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Further proof is that when our Congress in 1866 laid revenue duties upon different pursuits and professions, it recognized a wide range of legal services by persons who were not licensed attorneys. The act grouped these under the name of conveyancers, which it defined as "every person other than the one having paid a special tax as a lawyer or claim agent, whose business it is to draw deeds, bonds, mortgages, wills, writs, or other legal papers, or to examine titles to real estate."

From all this, it seems quite evident that the drawing of wills is not, strictly speaking, practicing law, because if the drafting of these instruments when done by the layman is not a usurpation of the lawyer's right, then the conclusion inevitably follows that neither is it practicing law when the act is performed by a trust company in the ordinary course of business. Yet trust companies seem to have the problem of wills and lawyers.

Public Need the Real Test

And why? Because the trust companies can and do advertise for business, which results in, what the lawyers regard, legal work which they are not called upon to perform. Consequently they are suspicious, more suspicious of what they think trust companies do than of what they actually do, and because of this suspicion and antagonism, they remain ignorant of the real services trust companies can render them and their clients -the public.

It might be admitted that in their desire to get business, trust companies have done some purely legal work and this situation has been fanned into an acute condition in some States by trust companies advertising, "We Draw Wills Free of Charge," "See Us About Your Will Today." Some of the lawyers immediately say trust companies are practicing law because they are drawing wills. Why practicing law? Because wills have been usually drawn by lawyers. And immediately they set about to curb the activities of trust companies and in their zeal to safeguard their own profession, to prevent the losing of more ground which they are trying to hold under "squatter's rights" only, they deprive the trust companies of the rights and privileges which should not be denied them. However, a member of the Bar might argue that the lawyers in this instance are merely following the scriptural injunction where it says, "Hold fast that which thou hast."

At this point the advertising man comes .in. Because the legal profession has a large

representation in our law making bodies they influence legislation. Most every trust officer will tell you that in the administration of trusts today, it is many times impossible to differentiate between the so-called legal service and one of a purely administrative character.

Education as a Solution

Now before these legal surgeons get busy with their legislative knives and amputate the privileges and rights which trust companies today enjoy, thereby impairing their efficiency, the lawyers must be brought to realize, through the education of the public, that they are living today.

The legal profession by training is naturally conservative, because it constantly studies the past and largely lives in the past. Many lawyers when they read a case decided in 1800, may even sometimes think that we are still living at that time, but business and business methods are going forward and we will not be bound and limited to doing things the way our forefathers did them simply to please the lawyers.

It might be contended by someone that if trust companies have a right to draw wills, they should defend their lawful right. But Paul says, "All things are lawful unto me, but all things are not expedient." The trust companies of the States of Washington, California and New York have found it inexpedient to defend their so-called lawful rights against the legal profession.

In Washington, the Bar was antagonized and a law was passed which not only prohibited trust companies from drafting wills, giving legal advice or rendering legal services, but the personal solicitation of business which their charters authorized the trust companies to conduct, was prohibited.

In California the trust companies and the legal profession today are drawn up in martial array and the people are to decide the issue by a referendum vote in the coming, November elections. In New York some of the trust companies have had almost a similar experience.

The State of Washington seems to give us a cue as to what the policy of trust companies should be in regard to this matter. After they found their hands tied, the trust companies of that State adopted a uniform campaign of advertising which was designed to educate the public and enlist the friendly co-operation of the Bar. As a result some of the restrictions have already been dropped.

(Continued on page 115)

HOW

ΤΟ FAMILIARIZE CORPORATIONS WITH FIDUCIARY SERVICES PROVIDED BY TRUST

COMPANIES

RESPONSIBILITIES AND PITFALLS IN REGARD TO TRANSFER OF STOCK
HARLEY F. DROLLINGER

The Fidelity Trust Company of Buffalo

(EDITOR'S NOTE: The author of the following article recently prepared a booklet published by the trust company with which he is associated in which he set forth in an illuminating and unusually interesting style the various services performed by trust companies in behalf of corporations, including those of transfer agent, registrar, disbursing and fiscal agent, receiver, assignee, trustee under corporate bond issues, voting trustee, etc. The purpose of the following article is to impress upon trust companies the need of familiarizing corporation executives, more generally, with the essential and valuable character of the safeguards provided through trust company service.)

T

RUST COMPANY officials frequently make the mistake of believing that corporate executives are entirely fa-. miliar with all trust services offered by them. A brief interview with the executives of ten or fifteen corporations relative to the subject would certainly be illuminating if not amazing.

