CHAPTER XV. THE DUTIES AND LIABILITIES OF TRUST COMPANIES ACTING IN VARIOUS CAPACITIES.77 DUTIES AS TRANSFER AGENT. HE duty of the transfer agent is to act for the issuing corporation from one holder to another. This involves the passing upon the regularity and legality of the assignment of title; the noting of the transaction upon the transfer books of the corporation; the cancellation of the old certificates and the execution and delivery of new certificates. Incidentally it involves the furnishing to the corporation of a certified list of the stockholders whenever the books are closed for the payment of dividends, and at other times as demanded. The performance of these duties requires that the transfer agent be the custodian of the stock books and the seal of the issuing corporation and of a supply of blank certificates. The certificates, bound in book form so that each certificate and its stub form one page, and numbered consecutively, are before delivery to the transfer agent signed by the proper officers of the corporation. The face of the certificate usually contains the provision that it is not valid unless countersigned by the transfer agent. On its back is usually printed an assignment of the stock and an irrevocable power of attorney, of which the following is a common form. "For value received fer unto ... ...... hereby sell, assign and trans- attorney to transfer the said stock on the books of the with- 77 While the duties of trust companies acting in various fiduciary capacities are fairly well established by custom and in some cases by legislative enactment, their exact liabilities, especially in corporate trusts, such as those of transfer agent and registrar, are sometimes undetermined either by statute or by court decisions, and are the subjects of wide differences of opinion among trust company officials and among lawyers. In the following discussion, so far as it relates to liabilities, the writer has endeavored to state the various positions taken by different writers quoted, to whom he wishes to acknowledge his indebtedness Before making delivery of a certificate, the transfer agent dates it, fills in the name of the new holder and the number of shares represented, affixes the seal of the issuing corporation and attaches the proper signature to the transfer agent's certificate. The form of this certificate recommended by a committee of the Trust Company Section of the American Bankers' Association reads as follows:78 "Countersigned: Trust Company, as Transfer Agent, At the time of accepting an appointment as transfer agent, trust companies require certain information from the issuing corporation regarding its organization and the issue of its stock, the exact nature and amount of such information varying according to the policy of the trust company. The following are the requirements published by The Old Colony Trust Company of Boston: "Corporations desiring the trust company to act in either of these capacities (transfer agent or registrar) should submit the following papers. Additional papers will be called for if required: (a) Certificate of incorporation of the company, certified by the Secretary of State of the state where the corporation is domiciled. (b) Minutes of the organization meetings of the stockholders and directors of the company, 'showing compliance with the necessary formalities to make the incorporation legal, such minutes to be certified by the clerk or secretary of the company. (c) By-laws, similarly certified. If (d) Copies, similarly certified, of all votes, both of stockholders and directors, authorizing the issue of stock of the company, together with the certificate of the treasurer or other proper officer stating the exact amount of stock outstanding, which was issued under each of such votes. approval by the state is necessary in any form―e. g., by railroad commis sioners-formal evidence of such approval, and generally of compliance. with all conditions precedent to the issue. (e) If the stock is issued as fully paid, evidence that such is the case, either in the form of a certificate of the treasurer to payment in cash at par, or, if the law of the state permits payment to be made otherwise than in cash, then satisfactory proof that payment has been made in compliance therewith. (f) Copy of the form of stock certificate which is to be issued, and which the trust company is expected to sign. This should be submitted for approval before it is engraved. for the information given and for many of the opinions advanced. It is perhaps hardly necessary to remark that this discussion is intended merely to show the different views that are current on the subjects treated, and does not pretend to state conclusions ex cathedra, the writer making no claim to expert knowledge in the matter. In any transaction other than one which is absolutely plain and simple, no trust company official or employee should proceed without competent legal advice. 78 Proceedings Trust Company Section, 1905, p. 7. (g) Vote of directors certified as in (b) approving the form of stock certificate; also vote similarly certified appointing the transfer agent and agent to register transfers of the company. (h) List similarly certified of the officers and directors of the company, with sample signatures of such as may sign certificates." The practical work of transferring stock requires a high degree of intelligence and care and a thorough knowledge of the law governing such transfers. The risks involved aside from possible clerical mistakes, errors in bookkeeping, dishonesty or gross carelessness on the part of the employees who actually do the work, include mistakes of law or of fact in making transfers on forged endorsements, or on insufficient authority, or in violation of law, especially in cases of certificates held by persons as trustees for others. Certificates endorsed in blank are often presented for transfer by persons other than the holders of record. The transfer agent must know the signatures of stockholders or otherwise identify them beyond question. Where stock is held in fiduciary capacities, the agent must know the terms and powers under which it is held. When a certificate is presented for transfer, the transfer clerk should know that the certificate itself and the power of attorney accompanying it are genuine; that the transferrer is legally competent to make the transfer; that no notice has been given the company of any outstanding claims against the stock; that, in the absence of direct notice, there is no implied notice of claims, such as the certificate itself may give when standing in the name of a trustee. LIABILITIES AS TRANSFER AGENT." 