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Tex. Bus. & Com. Code Ann. § 8.204 requires that the restriction or reference thereto on the certificate must be conspicuous. A restriction on transferability must be noted conspicuously on the security. Tex. Bus. & Com. Code Ann. § 1.201(10) defines "conspicuous" and makes the determination a question of law for the court to decide. A conspicuous term is so written as to be noticed by a reasonable person. This means that something must appear on the face of the certificate to attract the attention of a reasonable person when he looks at it. Tex. Bus. & Com. Code Ann. § 8.204 provides that the restriction is effective against a person with actual knowledge of it.
Trinity Savings and Loan Association sued Bruce W. Bowman for the balance owed on a promissory note and also to foreclose on a certificate for 1500 shares of Class A Common Stock in Ling & Company, Inc. pledged by Bowman to secure payment of the note. Ling & Company was made a party to the suit by Trinity Savings and Loan because of Ling & Company's insistence that the transfer of its stock was subject to restrictions that were unfulfilled. Bowman did not appear and has not appealed from the judgment against him. The trial court entered summary judgment in favor of Trinity Savings and Loan, against the contentions of Ling & Company, foreclosing the security interest in the stock and ordering it sold. The court of civil appeals affirmed.
Did the lack of conspicuous notice thereof on the stock certificate entitle Trinity Savings and Loan to a summary judgment?
The court found that the content of the certificate complies with the requirements of the Texas Business Corporation Act. The requirement of the Texas Business and Commerce Code that the restriction or reference thereto on the certificate must be conspicuous means that something must appear on the face of the certificate to attract the attention of a reasonable person when he looks at it. The line of print on the face of the Ling & Company certificate does not stand out and cannot be considered conspicuous. This holding that the restriction is not noted conspicuously on the certificate does not entitle Trinity Savings and Loan to a summary judgment under this record. Sec. 8.204 of the Business and Commerce Code provides that the restriction is effective against a person with actual knowledge of it. The record does not establish conclusively that Trinity Savings and Loan lacked knowledge of the restriction on January 28, 1969, the date the record indicates when Bowman executed an assignment of this stock to Trinity Savings and Loan.