#### *The South-Carolina Manufacturing Company and others*vs. *The Bank of The State of South-Carolina, Wade Hampton and others.*

Money was loaned to a corporation on the bond and mortgage of the Company — the stockholders haying, by contract, become, individually, sureties for the repayment of the loan : *Held,*that other creditors of the Company had no equity to compel the lender to exhaust his remedy against the sureties before resorting to the Company for payment.

A bond and mortgage given for money loaned by the Nesbitt Manufacturing Company, *held*valid, under their charter.

The solvent stockholders of the Nesbitt Manufacturing Company *held*not hound to make up for the benefit of creditors of the Company the deficiency of defaulting and insolvent subscribers.

Instalments due to the Company by a defaulting stockholder, are barred by the statute of limitations after four years.

Though a creditor of the Company may be subrogated to its rights against a defaulting stockholder, yet ho will be barred by the statute of limitations whenever the Company would be.

*Before*Dtjnkin, Ch., *at*Charleston, *February,*1853.

Dunkin, Oh. In December, 1836, the Nesbitt Manufacturing Company was incorporated, with a capital of three hundred thousand dollars, to be made up of six hundred shares, of five hundred dollars each. This was to be paid as follows : one-third, whenever called in by the Board of Directors, during the year 1837 ; one-third of the balance, as called for by the Board of Directors, during the year 1838 ; one-third, as called for, during the year 1839 ; and the remaining third, as called for, during the year 1840. By the fourth clause of the charter, the stock of defaulting subscribers was declared to be forfeited to the Company, upon certain conditions, and with certain reservations, therein specified. The subscribers were Wilson Nesbitt, F. H. Elmore, Wade Hampton, William E. Martin, William Clarke, Thomas Cooper, B. J. Earle, Samuel M. Earle, Joseph N. Shelton, Moses Stroup, I. E. Nott, John G. Brown, B. T. Elmore, and P. M. Butler, for the shares affixed to their names, respectively, in the books of the Compa*228ny, and making, in the aggregate, the six hundred shares, of five hundred dollars each.

By the sixth clause, the Company was authorised to increase its capital to one million of dollars, for the purpose of carrying on its operations, either by enlarging the stock of the stockholders, opening subscriptions for new stock, selling new stock, or by borrowing money on the credit of the Company. Of the privilege of thus increasing the capital, it may be here remarked, the Company never availed themselves.

The seventh clause declares that, “ for the purpose of giving security for any loans made to said Company, either to commence its operations, or to increase its capital, the said Company may mortgage its charter, works, lands, and personal property, of every description and by the ninth clause, the Company is authorized, generally, “ to sell, alien, transfer, convey and deliver any property, real or personal, which they may possess or acquire.”

Three days after the passage of the Act, to wit, 24 December, 1836, the individual stockholders of the Company, reciting that the incorporated Company had it in contemplation to obtain, by loan, a sum of money not exceeding two hundred thousand dollars, to secure the payment whereof the said Company would execute its bond or bonds, or other obligations, with a mortgage or mortgages of its charter, stock, and estate, real and personal, or such part thereof as might be agreed on; and that the said stockholders had agreed to become, individually, securities for the repayment of said loans, they thereby constituted F. H. Elmore their attorney, to sign any contract for them to become sureties for such loan. And afterwards, to wit, on the 17th May, 1837, the Bank of the State of South-Carolina, by an agreement with F. H. Elmore, reciting the premises, bound themselves, upon the condition that the Company would, when required, execute bonds with the aforesaid stockholders, as sureties, and a mortgage of the charter, &c., undertook to “ advance and loan to said Company, as it might be required, and the means and ability of the Bank would allow, such sums of *229money, as might be required to enable said Company to complete their works for the manufacture of iron, and put the same in full operation.”

