#### *William Maybin*vs. *John T. Kirby, Simpson Bobo, The South Carolina Manufacturing Company, and R. Arnold, adm’r.*

Deposite of certificate of stock in an incorporated Company, in consideration of a liability incurred for tbe depositor, *held,*to create a lien in. equity upon tbe stock to tbe extent of tbe liability; and sucblien enforced against a subsequent purchaser.

Tbe assignee of a chose in action is not -svithin tbe rule which protects a purchaser for valuable consideration, without notice: tbe assignee takes only such interest.-affthe assignor lm.s, .n.nrl is bound by all the 'equities binding on the latter.

fftrSre the equities of persons, claiming under the""origin¿ hoBrnToFlreEiise in action, are equal, the maxim, *prior in tempore, potior in jure,*will apply: if the first assignee be guilty of fraud, or of such gross negligence in the assertion of his right, as enables the assignor to practice a deceit on a second purchaser, his equity will be postponed to that of the second *bona fide*purchaser.

A plea of purchase for valuable consideration, without notice, is no protection against an adverse claim of which the purchaser might have had notice, by using due diligence in investigating the title.

*Before*"VYardlaw, Ob. *at Spartanburg, June,*1851.

Tbe decree of bis Honor tbe circuit Obancell or, states tbe facts in tbe case, and is as follows:

Wardlaw, Cb. Tbe plaintiff, as surety for one William Clarke, bas paid certain sums of money; and be seeks in tbis bill to be reimbursed out of shares held by Clárke in tbe stock of tbe S. 0. Manufacturing Company.

This Company was incorporated by tbe Legislature in 1826, for tbe manufacture of iron, with tbe usual powers of corporate bodies, and with tbe privilege of bolding estate to tbe value, at first, *106of $50,000, and afterwards of $200,000, (8 Stat. 850, 353). Of tbis Company, Kirby and Bobo were large stockholders, and Clarke was a stockholder to the extent of 265 shares, at $100 a share. Clarke had been agent of this Company for several years before

1842, when he became agent of the Nesbitt Manufacturing Company, of which Elmore, Hampton and Nesbitt were stockholders, but for the year mentioned, or longer, he continued his agency for the former Company.

Josiah Kilgore, administrator of Hugh Bailey, obtained judgment at law* against Clarke for $6,738 30, and in the summer of 1843, was pressing the collection of this money, but on September 10, 1843, he agreed, -in a letter to the sheriff, to indulge Clarke, on his payment of $2,000 within twenty days. Kilgore at this time held sixty of Clarke’s shares in 'the S. C. Manufacturing Company, as collateral security for his debt, although the formaj^ assignment of these shares in the stock book of the Company was i not made by Clarke to Kilgore until February 16, 1844. I

To enable Clarke to raise the money necessary to procure- *in-J*dulgence from Kilgore, the defendant, Kirby, made a note for $2,000, dated September 27, 1843, payable to Bobo 90 days after date, at the Commercial Bank in Columbia, and Bobo endorsed the note, took it to Columbia and delivered it to Maybin, with a letter from Clarke, who was last endorser. In this shape the note was first offered to the Bank for discount, and the offer declined unless a town endorser was added. Maybin then endorsed the note and it was discounted at the Bank, and on October 5, 1843, Maybin received the proceeds and sent $1,950 31J by Caswell Bogan to the sheriff of Spartanburg. The sheriff received this sum October 7, and, the balance being advanced by Clarke, on October 10, paid $2,000 to Kilgore on his *fi. fa.*This note, when discounted, was marked “ *special,”*which, according to the usage of the Bank, indicated that payment was expected at maturity, ‘ without renewal. The note was protested for non-payment, on December 29, 1848.

In contemplation of the making and endorsement of this note, *107Clarke, on September 21, 1843, assigned, in tbe stock book, 100 of bis shares in the S. C. M. Co., to Kirby and Bobo for their indemnification on this note, and for the indemnification of Bobo on a note of $500 to Cleveland, wherein he was Clarke’s surety. This latter note has been paid long ago. On the same day, Clarko assigned 100 shares for the use of the Company, in consideration of a debt of $4,000 to the Company.

