cates of stock. In such a case the defrauded cestui que trust would have an action against her unfaithful trustee, and possibly also against the corporation,2 for the conversion of her shares.

§ 2546. Assignee in Insolvency not a Bona fide Purchaser. But an assignee in insolvency, under the Massachusetts law, is not a bona fide purchaser, in such a sense that he can reclaim from the corporation shares which stand in the name of the insolvent without notice of a secret trust. On the contrary, the cestui que trust is entitled to have them transferred to him.3

§ 2547. Irregular Transfer by the Trustee to the Cestui que Trust. The foregoing principle has been justly held not to apply where a transfer which, though irregular, but such as a court of equity would order on a proper application, is made by the trustee to the beneficiary in the trust.1

§ 2548. Several Trustees, All must Join in the Transfer. Where the shares are held in trust by several trustees, in order to a valid transfer, all must join.5

§ 2549. Right of Cestui que Trust to Demand a Transfer. Another case in which the corporation is bound to recognize the rights of the beneficial holder of stock, is where it has issued a certificate to one as trustee, and on his death the person claiming to be entitled to the shares demands a transfer. Of course, the company would not be justified in making

1 Winter v. Montgomery Gaslight Co., 89 Ala. 544; s. c. 8 Rail. & Corp. L. J. 244; 7 South. Rep. 773.

2 Ante, § 2528.

Sibley v. Quinsigamond Bank, 133 Mass. 515. The court "do not think that the insolvent law was intended to pass rights of estoppel between the creditor and third persons." Ibid.

524.

4 Butler v. Merchants' Ins. Co., 14 Ala. 777. Construction of a particular trust in respect of corporate shares, as between trustee and cestui que trust: Stevens v. Wilson, 18 N. J. Eq. 447.

5 Post, § 2580. When, therefore, under the English Companies Clauses Act of 1845, § 18, the names of the executors of a deceased shareholder in a company are placed on the register of shareholders in respect of shares which belonged to their testator, they become joint shareholders in their individual capacity, although they may be described as executors in the register; and consequently the shares can only be transferred by means of a transfer executed by all of them. Barton v. London &c. R. Co., 24 Q. B. Div. 77.

such a transfer, and could not be compelled to make it until it had first been afforded an opportunity to examine the grounds · upon which the claimant's rights were based. But where the company refused, in such a case, to examine the evidence offered and to permit a transfer, it was held proper, on a bill in equity against it to compel a transfer, where it appeared that it could easily have satisfied itself of the truth of the facts, to enter a decree against it for costs as well as to compel the transfer.1

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§ 2550. When Trustee not a Purchaser and not Liable for Unpaid Balances. Under a statute of Oregon, the purchaser of corporate shares becomes liable for unpaid balances; but there, if a shareholder who is indebted to the corporation transfers his shares to a trustee to sell to any one who will pay the debt, the trustee is not a purchaser and incurs no liability.2

§ 2551. [Massachusetts.] Effect of a Sale by the Cestui que Trust.—A sale, by the equitable owner, of corporate stock, held by trustees, under a trust agreement, transfers the seller's interest subject to the execution of the trust, and is not within the provisions of the statute of that State 3 which renders void every contract for the sale of stock, "unless the party contracting to sell or transfer the same is at any time of making the contract the owner or assignee thereof, or authorized by the owner or assignee or his agent to sell or transfer" the same. 4

ARTICLE XV. LIABLE FOR TRANSFERRING ON FORGED POWERS OF ATTORNEY.

§ 2555. Scope of this Article. If a corporation transfers on its books the shares of one of its shareholders, on a power of attorney or indorsement upon the certificate which has been forged, it incurs an alternative liability, - either (1) to the original shareholder for a conversion of his shares, or (2) to a bona fide sub-transferee of the shares, who has purchased them on the faith of the new certificate which the corporation has issued in consequence of the forgery. But it does not incur a liability to the first purchaser of the forged certificate, because it was his duty primarily to see that the transfer to him was genuine ;1 and, on the other hand, it may have an action against him, on the theory that he warrants the genuineness of the transfer under which he procures the transfer to be made on its books. In treating of these questions in the present article it will be most convenient to consider: 1. The liability which the corporation incurs to the owner of the shares when it transfers them to another on a forged power of attorney or indorsement upon his share certificate. 2. The liability which it incurs to a bona fide transferee for value of the new share certificate which it issues to perfect such a transfer. 3. Certain matters not conveniently classified under the two preceding subdivisions.

