latter selling the stock and using the proceeds for his own purposes. In an action to recover the Court of Appeals (of Maryland) answered the plea of the defendant corporation that the mere word "trustee" gave them no notice of the trust, by holding that having been once informed of the will and its provisions affecting the stock in question, that knowledge continued all the way down, and the company was bound to see that the trust property in their custody was protected and not misappropriated, and required it to make good the loss.

(d) A case where a transfer on the order of an executor caused loss to a corporation because the executor had not complied with the law of the testator's domicile before selling the stock so transferred.

Mr. Perry further shows that where stock is transferred to a trustee, executor, administrator or guardian in an investment of trust funds, the corporation permitting such transfer of its stock may be held liable in case such investment of trust funds is against positive prohibition of law. It must be evident, without further discussion of this topic, upon which volumes have been written, that the corporation which transfers its own stock is subject in the matter of such transfers to very grave responsibilities.

RESPONSIBILITY OF THE SEPARATE TRANSFER AGENT.

How much of this responsibility does the trust company--or any other separate transfer agent-assume? Is the relation between the issuing corporation and the transfer agent that of simple agency, and the responsibility of the agent limited to the exercise of good faith and ordinary skill and carefulness; or does the agent, in assuming the duties connected with the transfer of stock, also assume all of the responsibilities in connection with such transfers that the issuing corporation would itself have if no separate transfer agent were appointed? This is a question of most vital importance to the trust company-a question concerning which opinions differ widely, and upon which the courts have not passed.

Those who incline to the opinion that the courts may hold the transfer agent liable for more than simple agency call attention to the causes which have brought about the employment of separate transfer agencies, to the purposes which they now serve and to the possible liability to two parties the issuing corporation and the interested public. Recognizing the fact that convenience and the demands of business were potent factors in establishing the custom, they maintain that the demand of the public for additional safeguards, outside of any that the issuing corporation itself could furnish, was an important factor, and is to-day perhaps the strongest single reason why a corporation wishing to market its stock must have the same transferred by a responsible bank or trust company. They show that the stock exchanges generally require the appointment of such agencies as a prerequisite to the listing of the stock, and that the public would regard the omission of the appointment of a transfer agent as suspicious and irregular. They argue that it is evident that the general public looks upon the transfer agent as practically a guarantor, separate and aside

from the issuing corporation, that a certificate of stock bearing its signature is absolutely valid, and that the holder will be protected by it; and they think it a fair question whether the courts, when a test comes, will not hold to the public's view of the case. As between the principal and agent, they point to the fact that one of the contributing reasons for the agency from the standpoint of the former is the supposition that the trust company is an expert in such work, possessed of superior facilities and endowed with thorough knowledge of the law, and therefore to be held accountable for more than ordinary skill; also to the fact that the principal ordinarily surrenders to the agent the entire control of the transfer of its stock, thereby placing beyond its own reach any power to prevent improper transfers, except of course in a few cases in which it may have special knowledge and instruct the agent.

In view of the causes which have resulted in the office and custom, and of the practically absolute control exercised in most instances by the agent, it is certainly prudent for us to anticipate that the courts will decide, when a proper case is presented, that the agent is responsible to its principal in the full measure of the consequences resulting to the principal for any acts of the agent. Can it be successfully argued that, while the agent agreed to perform the work, and accepted a cash consideration therefor, the responsibility for the consequence of mistake, however innocent, impliedly remains where it formerly rested, upon the principal, it having parted with the control of the situation? I apprehend not."83

"The office not being a creation of the corporation by reason of any inability on its part to perform the duties involved, but being rather a system which custom and stock exchange rules have forced upon it, there is reasonable ground for query as to whether the agent, intervening as it does between the corporation and the public, does not stand for the corporation in its relation to the public, and itself assume the liabilities for a careful and responsible handling of the stockholders' interests, for over-issues, and fraudulent issues of stock, and for the many other forms of fraud, the liability of which would fall on the corporation did it perform these functions for itself. In this state of the law, then, forecasts as to how the courts will act on this question when it comes up for direct decision are largely speculative; but the trend of decisions. which touch the borders of the matter, and the application of established legal principles, would seem to indicate that the agent's liability to the interested public will be settled as is its liability to the corporation for which it acts; that the injured party may look successfully for reimbursement to either the agent or the corporation or both."84

