UNIFORM TRANSFER OF STOCK.—Turn now to an entirely different matter, the transfer of stock. A stock certificate is one of the quasi-negotiable instruments of commerce, at common law not fully negotiable like bills and notes, but, nevertheless, having some of the attributes of negotiability, especially in States where what is called the Uniform Transfer of Stock Act has been enacted. This statute applies only to corporations of those States which have passed the statute.

TWO METHODS OF TRANSFERRING STOCK.—Stock may be transferred in two ways: first, by delivery of the certificate with the indorsement upon it of the owner of the stock, indicating that he assigns or authorizes the assignment of the stock, and second, by delivery of the certificate, with a separate document of assignment attached stating that the owner of the certificate assigns or authorizes the transfer of the stock. This second method is not so completely good as the first, where the assignment is on the certificate itself, because if for any reason the separate document should become detached from the certificate, the transferee's right would not be apparent, and therefore the Transfer of Stock Act provides that if a purchaser should get possession of the stock certificate with an indorsement upon it, he would take precedence over even a prior assignee who had a separate paper assigning the certificate to him. Of course, after the transfer is duly registered on the books of the company, then it makes no difference whether that transfer was secured by means of a separate power or assignment or by means of one written on the certificate itself.

EFFECT OF TRANSFER ON THE BOOKS OF THE COMPANY.—What is the effect of transfer on the books of the company? Under the common law, stock was originally transferable just like any intangible right, merely by agreement of the parties, to which requirement was added, as a necessity when stock certificates became common, the delivery of the certificate itself. But it was convenient for the company to know who was owner of its stock. It was inconvenient to have stockholders buy and sell without any notice to the company, and therefore a common by-law was that stock should be transferred only on the books of the company. The Uniform Transfer of Stock Act goes back partially to the old rule, since the transfer of the certificate with the indorsement or separate assignment is what transfers the stock, not the transfer on the books of the company; but in order that the corporation may not be inconvenienced it is provided that the corporation shall have the right to pay dividends to any one registered on the books of the company, such persons being the apparent owners, and that only such persons have the right to vote. An analogous custom that shows the importance of registration of stock transfers on the books of the company is the registry of deeds in the transfer of real estate. It is the deed, not the record of it, which creates a title, but an unrecorded deed may be defeated by creditors or purchasers without notice, so that to protect himself fully the owner of land is obliged to record his deed.

OWNERSHIP OF STOCK, INDIVIDUALLY, IN COMMON, JOINTLY AND BY FIDUCIARIES.—Stock may be owned by a man individually, it may be owned by several persons in common, or it may be owned by several persons jointly, or it may be owned by a person in a fiduciary capacity, as trustee, executor or guardian. What is the difference, may be asked, between the case of ownership of stock by several persons in common and ownership by several persons jointly. The common law drew this distinction between joint right and rights merely held in common; that a joint right survived to the survivors when one of them died, whereas a right held in common passed, on the death of one of the owners, pro rata to the personal representatives of the deceased. Therefore if A, B and C own stock jointly, when C dies A and B are the owners. If A, B and C own the stock in common, A, B and the executors of C would own it on the death of C. Generally where several persons own a right now, they own it in common, but there are two notable exceptions—the case of partnerships and the case of trustees. Stock held in the name of A, B and C, when A, B and C are either partners or trustees, will pass to A and B on the death of C. C's executor will not have to join in the transfer.

DIFFICULTIES IN TRANSFER AFFECT PURCHASER AND ALSO CORPORATION.—The difficulties in the transfer of stock may be looked at (1) from the standpoint of a purchaser of the stock, including within the name of purchaser one who lends money on the stock as well as one who buys it, and (2) from the standpoint of the corporation whose duty it is to transfer the stock on its books. Generally the difficulties which confront the purchaser are the same which confront the corporation when it is asked to transfer. If the purchaser should get a defective right when he bought, then the corporation, if it should transfer, would generally get into trouble also.

