framework for stock transfer restrictions by holding that Ling’s certificate gave sufficient notice and that the challenged provisions could not be declared invalid as unreasonable without supporting evidence, requiring further proceedings on remand.


Ling & Co. v. Trinity Sav. & Loan Ass’n, 482 S.W.2d 841 (Tex. 1972)