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AZARDS in the transfer of stock is a subject that might be discussed by reviewing the various cases where corporations have sustained a loss by reason of their failure to obey the law and use the proper precautions in the transfer of their stock, but this discussion will be more along the lines of general requirements necessary in the transfer of stock as it affects trust companies in their position as transfer agent on the one hand, and executor, administrator, guardian, trustee, agent, etc., on the other hand.

Preliminary Considerations

A stock certificate is not of itself property, but merely the evidence of property, and hence ownership or proprietary interest in a corporation may exist without the actual possession of a certificate. Further indicat-. ing the insignificance of a stock certificate as it affects the property right of a stockholder is the case of Richardson vs. Busch (198 Mo. 174), in which it was held that stock of a New York corporation belonging to a New York decedent, the certificate representing said stock being in Missouri, was in no way subject to the jurisdiction of the latter State, and could not be administered on there. In other words, the location of the certificate does not in any way affect the requirements in connection with the transfer of a certificate of stock.

Another fact is that the validity of the transfer of shares of a corporation is tested and governed by the laws of a State under whose laws a corporation is organized and exists and that although the transfer is made in another State. It is interesting to note that it has been held that a stockholder of a foreign corporation is deemed to be, so

far as his relation to such corporation is concerned, a resident of the domicile of such corporation.

Negotiability of Stock Certificates

One of the most interesting features of stock certificates, and yet one difficult to accurately and satisfactorily explain, is that regarding their partial negotiability, or as the courts are pleased to term it, quasi negotiability. This feature has become, in one form or another, rather firmly established in this country by reason of the fact that the usages and customs of business demanded it. Stock eertificates are not negotiable paper in the full sense of the word and are not in the matter of transferability protected strictly as such.

Most business men and laymen generally, by reason of usage, have come to regard certificates indorsed in blank as partaking of the nature of negotiable notes or bonds, which, by mere delivery, pass from hand to hand, the debts which they evidence. It was proven in a New York case that it was the custom that stock certificates so indorsed in blank would pass from hand to hand by delivery and that courts which take judicial notice of the usages of trade will no doubt take notice that such is the custom of trade throughout the country. The conclusion of the court was, and our Missouri court has so expressed itself, that certificates of stock, although neither in form or character negotiable, approximate to it as nearly as practicable.

There are some Eastern States which have passed a Uniform Transfer Law, which, in effect, makes a certificate of stock a negotiable instrument. It is hoped that all the States will adopt such a law in due time.

Another preliminary consideration is that of the relation of the corporation to its shareholders. It has been very aptly stated that a corporation is a trustee for its shareholders for the purpose of protecting their titles to their shares, and to this end it is bound to use and exercise reasonable care and diligence and is consequently responsible to a shareholder who has lost its title through its negligence or misconduct. Our discussion therefore is largely based on the requirements necessarily made by a corporation in the exercise of this reasonable care and diligence in the transfer of its stock.

Referring briefly to the simple transfer from one person to another, the usual stock certificate contains on its back a printed assignment or indorsement and also a power of attorney in blank. The certificate is indorsed by the person to whom the shares are issued and in this manner by the usages of business of which the courts take judicial notice as heretofore stated, the certificate may be passed from hand to hand indefinitely by the persons to whom the stock is issued, simply signing this indorsement and delivering the certificate with the power of attorney left blank, to his assignee. The power of attorney should not be filled in until the holder of the certificate is prepared to transfer the same to his name on the books of the corporation. Considerable confusion is occasioned by the insertion of the name of some person in the power of attorney, when that person is unable to make a transfer on the books or cannot be readily found to execute a substitute power of attorney. The corporation must be assured that the indorsement is the genuine signature of the party in whose name the stock is issued. This assurance is usually given by having said signature acknowledged before a notary public, or more often guaranteed by a reliable bank or broker.

Transfer of Certificate in Name of a Decedent

The transfer of stock certificates standing in the name of a decedent must be considered from several angles. Let us first consider stock of a Missouri corporation issued a the name of a Missouri decedent. Before a transfer may be made in this instance the following court papers must be furnished the corporation:

(1) Certified copy of will.

(2) Certified copy of letters testamentary or of administration.

(3) Certified copy of order of sale, or of distribution.

