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Certificates of Stock.

Questions.

1. What is a certificate of stock?

2. What is the liability of a corporation for a fraudulent issue of stock certificates?

3. Are share certificates negotiable?

4. Can a certificate of stock be impaired by a by-law?

5. What is the effect of issuing a certificate to the wrong person?

6. Is a share certificate necessary to constitute one a shareholder?

7. What is the effect, if a stock certificate is issued as "fully paid?"

8. Should a corporation issue a new certificate when an old one is lost?

9. If a new certificate is issued without taking up old ones, would it be valid?

10. Must a certificate be presented in order to draw dividends?

11. What are the duties and responsibilities of a corporation when certificates have been lost or stolen ?

Certificates of Stock.

Answers.

1. Certificates of stock are not securities for money in any sense, much less are they negotiable. They are simply the evidence of the holder's title for his interest in the property and franchises of the corporation in which he is a member.

2. If the officers or agents of a corporation having the authority to issue certificates, to issue them in excess of the limit which the corporation has the power to issue, or issue them in fraud of the rights of the corporation, the taker will be entitled to indemnity from the corporation for the loss which he has sustained, but he will not be entitled to the rights of a shareholder. If the fraudulent or unauthorized issue is within the power of the corporation, the taker may be entitled to the rights of a shareholder, but where the issue is beyond the power of the corporation, he will be entitled to indemnity.

3. Stock certificates are not negotiable, they do not contain any words of negotiability. They simply show that the person named therein is entitled to certain shares of stock.

4. No.

5. If a certificate should be issued to the wrong person, the real owner will be entitled to indemnity from the corporation, but not in the form of shares if they have all been issued, for that would be beyond the power of the corporation.

6. It is better to hold certificates for stock held in corporations, but it is not necessary, as an owner of shares may vote at corporate elections, hold office, etc., without a certificate being issued to him. A certificate is not necessary to make him liable to creditors. The act of subscribing, or the registry of the shareholders name upon the stock book constitutes his title. The certificate is merely evidence of his title to the shares.

7. A mere recital in a certificate of stock that the shares are "full paid' cannot make them full paid as against creditors of the corporation.

8. If a corporation should issue a new certificate for one that has been lost or destroyed, the company would incur the risk of double liability in respect of the same shares, if the new certificate should be sold to an innocent person, and the original turn up, the company would have to make good the loss to a bona fide transferee of the original shares. A corporation should, and it has the right to demand a suitable bond of indemnity before issuing a new certificate, without surrender of the old one.

9. If new certificates are issued without taking up and cancelling the original ones, the new ones will be invalid, except as the foundation for a claim for indemnity against the company.

10. If the holder of a certificate stands on the books of a corporation as the registered owner of the shares, it is not necessary for him to produce the certificate to get his dividends. The corporation goes by its own record.

11. If a share certificate has been lost or destroyed the corporation would be liable if it issued a new one without taking a bond of indemnity to protect itself. If a corporation refuses to transfer shares to a bona fide purchaser, it would do so at its peril.

Checks.
Questions.

1. What is a certified check?

2. Who is liable in case a check has been fraudulently raised either before or after it has been certified? 3. What is the character of a certified check?

4. Who is liable for the payment of an altered check?

5. If a bank pays a forged check, who is liable for the amount?

6. If a check has a forged indorsement, upon whom does the burden of proof rest?

7. Should a bank pay a check after the death of the drawer?

8. If a check is drawn when the drawer has no funds in the bank, is it a fraud?

9. What is the liability of a drawer of a check without funds?

10. Can the payment of a check be stopped?

11. How should checks be drawn?

12. If a check is drawn "in full of account" does it so hold?

Checks.
Answers.

1. A certified check, is, in effect, merely an acceptance and creates no trust in favor of the holder of the check and gives no lien on any particular portion of the assets of the bank. It has a distinctive character as a species of commercial paper, the certification constituting a new contract between the holder and the certifying bank. The funds of the drawer are, in legal comtemplation withdrawn from his credit and appropriated to the payment of the check, and the bank becomes debtor of the holder as for money had and received.

2. A bank in certifying a check in the usual form, simply certifies to the genuineness of the signature of the drawer, and that he has funds on deposit sufficient to meet it, and engages that those funds will not be withdrawn from the bank by the drawer; it does not warrant the genuineness of the body of the check as to the payee or the amount named therein. If the signature be genuine, the drawer would lose.

3. This question is fully answered in question No. I.

4. If a bank pays a check which was cancelled, and the cancelling remain, or a check which has been torn to pieces and then pasted together, or one which is so long overdue as to be stale, or otherwise justifying suspicion and inqury, it pays it at its own peril. And although it may have been rightfully drawn, the drawer, if he had actually cancelled or recalled it, may recover the funds from the bank. If it was the negligence of the drawer which led to the payment, or if he was the cause of the belief of the drawee that such a check, or even a forged or altered check, was valid and payable, and such a check is paid in good faith, the drawer loses it. A drawer of a check, who, by fault of any kind, enables a third person to defraud a banker by means of the check, must lose the amount paid by the bank. If a bank pays a forged check, without some such excuse as above stated, of course it cannot charge the payment to the drawer. If the check be only altered by forgery, the drawer is still liable for the original amount, and no more.

5. This is fully answered in the last question.

6. If a check payable to order is paid by the bank on a forged indorsement of the payee's name, the bank is liable for the amount to the drawer, if the check had not passed into the hands of the payee, and is liable to the payee, if it was then his property. The burden of proving such indorsement genuine rests with the bank.

. A bank should not pay a check after notice that it was lost; nor before it is due, if on time; nor after notice of insolvency, nor after the death of the drawer, but if the bank pays the check after the death of the drawer, and before notice of the death, it is said to be a good payment.

8. If a check be drawn when the drawer neither has funds in the bank nor has made any arrangements by which he has a right to draw the check, the drawing it is fraud, and the holder may bring action at once against the drawer, without presentment or notice.

9. As stated in the last question, a drawer of a check without funds, may be sued at once, without presentment, demand or notice.

10. It has been held that after a check has passed

into the hands of a bona fide holder it is not in the power of the drawer to countermand the order of payment.

11. Checks should never be drawn without funds in the bank to meet them. In drawing checks, always fill out the stub first, no matter how much you may be in a hurry, to neglect to do so may cause a great deal of inconvenience and loss. I have seen many bank accounts overdrawn and many accounts paid twice, simply because mistakes and omissions were made by writing the checks and ommiting to fill out the stubs.

If possible use safety paper and indelible ink, write plain, always beginning at the extreme left to write the payees name, and the amount in words and figures. If the amount be written and the figures be made so that other amounts could be placed before them, it would be your loss. To relieve the bank of a great deal of trouble and loss, also to relieve yourself of liability and loss by the raising of checks and forgeries, see that every check is drawn with the greatest care and accuracy in every detail.

12. If an account is disputed and a check is sent marked in full of account and the check is retained, it will operate as full payment even though it be for less than the amount of the account. If the account is not in dispute, it would not hold.

Collateral Securities.

Questions.

1. What is collateral security and collateral ? 2. How are bonds and coupons used as collateral security?

3. How are certificates of stock used as collateral security?

4. Are bills of lading used as collateral security? 5. Are warehouse receipts used as collateral security?

6. Has a partner the right to borrow money and give and receive collateral security?

7. What kind of collateral security may a national bank take to secure a loan?

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