Schimmel, R. J.

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Transfers of Stock on the Records of a Wisconsin Corporation

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Marquette Law ReviewVolume 14Issue 3 April 1930 Article 2Transfers of Stock on the Records of a WisconsinCorporationR. J. SchimmelFollow this and additional works at: http://scholarship.law.marquette.edu/mulrPart of the Law CommonsThis Article is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. It has been accepted for inclusion inMarquette Law Review by an authorized administrator of Marquette Law Scholarly Commons. For more information, please contactmegan.obrien@marquette.edu.Repository CitationR. J. Schimmel, Transfers of Stock on the Records of a Wisconsin Corporation, 14 Marq. L. Rev. 113 (1930).Available at: http://scholarship.law.marquette.edu/mulr/vol14/iss3/2MARQUETTELAW REVIEWVOLUME XIV APRIL, 1930 NO. THREETRANSFERS OF STOCKS ON THERECORD OF A WISCONSINCORPORATIONBy R. J. SCHIMMEL*N THE affairs of a corporation, usually there is not much atten-. tion given to the transfer of its stock after the stock has once beenissued. After the lawyer has completed the organization, the officerstake charge of the affairs, and unless special situations arise, he isseldom consulted afterwards. It is also true that in ,a great majorityof corporations there are only a very limited number of stockholdersand as a consequence, no question ever does arise with reference tothe transfer of stock.The average person .who had accumulated an estate, until a com-paratively recent time, usually made his investments in bonds, realestate mortgages, banks and securities of a kindred nature. In recentyears, a good many of these investors have realized that there was apossibility for greater profits in purchasing stocks, with the result thatmore time and attention was devoted to an analysis and study of thisclass of securities and more of their money is invested in stocks. Asthis class of investors acquired interest in stock, it resulted in a muchgreater distribution of stock of corporations, and it is being held insmaller units than before. At the present time, more corporations areoffering stock for sale to the public than ever before.*Mfember of the Milwaukee Bar.MARQUETTE LAW REVIEWThis change in conditions is one of the reasons why it is necessaryfor corporations and transfer agents to be more fully acquainted withthe laws governing stock transfers because questions became morenumerous as to stock owned by joint tenants, husband and wife, be-longing to estates and trusts, situations where the certificates were lostor destroyed and questions of similar nature.LIABILITY OF A CORPORATIONA corporation, to a certain extent, is a trustee for the stockholder inrespect to his stock. It is therefore its duty to exercise reasonablecare and due diligence to protect the stockholder's interest by prevent-ing unauthorized transfers, and it must respond in damages for anyinjuries sustained by him in consequence of its negligence or miscon-duct in this regard. It has the right and it is its duty, when a transferis demanded, to use reasonable diligence to ascertain whether or notthe transfer requested is duly authorized, and to make those transfersthat are so authorized and to prevent those that are not.'When a corporation makes an authorized transfer, the person law-fully entitled to the stock may demand that the certificate for thestock be issued to him, and upon a refusal by the corporation to do soissue a certificate, may sue for the reasonable value of the stock.2A Wisconsin corporation is made liable for any inheritance tax dueon a transfer of stock in a domestic corporation, owned by a non-resident of the state, unless a release from the Tax Commission ofWisconsin is first obtained.3There is no stamp tax law in Wisconsin, but under the FederalAct, a corporation is required to collect a transfer tax on the transferof stock and to see to it that such stamps are attached upon the recordsand properly cancelled.4UNIFORM STOCK TRANSFER ACTThe rights and liabilities governing transfers of stock, as betweenthe transferor and transferee, are defined by the Statutes of Wiscon-sin.5 This law in commonly referred to as the Uniform Stock TransferAct. This act does not, however, define the rights and liabilities of acorporation in respect to the transfer of stock, excepting as to lostcertificates and the method of compelling a transfer.'Fletcher