The purpose of the will is to ascertain its contents particularly with respect to the

distribution of the stock in question, it having been generally held by the courts that a corporation is chargeable with knowledge of said contents in making transfer of stock. Our Supreme Court has held that the corporation is liable for making a transfer to a beneficiary named in the will where a pretermitted heir has not participated in the distribution. Inquiry should therefore be made as to whether or not the testator failed to name in his will a child or grandchild. The letters indicate the authority of the executor or administrator showing the appointment by a court of competent jurisdiction of the city or county of decedent's domicile. The corporation should require copy of letters to be of recent date as there is a possibility that the executor or administrator named in the old letters has for some reason had his authority revoked.

The court order authorizing the distribution or sale, if in conformity with the statutes and provisions of the will, is the final court paper necessary to insure the validity of the transfer. The Probate Court, however, is without jurisdiction to make an order not in conformity with the statutes. Thus an order of partial distribution, granted by the Probate Court within several months of issuance of letters is not sufficient authority to transfer stock, the court being without jurisdiction to make such an order except upon a settlement- and upon a finding that there are sufficient assets remaining to meet all demands against the estate.

An order of sale must be required regardless of any power given the executor to sell under the will. This was decided by the St. Louis Court of Appeals in Koelling vs. Citizens' Bank of Warrenton (237 S. W. 176), said decision stating in part that regardless of power given an executor to sell, in the will, shares of stock cannot be sold at private sale except on application and an order directing such sale and prescribing the terms thereof. The same holds true of stock specifically bequeathed, as same should not be distributed except under an order of court.

In addition to the court papers, there is one additional requirement, that of a joint waiver or consent of the State Treasurer and Attorney General, of the State of Missouri, to the transfer. Where the estate is very small, and no inheritance tax could possibly be assessed, an order of "No Tax" granted by the Probate Court will suffice in lieu of a waiver. There is the possibility of an additional waiver from some foreign State being required as where the stock is transferred in New York or the Missouri

Corporation is de ng business in such States as Montana, Arizona and Wisconsin. No tax or costs accrue in procuring a New York waiver, but there may be an inheritance tax assessed by the latter States.

Transfer of Stock of a Foreign Corporation

In the transfer of stock of a foreign corporation belonging to a Missouri decedent, the requirements, insofar as the court papers are concerned, are identical with those required in transferring stock of a Missouri Corporation, the law of decedent's domicile governing the distribution. The State of incorporation in most instances exercises its jurisdiction to the extent, at least, of exacting an inheritance tax on the right to receive or transmit said stock, inflicting a heavy penalty by reason of making a transfer without requiring a waiver or consent. Therefore such a waiver from the tax authorities of the State of incorporation must be required. Some foreign States, as Delaware, do not assess an inheritance or estate tax on stock of a domestic corporation belonging to a non-resident decedent and a consent or waiver is, of course, not required on the transfer of stock of corporations incorporated in those States.

Then again we have stock of foreign corporations in the transfer of which waivers or consents from several States are required. This is particularly true of railroad cor.. porations, same being incorporated in several States. There are also some few instances which are increasing, however, where it is necessary to furnish a waiver or consent not only from the State of incorporation, but also from a State having partial jurisdiction over the stock in question, by reason of the fact that the corporation is doing business or owns property in that particular State.

From the standpoint of the executor or administrator, it is advisable to transfer stock of foreign corporations to their names during the period of administration, and not delay until making distribution on final settlement. By making such early transfer the requirements of the corporation, which cannot always be anticipated, may be complied with and delay and annoyance avoided on final distribution.

Stock Owned by Non-resident Decedent

The transfer of stock of a Missouri corporation, owned by a non-resident decedent presents the most difficulty in that an ancillary administration is required. Our Missouri Supreme Court has held that a foreign domiciliary administrator is without title to

property in this State and cannot release or control debts owing by debtors residing in other States. This decision is very definite and there is no question that a foreign executor or administrator is without good title to Missouri property. It is therefore necessary, if the law as set down by our Supreme Court is followed, to require ancillary administration on stock of a Missouri corporation owned by a non-resident decedent. The requirements in connection with the transfer of stock by the duly appointed ancillary administrator are the same as those exacted of a domiciliary Missouri administrator as hereinbefore described. There may be this distinction, however, in that the distribution on final settlement in an ancillary administration generally runs to the domiciliary executor or administrator and the corporation must therefore look to the laws of the decedent's domicile on the transfer to the distributee.

