F.B.I. Farms, Inc. v. Moore - 798 N.E.2d 440 (Ind. 2003)

Rule:

Apart from any statutory requirements, restrictions on transfer of stock are to be read, like any other contract, to further the manifest intention of the parties. Because they are restrictions on alienation and therefore disfavored, the terms in the restrictions are not to be expanded beyond their plain and ordinary meaning.

Facts:

Three couples, two of whom were the children of the third and their respective spouses, each transferred a farm and related machinery to F.B.I. Farms, Inc. in exchange for common stock. The board of directors of F.B.I. Farms adopted restrictions on the transfer of shares. At the time, the creditor was married to one of the children. As part of the dissolution of their marriage, the child was awarded all of the stock and the creditor was awarded a monetary judgment secured by a lien on her shares. After F.B.I. Farms emerged from bankruptcy, the creditor sought a writ of execution on his lien. The creditor argued that F.B.I. Farms’ attempt to cancel the shares was invalid, that the creditor properly retained ownership of the shares, and that the shares were unencumbered by restrictions and were freely transferable. 

Issue:

Was the restriction requiring approval of transfer by the board valid?

Answer:

Yes.

Conclusion:

The Supreme Court held that the restriction requiring approval of transfer by the board was valid and that neither F.B.I. Farms nor the stockholders could exercise their right of first refusal against the creditor after he had taken title to the shares since they were aware of the foreclosure sale and never tried to exercise said right.