Cyclopedia Corporations, volume 6-6420.2 Greenleaf v. Ludington, 15 Wis. 618; Casper v. Kalt-Zimmers Mfg. Co., 159Wis. 517.3 Wisconsin Statutes Laws of 1927, sec. 72.11, subsection 2.4 Section 801-Revenue Act of 1928.5 Wisconsin Statutes Laws of 1927, Chapter 183.TRANSFERS OF STOCKSRESTRICTIONSThe stock of a corporation ' is personal property6 and may betransferred at will. The corporation, when all conditions have beencomplied with, cannot prevent a transfer. Transfers may be restricted,a. By provisions of the charter or constitution,b. By its by-laws,c. By general law,d. By an agreement between the parties,e. By reason of the transferee being a person incapable of be-coming a stockholder.In order that a restriction upon the right of transfer be valid, it isnecessary that such restriction be stated upon the face of the stockcertificate. 7In the ordinary transfer, when a person holding stock of a corpora-tion endorses and surrenders the certificate for cancellation, little ques-tion arises as to the transfer and it is usually promptly made. It isthe duty of a corporation, if it has the facilities to compare the signa-ture, to make sure that it is genuine or to use other means to have itproperly identified." Some corporations require that the signature onthe assignment of the stock be certified or guaranteed by a bank ortrust -company.CERTIFICATE ISSUED TO Two OR MORE PERSONSIn cases where the certificate is issued to two or more persons witha description of the interest of such persons in said stock, the corpora-tion is confronted with its most serious problem. The primary objectin nearly all cases in placing more than one name on the stock certifi-cate is to secure a distribution or change of ownership in and to thestock upon the death of one of the parties, without the formality ofa probate or administration proceeding. Usually one of the partiesfurnishes the money or property given in consideration for the stockand fully intends, during his lifetime, to have the full benefit and en-joyment of the stock. This method of transferring property upondeath is most uncertain and inadequate, because in many cases thestockholder does not succeed in accomplishing his purpose, and thisfact is discovered when it is too late.Ordinarily, without words of explanation, where stock is taken inthe names of two or more persons, except in cases of husband andwife, the law presumes that they hold, as tenants in common, an un-6 In Re: Klaus, 67 Wis. 401.7 Wisconsin Statutes Laws of 1927, sec. 183.14.8 Western U. Tel. Co. v. Davenport, 97 U.S., 369.MARQUETTE LAW REVIEWdivided and fractional9 interest in the property. This is especially truewhere the word "and" is used. Where the word "or" is used, thereexists an apparent right to recognize the signature of either person inmaking transfers during the lifetime of the person, but after one ofthe parties has died, there is a serious question as to the right of thesurvivor or survivors to transfer. Except in cases of husband andwife, there appears to be no right of survivorship in such cases. Thereare cases holding that the word "or" may be construed to mean "and,"and also vice versa, so that the facts in each particular case may havea material bearing on the rights of the stockholder.Where two or more names are used with words indicating thatthere is to be a joint tenancy with right of survivorship, it is still im-possible to recognize the rights of the survivor and transfer on hisassignment alone.10In Wisconsin, joint tenancies in personal property are not favored.If a joint tenancy is created, it is necessary that the following ele-ments be present:a. Unity of title,b. Unity of time,c. Joint possession,d. Unity of interest.If all of these elements are not present in a case, notwithstanding thefact that the stock may be described. as being owned in joint tenancy,upon the death of one whose name appears on the stock certificate, thesurvivor may not be entitled to any part of the stock. This is especiallyirue where the deceased person retained the stock certificate in hispossession during his lifetime."From the foregoing, it will be seen that when a transfer is requested,a corporation must be very cautious, because if it were to make atransfer to the survivor and a court would later hold that there wasno survivorship and that the estate of the deceased person is entitledto the stock, the corporation would be liable to such estate for theamount of