It has been the custom of a number of Missouri corporations, where a small amount of stock is involved, to accept a surety bond indemnifying the corporation by reason of making a transfer to decedent's heirs or the beneficiaries under his will, without requiring ancillary administration in Missouri. In view of the laws as set down by our Supreme Court, the validity of such a bond has been questioned by certain members of the Bar, but the majority seem to be of the opinion that such bonds are valid. In addition to a surety bond, the corporation, of course, must require a Missouri waiver or consent.

A statute has recently been passed and will become effective sometime in the near future, which exempts from an ancillary administration stock of a Missouri corporation owned by a non-resident decedent, in the sum of $1,000 or less. This law will tend to relieve the injustice heretofore occasioned by requiring ancillary administration in the transfer of small amounts of stock where the costs and commissions attending the ancillary administration consumed a large part of the stock administered on.

In the transfer of stock of a foreign corporation, owned by a non-resident decedent, we are not concerned, of course, with the laws of the State of Missouri, but look only to the laws of the State of incorporation, those of decedent's domicile, and possibly to those of States having partial jurisdiction over the corporation. As for example, stock of a New York corporation, belonging to the estate of a Massachusetts decedent and transferable in Missouri, the laws of the State of New York must be satisfied in that a proper inheritance tax is adjusted as evi

denced by a consent or waiver issued by the Tax Commission, and that the stock is distributed or sold in conformity with the laws of the State of Massachusetts. By way of comparison, an executor or administrator qualified under the laws of the State of Massachusetts, has authority by reason of such appointment, to transfer or sell stock without a specific order of court, whereas, a qualified Missouri representative must procure an order of court.

Transferring of Minor's or Incompetent's Stock

It has been held that a corporation may refuse to transfer stock to a minor as he is incapable of assuming the obligations of a stockholder, but this statement may be qualified by saying that minors may receive and hold stock in their own names but cannot transfer stock so held. A minor therefore being unable to make a legal transfer of stock issued in his name, a corporation is liable on permitting a transfer upon the indorsement of a minor. The same rule also applies to a person of unsound mind, or anyone incapable of contracting.

The only proper method of transferring a minor's or incompetent's stock is by the assignment of a duly appointed guardian. A curator or guardian having been appointed by a court of competent jurisdiction may, on proper presentation of his authority to the corporation, have stock issued in his name as such. The stock should be so issued as to include the name of the guardian and ward, thus "John Smith, a minor, under guardianship of John Jones," or "John Jones, guardian of the person and estate of John Smith, a minor, or (a person of unsound mind)."

In Missouri and other States, statutes require a court order authorizing a sale or transfer of stock belonging to a ward's estate, and the corporation is therefore liable on making the transfer without requiring the exhibit of a certified copy of such an order. In some States there are no statutes regulating the sale or transfer by a guardian, and in that event a court order is not required. There should, however, in all cases, be some evidence that the authority of the guardian is still in full force and effect, and has not been revoked. From the standpoint of the guardian, a court order should be obtained authorizing every transaction, thus relieving said guardian from any unnecessary responsibility.

It should be noted in this connection that a transfer by a minor is not of itself void, but merely voidable at the option of said minor on reaching his majority.

Transfer of Stock to a Trustee

On the transfer of stock to a trustee or trustees, it is generally considered proper that the representative capacity should be clearly indicated by some written instrument, before transfers are made. This requirement has been questioned by some members of the Bar, they contending that the corporation cannot compel the presentation of proper papers at the time the stock certificate is presented for transfer. For illustration, a certificate standing in the name of John Jones, properly indorsed by him and presented for transfer to Sam Brown, trustee for Mary Brown-may the corporation insist, upon some written evidence of the trustee's authority before making transfer? It would seem only just that such a requirement could be enforced, the corporation being entitled to a knowledge of the status of its stockholders.

The certificate as issued to a trustee should indicate the instrument under which authority is derived, and if possible, the beneficiary, thus, "John Smith, trustee under the will of John Jones, deceased, for Mary Jones." Where there are a number of beneficiaries, their names, of course, must be omitted. Likewise, a transfer to a trustee under an indenture, thus, "John Smith, trustee under an indenture of trust, dated July 5, 1922, for Sam Brown."