§ 2556. Corporation Liable to Shareholder for Recognizing a Forged Indorsement. A person cannot lose his prop

1 Post, § 2581.

2 Post, § 2582.

erty by the crime of another. From the rule already stated that the corporation is, in a sense, the trustee of the title of the shareholder, and under the duty of seeing that transfers of the shares of its members shall not be made unless authorized by them,1 it follows that it will be liable to one of its shareholders, as for a conversion of his shares, if it allows them to be transferred on a forged indorsement of the share certificate. In such a case the corporation acts at its peril, just as a bank acts at its peril in paying a check purporting to be that of a customer. It is bound to know the signature of its shareholder. If therefore the power of attorney on the old certificate has been forged, and the company issues a new certificate to the holder, it will be liable to the true owner for the conversion of his shares.2

§ 2557. Qualification that the Original Shareholder not Negligent. The condition of the right of the shareholder to a remedy against the corporation is that he has not been negligent on his part in filling up the transfer on his share certificate in such a manner as to open the door to a fraudulent operation such as would deceive the officers of the corporation; and that they have been negligent on their part in not detecting the forgery. In this respect the law applicable to negotiable instruments applies to share certificates, although they are not negotiable. The owner of the shares must exercise ordinary care, adapted to the circumstances of the case, and so must the corporation. So far as the negligence of the plaintiff is concerned, the governing principle, according to the American theory, is that stated by Lord Denman, that parties guilty of negligence which alters the rights of others are concluded by such negligence.*

1 Ante, § 2486.

2 Pratt v. Boston &c. R. Co., 126 Mass. 443; Telegraph Co. v. Davenport, 97 U. S. 369; Pratt- v. Taunton Copper Co., 123 Mass. 110; s. c. 25 Am. Rep. 37; Pollock v. National Bank, 7 N. Y. 274; Sewall v. Boston Water Power Co., 4 Allen (Mass.), 277; s. c. 81 Am. Dec. 701; Re Bahia &c. R. Co., L. R. 3 Q. B. 584.

3 Sewall v. Boston Water Power Co., 4 Allen (Mass.), 277; s. c. 81 Am. Dec. 701. That this is not the English rule, see post, § 2562.

4 Coles v. Bank of England, 10 Ad. & El. 437, 451. Lord Denman cited Hume v. Bolland, Ry. & M. 371, and Davis v. Bank of England, 2 Bing. 393, 409, as recognizing this doctrine.

§ 2558. Such Negligence may Consist in Receiving Dividends on the Reduced Number of Shares. Within the principle stated in the preceding section, the negligence of the shareholder, who has been defrauded by the forgery, may consist in receiving dividends from the corporation on the reduced number of his shares, although he receives such dividends without knowledge of the fraud which has been practiced upon him; since he is under the duty of inquiry, to the end that the corporation shall not be induced by his acceptance of the dividends to believe that the transfers are genuine. This is illustrated by an English case, where the executors of a shareholder brought an action on the case against the bank of England for refusing to transfer certain shares of their testatrix and for refusing to pay the dividends which had accumulated thereon. It appeared that nearly all the shares had been sold and transferred in the life time of the testatrix by her nephew C., who had brought another woman to personate her, and had forged her signature. It also appeared that after such sale the testatrix had repeatedly received the warrants for the dividends on the reduced number of shares, in person, and had signed the warrants and the bank books, being on those occasions accompanied by C., who mentioned the amount in her presence. Although this was evidently a case where an old and unsuspecting woman had been defrauded by the rascality of her nephew, who assisted her in the management of her affairs, the jury found, in response to questions put to them by Lord Denman, that she had the means of knowing of the transfer, although there was no evidence of her having had actual knowledge of it; that she had been guilty of gross negligence in not discovering it; and that the bank of England had not been guilty of any negligence. On this state of the case it was held, in substance, that the plaintiffs could not recover against the bank. "The defendants," said Lord Denman, "had been induced, by the conduct of the testatrix, to become responsible to others for that fund which they had possessed for her use, and to part with the money which they had received from the government to pay her dividends." 1

1 Coles v. Bank of England, 10 Ad. & El. 437, 452. In Bank of Ireland v. Trustees of Evans' Charities, 5 H. L. Cas. 389, this case received an interpretation, not only in the unanimous opinion of the judges of England, delivered to the House of Lords by Mr. Baron Parke, but also in the separate opinions of the Lords themselves, to the effect that what Lord Denman

really held was that the negligent conduct of the plaintiff in receiving the dividends on the sum to which the stock was reduced by the forged transfers, was a ratification of those transfers, by which the stock was reduced to that amount. But this seems to be an unfaithful, or at least an inaccurate interpretation of that decision, and it seems to be better to