the stock erroneously transferred.The law with reference to joint tenancies is somewhat differentwhen applied to husband and wife. In such cases, usually all theelements of a joint tenancy exist and it is reasonably safe for thecorporation to make transfers upon the endorsement of the survivingjoint tenant.'29 Earl v. Sttwnpf, 56 Wis. 50.10 Breitenbach v. Schoen, 183 Wis. 589.11Breitenbach v. Schoen, 183 Wis. 589.12 Da Pont v. Jonet, 165 Wis. 554.TRANSFERS OF STOCKSSTOCK TRANSFERRED BY TRUSTEES AND FIDUCIARIESIn making transfers for an executor where the stock is in the nameof the decedent, the corporation is charged x;ith notice of the existenceof a will and it must be careful not to transfer in violation of theprovisions of the will since the will is the source of the power of theexecutor.13 If the will contains a specific restriction on the power ofthe executor to transfer, the corporation cannot recognize his requestwithout an order of the court, and if the specific stock is given byspecific provisions of the will to a certain person, the transfer by thecorporation can only be made to such legatee. 14 It is for this reasonthat the corporation making the transfer requests a surrender of thecertificate endorsed by the executor, a certified copy of the letterstestamentary, and a certified copy of the will. The corporation hasthe right to demand such documentary proof.'5An administrator of an estate, under Wisconsin law, is subject tono restrictions so far as a transfer of personal property is concerned.The administrator has the absolute power to sell and dispose of allthe personal property belonging to the estate of the deceased and inthe absence of fraud or collusion, to give a good title thereto withoutany previous order of the Probate Court authorizing or directing suchsale; but by so doing, he will make himself liable for the appraisedvalue of the property sold whether he sells it for so much or not.16In making a transfer of stock, a corporation must look to his letters.And it should require a certified copy, together with a surrender ofthe stock certificate properly endorsed.Where a transfer is requested by a trustee or a guardian, a cor-poration is charged with a notice of the trust and it must be carefulnot to transfer in violation of it.'7 Where the corporation has actualor constructive notice that the stock is held in trust, it becomes itsduty to ascertain whether the trustee has the authority to transferstock, and it is liable to the beneficiary if, without inquiry, it permitsa transfer in violation of the terms of the trust.INHERITANCE TAXESIn connection with the estates of deceased persons where the de-ceased person owning the stock was, at the time of his death, a non-resident of the state, the corporation must, in accordance with the13Fletcher Cyclopedia Corporations, volume 6--6456.14 Wooten v. Wilmington & W. R. Co., 56 L.R.A., 615.15 Western U. Tel. Co. v. Davenport, 97 U.S., 369.16 Williatms v. Ely, 13 Wis. 1; Munteith v. Rahn, 14 Wis 210; Cleveland v.Harrison, 15 Wis. 671.17 Fletcher Cyclopedia Corporations, volume 6--6444.MARQUETTE LAW REVIEWprovisions of the Wisconsin Inheritance Tax Law, secure a releasefrom the Tax Commission of Wisconsin before making any trans-fers.'8 On July 18, 1929, a law became effective in Wisconsin wherebythe stock of Wisconsin corporations, owned by non-residents, is exemptfrom Inheritance Tax in Wisconsin, provided the state of which thedeceased was a resident at the time of his death granted similarprivileges to residents of Wisconsin. 19 At the present time, all of theforty-eight states grant similar privileges to residents of Wisconsin,excepting the following:Arizona Minnesota OklahomaKansas Nebraska UtahKentucky Montana South DakotaLouisiana North DakotaResidents of these states are not entitled to reciprocity and they are,therefore, liable to the Inheritance Tax in Wisconsin.The Tax Commission of Wisconsin has formulated no rules as tothe procedure for securing' releases. At the present time, it requiresa verified statement on a form prescribed by the Commission, and ifit finds, from such proof, that the stock is not subject to the InheritanceTax, it issues a certificate authorizing the transfer. In cases wherethe stockholder is a resident of a state to which the reciprocity lawdoes not apply, it requires, certain information regarding the estateand the distribution of it, and if there is no tax, it issues its certificateauthorizing a transfer, but if there is a tax, upon payment of it, itissues such certificate.The right of a partner in a partnership to transfer stock of a cor-poration is somewhat uncertain, but if it is transferred in the regularcourse of the partnership business, one partner is the agent of thepartnership. 