Under this arrangement, large advances, on loans, were made by the Bank of the State. In 1840, they took a bond and mortgage from the Company; and in Oct. 1843, the President of the Company confessed a judgment to the Bank, on which execution was duly issued. In February, 1845, the Bank of the State instituted proceedings in this Court, in behalf of themselves, and such other creditors of the Nesbit Manufacturing Company as should make themselves parties to the suit, against the said Company. Under a decretal order, the Master, in September, 1845, sold the whole estate, real and personal, of the Company, including the chartered rights and privileges. The amount realized, as appeared by a subsequent report, was ($144,002 82 cents) one hundred and forty-four thousand and two dollars and eighty-two cents ; and the Master reported that the amount due to the Bank of the State, and other creditors, who had established their demands under a published notice, was two hundred and seventy-three thousand and eighty-five dollars and thirty-eight cents, ($273,085 38;) that the amount due on the judgment and mortgages of the Bank of the State, and on mortgages to other creditors, would exhaust the assets, and leave nothing for the general creditors ; and that a balance would still be due to the Bank of the State, of ten thousand four hundred and twenty-three dollars and forty-three cents ($10,423 43.) The Master further reported, that of the subscribers to the capital stock, six had failed to pay up their subscriptions, and that the amount due by these parties was fifty-two thousand seven hundred and ninety-five dollars and twenty-eight cents ($52,795 28;) that four of these parties were dead, two had removed from the State, and, he was informed, all were insolvent. The reports of the Master were confirmed by the Court, and the final order made 12 July, 1847.

The complainants, in the proceedings now pending, never made themselves parties to the suit instituted by the Bank of *230the State, although they had notice of the same. The issues between the plaintiffs and the Bank of the State have no con-nexion with the claims against the other defendants, and their defence depends on distinct principles. This bill was preferred on 22d February, 1848, and the complainants are unsatisfied creditors of the Nesbitt Manufacturing Company ; some of their demands having been reduced to judgment, and others being on simple contracts. All the judgments are junior to that of the Bank of the State. In February, 1850, a special order of reference was made by Chancellor DargaN ; and on 12 July, 1852, the Master’s report was filed, in which he refers to the proceedings in the *Bank of the State*vs. *Nesbitt Manufacturing Company,*and states that the assets have been distributed, in conformity with the decree. The case has been argued against the Bank of the State, as if the fund were still in the custody of the Court. On the part of the complainants, it is first insisted, that the Bank have two securities, to wit, the individual responsibility of the stockholders for the loans made, as well as the funds of the Company; and that they should first exhaust their remedy against the individuals, leaving the funds of the Company to those creditors, who have no other security. But it is manifest, from all the evidence, that the Company was the debtor of the Bank, primarily liable, and the security of the individuals was only collateral. The principle assumed by the complainants is sound and familiar, but is inapplicable to the case proved.

Then it is insisted, that the bond and mortgage given to the Bank are invalid. The charter of the Company, in reference to this subject, has been already recited. The agreement by the Bank to make the loans, was made in May, 1837; and they were made from time to time, until 1840, when the *Company*executed the mortgage, according to the original stipulation. It is not clear, that in 1840, any of the complainants were creditors of the Company. But this is not important. It appears to the Court, that the securities were executed and delivered, in conformity with the authority of the charter.

*231Some of the property of the Company, sold by the Master in Sept. 1845, was not covered by any specific lien, as he then reported to the Court. But it was bound, by the execution of the Bank of the State ; was recommended by the Master to be paid over; his report confirmed, and the fund paid over, in conformity with the decree, leaving the judgment and *fi.fa.*of the Bank unsatisfied. It is not perceived, that the general creditors have any equity to recall the payment so made. The Court can recognize, then, no ground upon which the complainants are entitled to implead the Bank of the State of South-. Carolina.

