Sec. 71.

CHAPTER 10.

TRANSFER OF STOCK.

TRANSFERABILITY OF STOCK. Stock may be sold, mortgaged or pledged. The transferee of stock icquires the rights of the transferor, but usually cannot take any further or larger rights.

One purpose of incorporating, as we have seen, is to give ready transferability of shares. Shares of capital stock are readily transferable, and, as we know, are bought and sold on the market, in great quantities, every day.

We say that stock is transferable or assignable, not negotiable. One who buys stock usually stands in the same position as his transferor. Yet he may have better rights where he relies upon recitals made by the corporation in respect to the stock.

In connection with this chapter read carefully The Uniform Stock Transfer Act, set out in the appendix.

Sec. 72. METHOD OF TRANSFER. The ordinary method of transfer is by indorsement and delivery of stock certificate, its surrender at the office of the corporation for a now certificate, and the enrollment of the name of the transferee upon the books of the corporation as a stockholder.

Where a stockholder has a certificate made out in his name and in the usual form, reciting that he is the owner of a certain number of shares of stock, the transfer of

such stock to another may be accomplished in this way: the present holder signs his name to the blank power of attorney, which is upon the back of the certificate, either leaving the form in its blank condition or filling up the blank with the name of the transferee; the certificate so endorsed is delivered to the transferee, and taken by him to the office of the company where it is delivered up for a new certificate in the name of the transferee, and such transferee is enrolled upon the books of the corporation as a stockholder. One becomes a legal owner from the time of the transfer of the certificate,78a but he secures full protection as a stockholder by having his name enrolled upon the books as a stockholder, for as we have seen, a corporation looks to its books to determine who are its stockholders. Before such enrollment one might be entitled to notices, dividends, etc., but he would not be fully protected in receiving them.

A transferee may have the decree of a court of equity to compel the corporation to enroll him as stockholder.78b One who purchases stock expecting to resell it, does not always have himself entered upon the books as a stockholder, but the certificate, endorsed in blank, may pass through many hands without any record being made of its changing ownership. Thus if a certificate is made out to William Brooks, he could sign the indorsed power of attorney in blank, so that the transferee could fill in his name or not as he chose, such transferee could resell to A., and A. to B., and B. to C., by simple delivery of the same certificate so signed in blank by William Brooks, and the last purchaser could then fill out the form in his

78a. Harvey v. Stowe, 219 Fed. 17. Stock Tr. Act, Sec. 1. 78b. Ernst v. Elmira Municipal Improvement Co., 54 N. Y. Suppl. 116.

name and take the certificate to the office of the company and surrender it for a new certificate in his name.

When an old certificate is taken up it should be cancelled by the secretary, by perforating it and writing "Cancelled" across it. This old certificate should then be pasted on the underside of the stub to which it was originally attached. It should never be reissued.79

The secretary or transfer clerk should assure himself of the genuineness of the signature of the transferor. He should completely fill out the new certificate. He should have the assignee sign the receipt upon the stub, where possible. He should not issue a new certificate except upon surrender of the old. If lost, he should require a bond, and for his complete protection should in case of lost certificates act only upon the resolution of the directors authorizing him to issue a duplicate.

Sec. 73. BY-LAWS AND REGULATIONS RESTRICTING TRANSFER. No by-laws may be made restricting the transfer of stock without the consent of all the stockholders. But stockholders may agree among themselves that transfer of stock shall be subject to certain restrictions.

The stockholder has a right to transfer his stock. Any by-law passed to take from him this right is unreasonable and void. But a stockholder may agree that he will not sell his shares for a certain time or will first offer his shares to other stockholders of the corporation, or to the corporation.

Sec. 74. RIGHTS OF TRANSFEREE OF STOCK SOLD WITHOUT AUTHORITY. If a holder of shares of

79. The revenue stamp required for transfer is placed upon the surrendered certificate. The stamp on original issues is upon the stub.

stock places the certificate in the hands of another, properly indorsed for transfer, a purchaser may assume that such holder has authority to sell, but the owner of a certificate cannot be deprived of his rights through another's forgery, where he has done nothing to estop him to set up forgery.

(1) Stock sold in breach of trust, etc., where apparent ownership or authority to sell exists upon the certificate.

A party who owns a certificate of stock ought not to place it in the power of another to dispose of it as the apparent owner, unless he is fully confident of that other's honesty or carefulness, or his financial responsibility. For it is held by most courts that if one deposits with another a certificate of stock so endorsed that it may be transferred by delivery, he puts it in that other's power to represent himself as the owner or as one who has authority to sell. Certificates of stock, properly endorsed by the party recited therein as the owner, often pass from hand to hand, and one who holds such a certificate has documentary evidence of his title to the stock, or at least his authority to sell the stock.80 If a stock certificate properly endorsed for transfer is stolen from the owner, and there is no negligence on his part, an innocent purchaser thereof does not thereby obtain title, according to the authorities. Sec. 5 of the Stock Transfer Act seems, however, to the contrary, assimilating such certificates to stolen negotiable bearer paper.

80. Swim v. Wilson, 13 L. R. A. (Cal.) 605; Colonial Trust Co. v. Central Trust Co., 90 Atl. (Pa.) 189; Johnson v. Bixby, 252 Fed. 103. And see the provisions of the Uniform Stock Transfer Act, in the Appendix, post.

(2) Transfer of certificate where forgery essential to transfer.

If it is necessary for one who secures possession of a certificate not his own to forge the name of the owner upon the blank on the back, then the true owner loses nothing and the purchaser from such forger acquires no rights except against the forger. One cannot be deprived of his property by the forgery of another when he has not done anything which estops him to set up the forgery.

If a forged certificate is sold to an innocent purchaser for value, who takes it to the office of the company and has a new certificate issued in its stead, the holder of the new certificate is not thereby made a stockholder and has no rights against the corporation, for he has acted upon no representations made by the corporation. But if such new certificate is sold, the purchaser thereof acquires rights against the corporation, for he has acted upon the representations made in this certificate by the corporation that the party from whom he purchased was the owner of shares and he may compel the company to recognize him as a stockholder if it has shares or may acquire them to issue to him; but if it does not have and can not acquire such shares it is then liable to him for his damages. But the shares of the original owner whose name was forged can not be claimed by the party damaged.81

81. See Chicago Edison Co. v. Fay, 164 Ill. 323. See Jarvis v. Manhattan Beach Co., 148 N. Y. 652, for law as to spurious shares issued by transfer clerk over genuine signatures of corporate officers. In that case it was held that the corporation was liable in damages to the purchaser of such spurious shares.