79 On the subject of the exact liabilities assumed by the transfer agent in agreeing to perform these services, there is a considerable difference of opinion, which is readily accounted for by the fact that there is no statute law covering the case, and very little law in the shape of court decisions. While the office is sometimes undertaken under special contract which details the liabilities to the issuing corporation, the more common method of appointment is by a mere resolution of the directors of the issuing corporation appointing the Blank Trust Company as the transfer agent of its stock, and the acceptance of the appointment by the latter. This method assumes that the duties and liabilities of the position are so well known as to require no definition; an assumption which is justified so far as routine duties are concerned, but which as to liabilities seems inconsistent 79 Readers wishing to consult fuller discussions of this subject and of the liabilities of trust companies acting as registrars are referred to the following articles, some of which are quoted herein: Proceedings Trust Company Section A. B. A. 1896-1903, pp. 59-75, article by Felix Rackemann; pp. 184-199, article by Henry J. Bowdoin and discussion of same. Proceedings Trust Company Section A. B. A. 1904, pp. 28-41, article by Jordan J. Rollins; pp. 85-86, letter from Noble B. Judah, and discussion preceding. Proceedings Trust Company Section A. B. A. 1905, pp. 6-8, Report of Executive Committee. "The Banking Law Journal," Vol. XXII, pp. 717-720, article by C. F. Morris. "Trust Companies" Vol. I, pp. 418-421, 4ST-503, 609-613, articles by Ross Perry; pp. 989-990, article by E. C. Hebbard; Vol. II, pp. 416-418, article by Willard V. King: Vol. III, pp. 12-14, article by Charles A. Greene. with the divergent opinions held by officers of banks and trust companies. which act as transfer agents. The difference of opinion does not concern what the trust company accepting an appointment expects and intends to undertake, but has reference to possible implied and incidental obligations which it does not intend to assume, but for which, in the opinion of some writers, the courts may hold it responsible. "It is well understood in banking and trust company circles that the transfer agent undertakes to say to the purchaser of the stock which it has countersigned no more nor less than that such stock is a genuine portion of the capital stock of the issuing company, that the said company has been duly authorized to do business by the Secretary of the State in which the company is incorporated, and that the signatures of the officers to the certificates of stock are genuine."so LIABILITIES OF A CORPORATION ACTING AS ITS OWN TRANSFER AGENT. Before stating the variant views of different writers on the subject in hand, it will be useful to inquire into the extent of the liabilities of corporations when they transfer their stock through one of their own officers or employees. It is of course beyond the scope of this article to discuss the law of stock transfers, concerning which elaborate text-books may be read. A few instances showing the liabilities involved will be sufficient for the present purposes. In an able paper on the subject read before the Trust Company Section of the American Bankers' Association,1 Jordan J. Rollins showed that improper transfers may arise "Equally through honest mistake, negligence or fraud." Illustrating the statement, he instances cases in which errors have occurred and the issuing corporations have been held liable: (a) Through a mistake of fact where the title to stock was affected by a law peculiar to a foreign state or country. He quotes the United States Court of Appeals that "The validity of a transfer of stock is gov. erned by the law of the place where the corporation is created." (b) Through a mistake of fact where the title to stock was affected by some complicated contractual relation. (c) Through a mistake of fact where a person acting as attorney for another exceeded his authority in making a transfer. (d) Through fraud on the part of the officer in charge of transfers. As a brief statement of the responsibility of the issuing company, he quotes the United States Supreme Court (Telegraph Co. vs. Davenport, 97 U. S. 369, at p. 371) as follows: "The officers of the company are the custodians of its stock book, and it is their duty to see that all transfers of shares are properly made, either by the stockholders themselves or persons having authority from them. If, upon the presentation of a certificate for transfer, they are at 80 C. F. Morris, in "Banking Law Journal," Vol. XXII, p. 718. 81 Proceedings Trust Company Section 1904, pp. 29-33. all doubtful of the identity of the party offering it with its owner, or if not satisfied of the genuineness of a power of attorney produced, they can require the identity of the party in the one case, and the genuineness of the docun:ent in the other, to be satisfactorily established before allowing the transfer to be made. In either case they must act upon their own responsibility. In many instances they may be misled without any fault of their own, just as the most careful person may sometimes be induced to purchase property from one who has no title, and who may perhaps have acquired its possession by force or larceny. Neither the absence of blame on the part of the officers of the company in allowing unauthorized transfer of stock nor the good faith of the purchaser of stolen property, will avail as an answer to the demand of the true owner." He also quotes the Supreme Court of Massachusetts (Crocker vs. Old Colony R. R. Co., 137 Mass. 417) as follows: "When a transfer of stock is presented to a corporation it is bound at its peril to see that it is a genuine transfer by one who has power of disposition over the stock. If it issues a certificate upon a forged or unauthorized transfer, the real owner retains his property in the stock and the corporation may be liable to a bona-fide holder of the new certificate." On the other hand, quoting the same case: "If a proper transfer is presented to a corporation it is its duty to issue a new certificate in accordance with it, and if it refuses, it is liable to the person to whom the transfer is made." Summing up this portion of his paper, Mr. Rollins concludes, "For all loss occasioned, whether by fraud, negligence or unavoidable mistake, by it or its agents in the transfer of its stock, such corporation is absolutely liable, and no excuse can mitigate its liability." Special risks are involved in the transfer of stock at the instance of executors, administrators, trustees or guardians. In a series of articles on this phase of the subject in "Trust Companies" magazines2 Ross Perry cites a number of cases showing the character of the risks. These include: (a) A case where stock held in trust under a will was ordered distributed by a lower court and the corporation so distributing it was afterwards held liable by the Supreme Court of the state (Tennessee), notwithstanding the instructions of the lower court, on the ground that the distribution was not in accordance with the terms of the will, of which the corporation had or ought to have had notice. (b) A case where the trustees under a will transferred stock in excess of their authority and used the proceeds for their own benefit, and the corporation permitting the transfer of its stock was held chargeable with a knowledge of the contents of the will which was spread on the public records, and was required to make good to the trust estate the value of the stock. (c) A case where stock held by executors under a will transferred same to themselves as trustees, and afterwards to "A. B., Trustee," the $2 Volume I. pp. 418, 497 and 609. |