But the stress of the complainants’ argument, was to establish the responsibility of the defendants, Wade Hampton and the legal representative of-Franklin H. Elmore, deceased, for the deficiency of the defaulting subscribers, or stockholders. If the principles propounded are yet unsettled, it is important for the community, as well as for the parties to these proceedings, that they should be considered, and determined. Wade Hampton was a subscriber for fifty shares, or twenty-five thousand dollars, of the original capital, under the Act of Dec. 1836; and Franklin H. Elmore, for a like amount. Both paid their subsciptions in full. But six other subscribers, to the amount, in the aggregate, of fifty-two thousand seven hundred dollars, failed to pay their subscriptions. Five of the six are insolvent. It is insisted, that the other solvent stockholders are bound to make up this defalcation. The axiom is not called in question, that a corporation is the creature of the charter. The individuals, who subscribe to the stock, or become members of the corporation, incur no personal liability, unless as prescribed by the terms of the charter. *“*The charter,” says Mr. Justice Story, *“*relieves them from personal liability, and substitutes the capital stock in its stead.” *Wood*vs. Dummer, 3 Mason, 311. This exemption has created great jealousy in the minds of the community, and, at times, induced extreme reluctance5 on the part of the Legislature, to create new corporations. This indisposition has gradually assumed the character of astute *232vigilance, in enlarging the security of the community, by various safeguards. But originally, the capital stock was the only fund to which creditors could resort. *“*Credit is universally given,” says the author above cited, *“*to this fund, by the public, as the only means of payment.” This capital stock may exist, or be created, in various modes. Sometimes a number of individuals, engaged in a particular enterprise, may be in possession of the property, and desire, and obtain a charter of incorportion. Such was the Glen’s Spring Company, and the Charleston New Theatre Company. But in the most ordinary applications for a charter of incorporation, the enterprise demands a larger capital than individuals would be disposed to embark, and is to be made up in such manner as the Legislature may prescribe. Such are Banks, Insurance Companies, &c. The capital is fixed, and the stock is divided into shares of a specified amount, in order that each subscriber may know the extent of his interest, as well as of his responsibility. The terms, and time of payment of the subscription, may be specially fixed by the Act, or may be committed to the persons appointed for that purpose. To ensure this in good faith, and to guard against any evasion, has always been an object of solicitude. Generally, forfeiture of stock has been made the penalty of a failure. to pay every instalment; and frequently, the corporation is prohibited from going into operation until a certain amount of the capital stock (sometimes one-half) has been actually paid in gold or silver, or the current Bank notes of the State. But, in the absence of such prohibitory provision, to render each subscriber responsible for the payment of the whole amount of the capital stock, would not only engraft a new liability, but be fatal to the establishment of any such institutions. It is supposed that the argument has received some countenance from the decision in *Haslett*vs. *Wother*spoon, 1 Strob. Eq.. 209. The ground of that judgment is stated at page 229. The Act of Incorporation declared, *“*and necessarily, (says the Chancellor,) on the authority of the persons applying for the charter, that its capital was then *a present capital*off60,000. And persons *233dealing with the corporation, and desiring to know what their means were, might well suppose that the whole sum had been paid in, and was in the hands of their treasurer. The fact that only $37,000 had been subscribed, or paid in, was calculated to surprise, and operated as. a fraud on the creditors, for which the corporation is responsible.” It was held, that to make good this representation, all the persons who applied for, and accepted the charter, were responsible ; and that in case of the insolvency of any, the deficiency should be made up by the pthers. Nearly all the defendants had already paid the amount, which they had originally agreed to subscribe to the Association, and the sum had been applied to the erection of buildings, &c. But they were all assessed again a fixed amount under the decree, and they were compelled, in any event, to make up the sum, which they had represented to be *“*the present capital,” at the time of incorporation. In this case, it is not suggested that the defendants made any representation, which would induce *“*persons dealing with the corporation, and desiring to know what their means were, to suppose that the whole sum of three hundred thousand dollars had been paid in, and was in the hands of their treasurer.” On the contrary, it appears on the face of the enactment, that the capital was yet to be raised; and the Legislature, having regard to the public interest, as well as that of the corporators, prescribed the mode in which it should be accomplished.

*Hume*vs. *The Winyah and Wando Caned Company,*Carolina Law Journal, p. 217, was also cited. I have neither the right, nor the disposition, to call in question, or in any manner impugn, the authority of that case, upon any point decided by. it; but it appears to me to afford little sanction to the proposition here advanced. That Company was incorporated without any declared capital; but the parties entered into a resolution, that the fund for completing the objects of the incorporation “ should be raised by assessments, to be made on the individual members, in proportion to the number of shares owned by each, according to the nature of their contracts, and the exi*234gencies of the work.” It was alleged, and by the demurrer admitted, that the defendant was $1,000 in arrears to the corporation, on account of these assessments. It was held, that this constituted a fund, to which the complainant (a creditor) was entitled, in satisfaction of his demand. But it was not determined, or contended, that the defendant, W. Matthews, was liable for the sum assessed on his co-defendants, Mr. Poinsett, Gen. Hampton, or Col. Blanding, in the event of the defalcation on the part of either of them. The Court subrogated the creditor to the right of the corporation, under the resolution to enforce the assessments against the members. To this right, the complainants are here entitled. And this brings the Court to the consideration of the case of Dr. Thomas Cooper.