LEGAL AND EQUITABLE DIFFICULTIES IN TRANSFERS.—The main difficulties which arise may be divided into legal and equitable difficulties. By legal difficulties are meant cases in which the purchaser will not get a good legal title. By equitable difficulties, cases in which the purchaser will get a good legal title but which will be subject to an equitable right in favor of some other person. The person who has an equitable right cannot reclaim the stock from one who is, or succeeds to the rights of, a bona fide purchaser for value without notice.

LEGAL DIFFICULTIES—FORGED CERTIFICATE.—First, in regard to legal difficulties. The certificate of stock may be forged. The purchaser of a forged certificate of stock, of course, gets nothing in the way of stock. He does get the right, however, to sue the person who sold him the stock on an implied warranty of genuineness. Analogous to the situation of the purchaser is the situation of the corporation if, on receiving a forged certificate with a request for a transfer, it should transfer ownership on the books, completing the transfer by issuing a new certificate; for any person who took the new certificate, even though he was a bona fide purchaser for value, would not get any stock in the corporation, if all authorized stock had previously been issued. The corporation has no power to overissue stock; it cannot emit any more even if it tries, and therefore the purchaser gets no stock. He does, however, get a right against the corporation. The corporation has issued what purports to be new stock to him, or if he is a remote purchaser he has paid for stock in reliance on a certificate which the corporation has issued. The corporation is estopped, as the legal phrase is, to deny the validity of that certificate as against one who has thus relied on its acts. The result is that the corporation is bound to pay to him value equivalent to that of real stock, because the corporation has put out something which seems to be good stock, and owing to the act of the corporation the purchaser has been deceived.

FORGED ASSIGNMENTS.—A second legal difficulty arises where the indorsement or assignment of the certificate is forged. Only the owner of stock can sell it. Consequently, if anybody else attempts by forgery or otherwise to make a transfer, the transfer will be ineffectual. The result will be the same as though the whole certificate were forged. The purchaser under the forged indorsement will get nothing. If the corporation relies on the forged indorsement and issues a new certificate, it will, in the same way as in the case of a new certificate issued for a wholly forged one, be liable to a purchaser for value. It is, of course, of vital importance, therefore, to make sure that indorsements are correct, and generally it is desirable to take indorsed certificates only from reliable persons. If you take such a certificate from a reliable person, even though there is no express guaranty of signatures by a brokerage house or other third person, as there often is, you will be practically safe because of the implied warranty of genuineness by the seller which applies to the indorsement on certificates as well as to cases of wholly forged certificates.

ASSIGNMENTS BY UNAUTHORIZED AGENT.—A third case is where the indorsement is made by an agent, and the agent has no authority to act. A corporation transferring stock should require, and a purchaser should require, the clearest evidence of an agent's authority if the signature of the transferor is made by an agent. It is not only necessary to be sure that the agent's authority originally existed, but it is necessary to be sure that his power has not been revoked, either by the death of the principal or by express revocation during his life. A question that sometimes is troublesome, in regard to the agent's authority to make such an indorsement, arises where the terms of the power given the agent are general; where he is authorized to do a very broad class of acts for the principal, but no specific mention is made of the particular certificate which he seeks to transfer. Such a power, if it certainly includes the transfer of that certificate, is legally good, but a corporation would object to make a transfer under a power which did not specifically mention the particular certificate, unless it was absolutely certain from its terms that this certificate in question was included.

LACK OF CAPACITY TO ASSIGN.—A fourth case is lack of capacity on the part of the owner of the stock to make a transfer. This lack of capacity may arise from a variety of causes, insanity or infancy, for instance. A totally insane person is as incapable of transferring stock as of transferring other property. An infant, that is, a minor, though not wholly without capacity, if not under guardianship, becomes, presumably, wholly without capacity to transfer stock if under guardianship. An elderly person under the charge of a conservator would be incapacitated to transfer his property. An infant who has had no guardian appointed, though he could make a transfer, could also, by virtue of his infant's privilege, revoke that transfer, which, therefore, would be too insecure either for a purchaser to take or for a corporation to allow. If stock is owned by an infant, a purchaser or a corporation should require that a guardian be appointed and that the transfer be made by the guardian.

