ber of shares it calls for and, usually, the number of the old certificate, if any, surrendered and cancelled.1

Of course, it is to be understood that the books relating to capital stock may and do vary with the nature and needs of the particular corporation. Necessarily, there must be a record of the shareholders and of the outstanding certificates; and it is generally provided by statute that a list of shareholders shall be kept accessible to creditors. Where, however, the stock is closely held and transfers are infrequent, very little book-keeping will be needed. If no formal transfer book is kept, as sometimes happens, the law will treat as equivalent to a transfer on the books, any act of the corporation whereby the change of ownership is recognized. In Cecil National Bank v. Watsontown Bank, 105 U. S. 217, the appellee was entitled to a lien on its shares for any indebtedness due it by the holder. A certain holder, being also a debtor to the bank, sold his shares to the appellant, and it requested a transfer. The appellee had no formal transfer book, but the change of ownership was indicated by entries on the stock ledger and the certificate book. After these entries had been made, the original holder failed and the appellee sought to assert its lien for the debt against the shares of the appellant. The governing statute provided that "the stock of the bank shall be assignable and transferable on the books of the corporation only, and in the

1Code 1911, Art. 23, sec. 33. "Each stockholder shall be entitled to a certificate which shall be signed by the president, or vice-president, and by the secretary or assistant secretary, or treasurer or assistant treasurer of the corporation and sealed with its sealwhich shall certify the number of shares owned by him in such corporation." See also Railway Co. v. Sewell, 35 Md. 253.

2As in Code 1911, Art. 23, sec. 73.

presence of the president and cashier." In determining whether the transfer was complete and the lien thereby waived, the court said: "All that is necessary, when the transfer is required by law to be made upon the books of the corporation, is that the fact should be appropriately recorded in some suitable register or stock list or otherwise formally entered upon its books. For this purpose the account in a stock ledger, showing the names of the stockholders, the number and amount of the shares belonging to each, and the sources of their title, whether by original subscription and payment or by derivation from others, is quite suitable and fully meets the requirements of the law."

§ 134. The duty of the corporation to its shareholders touching transfers. Because and just because it may reasonably regulate the transfer of its stock, insist upon a formal signing of the transfer book, and, if in doubt about the validity of the power of attorney, demand the actual presence of the transferor,-the corporation owes to its shareholder the correlative duty of protecting him against unauthorized transfers. And this duty of protection extends to the beneficial owners of stock standing upon the books of the corporation in the name of a fiduciary. If it treats as valid a forged signature; or an assignment executed by an infant or a lunatic; or if, where shares are held in a fiduciary capacity, it fails to make reasonable inquiry into the authority of the transferor,-in each of these cases the corporation will be liable for restitution or damages at the option of the true owner. And the principle is not changed by the Uni

1For the right of a corporation to a lien on its shares, see, now, Code 1911, Art. 23, secs. 33 and 52.

2 Baltimore v. Norman, 4 Md. 351; Chew v. Bank, 14 Md. 300; State v. Murray, 24 Md. 310; Brown v. Insurance Co., 42 Md. 384;

form Stock Transfer Act, except that a valid endorsement of the certificate is not affected by subsequent incapacity before or after delivery of the certificate.1 But the Act does alter the pre-existing law wherever the question involves, not the capacity or the authority (if a fiduciary) of the registered owner, but the genuineness of his consent to the transfer; and now, a holder in good faith and for value (which includes a pre-existing obligation) of a certificate duly endorsed, acquires a good title from a finder or a thief, as well as in cases where the endorsement was procured by fraud, duress or mistake.

$135. The obligation of the corporation to the holder of its certificate. Every share certificate necessarily contains one or more representations on the part of the corporation. Universally, there is the statement that the person

Baltimore v. Ketchum, 57 Md. 23; Metropolitan Bank v. Baltimore, 63 Md. 6; Western Union Co. v. Davenport, 97 U. S. 369. For the case of transfers by a trustee in breach of his trust, see Albert v. Bank, 2 Md. 159. This case was qualified in Stewart v. Insurance Co., 53 Md. 564, and Marbury v. Ehlen, 72 Md. 208, but restored in Grafflin v. Robb, 84 Md. 451. Compare Hughes v. Drovers' Bank, 86 Md. 423; Tyson v. George's Creek Co., 115 Md. 573, and Baltimore Trust Co. v. George's Creek Co., 119 Md. 21. The practical result of the cases is this: Wherever the fiduciary nature of the holding appears on the books, the corporation's liability for an unauthorized transfer depends upon what reasonable inquiry would have revealed; and what constitutes reasonable inquiry depends upon the facts of the particular case. The existing rule is the result of the chancery doctrine of constructive notice and has no proper place in commercial law. The corporation should be allowed the presumption that a fiduciary is acting honestly; and where there is nothing to indicate the contrary, the loss should fall upon those who have put their trust in the trustee. Compare Bank v. Kenney, 116 Md. 24.

1Code 1911, Art. 23, sec. 43.

named is the owner of one or more shares. Usually, the shares are represented to be full-paid and non-assessable; to be transferable on the books of the corporation only; and not to be so transferable unless the certificate is surrendered. The corporation is presumed to know that in the usual course of business the representations contained in a certificate are acted upon; and it will consequently be responsible to any one who, relying upon such representations, has been misled to his hurt.1 In Bank v. Lanier, 11 Wall. 369, the appellant had, in 1865, issued to a certain Culver two certificates for shares of its capital stock. On the twentyninth of January, 1866, the appellee purchased the stock and received from Culver the certificates with the usual powers of attorney to transfer endorsed thereon. On the thirty-first day of the same month of January the bank was notified of the purchase, but no request for the transfer of the stock to the appellee was made until January, 1868,—when it was made and refused. The justification for the refusal was that at the time the shares were issued to Culver he had, without surrendering the certificates pledged them-with a separate power of attorney to sell and transfer, as security for such deposits as the bank might thereafter make with a banking firm of which he was a member. The court held that the defense was unavailing because, by the Act of Congress, banking associations are expressly prohibited from making any loan or discount on the security of their own shares. Futhermore it was said: "If we assume that the certificates in question are not different from those in general use by corporations, and the assumption is a safe one, it is easy to see why investments of this char

1 Metropolitan Bank v. Baltimore, 63 Md. 6.

acter are sought after and relied upon. No better form could be adopted to assure the purchaser that he can buy with safety. He is told, under the seal of the corporation, that the shareholder is entitled to so much stock, which can be transferred on the books of the corporation, in person or by attorney, when the certificates are surrendered, but not otherwise. This is a notification to all persons interested to know, that whoever in good faith buys the stock, and produces to the corporation the certificates, regularly assigned, with power to transfer, is entitled to have the stock transferred to him. And the notification goes further, for it assures the holder that the corporation will not transfer the stock to any one not in possession of the certificates."

This quotation is a somewhat broad statement of the law; but it furnishes a convenient text for certain limitations upon and certain consequences of the general doctrine expressed in it.

First. Where by its charter or some governing statute, the corporation is entitled to a lien on its shares for debts. due it by the holder, this lien is not waived because the certificate omits any reference to the lien. The assignee takes the shares subject to the rights of the corporation, because he is bound to take notice of what its charter or the governing statute contains-Reese v. Bank, 14 Md. 271; Hammond v. Hastings Co., 134 U. S. 401. The rights of the corporation, however, are waivable and they will be considered as waived by a transfer on the books or some equivalent act whereby the assignee is recognized

To the same effect is Bank v. Buffalo Ins. Co., 193 U. S. 581.