It appears from the Master’s report, that Dr. Cooper was a subscriber for a certain number of shares in the stock, and that he had not paid his subscription. The Court has not been furnished with the evidence, on which the Master’s report was founded. The instalments were payable in 1837, ’38, ’39, and ’40. Dr. Cooper died in. the Spring of 1839. His executor, Dr. De Leon, paid his debts, and gave bond for the surplus, $3,600, to certain trustees. This bill was filed on the 22d February, 1848: and the case was argued upon the plea of the Statute of Limitations. The undertaking of Dr. Cooper, was a simple contract to pay five thousand dollars, by instalments ; the last instalment falling due in 1840. It has been decided, in recent cases, that for non-performance of this agreement, the corporation were entitled to maintain an action of *assumpsit*against a defaulting subscriber; and that the forfeiture of the stock, was only a supplementary remedy. In four years and nine months after the action accrued, certainly in October, 1845, the action of the Company would be barred, and their right gone. Are the creditors of the corporation in any better situation *1*It appears to the Court a misapprehension to suppose that, as between the creditors of a corporation and a defaulting subscriber, any *trust*exists. The fiduciary relation may be between the creditors and the corporation, but the contract of the sub*235scriber to the stock is direct and single. No privity exisits between him, as an individual, and any creditor of the corporation. He can only be reached by the creditor through the corporation ; and this is the only equity of the creditor, to wit, to be subrogated, *pro hac vice,*to the rights of the corporation. If the rights of the corporation are lost, or their remedy barred, the creditor has no equity to revive them. The Statute of Limitations is not an act of amnesty. It probably proceeds on the presumption that the debt has been paid, but that, from lapse of time, the evidence of payment has been lost or destroyed. What should debar the representative of Dr. Cooper from the benefit of this presumption ? What right of complaint against the representative of Dr. Cooper had the creditors, in February, 1848, which the corporation had not in 1840, and which was satisfied, or lost, in 1845 ?

It was suggested, that the proceedings of the Bank in 1845, had kept alive, or recognized, the liability of Dr. Cooper. But it is sufficient to reply, that the representative of Dr. Cooper was no party to those proceedings. The supplementary order of reference was merely for information, as a basis for making new parties; and the report of the Master effectually chilled all further action, or inquiry.

It may be, that the corporation were remiss in exacting payment from defaulting subscribers. But this is a matter between the stockholders and the directors, or between the corporation and the creditors. It has been already intimated, that the course of legislation, in this State, on the subject of corporations, at once indicates what is well understood to be the law, what are the evils, and in what manner the Legislature have endeavored to prevent those evils, while they still secured to the country the unquestionable advantages of such institutions. After passing several improvident Acts, by which a few irresponsible individuals were enabled to obtain credit, with no other claim to it than a charter of incorporation, the Legislature became justly alarmed at the consequences of their own imprudence, and abruptly closed the door to all further appli*236cations. But this very salutary jealousy has been gradually tempered by a more liberal spirit. As early as 1801, stockholders in Banks, in case of the' failure of such institutions, were declared liable for twice the amount of their subscription, or of the value of any stock, which they held within twelve months of the failure of the Bank. For several years immediately previous to 1838, many companies were incorporated for manufacturing, and similar purposes, which obtained a temporary credit, and then became insolvent. In 1841, it was declared that, *“*it should become part of the charter of every corporation, which should receive a grant of a charter, or any renewal, amendment, or modification thereof, (unless the Act should in express terms except it,) that every charter of incorporation granted, renewed, or modified as aforesaid, shall at all times remain subject to amendment, alteration or repeal, by the Legislative authority.” In 1845, the Legislature incorporated several manufacturing companies, but under new and very stringent provisions. They were prohibited from going into *operation*until *one-half*the capital stock had been actually paid in : the members of the corporation were then declared liable, *jointly*and severally, for all debts and contracts made by such corporation, until the *whole*amount of the capital stock had been actually paid in. And again, if the total amount of the debts which the said corporations should *at any time*owe, exceeded the amount of the capital stock actually paid in, “ the Directors under whose administration it should happen, are declared, jointly and severally, liable for the same in their natural capacities.” All these precautions, are designed to protect the community from the danger of a fictitious credit. Having no original resource for the payment of their debts, but the capital of the ideal personage created by the charter, the payment of this is scrupulously secured, and then is superadded a limited individual responsibility, which would not otherwise exist. In the charter of the Nesbitt Manufacturing Company, no such individual liability is declared, and the remedy of the creditors is limited to the corporate assets.