When discussing our trust services with a prospective customer it is so easy and natural for us to lapse into the use of technical terms and phrases that fail to convey our thoughts to the prospect. Few trust company officials are familiar with the formulæ used by chemical manufacturers, the technical names and uses of machinery in a steel mill-or even the technical names and methods of cultivation used by grain and fruit growers. Is it, after all, surprising that executives of these corporations are unfamiliar with the functions of trust companies? It is, therefore, necessary for us to present our subject in a more or less elementary manner stripped of all technical terms and phrases, so that the value of trust services may be properly appraised.

In this discussion we will use one of the services best known and most familiar to corporate executives-the transfer agency. Ask the first ten or fifteen executives you meet for an expression of their views relative to the cor rate transfer agent. You will then realiz that the services of your institution are not so well appreciated as you had believed they were. You will also realize that an educational campaign is nec

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one of the many ways that might be used to present the facilities of a trust company as transfer agent. First, a brief discussion of corporations to explain the duties of corporate executives, and an explanation of the services of a corporate transfer agent; second, a review of a few legal decisions to point out some of the many responsibilities incurred; third, some of the many problems with which a transfer agent is constantly confronted in order that executives may test their ability to transfer stock and at the same time successfully avoid the risk and responsibility involved.

The Corporation, Its Duties and Obligations

In the State of New York, a corporation in its simplest form may consist of three individuals who together may subscribe capital stock of five hundred dollars. Each of the stockholders receives a certificate which is evidence of the ownership of a certain number of shares of the capital stock. Ownership of shares in a corporation is personal property which may be transferred by one individual to another. The stock certificate like a deed to real estate is simply evidence of ownership of the property which it represents; and the loss or destruction of either does not mean that the actual owner loses his equity in the shares of the corporation in the first instance or the real estate in the latter case. Upon satisfactory proof of loss, together with proper guarantee, a new certificate may be issued.

If a deed to certain real property is forged. it does not follow that the bona fide owner of the property loses it. Likewise the owner of shares in a corporation does not lose his property if a certificate or an endorsement is forged.

Transfers of stock may, of course, be effected at the owner's discretion, upon the corporate books of record either by the owner or by his duly authorized attorney. The corporation through its officers or its authorized agent is bound to recognize and carry into effect transfers of stock desired by holders thereof, if satisfied that everything pertaining to the transfer is genuine and regular. Of course the corporation must use every precaution to safeguard itself against loss, and it is a problem to know when all possibilities of loss have been exhausted without shackling stock transfers with the burden of unnecessary demands.

The Keeping of Stock Records Upon the records a complete history of the shares of stock may be traced. Keepers of stock records must be keenly alert in

order to detect any irregularities that may arise in connection with stock when presented for transfer. In thé simplest of cor porations above reviewed transfers of stock may not be so numerous, but the duties and responsibilities of corporate officials are as great as those of a corporation having a capital of millions. Each State has adopted its own laws governing corporations, and those of each State are uniform regardless of whether the corporation be large or small.

Not being familiar with all the requirements relating to stock transfers, corporations now designate and appoint trust companies as transfer agents in order to avail themselves of the superior knowledge, equipment, experience and skill that the trust company naturally develops because of the volume and variety of transfers handled. With a special department devoted to this work, and with a large volume of this class of business, a trust company can afford to keep constantly in contact with the activities of various State legislatures. Thus it becomes familiar with any changes in corporation laws which may be enacted, and is able to prevent considerable loss to the corporation.

A glance at the legal decisions and everyday problems with relation to the transfer of stock on the following pages may reveal responsibilities and pitfalls with which few corporate executives are familiar.

Legal Decisions Affecting Stock Transfers

(U. S. Supreme Court: Telegraph Company vs. Davenport, 97 U. S. 369, at page 371). "The officers of the company are custodians of the 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 all doubtful of the identity of the party offering it as its owner, or if not satisfied of the genuineness of a power of attorney produced, they can require the party in the one case and the genuineness of the document 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."

A Massachusetts Decision (Supreme Court of Massachusetts: Crocker vs. Old Colony R. R. Company, 137 Mass. 417). "When a transfer of stock is presented to a corporation it is bound at its own 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, "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 the responsibilities, "For all loss occasioned whether by fraud, negligence or unavoidable mistake by it or its agentsin the transfer of its stock, such corporation is absolutely liable, and no excuse can mitigate its liability."

Risks Encountered by Fiduciaries Special risks are involved in the transfer of stock at the instance of executors, administrators, trustees or guardians.

(a)* In one case 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 Tennessee nothwithstanding 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) 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 the 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) Executors of a will transferred stock to themselves as trustees and afterward to a successor trustee, the 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 * Legal decisions also a, b, c and d quoted from Herrick's "Organization, Growth and Management of Trust Companics."