LACK OF DELIVERY—THEFT OF CERTIFICATE.—A fifth case is where the signature on the back of the certificate of stock is genuine, but where there has been no valid delivery by the owner. This is rather a troublesome case to detect. In the case of full negotiable instruments, like bills and notes, if the signature of an indorser is genuine, a purchaser for value of the instrument will get title even though he purchases from a thief, or though for any reason there was no intention on the part of the owner who wrote his name on the back to make a transfer of the instrument. But by the common law stock certificates were not negotiable to this extent. This case occurred in a law office in Boston: the head of the firm rather carelessly kept "street certificates" for stock (that is, certificates made out in the name of the brokerage firm which was the former owner and indorsed in blank), not having the certificates transferred to his own name. The stock was not at the time dividend-paying, so that a transfer on the books seemed unimportant. He put the certificates into the office safe to which the office boy had access. This boy took the certificates and sold them through a broker, and the loss was not discovered for several years. After it was discovered the loss was traced by the numbers of the certificates, and action was brought against the brokers who were unfortunate enough to have taken the stock from the office clerk. Now, if the certificates had been negotiable paper, the brokers would not have been liable, but under the law then existing it seemed so probable that they were liable that they settled the case by paying more than half the value of the stock. The only thing that could have prevented their being liable was that, under the circumstances, the contention was possible that the owner of the stock had been so negligent in his dealing with the certificates as to preclude him from asserting any right. Now the Transfer of Stock Act changes the law in this respect so far as Massachusetts stock certificates are concerned. The act makes them fully negotiable, but the common law would apparently still apply to certificates of stock of corporations incorporated in other States. And similar principles would be applicable in other States which have passed the same statute.

DEATH OF OWNER OF INDORSED CERTIFICATE.—A somewhat similar case is this: suppose that after the owner of stock has written his name on the back of it, he dies; that is a common enough case. Many men have used their stock certificates to borrow money on, and therefore, after paying the loan they have them in their possession with their signatures on the back. They put those certificates back in their safe deposit boxes. Then suppose the owner dies and an attempt is made to transfer the stock by virtue of that signature written on the certificate. That is not a valid transfer at common law. The certificate was owned only up to the time of his death by the man whose name is on the face; on his death his executor becomes the owner and the executor's signature is necessary to transfer the title, and the signature of the man himself written before his death is not effective for that purpose; and yet a purchaser may not be aware that that signature is invalid; he may not know that the man who signed it is dead, and similarly the corporation may allow the transfer to go through in ignorance that the signer is dead. If the money which is the proceeds of the stock actually reaches the executor of the estate, of course he could not object to the validity of the transfer, and he could not object if he were in any way a party to the transfer of the stock by means of the signature of the dead man; but if the proceeds did not get to the hands of the executor and he was in no way responsible for the transfer, he could assert that the transfer was invalid and that that stock belonged to him. This, again, is changed by the uniform law so far as applies to corporations in the States which have enacted that law. To avoid misapprehension it should be said that if an indorsed certificate has been delivered for value by the owner, during his lifetime, to a purchaser or lender, the death of the indorser does not impair the validity of the signature even at common law. The purchase of the stock or a loan made on the stock gives the purchaser or lender a power which cannot be revoked by death or otherwise.

BANKRUPTCY OF THE OWNER OF STOCK.—One other important case, in which a genuine signature of one who was the owner cannot transfer a good title, is the case of bankruptcy. The Federal bankruptcy law provides absolutely that title to property which a bankrupt has at the time of his bankruptcy shall be vested in his trustee. If, therefore, after A's bankruptcy, A seeks to transfer stock which he had owned, and which was in his own name, he cannot do so, for he is no longer the owner of the stock, and he has no power to transfer it. Therefore, even a bona fide purchaser from a bankrupt will get nothing.

