18

way, though it appears that it gives the corporation a domicile in the foreign state "so far as the registry and transfer of shares therein are concerned."1

§ 80. Liability of Trust Companies as Transfer Agents. The liability of a trust company as transfer agent where there was a forged assignment was declared in a New York case."

This was an action by the certificate holder directly against the trust company, which was a party to terminating the affairs of one corporation by exchanging its certificates for those in a new company, the trust company to receive the old certificates and to see that the holders received stock in the new company. Nothing was said as to the rights of the certificate holder against the old or the new company, but liability is declared against the trust company for the unauthorized transfer and this embraces the right of the new holders to be recognized.

In a later New York Court of Appeals Case"1 an opinion concurred in by six of the seven members of the court, Gray J. dissenting, holds a trust company, as transfer agent, to an exceedingly strict liability. This agency was created to enable an English company to sell a limited number of its shares in this country. As the majority opinion says: "The defendent (trust company) was the central figure in a plan to make shares. issued by an English corporation readily marketable in this country. For that purpose it issued the certificates

18. Althause v. Guaranty Trust Co. (1912), 137 N. Y. Supp. 945, 78 Misc. (N. Y.) 181; Wadsworth v. Equitable Trust Co. (1912), 138 N. Y. Supp. 842, 153 N. Y. App. Div. 737.

19. See Sec. 89 of this book, infra.

20. Weichers v. Central Trust Co. (1894), 80 Hun. 576.

21. McClure v. Central Trust Co. (1900), 165 N. Y. 108, 58 N. E. 777, 53 L. R. A. 153.

of transfer and accepted the position of agent to transfer certificates in consideration of an annual salary. It held out the shares in its possession for sale as marketable. The acts of certifying, offering for sale and selling were in substance an assertion to that effect. Its position was one of trust, and invited the confidence of the public. What a trust company sells even for a third person, under such circumstances, the purchaser may reasonably expect to receive in essence and substance, and not its mere shadow. It held the shares and the deed of transfer in trust for purchasers, and expressly agreed to make delivery upon demand. It was to deliver something which it knew purchasers would expect, and which of necessity it must itself have expected, would result in the transfer of marketable shares. The position which it occupied and the circumstances surrounding it when it contracted with the plaintiff cast upon it the duty of exercising due care in discharging the trust relation which it had assumed. It knew, but the plaintiff did not know, that the shares were issued by the English company subject in express terms to its articles of association and regulations; that the deed of transfer was likewise subject to the several conditions on which the transferrer held shares 'immediately before the execution' thereof, and that it also contained a covenant on the part of the transferee 'to accept and take the said shares subject to the conditions aforesaid.""

Here the question naturally is suggested whether proposed purchasers were under obligation to inquire. back of the offer by the trust company to transfer. But what says the Court as to this? "Under these circumstances the law imputed to the defendant" the duty of

22. Italics supplied.

inquiring to see whether there was anything behind the conditions appearing on the face of the papers in its possession, which would make the shares unmarketable, before it undertook to place them on the market under the sanction of its name and the confidence invited by its standing. Its position and superior knowledge put it upon inquiry and the law charges it with knowing whatever proper inquiry at the proper place would have disclosed."

There is much of mingling in this case of the specific duty of a transfer agency with that of the agency holding itself out as a seller of the stock, but the dissenting opinion shows that the dissenting judge understood the ruling as defining the responsibility of a transfer agent pure and simple. Thus he said: "I not only doubt the soundness of the doctrine upon which it is sought to impute to the trust company a liability akin to that which it would be under as a vendor; but I doubt its wisdom. The trust company is one of a number of like institutions, which afford the community safe and convenient agencies in financial transactions of magnitude where responsibility for the safety of values confided to them, as well as a complete and effective machinery, are demanded. It is sought to impute to this trust company duties and liabilities which its conduct did not suggest and which were not within the strict terms of its undertaking."

23

This case has been cited in later New York cases to the proposition that the trust company was liable as the agent of an undisclosed principal, and therefore where a trust company became the trustee under a trust mortgage which provided that the trustee should not be

23. Tschetinian v. City Trust Co. (1904), 97 N. Y. App. Div. 380.

responsible for any default by the mortgagor and each of the bonds secured thereby were merely indorsed by the trustee as being one of a series mentioned in the mortgage referred to by the bonds, on their face, the court said: "Prospective purchasers *** were fairly referred to the mortgage," etc. Besides the sales were by the mortgagors. It was further said: "In view of the length of time during which it has been the custom of trustees of bond issues to act in that capacity for à comparatively trifling consideration limiting their liability to their own acts of negligence, without so far as appears a single adjudication extending the liability to even the implied guaranty of the securities whose mere identity they have authenticated, it would be unfair in the circumstances detailed in the complaint to impose so serious a burden upon the office assumed by the defendant in the financial transaction in question."

In this case there is something resembling a transfer agency, or at least that of a registrar, but both it and the Central Trust case to which it refers inculcate the doctrine, that to the extent a trust company may, as a transfer agency or a registrar, be fairly supposed to represent that stock or bonds are marketable, to that extent it should be held responsible.

§ 81. Liability as Transfer Agent Continued. It seems to me a little difficult to reconcile Wiechers v. Central Trust Co. and McClure v. Central Trust Co. supra with a later decision by the New York Supreme Court, Appellate Division," affirmed by the New York Court of Appeals, without opinion.

25

24. Dunham v. City Trust Co. (1906), 115 N. Y. App. Div. 584, 101 N. Y. Supp. 87.

25. (1908) 193 N. Y. 642.

In the Dunham case there was a suit against a trust company as transfer agent for refusing to transfer stock of a foreign corporation for the reason that it was waiting a ruling by the State Comptroller whether or not it was subject to taxation. In the meantime the stock was sold at a loss. For this loss the the trust company was sued.

The court held relying on a former decision that the action did not lie, saying: "In Denny v. Manhatten Co. (2 Den. 115.) the resident transfer agent of a foreign' corporation unjustly refused a transfer, and the plaintiffs brought action on the case. The court held that the action did not lie against the defendant, as it was not the agent of the plaintiffs and owed them no duty, but the agent of the defendant to whom alone it was answerable for any neglect in discharge of the agency. The judgment was affirmed in the Court of Errors, the chancellor and two of the senators delivering 'written opinions in favor of affirming the judgment of the Supreme Court upon the ground upon which its decision was made' (5) Den. 639.) In Colvin v. Holbrook (2 N. Y. 129) the Court says: 'The question must be deemed at rest in this state by the decision in Denny v. Manhatten Co. and (2 Denio 118) affirmed in the court for the correction of errors.' (See, too, Montgomery County Bank v. Albany City, 7 N. Y. 459 and 1 Morawetz Corp. (2nd ed.) 537 citing Denny's Case supra)" Neither in the Wiechers nor the McClure case were the cases above cited referred to, though they preceded both of them, and yet both of them concerned transfer agents of foreign corporations. Probably the essential reason of the decisions in those cases rested on the express agreements on the part of the transfer agent. But, as I have shown, Judge Gray, who dissented in the McClure case, regarded the judg