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, and the company was bound to see that the trust property in its custody was protected and not misappropriated; and required it to make good the loss.

(d) In another case 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. If 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 prohibited by law.

Examining the Trust Agreement

Frequently stock may be sold by a trustee who holds it under a collateral trust agreement to secure an issue of bonds. It then becomes the duty of the transfer agent to examine the trust agreement and ascertain whether the trustee actually has authority to dispose of the stock by power of sale, exchange, or otherwise; and if so to see that all formalities have been properly complied with before the transfer is made.

Stock certificates are constantly being raised by various confidence men. Special cases have recently come to our notice where certificates of small amounts have been raised by men who were artists in penmanship. The sums involved were so small that one would scarcely credit such a job to men as clever as they. We were able instantly to detect the fraud by comparing the stock certificates with our records, and the manipulators were promptly brought to jus

tice.

Problems that May Confront a Corporation in the Transfer of Its Stock

An individual owning stock had it registered on the books of record in another name promising presently to send in the original certificates. He never made delivery of the certificate representing the shares of stock. Later he sold the certificate of stock for value and made full and complete assignment thereof to a third party. The said third party requested transfer of the shares into his name, but the transfer agent refused. What was the basis of the action? By what procedure could the third party recover?

An individual who owned stock in a corporation lost the certificates. He requested that new ones be issued to him. Should new certificates be issued? Would any responsibility attach thereto? What papers or other proofs should be required under the circumstances?

Stock certificates standing in the name of an individual as agent were presented for transfer into his individual name. There was no question as to the identity of the signature of either agent or witness. Should such a transfer be permitted? Would any proofs or other authority be required?

Stolen Certificates

Stock certificates were stolen. No stop

transfer order from the owner had been received by the corporation. The signature of the owner was cleverly forged, and the corporation when requested to do so made the transfer. Later the owner demanded new certificates. His name did not then appear on the books of record as the owner of the shares. What were the respective rights of the interested parties? Who should properly assume the loss involved?

An executor has certain stock certificates endorsed to himself individually and requests transfer of stock into his name. Is the transfer in order? What proofs, if any, should be required?

A trustee received as part of a trust estate stock which was not legal for trust investments. The stock was specifically bequeathed to remaindermen after the death of the life tenant. By the terms of the will the trustee was required to invest in legal securities. The trustee sold the stock and the purchaser asked that the stock be transferred to his name. The corporation refused to make the transfer. Was its stand well taken? What was the basis of its action?

A trustee purchased from the trust estate for his own account stock considerably under its market value. The corporation was entirely familiar with the entire proceeding. Should it have made a transfer of the stock into his individual name when requested by him to do so?

Protecting Owners' Rights

The foregoing problems are fair examples of the more common circumstances that arise in connection with the transfer of stock. Of course there will be situations of a more complex nature that require special study and attention, but in each case the corporation concerned is bound to see that the actual owners' rights are recognized and properly protected. It is, therefore, easy to

realize that the transfer of corporate stock requires a thorough knowledge of corporation laws in the several States, constant study, and attention to new regulations in connection with corporation, income and inheritance tax laws, both Federal and State. Furthermore a careful examination and scrutiny of every certificate presented is neces sary in order to detect any element that might prejudice stockholders' rights or interests.

Can an officer of the average corporation afford to devote sufficient time and study to this particular class of work regardless of whether or not the number of transfers be large or small? Could his time not be employed with greater profit to the corpora

tion if his efforts were directed in different channels?

The trust company which specializes in corporate work of this character has equipment far superior to that of any corporation which attempts to handle this business itself. The responsibilities assumed by corporations in the transfer of stock apply also to the transfer of voting trust certificates, trustee certificates, registered bonds and certificates of deposit.

"ASK YOUR BANKER" CAMPAIGN There are banks and trust companies operating in many communities who persist in a policy of isolation and fail to recognize the countless opportunities for enriching their communities and their Own institutions through co-operative effort. In a number of localities banks and trust companies have joined hands in a so-called "Ask Your Banker" campaign. The primary purpose is to protect the community against the wiles of doubtful and spurious stock sales. These institutions unite in creating a fund for advertising jointly in the newspapers, the burden of such advertising being to induce the people to come to the banks or trust companies and obtain expert as well as gratuitous advice before investing in any stock or en-. terprise.

In Binghamton, New York, the banks and trust companies have made common cause with banking institutions in adjacent towns in the conduct of an "Ask Your Banker" .campaign. The result has been more successful than expected by the most hopeful. It has brought people into the banks and trust companies; it has made more money available for legitimate enterprises and helped to put banks on a friendly footing with the public.

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