Those who hold to the opposite opinion are quite as decided in their views, and are perhaps more numerous. Their position is stated by Philip S. Babcock, as follows ("Trust Companies" magazine, Vol. I. p. 39):

"I contend that the transfer agent is an agent, pure and simple; responsible for gross and wilful neglect, but in other respects simply repre

83 Henry J. Bowdoin, Proceedings Trust Company Section 1896-1903, p. 188. 84 Charles A. Greene, in "Trust Companies" magazine, Vol. III, pp. 12, 13.

senting its principal; and any claims against the agent are properly answered by interposing the principal."

Speaking of the liability to the principal, Felix Rackemann says in Proceedings Trust Company Section American Bankers' Association, 1896-1903, p. 62:

"Lawyers and surgeons hold themselves out as competent and learned and skillful. Should either make a mistake from failure to properly apply some settled principle of his profession, he would be negligent. On the other hand, either might advise or act according to his best judgment in respect of some doubtful or unsettled point, and though in the end proved wrong, would not be guilty of negligence. So with the transfer agent. He is not an insurer and is not to be held to infallibility. He must, however, be cautious and vigilant. For an honest mistake in a matter where the law was unsettled, and in the absence of judicial determination fairly open to different opinions as to true construction, it is hardly conceivable that the transfer agent could be liable to the company.”

The same writer says regarding liability to the public (page 66): "There seems to be no ground whatever in the law for thinking that a trust company, acting as transfer agent, sustains toward the shareholder of the stock company any different legal relations than would exist between the shareholder and a small salaried clerk in the office of the company signing the same certificate as 'transfer clerk.'"

After calling attention to the fact that formerly this work was done by such transfer clerks, Mr. Rackemann continues:

"It was never suggested that such transfer clerk 'represented' anything or was legally liable to anybody, so he conducted himself honestly.

It would make no difference in the law whether the clerk under the old practice has signed himself clerk or agent. The only changes made under the modern system are that the word 'agent' has displaced the word 'clerk' and financial institutions of character and reputation have displaced the individual unfamed clerks. . . . The argument to the contrary must rest upon the theory that the signature of the transfer agent is to be treated as an authentication by one who has contracted with the company and impliedly undertaken with each investor that only true and perfect instruments shall be authenticated, and although it must be admitted that the agent's signature is required on the instrument, yet it must at the same time be remembered that the object of the added signature has not been to gain added authenticity. The necessity for the agency led to the signature. It was not the desire for the signature as an authentication which led to the agency. A railroad ticket is not good until the agent has put his office stamp and date upon the back. If a ticket proves bad and be rejected, would it be claimed by any one that the agent was individually liable because he had 'authenticated' the ticket, or personally represented anything whatever about it in the act of stamping it? It is not easy to see any distinction between the two cases."

Mr. Rackemann adds that in his discussion he has been referring "Only to those cases where there is merely the signature of the trust company, and the words 'transfer agent.' It may well be that the addition

of some very simple and harmless-sounding words will lead to very important, further and different results." He particularly warns against the use of the word "countersigned," calling attention to the fact that “It has been held in at least two cases that the execution of an instrument under the word 'countersigned' was equivalent to a direct and positive representation, not only that each original signature was genuine, but that every legal formality essential to the full legal effect of the instrument had been duly observed and performed."

METHODS OF SAFEGUARDING THE TRANSFER AGENT.