As heretofore suggested, the appointment of the trustee must be in writing and expressly authorize a sale or transfer of stock. estate for permitting transfers by a trustee The corporation is responsible to the trust not authorized by the trust instrument. Where there is more than one trustee, the title being joint, all must sign the transfer.

Stock Issued in Name of Tenants For the purpose of avoiding the annoyance and costs incident to an administration of a decedent's estate, and also inheritance taxes, many husbands and wives have stock issued in their names as tenants by the entirety, and many others of different relation have stock issued in their names as joint tenants, with the right of survivorship. A joint indorsement is necessary in the transfer of stock so issued. On the death of one of the parties the stock automatically becomes the property of the survivor or survivors, and may be transferred on proper proof of decedent's death, and the indorsement of the certificate by the survivor. There is this exception, however, in some few States, New York being one, that an inheritance tax is assessed against such a transfer and the corporation is therefore liable

under the Trausfer Tax Law on making a transfer to the survivor with the proper consent or waiver of the inheritance tax authorities. In New York, estates by the entirety and joint estates are taxed just as though the survivor received the entire estate as a bequest under the decedent's will.

On the transfer of stock by an agent, a power of attorney must be presented, especially authorizing the transfer of stock. There must be some evidence of the authenticity of said power and the identity of the agent. In addition, an affidavit should be required to the effect that said power is still in full force and effect, and that the principal was alive at the date of transfer. Any person capable of contracting may transfer stock through an agent.

Partnership Name to Transfer

A partnership may own stock and one partner may sign the partnership name to a transfer. The indorsements of the individual partners are not necessary, the firm name signed by one of the partners being legally sufficient. There has been some distinction made between a trade partnership, that is one organized for the purpose of buying, selling or manufacturing, and a professional partnership holding that stock held in the firm name of the latter must be indorsed by each individual partner.

Under our Missouri statutes and generally, unless otherwise provided for in the partnership agreement, on the death of a partner, the transfer of stock on the indorsement of the surviving partner should not be made except on a court order. On the death of a surviving partner before a transfer of stock has been effected, the indorsement of the surviving partner's personal representative is necessary.

Transfer in Name of Corporation The holding of stock by one corporation in another was not allowable under the common law, and the statutes of some States follow the common law by prohibiting such holdings. The great majority of States, however, hold to the better reasoning that a corporation in the pursuit of its legitimate and authorized business may hold stock in another corporation. Thus, an insurance company, trust company, or investment company, may properly hold stock in another corporation. It also happens that any corporation may obtain stock through a foreclosure proceeding or in settlement of a debt. Nevertheless, whatever rule applies to a purchase by a corporation of stock in

another corporation, the law is clear that a purchaser of such stock from the corporation is protected in his purchase. An unauthorized act of a corporation in purchasing has no effect upon the legality of its sale of stock.

The transfer of stock standing in the name of a corporation must be made under the corporate seal and must be accompanied by a certified copy of a resolution of the board of directors, or an extract from the by-laws authorizing the transfer by the endorsing officers.

Lost or Stolen Certificates

Regarding lost or stolen certificates, it should be borne in mind that a stockholder of record is entitled to every right and privilege regardless of the whereabouts of his certificate, and that the corporation looks only to its books as to who are to vote at its meetings, and also are entitled to receive dividends. Stockholders, however, have a general right to certificates representing their respective interests in order that same may be in a salable or pledgeable condition.

A corporation on the other hand does not act with proper care and diligence if it admits a transfer to registry and issues a new certificate without the surrender of the old one, and therefore must be protected in so doing, the protection usually afforded being in the nature of an indemnity bond. A corporation is within its rights in requiring such a bond. Where a large amount of stock is involved such a bond is sometimes not considered adequate and an order of court of competent jurisdiction may consistently be demanded by the corporation. Except in cases of certificates transferred in blank and lost or stolen without negligence on the part of the owner, a bona fide purchaser is protected in almost every instance where he would be protected if he were purchasing a promissory note or other negotiable instrument.

Where a corporation has been warned of the loss or in some manner put on notice, a transfer cannot be safely made. It has been held that where a lost or stolen certificate is surrendered to a corporation and a new one issued before the corporation is notified, a purchaser in good faith, of such new certificates, takes a clear title and the original owner has no recourse on the corporation but only on those through whose hands the certificate passed before its reissuance.