20CORPORATIONSIn a case of a corporation owning stock, the transfer may be madeby the proper officers.Usually the assignment is made by the president ,or the vice-presi-dent, and countersigned by the secretary or assistant secretary. Incases of Trust companies having large numbers of officers, it is com-mon for the board of directors to designate certain officers to whomfull authority is given to transfer stock without a countersignature.In such cases, a certified copy of the resolution granting such author-ity should be required by the corporation before making a stocktransfer.18 l'isconsin Statutes Laws of 1927, sec. 72.11, subsection 2.19 Wisconsin Statutes Laws of 1929, chapter 298.20 Wisconsin Statutes Lawvs of 1927, sec. 123.06.TRANSFERS OF STOCKSUNINCORPORATED SOCIETIESIn the case of stock being held by an unincorporated organizationor society, before any transfer of stock is made by the corporation,a certified copy of the resolution granting power to such officers ordirectors, should be filed with the corporation.OTHER GENERAL MATTERS RELATING TO TRANSFERS OF STOCKA corporation is often asked to make a transfer of stock directlyto heirs when such stock constitutes the entire estate of the deceasedperson. This request is frequently made so that the interested personmay avoid the. expense of probate or administration proceedings.There is no law granting protection to a corporation making suchtransfers. It is largely a question of policy to be decided by a cor-poration itself, and where a very small amount of stock is involvedand such stock constitutes the entire estate, a surety bond is sometimesaccepted and the transfer made.When a certificate of stock is lost, the corporation cannot make atransfer. One of the first requirements in making a transfer is thesurrender for cancellation of the certificate. Under such circumstances,the owner of the stock may give a bond with sufficient surety to pro-tect the corporation or any person injured by the issuance of the newcertificate from any liability or expense which it may incur by reasonof the original certificate remaining outstanding. With this protec-tion, the corporation can then issue a new certificate in place of theone lost or destroyed.If a corporation should refuse to issue such a certificate or to accepta bond, the stockholder may apply to the court and obtain an orderfor the issue of such new certificate. 21In case of a controversy involving the stock of a corporation wherethe corporation has no sufficient means to protect itself from con-flicting claims, it may file a bill of interpleader and surrender thecertificates to the court and have the court pass upon the conflictingclaims and enter a final judgment before making a transfer. 2Whenever a corporation, without sufficient cause, refuses to makea transfer, the person lawfully entitled to the stock has a remedyother than the one hereinbefore mentioned. He may apply to thecourt for an order requiring the corporation to show cause why thetransfer should not be made, and if the court is satisfied that the de-mand for transfer is justified, it can make an order to the proper2 1 Wisconsin Statutes, Laws of 1927, sec. 183.16.2 2 Miller v. Doran, 151 I1. App. 527; New York & N. H. R. Co. v. Schuyler,34 N.Y., 30.MARQUETTE LAW REVIEWofficers of the corporation to make such transfer, and to punish forcontempt if its order is not carried out.'A large per cent of the corporations have never deemed it necessaryto secure any legal advice on questions of stock transfer, and for thisreason a good many officers of corporations have not realized theimportance of being fully acquainted with the laws governing transfers.This article is not written for the purpose of covering all the problemsthat may confront a corporation in connection with the transfer ofstock, but covers only those more general questions which most fre-quently arise in the everyday affairs of a corporation.24fVisconsin Statutes, Laws of 1927, sec. 183.24.

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Transfers of Stock on the Records of a Wisconsin Corporation

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