Whatever view may be taken of the situation, it is evident that it is possible that the liability of the transfer agent might be held greater than trust companies acting in that capacity intend it to be, and that wisdom would dictate the taking of all possible measures to prevent such a possibility. A committee on the subject appointed by the Trust Company Section of the American Bankers' Association reported (Proceedings Trust Company Section 1905, pp. 6 and 7): "While the trust companies do not admit that in acting as transfer agent or registrar they assume any such measure of responsibility as that suggested by articles read before the convention at various times, it would be desirable to eliminate absolutely the opportunity for any claim that the trust company serving in either capacity is liable save as an ordinary agent. Obviously, there are but two ways in which liability can be defined in advance; either by agreement between the principal and agent or by legislation. The latter was recommended in the article under consideration, since a statute would as clearly affect the investing public as the company issuing the stocks transferred or registered. The form proposed for New York was as follows: * * * (The trust company shall have power) "To transfer, register and countersign certificates of stocks, bonds and other evidences of indebtedness of corporations, with liability to such corporations and to the owners or holders of such certificates of stock, bonds or other evidences of indebtedness solely for the negligence or wilful misconduct of its officers in reference to such certificates of stock, bonds or other evidences of indebtedness, or in the appointment or employment of its agents, clerks or employees dealing therewith.'

If in any state it shall not be possible or convenient to obtain legislation of the character indicated then such protection as may be afforded by the adoption of appropriate endorsements is recommended."

The form of endorsement, or certificate of transfer agents, recommended in this report has already been given.85

Other forms of protection that have been suggested are the taking of bonds of indemnity in doubtful cases, the making of special contracts for the agency and notifying all transferees of such contract, and having the transferees subscribe to the by-laws of the issuing company in cases where such by-laws define the responsibility of the transfer agent.

85 Page 414.

The following "Suggestions about Stock Transfers" issued by the Old Colony Trust Company of Boston, and used here with its permission, contain valuable hints regarding the conduct of this business:

"SUGGESTIONS ABOUT STOCK TRANSFERS.

Signatures of stockholders on stock transfers, when unknown, must be verified in some way satisfactory to the transfer agent. This will usually be by guarantee of some member of the Boston Stock Exchange or some well-known bank, or by acknowledgment before a notary public.

2. If the holder's name is rightly given on the face of the certificate, he or his duly authorized attorney should sign the transfer exactly as the certificate is made out, without alteration or enlargement.

3. If an error was made in issuing the certificate, the transfer agent should be informed of the facts. Do not make corrections on the face of the certificate. If the assignment is filled out erroneously, alterations should be made in ink only, leaving the original writing legible. Do not use erasers of any sort.

4. Enter in the transfer space on the back of the certificate the full name of each person to whom the stock is to be assigned, writing out the number of shares to be so transferred, and the street or post-office address of the transferee. It is more convenient to leave the attorney space blank, if one is provided.

5. In transferring to individuals, use the full Christian name; and, if the transferee be a woman, the title "Miss" or "Mrs." Avoid using diminutives.

6. In transfers to a married woman, use her own Christian name, not her husband's. In case of a change of name by marriage, send the stock certificate to the transfer agent with the transfer filled out to the correct name, signed after this manner,-"Mrs. Mary James, formerly Mary Jones," having the signature properly verified.

7. Assignments to a corporation or association should give the complete legal title.

8. Certificates issued to a minor or an insane person should bear the guardian's name; for example, "John Jones, minor (or incompetent), under guardianship of Henry Jones." If a transfer is desired of stock so held, a recently certified copy of the guardian's appointment should be shown, together with the license of the court appointing the guardian, if such license is necessary under the laws of the state having jurisdiction. Termination of the guardianship should be shown by a certificate from the court, birth certificate, or other satisfactory evidence.

9. On certificates issued to trustees the trust must be fully described, exact reference being made to the will or other document creating the trust; and, whenever possible, the name of the beneficiary should be given.

10. Transfers by trustees, where a power of sale is not granted by the instrument creating the trust, cannot be made without license from the court or the consent of all the beneficiaries. In every case the instrument creating the trust and proper evidence of the trustee's appointment should be exhibited. If there is more than one trustee, all must sign transfers.