*237It is ordered and decreed that the bill be dismissed.

The complainants appealed on the grounds:

1. Because the debt contracted with the Bank primarily, was a debt of the individuals who negotiated with the Bank; and the Corporation should not be held liable, unless the individuals who contracted that debt were unable to pay.

2. Because the Bank, if a creditor of the corporation, was a creditor holding two classes of securities : (1) the obligations of the individuals who contracted the debt; and (2) the assets of the corporation. And if the Bank elected to be paid from either of these securities, it was bound to preserve the other, as a security for those who had a legal claim only on the security which the Bank has exhausted.

3. Because the Bank cannot be held, against *Iona fide*creditors, as a creditor of the corporation : for the loan which is assumed to have been made to the corporation, was not made under the circumstances which, in the charter, authorized the loan ; and because it was a loan to individuals, who were then, and are still, indebted for their subscription to the capital of the Company.

4. Because the confession of judgment was unlawful, and should have been set aside.

*5.*Because the sum of $8,000, reported by the Master, as assets of the corporation not bound by any specific lien, should have been applied to the payment of all the creditors of the corporation, and not appropriated to the benefit of the Bank of the State.

6. Because the capital of an Incorporated Company is the fund to which, alone, creditors can resort for the payment of debts: that the acceptance of the charter binds all stockholders for the payment of such capital: that in consideration of such liability, the stockholders are entitled to the benefit of all corporate privileges, including the exemption from being sued at law, or being made liable in this Court to make up more than any deficiency, in the capital of such Company. And in case *238of such deficiency, the solvent stockholders are liable to make good the same, for the benefit of the creditors of the Incorporated Company.

*7.*Because this principle applies, whether the capital required in the charter be described as present capital, or otherwise: and whether the charter specifies a division of the capital into shares, or not. The capital being a substitute for the personal liability of the stockholders, will always be required to be paid in for the benefit of creditors: and the arrangement of shares, or other division of the capital, being matters within the control of the stockholders, will not be held so to operate, that the capital, the only fund to which creditors can resort, shall be unpaid, while *bona fide*creditors are unsatisfied.

8. Because each stockholder, without the charter, is liable as a member of a joint stock Company. By the charter, that liability is reserved, and the capital substituted. And each stockholder, who, by the charter, protects himself from general liability, is bound for the performance of all acts provided for in the charter, and upon which the exemption is granted.

9. Because the plea of the Statute of limitations was no de-fence, and the decree, in sustaining the plea, is erroneous. That the creditor's of the Company have no remedy at law, but only in Equity, to compel contribution for the deficincy in the capital. And to hold that creditors, in the enforcement of this Equity, shall be affected by all matters which, in an action at law between the incorporated Company and its stockholders, may be pleaded, is to affirm the proposition, that, in this Court, creditors may be barred by lapse of time, *before*their right of action has accrued.

10. Because in the case of Thomas Cooper, it was in evidence that he had not paid any part of his subscription: that he had been reported as one who was bound, but could not pay •’ while the answer of his executor, in this case, admitted assets. And no other conclusion can be had, than that the report in the case, in which he was named as utterly insolvent, was errone*239ous, and had operated to lead this Court into the commission of a wrong and injury to the complainants.

11. Because the decree is in other respects erroneous, and should be reversed; and the complainants have the relief asked for in their bill.

*Magrath,*for appellants.

*Petigru, Hayne, Torre, Martin,*contra.

*Per Curiam,.*

We concur in the judgment of the Chancellor : which is hereby affirmed. And it is ordered that the appeal be dismissed.

Johnston, Dunkin and Wardlaw, CC., concurring.

Dargan, Ch., absent at the hearing.

*Appeal dismissed.*