This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 560.— In Mr. MacLaren's work on banking, in commenting on section 43 of the Bank Act, he says: " The person who stands in the books of the bank as the registered owner of shares, has the right to deal with them and transfer them. If, however, he holds them in trust, to the knowledge of the directors or officers of the bank, and is about to commit a breach of trust, they should notify the cestui que trust in order that he may take steps to prevent it by injunction, or otherwise."
In this connection I should like to ask the editing committee of the Journal the following:
(1) Would the bank have the right to absolutely refuse to transfer pending action by the cestui que trust ?
(2) If the cestui que trust were a minor, or a person not having exercise of his rights, or if the bank had no knowledge of his whereabouts, would they have the right to refuse to transfer?
Answer.—We think that Mr. MacLaren's statement above quoted is too wide, if, in saying that the bank should notify the cestui que trust, it is meant that it is the bank's duty to do so. Probably all Mr. MacLaren meant was that it would be a prudent or proper thing for the bank to do; not that it was under any legal obligations to do so.
Section 43 of the Bank Act declares that "the bank shall not be bound to see to the execution of any trust, whether express, implied or constructive, to which any share of its stock is subject." In commenting upon the same words in the charter of the Molsons Bank the Privy Council, in the case of Simpson v. Molsons Bank, reported in L. R., App. C. 1895, p. 270, say: "This language is general and comprehensive. It cannot be construed as referring to trusts of which the bank had not notice, for it would require no legislative provision to save the bank from responsibility for not seeing to the execution of a trust, the existence of which had not in some way been brought to their knowledge. The provision seems to be directly applicable to trusts, of which the bank had knowledge or notice, and in regard to these the bank, it is declared, are not to be bound to see to their execution."
We do not see how it could be held, in the face of the express provision that the bank shall not be bound to see to the execution of any trust, and in the face of the decision of the Privy Council, that this provision is directly applicable to trusts of which the bank has knowledge, that the bank is bound to interfere with any transfer which the shareholder sees fit to make.
Dealing with the case apart from the provision of the statute, and this is the way in which Mr. MacLaren evidently has dealt with it, the Privy Council say: "It may be that notice to the bank of the existence of a trust affecting the shares would have cast upon them the duty of ascertaining what were the terms of the trust. . . Assuming this point in favour of the appellants, their Lordships, however, see no reason to doubt that by the clause in question the hank are relieved of the duty of making enquiry, and that they cannot be held responsible for registering the transfer, unless it were shown that they were at the time possessed of actual knowledge which made it improper for them to do so, until at least they had taken care to give the beneficiaries an opportunity of protecting their right." It will be observed that this is "apart from the provision of the statute."
Answering our correspondent's first question, we would point out that the statute, although relieving the bank from the obligation to see to the execution of any trust, does not deprive the bank of any right which as a corporation it would have with respect to the transfer of its shares, and if it possessed actual knowledge that the proposed transfer would be a breach of trust, it would, we think, have the right to refuse to allow the transfer to be made, until at all events the cestui que trust had an opportunity of protecting his rights, and this would be a prudent and proper thing to do; but, should it turn out that the bank's opinion as to the breach of trust was unfounded, it would have to take the consequences of refusing to allow the transfer.
With reference to the second question, we think that the bank's right to refuse the transfer would depend upon whether a breach of trust would be committed or not. The fact that the cestui que trust was a minor, etc., or that the bank had no knowledge of his whereabouts, would not affect the question one way or the other.
It is possible that, notwithstanding the statute, the bank might incur a liability if the circumstances connected with the transfer and the breach of trust were such as to warrant the Court in holding that the bank really and knowingly joined in committing the breach, but short of this we think it could not be made liable for permitting the transfer to be made.