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

Facts

FBI was formed by the Burgers, their children, and the children’s spouses.  Moore was divorced from Linda, child of Burger, in 1982.  Linda was awarded all of the shares in the farm and Moore was awarded monetary judgment.  Linda never satisfied the judgment and a sheriff’s sale commenced to sell the shares in the farm.  Moore purchased the shares.  There was a provision in the Board minutes that if any stock be offered for sale, the farm had the first opportunity to purchase the stock.

Procedural History

Moore sought a declaratory judgment that he owned the shares and they were unencumbered.  The trial court found the transfer restrictions did not prevent the sheriff’s sale but two of the restrictions are unreasonable.  The Court of Appeals found that Moore was not a shareholder at the time of purchase and thus not bound to offer the shares to the farm before he purchased them.

Issue(s)

Did the trial court err in finding the disputed transfer restrictions were unreasonable and thus unenforceable?

Holding(s)

Yes.

Reasoning/Analysis

The Court found that the Court of Appeals missed the issue in the case; before Linda could transfer her shares, she was obliged to offer them to FBI and the other shareholders.  FBI, however, was aware of the sale and did not nothing to stop the sale.  FBI did have the right of first refusal, but failed to exercise it.  Moore acquired the shares at the sheriff’s sale but not because the restrictions were inapplicable.  The sheriff’s sale was an involuntary transfer.  While Moore could purchase the shares, he was aware of the restrictions on the shares and thus could not acquire more property rights than were possessed by Linda.

Judgment/Outcome

The Court reversed and remanded the judgment of the lower courts.