ATTACHMENT OF STOCK.—A sixth difficulty in regard to transfer of stock—attachment of the stock by a creditor of the registered owner—is eliminated in States where the Uniform Transfer Act has been enacted. Such attachments created considerable difficulty before the passage of the act. Suppose this case: A is the owner on the books of the company of 100 shares of Boston & Albany stock. He knows a creditor is about to attach that stock, and in order to get ahead of the creditor he sells the stock on the exchange. If he makes the sale before the attachment, undoubtedly the sale everywhere would prevail over the subsequent attachment; but suppose the attachment preceded by a little while the sale of the stock. A still has the certificate, and brokers and purchasers are accustomed to rely on the certificate as evidence of ownership. They take the certificate and pay A money for it; then when the purchaser goes to transfer the stock he finds that an attachment has been put upon the books of the company. Where the uniform law governs the case the only way to make an attachment of stock effective is to seize the certificate itself. But in other States this difficulty may still arise, of a purchaser being deceived by the certificate itself, and paying money on the faith of it when there has been an attachment levied by a creditor immediately before on the books of the company.

TRANSFERS BETWEEN HUSBAND AND WIFE.—One other matter of transfer deserves attention, and that is a transfer between husband and wife, or wife and husband. A married woman can contract in most States as fully as a married man, but generally, though not universally, neither of them can contract with the other or make a conveyance directly to the other. A promissory note from wife to husband, or husband to wife, or any other conveyance or transfer or contract was at common law and still is in many States invalid. A husband can, however, appoint his wife his agent, and a wife can appoint her husband her agent, and when such an agent acts, his act will be legally that of the principal, just as in any other case of agency. Accordingly, if a husband draws a check payable to his wife, though he does not become liable as drawer to his wife, and could not be sued by her if the check was not paid, the bank runs no risk in paying the check because the husband has authorized the bank to make a payment to the wife. Similarly, if a husband authorizes a corporation to transfer stock to his wife it seems that the corporation is protected, having acted under the authority of the owner, and that the wife would get a good title to the stock. This question has, however, been somewhat disputed by lawyers. Therefore it is very probable that a corporation would, as a matter of precaution, refuse to run any risk by transferring directly from husband to wife or vice versa, but would require that the transfer should be made through a third person in any State where husband and wife cannot contract with one another. So much for difficulties arising out of defects caused by the lack of legal title to the stock.

STOCK HELD IN TRUST.—Now let us consider equitable defects. Such defects chiefly arise where stock is held in trust. It would be the simplest and pleasantest thing for a corporation if it could refuse to register stock in trust at all, but it has been decided that it cannot do this, that it is bound, if requested, to register stock in favor of a trustee and issue stock to trustees. Now trustees hold under an appointment by the court. A trustee may cease to be such at any time by removal of the court as well as by death. Suppose stock in the name of D, trustee. If D has ceased to be trustee because he has been removed from office, a transfer by him will not be valid. Accordingly, it is essential for a corporation and for a purchaser to be certain, not simply that D was trustee, but that D is trustee at the time he attempts to make the transfer. We may suppose the case of a certificate which does not state that there is a trust. Not infrequently trustees, to avoid complications, do not specify in the certificate that they are trustees. If the corporation or if the purchaser of that stock has no notice that D is really holding that stock in trust, the corporation or the purchaser will have the same rights as if there were no trust. But if either the corporation or the purchaser learns, from extrinsic sources, that the stock is really held in trust, they will be bound to make certain that the seller is still empowered to act as trustee, in the same way as if the certificate specifically stated on its face that the stock was owned by D in the capacity of trustee.

