rities through the instrumentality of the trust companies. Municipal officials are beginning to realize the virtue of this protection in the issue of their bonds, and with a clearer understanding of the dangers involved under the old methods, we believe that the hearty co-operation of the banker may be relied upon for the better protection of the great interests involved.

THE DUTIES AND LIABILITIES OF TRUST COMPANIES ACTING AS TRANSFER AGENTS AND REGISTRARS

ADDRESS DELIVERED BY HENRY J. BOWDOIN, OF BALTIMORE, BEFORE THE AMERICAN BANKERS' ASSOCIATION, AT RICHMOND, VA., OCTOBER, 1900.

THE office of transfer agent and registrar of stock is an interesting instance of the operation of forces which may, from time to time, arise in the business world, and, becoming operative, produce their effect in the form of an established business custom. In analogy, however, to the physical law of motion, the final resultant of such forces, the established business custom in question may, through the inertia of a movement once started, become crystallized at a point far beyond that at first contemplated, and may ultimately involve legal relations and responsibilities, not at first recognized, and which remain undetermined until some combination of circumstances brings the established custom before the courts for interpretation. Until the statute law or the courts have so defined or interpreted the legal responsibilities incident to such custom, all transactions within its scope are enshrouded in an uncertainty and doubt, except to the extent to which light may be thrown by the application of general legal principles.

It is to the consideration of such a situation that I now invite your attention for a few minutes-to the legal and business questions involved in the position of a trust company acting as the transfer agent or registrar of the stock of another corporation.

An effort to determine the primary operative reason for the now almost universal custom of appointing a transfer agent for the stocks of large corporations is of interest and importance, since

such reasons are in themselves explanatory of the purpose and intent of those who enter into the legal relations involved in the office, and are also evidence of the purpose of those who have operated in such office or position in the expectation that the discharge of the functions of the office would meet the requirements of such intent and purpose. I have not been able to determine definitely the causes which have resulted in this well-established custom, but it is reasonably certain that it is the evolution of a process of thought and reason running in the following groove: It is universally established that the transfer of title to stock is not complete for all purposes, nor properly evidenced, until the transferee or purchaser has been registered as stockholder upon the books of the corporation. Such registration and notation of transfer can be performed by the selling owner in person, or by his duly authorized attorney; and we all know that the latter course is the one almost universally adopted. Business convenience, or the inexorable demand for business facilities, and the enormous volume of stock transferred, then created the necessity for and the custom of appointing an agent, whose sole duty it was to attend to those transfers, perfect them, complete the transaction involved in the purchase and sale of stock, and furnish the evidence of such completed transaction by the issue of a new certificate to the transferee. Both the necessity for the office and its importance were, of course, apparent. Then, doubtless the advisability of throwing every possible safeguard around the issue and transfer of stock being equally apparent, the advantage gained by increasing the difficulty of dishonest combinations between the officers of the corporation, through an increase of the number of persons whose complicity would be essential to any fraud, resulted in the custom of selecting a corporate agent, a trust company, and appointing it the transfer agent. The capital and surplus of this transfer agent is probably in excess of that of the company for which it is acting as such agent; doubtless the trust company is so selected from among others largely because of its prominence, financial responsibility, and the consequent security which it offers to all those who deal with it. We may fairly assume that such are the causes which were creative of the now well-established custom of appointing trust companies as transfer agents for the stocks of other corporations.

Of course, we all know that the security which was sought to be gained through a multiplicity of officers whose signatures upon the certificates were essential to their validity in many instances no longer exists in fact, because it is quite customary for corporations to have large numbers of their certificates of stock duly signed, leaving only the name of the stockholder and the number of shares blank, and intrusting the certificates in this condition in the hands of the transfer agent. Nevertheless, the fact that this one primary reason for the establishment of the office has in this manner really ceased to exist does not create any probability of the ultimate abandonment of the custom. The other reasons for its creation still exist, and the continuance of the custom is largely insured by the fact that the omission of a transfer agent would be regarded as suspicious and irregular. In fact, many of the stock exchanges require the appointment of a transfer agent, as a condition precedent to the placing of a stock upon their lists, and corporations are now so eager to assume all indicia of caution and conservatism that we often see a provision placed upon the face of the certificate to the effect that the certificate is not valid unless signed by the transfer agent. In several instances I have seen this provision carried to the extent of requiring, not only the signature of the transfer agent, but also the signature of the registrar, as essential to the validity of the certificate.

