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Forged Transfer

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FORGED TRANSFER. Where a banker takes as security a transfer of stock or shares registered in the names of several holders, it is advisable that th transfer should be signed at the bank by each holder, because if one of the holders forges the signature of another holder to the transfer, the banker, even after registration and ultimate sale of the stock, may be compelled to make good the value of the stock to the true owner. This point was decided in the important case of the Sheffield Corporation v. Barclay and others (1905, A.C. 392). The House of Lords (1905) reversed the decision of the Court of Appeal (1903) and restored that of the Lord Chief Justice (1902), where judgment for the plaintiffs was given for the amount claimed.

The Lord Chancellor (the Earl of Halsbury) said : " Two persons, Timbrell and Honny , were joint owners of corporation stock created under a local Act of Parliament.

Timbrell, in fraud of Honnywill, forged a transfer of the stock, and borrowed money on the security of the stock which the transfer was supposed to have transferred. A bank which lent the money sent the transfer to the proper officer of the corpora tion, and demanded, as they were entitled to do, if the transfer was a genuine one, that they should be registered as holders of the stock. The corporation acted upon their demand ; they transferred the stock into the names of the bank, and the bank in ordinary course transferred it to holders for value. The corporation also, in ordinary course, issued certificates, and the holders of these certificates were able to establish their title against the corporation, who were estopped from denying that those whom they had registered were the stockholders entitled. Honnywill, after the death of Timbrell, discovered the forgery that had been committed, and compelled the cor poration to restore the stock, and the question in the case is whether the cor poration has any remedy against the bank who caused them to act upon a forged transfer, and so render themselves liable to the considerable loss which they have sustained. Now, apart from any decision upon the question (it being taken for granted that all the parties were honest), I should have thought that the bank were clearly liable. They have a private bargain with a customer. Upon his assurance they take a document from him as a security for a loan, which they assume to be genuine. I do not suggest there was any negligence—perhaps business could not go on if people were sus pecting forgery in every transaction—but their position was obviously very different from that of the corporation. The corpora tion is simply ministerial in registering a valid transfer and issuing fresh certificates. They cannot refuse to register, and though for their own sake they will not and ought not to register or to issue certificates to a person who is not really the holder of the stock, yet they have no machinery, and they cannot inquire into the transaction out of which the transfer arises. The bank, on the other hand, is at liberty to lend their money or not. They can make any amount of inquiries they like. If they find that an intended borrower has a co-trustee, they may ask him or the co-trustee himself whether the co-trustee is a party to the loan, and a simple question to the co-trustee would have prevented the fraud. They take the risk of the transaction and lend the money. The security given happens to be in a form that requires registration to make it available, and the bank ' demand,' as, if genuine trans fers are bought, they are entitled to do, that the stock shall be registered in their name or that of their nominees, and are also entitled to have fresh certificates issued to them selves or nominees. This was done, and the corporation by acting on this ' demand ' have incurred a considerable loss. As I have said, I think if it were res Integra I should think the bank were liable ; but I do not think it is res Integra, but is covered by authority. In Dugdale v. Lovering, (1875,

10 C.P., 196), Mr. Cave, arguing for the plaintiff, put the proposition thus It is a general principle of law when an act is done by one person at the request of another, which act is not in itself manifestly tortious to the knowledge of the person doing it, and such act turns out to be injurious to the rights of a third party, the person doing it is entitled to an indemnity from him who requested that it should be done.' . . . I think both upon principle and authority the corporation are entitled to recover. . . ." The Forged Transfers Acts, 1S91 and 1892, were passed with the object of enabling purchasers of stock to be protected from losses through forged transfers. Companies, however, are not obliged to adopt them, and those which have adopted them are chiefly railway companies. Section 1 of the 1891 Act is as follows : " 1. (1) Where a company or local authority issue or have issued shares, stock, or securities transfer able by any instrument in writing or by an entry in any books or register kept by or on behalf of the company or local authority, they shall have power to make compensa tion by a cash payment out of their funds for any loss arising from a transfer of any such shares, stock, or securities, in pursuance of a forged transfer or of a transfer under a forged power of attorney whether such loss arises, and whether the transfer or power of attorney was forged before or after the passing of this Act, and whether the person receiving such compen sation, or any person through whom he claims, has or has not paid any fee or otherwise contri buted to any fund out of which the compensation is paid." (The words " whether such loss, etc.," were added by the 1892 Act.) Any company or local authority may, if they think fit, provide, either by fees not exceeding the rate of one shilling on every one hundred pounds transferred, with a mini mum charge equal to that for twenty-five pounds, to be paid by the transferee upon the entry of the transfer in the books of the com pany or local authority, or by insur ance, reservation of capital, accu mulation of income, or in any other manner which they may resolve upon, a fund to meet claims for such compensation." (The words " with a minimum charge equal to that for -125 " were added by the 1892 Act.) For the purpose of providing such compensation any company may borrow on the security of their pro perty, and any local authority may borrow with the like consent and on the like security and subject to the like conditions as to repayment by means of instalments or the provision of a sinking fund and otherwise as in the case of the securities in respect of which com pensation is to be provided, but any money so borrowed by a local authority shall be repaid within a term not longer than five years. Any expenses incurred by a local authority in making compensation, or in the repayment of, or the pay ment of interest on, or otherwise in connection with, any loan raised as aforesaid, shall, except so far as they may be met by such fees as aforesaid, be paid out of the fund or rate on which the security in respect of which compensation is to be made is charged.

Any such company or local authority may impose such reasonable re strictions on the transfer of their shares, stock, or securities, or with respect to powers of attorney for the transfer thereof, as they may consider requisite for guarding against losses arising from forgery. Where a company or local authority compensate a person under this Act for any loss arising from forgery, the company or local authority shall, without prejudice to any other rights or remedies, have the same rights and remedies against the person liable for the loss as the person compensated would have had." (See COMPANIES, TRANSFER OF SHARES.)