ONE HAVING NOTICE THAT STOCK IS HELD IN TRUST MUST ASCERTAIN THE TERMS OF THE TRUST.—Even if the supposed trustee is actually the trustee he may not have power to give a good title to the stock. He has the legal title, undoubtedly, but if the certificate contains notice that he holds the legal title as trustee, every one is bound at his peril when purchasing the stock, and also the corporation is bound at its peril before it allows the transfer of the stock, to make sure that the trustee is authorized by the terms of his trust to transfer the stock.

A TRUSTEE HAS POWERS NECESSARY TO CARRY OUT TERMS OF TRUST.—Generally when a transfer of stock is attempted by a trustee it means that the trustee is selling the stock, though that is not necessarily the case. A trust may be terminated; that is, a trust may be created for twenty years, with directions to the trustee to transfer the trust property at the end of twenty years to certain beneficiaries. A transfer by the trustee at the close of the twenty years to the beneficiaries would not be a sale of the stock; it would be a transfer for the purpose of carrying out the trust, and a trustee always has implied power to make any transfer of stock that is necessary to carry out the purpose of the trust.

A TRUSTEE HAS NO IMPLIED POWER TO SELL.—A trustee has no implied power to sell. The general duty of a trustee is to keep the property which is left to him in trust or conveyed to him in trust in its existing form, and no power is implied to change the form to something else. Accordingly, if no power to sell is in terms given in a trust created by deed or will, a corporation will require, and a purchaser should require, the trustee to obtain the authority of the probate court to make the sale. Carefully drawn trusts generally contain a power for the trustee to sell if the purpose of the trust is to produce an income-bearing fund for a long period of years. For that purpose a change of investment is frequently desirable, and therefore trustees are expressly given that power. But the corporation which has issued a certificate to a trustee and a purchaser from the trustee must find out at their peril whether such a power is given.

A TRUSTEE HAS NO IMPLIED POWER TO PLEDGE.—Another power, and one which is not commonly given, is the power to borrow on stock, to pledge it or use it for collateral security. Such a power is not implied and is not commonly given in trust deeds or wills. Therefore, a bank or other lender should not lend on certificates of stock which are made out to the borrower as trustee, or made out to any one as trustee. Of course, it is improper, even though the trust did give power to borrow, to allow the trustee not only to borrow money on trust securities but to use the money borrowed as part of his own assets; that is, to put it in his own general account. It is his duty to keep trust money separate, and therefore if the trustee has power to borrow he should keep the funds which he borrows earmarked as trust property; but as has been said, he will rarely have power given him expressly to borrow even for trust purposes.

A TRUSTEE CANNOT TRANSFER TO HIMSELF.—Suppose a trustee is by a deed or will given power to sell and he asks the corporation to make a transfer of the stock to himself. The corporation should not do it. He has power to sell to any one else but himself. A fiduciary cannot make a bargain with himself in regard to his trust property, and therefore he should not be allowed to transfer the stock to himself.

A TRUSTEE CANNOT DELEGATE HIS POWER TO SELL.—A trustee cannot delegate his powers, and therefore he cannot give a general power of attorney to another, to sell trust stock or any trust property whenever it may seem wise to the agent to do so. Even though the trustee has himself power to sell, he must exercise his own discretion as to the occasion when it is proper to sell.

PURCHASER FROM A TRUSTEE IS NOT BOUND TO SEE TO APPLICATION OF PURCHASE MONEY.—Though the corporation and though the purchaser from a trustee are bound to see, if they have notice of the trust by the form of the certificate, that the trustee is not making an unauthorized sale, neither the purchaser nor the corporation is bound to see that the trustee does not make an improper application of the money received from sale of trust stock. In the current legal phrase, neither the purchaser nor the corporation is bound to see to the application of the trust money; but if either the purchaser or the corporation had notice of a proposed misapplication of the trust money to be received for the stock, it would be improper to allow the transfer knowing that the proceeds would be misapplied, and the corporation or the purchaser would be liable if the transfer was carried out.