The office of transfer agent may be regarded as a permanent institution; it should certainly be reckoned with as such. A trust company occupying this office assumes a twofold obligation; certainly it assumes a twofold relation: first, to the corporation for which it acts as agent, which we will designate the principal; and, second, to those who have an interest in the stock transferred.

The relation between the agent and the principal is usually created by a resolution of the board of the latter designating the company as transfer agent, accompanied by the payment of an agreed sum, which is supposed to compensate the agent for the clerical work involved in making transfers during the succeeding twelve months; the compensation is based upon the anticipated activity of the stock. By clear implication the agent holds itself out as competent to discharge the duties of the office. What are those duties?

Broadly speaking, the agent agrees to perform for the principal the work of passing upon the evidence of transfer of title to the principal's stock, and of perfecting such transfers as are in proper shape by the due notation of the transfer and the issue of a new certificate. If no agent were appointed, the corporation principal would itself perform all this work, and, of course, all the liabilities incident thereto, would rest upon it; and such was the case until the custom and office in question were created. But having appointed such agent, what measure of responsibility to the principal attaches to the agency, and is impliedly assumed by the agent in accepting the office?

At this point we pass beyond the circle of light thrown by established law, and find ourselves involved in uncertainty and doubt. Is the relation so established between the principal and agent that of simple agency, to which the usual law of such relation may be applied with certainty, and the liability of the agent may be considered with confidence as limited to the consequences of lack of good faith and ordinary skill, competency, and knowledge? Or must the duties assumed by the agent be so performed as to satisfy the requirements of the situation, which would exist if no agent had been appointed, but the principal had remained in direct touch with its stockholders, and without the interposition of any intermediary? In other words, must the agent so perform its duties as fully to discharge the responsibility which the principal is under to its stockholders in all that pertains to the preservation of the stockholders' interest and title, until such interest and title is duly divested and transferred, and is the agent responsible for all consequences ensuing to the principal from a failure so to perform its duties?

In an effort to reach a conclusion upon the measure of responsibility assumed, it should be borne in mind that the creation of the office is, apparently at least, due to pressure rather from without than from within the corporation. This creation is not due to the requirements of business facilities and convenience of the corporation in perfecting the current transfers of its stock, but is due, certainly in great measure, to influences outside the corporation to a demand for security not afforded within the corporation's own organization, and consequently sought for outside that organiza

tion, through a separate existence, removed as far as possible from the influences and control of that organization.

The decisions of record, so far as I have been able to discover, are upon cases where there was some gross default by the agent in the discharge of its duties. I find no case presented involving the liability to the principal when due care, skill, and knowledge were exercised, nor where the court has decided what, in any specific case, would constitute due care, skill, and knowledge. But 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.

The degree of legal liability to the principal may, of course, be restricted by the terms of any agreement entered into between the principal and the agent, and such limitation may be made operative between the agent and those interested in the stock transferred, if the latter are charged with legal notice of the restriction upon full liability; but certainly in the great majority of instances the relation is created by the method described; that is, by a resolution of the board of the principal designating the company which is to act as transfer agent, and the tacit acceptance by the latter of the duties of the office, and the fee agreed upon. Clearly there is no limitation of liability here-the relation is left charged with such responsibilities as the court may decide to be implied in the transaction. Can it be successfully argued that, while the agent agreed to perform the work, and accepted a cash consideration therefor, the responsibility for the consequences 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.

If such be the conclusion which courts will reach, we are confronted by the fact that the many legal questions and difficulties involved in the transfer of stock-questions which have brought forth volumes of legal textbooks and decisions-are presented to the agent, or, speaking more practically, to the knowledge of its transfer clerk, and his discretion and discrimination in determining what questions should be referred to counsel for solution and action.