ATTACHMENT OF STOCK.—A sixth difficulty in regard to transfer of stock—attachment of the stock by a creditor of the registered owner—is eliminated in States where the Uniform Transfer Act has been enacted. Such attachments created considerable difficulty before the passage of the act. Suppose this case: A is the owner on the books of the company of 100 shares of Boston & Albany stock. He knows a creditor is about to attach that stock, and in order to get ahead of the creditor he sells the stock on the exchange. If he makes the sale before the attachment, undoubtedly the sale everywhere would prevail over the subsequent attachment; but suppose the attachment preceded by a little while the sale of the stock. A still has the certificate, and brokers and purchasers are accustomed to rely on the certificate as evidence of ownership. They take the certificate and pay A money for it; then when the purchaser goes to transfer the stock he finds that an attachment has been put upon the books of the company. Where the uniform law governs the case the only way to make an attachment of stock effective is to seize the certificate itself. But in other States this difficulty may still arise, of a purchaser being deceived by the certificate itself, and paying money on the faith of it when there has been an attachment levied by a creditor immediately before on the books of the company.
TRANSFERS BETWEEN HUSBAND AND WIFE.—One other matter of transfer deserves attention, and that is a transfer between husband and wife, or wife and husband. A married woman can contract in most States as fully as a married man, but generally, though not universally, neither of them can contract with the other or make a conveyance directly to the other. A promissory note from wife to husband, or husband to wife, or any other conveyance or transfer or contract was at common law and still is in many States invalid. A husband can, however, appoint his wife his agent, and a wife can appoint her husband her agent, and when such an agent acts, his act will be legally that of the principal, just as in any other case of agency. Accordingly, if a husband draws a check payable to his wife, though he does not become liable as drawer to his wife, and could not be sued by her if the check was not paid, the bank runs no risk in paying the check because the husband has authorized the bank to make a payment to the wife. Similarly, if a husband authorizes a corporation to transfer stock to his wife it seems that the corporation is protected, having acted under the authority of the owner, and that the wife would get a good title to the stock. This question has, however, been somewhat disputed by lawyers. Therefore it is very probable that a corporation would, as a matter of precaution, refuse to run any risk by transferring directly from husband to wife or vice versa, but would require that the transfer should be made through a third person in any State where husband and wife cannot contract with one another. So much for difficulties arising out of defects caused by the lack of legal title to the stock.
STOCK HELD IN TRUST.—Now let us consider equitable defects. Such defects chiefly arise where stock is held in trust. It would be the simplest and pleasantest thing for a corporation if it could refuse to register stock in trust at all, but it has been decided that it cannot do this, that it is bound, if requested, to register stock in favor of a trustee and issue stock to trustees. Now trustees hold under an appointment by the court. A trustee may cease to be such at any time by removal of the court as well as by death. Suppose stock in the name of D, trustee. If D has ceased to be trustee because he has been removed from office, a transfer by him will not be valid. Accordingly, it is essential for a corporation and for a purchaser to be certain, not simply that D was trustee, but that D is trustee at the time he attempts to make the transfer. We may suppose the case of a certificate which does not state that there is a trust. Not infrequently trustees, to avoid complications, do not specify in the certificate that they are trustees. If the corporation or if the purchaser of that stock has no notice that D is really holding that stock in trust, the corporation or the purchaser will have the same rights as if there were no trust. But if either the corporation or the purchaser learns, from extrinsic sources, that the stock is really held in trust, they will be bound to make certain that the seller is still empowered to act as trustee, in the same way as if the certificate specifically stated on its face that the stock was owned by D in the capacity of trustee.
ONE HAVING NOTICE THAT STOCK IS HELD IN TRUST MUST ASCERTAIN THE TERMS OF THE TRUST.—Even if the supposed trustee is actually the trustee he may not have power to give a good title to the stock. He has the legal title, undoubtedly, but if the certificate contains notice that he holds the legal title as trustee, every one is bound at his peril when purchasing the stock, and also the corporation is bound at its peril before it allows the transfer of the stock, to make sure that the trustee is authorized by the terms of his trust to transfer the stock.
A TRUSTEE HAS POWERS NECESSARY TO CARRY OUT TERMS OF TRUST.—Generally when a transfer of stock is attempted by a trustee it means that the trustee is selling the stock, though that is not necessarily the case. A trust may be terminated; that is, a trust may be created for twenty years, with directions to the trustee to transfer the trust property at the end of twenty years to certain beneficiaries. A transfer by the trustee at the close of the twenty years to the beneficiaries would not be a sale of the stock; it would be a transfer for the purpose of carrying out the trust, and a trustee always has implied power to make any transfer of stock that is necessary to carry out the purpose of the trust.
A TRUSTEE HAS NO IMPLIED POWER TO SELL.—A trustee has no implied power to sell. The general duty of a trustee is to keep the property which is left to him in trust or conveyed to him in trust in its existing form, and no power is implied to change the form to something else. Accordingly, if no power to sell is in terms given in a trust created by deed or will, a corporation will require, and a purchaser should require, the trustee to obtain the authority of the probate court to make the sale. Carefully drawn trusts generally contain a power for the trustee to sell if the purpose of the trust is to produce an income-bearing fund for a long period of years. For that purpose a change of investment is frequently desirable, and therefore trustees are expressly given that power. But the corporation which has issued a certificate to a trustee and a purchaser from the trustee must find out at their peril whether such a power is given.
A TRUSTEE HAS NO IMPLIED POWER TO PLEDGE.—Another power, and one which is not commonly given, is the power to borrow on stock, to pledge it or use it for collateral security. Such a power is not implied and is not commonly given in trust deeds or wills. Therefore, a bank or other lender should not lend on certificates of stock which are made out to the borrower as trustee, or made out to any one as trustee. Of course, it is improper, even though the trust did give power to borrow, to allow the trustee not only to borrow money on trust securities but to use the money borrowed as part of his own assets; that is, to put it in his own general account. It is his duty to keep trust money separate, and therefore if the trustee has power to borrow he should keep the funds which he borrows earmarked as trust property; but as has been said, he will rarely have power given him expressly to borrow even for trust purposes.
A TRUSTEE CANNOT TRANSFER TO HIMSELF.—Suppose a trustee is by a deed or will given power to sell and he asks the corporation to make a transfer of the stock to himself. The corporation should not do it. He has power to sell to any one else but himself. A fiduciary cannot make a bargain with himself in regard to his trust property, and therefore he should not be allowed to transfer the stock to himself.
A TRUSTEE CANNOT DELEGATE HIS POWER TO SELL.—A trustee cannot delegate his powers, and therefore he cannot give a general power of attorney to another, to sell trust stock or any trust property whenever it may seem wise to the agent to do so. Even though the trustee has himself power to sell, he must exercise his own discretion as to the occasion when it is proper to sell.
PURCHASER FROM A TRUSTEE IS NOT BOUND TO SEE TO APPLICATION OF PURCHASE MONEY.—Though the corporation and though the purchaser from a trustee are bound to see, if they have notice of the trust by the form of the certificate, that the trustee is not making an unauthorized sale, neither the purchaser nor the corporation is bound to see that the trustee does not make an improper application of the money received from sale of trust stock. In the current legal phrase, neither the purchaser nor the corporation is bound to see to the application of the trust money; but if either the purchaser or the corporation had notice of a proposed misapplication of the trust money to be received for the stock, it would be improper to allow the transfer knowing that the proceeds would be misapplied, and the corporation or the purchaser would be liable if the transfer was carried out.