AN EXECUTOR HAS IMPLIED POWER TO SELL.—Stock held by a guardian or by an executor is in many respects treated similarly to stock held by a trustee. There is this difference, however, in the executor's position, that as it is his duty to reduce the estate to cash he has in most, but not all States, an implied power to sell; it does not have to be given to him in the will. The will, however, may restrict an executor's right to sell certain stock, and therefore even in the case of an executor it would be proper for a corporation to make sure that the executor's power had not been restricted by the will before allowing the transfer.

TRANSFER BY AN EXECUTOR TO A LEGATEE.—Generally the executor will seek to reduce the property to cash and therefore seek to transfer the stock in the estate to a purchaser, but he may try to transfer it directly to a legatee. He may himself be a legatee and endeavor to transfer to himself. Unless he is a residuary legatee or a legatee of the specific stock in question it is as improper for him to transfer to himself as for a trustee to transfer to himself. Even though the executor is a pecuniary legatee or is entitled to payment for commissions, he would have no right to take stock in lieu of such pecuniary legacy or commission, for he cannot make such a bargain with himself though he might in regard to the legacy of another. If the executor is a specific or residuary legatee the question of a right to transfer to himself is the same as to transfer to any other legatee, and that right is only subject to one qualification. Creditors of an estate have the first right; legatees do not get their legacies paid unless creditors are taken care of first. Creditors have a fixed period from the time when executors or administrators give bonds within which to assert their claims. If they have not asserted their claims in that period the claims are barred. After that time has expired it is generally known whether the assets of the estate are sufficient to pay legacies, and it is usually then proper to allow a transfer to a legatee. Prior to that you run the risk—which may be in a particular case a very small one or it may be a very large one—that the creditors of the estate may exhaust the assets and the legatees not be entitled to anything.

LOST CERTIFICATES.—Occasionally a question arises in regard to a lost certificate. The Uniform Law provides for this case in substantially the same way as the common law would deal with it if there were no statute, namely, the corporation may demand a bond to indemnify it before it issues a new certificate. This bond is essential because should the old certificate turn up and be transferred to a bona fide purchaser for value, the corporation would be liable on the old certificate, and as it would also be liable to a purchaser for value of the new certificate it is necessary that it should have a bond to protect it.

INTERPLEADER OF SEVERAL CLAIMANTS FOR STOCK.—If there are several claimants for stock, as sometimes happens, the corporation should file a bill of interpleader, as it is called, against the several claimants, asking the court to determine which one is rightfully entitled. An instance of that kind would be where A asks a corporation to transfer stock to him, presenting a certificate indorsed by B, but B notifies the corporation that he has been defrauded out of that stock by A, and that he elects to rescind the transfer to A and demands the certificate back. The corporation cannot undertake to determine which of these parties is in the right; it must ask the court to do so. Not infrequently the same situation arises in a bank where money has been lent on stock, and notice is given to the bank not to return that security to the borrower because he obtained it fraudulently or otherwise has acted in violation of the rights of a third person in pledging it to the bank. The bank, if it is a bona fide lender, is, of course, entitled to hold the stock for its own security so far as it may be necessary to repay the loan; but perhaps the bank can get the loan repaid out of other securities unquestionably belonging to the borrower. In that event the bank should do so and then ask the court who is entitled to the disputed stock.

EFFECT OF DELIVERING UNINDORSED CERTIFICATE.—In order to transfer stock, as previously said, it is necessary that the stock should be either indorsed or that on a separate paper an assignment or power to transfer should be written. What is the effect of giving a certificate without either of these formalities? It virtually protects the person who receives the certificate, for though he has not title to the stock and cannot get title without an indorsement, he has the certificate in his possession which prevents any other person from getting title; and, furthermore, he has the right to require an indorsement from the person whose indorsement is needed, provided, of course, that the holder of the certificate took it from the owner, who impliedly or expressly agreed that he should have title. If somebody not an owner of a certificate delivered it without indorsement to a bank, and borrowed money on it, the bank would not be protected. The true owner could say, "That is mine," and take it away.