BRYAN-BARBER REALTY, INC., Carol H. Hutchinson and Elizabeth T. Norman, Plaintiffs,
v.
Herman Harold FRYAR, Jr., and Judith Preast Fryar Wallace, Defendants.
No. COA94-891.
Court of Appeals of North Carolina.
September 5, 1995.*31 Battle, Winslow, Scott & Wiley, P.A. by Thomas L. Young and W. Dudley Whitley, III, Rocky Mount, for plaintiffs-appellees.
McMillan, Kimzey & Smith by James M. Kimzey and Martha K. Walston, Raleigh, for defendant-appellant.
WALKER, Judge.
The issue on appeal is whether the trial court erred in granting summary judgment for plaintiffs. "Summary judgment is appropriate where there is no genuine issue as to any material fact and the rights of the parties may be determined as a matter of law." Avrett and Ledbetter Roofing and Heating Co. v. Phillips, 85 N.C.App. 248, 250, 354 S.E.2d 321, 323 (1987). The only dispute between the parties is whether the agreement prohibits the transfer of stock to Wallace.
The question of whether a stock restriction agreement prohibits the transfer of stock which is classified as marital property between spouses is one of first impression for this Court. Other jurisdictions have considered whether a stock transfer restriction applies to transfers pursuant to a court order in a marriage dissolution proceeding. See, e.g., Durkee v. Durkee-Mower, Inc., 384 Mass. 628, 428 N.E.2d 139 (1981); Castonguay v. Castonguay, 306 N.W.2d 143 (Minn.1981); Messersmith v. Messersmith, 229 La. 495, 86 So. 2d 169 (1956), superseded on another matter by statute as stated in Patterson v. Patterson, 417 So. 2d 419 (La.Ct.App.), cert. denied, 420 So. 2d 983 (Mass.1982); Earthman's, Inc. v. Earthman, 526 S.W.2d 192 (Tex.Civ.App.1975).
In Messersmith, the Lousiana Supreme Court considered whether a first refusal option in a corporate charter prohibited a court-ordered transfer of stock which was community property from the husband to his wife. The court held that the restriction did not affect the status of the stock purchased during the existence of the community or the rights the wife may assert thereunder. 86 So.2d at 173. See also Earthman, 526 S.W.2d at 202.
In Castonguay, the Minnesota Supreme Court declined to adopt the community property rationale stated in Messersmith and instead held that a transfer of stock ordered by a court in a marriage dissolution proceeding is an involuntary transfer not prohibited under a corporation's general restriction against transfers unless the restriction expressly prohibits involuntary transfers. In so holding, the court adopted the majority rule that "`restrictions on the sale of corporate stock apply only to voluntary sales, and not to transfers by operation of law, in the absence of a specific provision to that effect.' " 306 N.W.2d at 145 (citation omitted).
In Avrett and Ledbetter Roofing and Heating Co. v. Phillips, 85 N.C.App. 248, 250, 354 S.E.2d 321, 323 (1987), this Court considered whether a first refusal option which provided that each stockholder agrees "for himself, his heirs, legatees and assigns that he will not sell, transfer, assign, pledge, encumber or otherwise dispose of his stock... without first offering [it] to the other stockholders" applied to testamentary transfers upon the death of a shareholder. The Court noted that restrictions on alienation or transfer of stock are disfavored and thus strictly construed and that under the rule of strict construction, courts have required express restrictions on intestate or testamentary dispositions. Id. at 251-52, 354 S.E.2d at 323. Applying this rule, the Court held that the restriction did not apply since its terms and conditions became operative at the time of certain proposed voluntary, inter vivos transfers which did not include the passing of title by operation of law through a personal representative to the beneficiary of a deceased shareholder. Thus, the agreement did not expressly restrict testamentary transfers upon the death of a shareholder. Id. at 253, 354 S.E.2d at 324.
In the case sub judice, the agreement requires a shareholder who wishes to sell, assign, encumber or otherwise dispose of the corporation's stock other than as expressly provided for in the agreement to obtain the written consent of the other shareholders. The agreement contains no express *32 provision regarding the interspousal transfer of shares incident to equitable distribution. The spouse has neither joined in the agreement nor has she waived her interest in the stock. We are not prepared to cut off the marital interest of a spouse under these circumstances. We hold that, under the rule of strict construction, a restriction on the transfer of stock does not apply to interspousal transfers of stock which is marital property absent an express provision prohibiting such transfers.[1] Thus, the transfer of stock from Fryar to Wallace was not in violation of the agreement and the entry of summary judgment for plaintiffs is reversed and remanded for entry of summary judgment for Wallace.
Reversed and remanded.
COZORT and JOHN, JJ., concur.
NOTES
[1] See Russell Robinson, II, Robinson on North Carolina Corporation Law § 9.6 (1990) (advising the drafter to deal specifically with divorce-related problems such as the applicability of the shareholders' agreement to valuation in a divorce proceeding and the voting of shares that are either tied up in a divorce action or distributed to a nonshareholder spouse under the equitable distribution laws, and suggesting that it may be necessary for the shareholder's spouse to join in the agreement).