On January 6,1844, Clarke, in writing, promised that, if May-bin would give him the use of his name, on a note of $2,000 to be discounted in the Branch of the Bank of the State of South Carolina, at Columbia, and on the renewals of the same, he would immediately deposit with him a certificate of stock in the S. C. M. Co. for 265 shares, with power of attorney to sell the same, if default were made by Clarke in paying up said note and renewals, and after satisfying such debt to return the overplus to Clarke. On the same day, and on the same instrument, Elmore, Hampton and Nesbitt, promised in writing to guarantee to Maybin the payment, by Clarke, of such note and renewals on the taking of the security aforesaid. On January 9, 1844, a note for $2,000 was made by Maybin, payable in 60 days to Clarke, at the Branch Bank aforesaid and endorsed by Clarke, Hampton and Elmore. On this note was written in pencil, by one of the ofiicers of the Bank, “Nett proceeds, $1,979, W. Maybin’s check for this amount on 10th March, $1,979.” Maybin drew the $1,979 from the Branch Bank, Jan. 10, 1844, and on the same day paid to the Commercial Bank $2,006 60, in discharge of the Kirby note and interest and protest, received that note . and deposited it in the .Branch Bank, saying it would be an additional security. On the 26th of January, 1844, Clarke wrote a letter to Maybin, saying: “I send you the stock named, of which I hope to have arranged in time to give satisfaction. I will see you in a short timeand enclosing a certificate, under the seal of the Company, signed by Ben. Wofford, President, and Simpson Bobo, Secretary, dated in 1843, without further specification of time, that William Clarke is entitled to 265 shares in the S. C. M. Co., on each of which $100 *108have been paid, and that “this certificate is transferable in person or by attorney, at the Secretary’s ofiice, on the surrender hereof.”

On April 19, 1844, Kilgore, in presence of Clarke and Kirby, assigned to Kirby his *ft. fa.*against Clarke, upon which the balance then due was $3,982, taking Kirby’s two notes for $982 and $3,000, and delivering to him the 60 shares of Clarke’s stock, which he held as collateral security, although he took Clarke’s receipt for these shares. On June 19, 1844, Clarke assigned to Kirby, in the books of the Company, “subject to all prior liens,” his 265 shares as security for the Kilgore debt. On April 18, 1847, the S. C. M. Co. gave their note, since paid, to Kilgore, in place of Kirby’s note for $3,000.

In December, 1844, Gen. B. B. Foster heard the following conversation between Maybin and Kirby, in Columbia, viz: *M.*Where is Clarke ? AT. At home. *M.*He must be the most careless man in the world. I have taken up a note for him in the Bank. *K.*Is it the note for which Bobo and myself were sureties *? M.*It is. *K.*Give me the note. *M.*No, I have a settlement to make with Clarke, and I wish to see him before I give up the note.

On October 10, 1845, Clarke, reciting, that as agent of the S. C. M. Co., he had used the means of that Company for the benefit of the Nesbitt Manufacturing Company, to the amount of $10,147 75, with interest from September 9, 1844, and that the former Company had agreed to prosecute this claim against the latter Company, assigned to the S. C. M. Co., in the stock hook, his 265 shares in the Company, for the security of the said debt, or for the expenses of litigation, as the case might be.

On January 1, 1847, Clarke assigned to the Company, on its books, 80 of his shares absolutely.

On January 2, 1847,’ about $1,075 remained due upon the note in the Branch Bank, and the renewal note for that sum had been protested. Of the payments made for the reduction of the note from the original principal of $2,000 and the interest accruing, Maybin admitted that Clarke had paid $325 on May 13, 1844, *109$10 in September afterwards, and at other times $60, but claimed that all other payments had been made by himself, and the books of' the Bank showed that the payments had been made by him, and there Aras no evidence, beyond his admissions, that Clarke had famished him with money. I mention here, without understanding the application of the evidence, that plaintiff produced a note for $40 17, dated January 19, 1843, by Clarke, President of the Nesbitt Manufacturing Company, to Stacker, and the note of Clarke to Maybin, dated January 19, 1846, for $113 66. Stacker was the agent in Columbia of a stage contractor, and Maybin was a tavern keeper there, and it seemed to be inferred that these notes were given for Clarke’s stage and tavern expenses in attending to his notes in Bank.

On this January 2, 1847, in a conversation between Elmore and Clarke, Elmore called Clarke’s attention to the note in the Branch Bank, suggested the injury to Maybin’s credit from the non-payment of the note and the propriety of its re-instatement in. the Bank. Clarke acknowledged Maybin’s kindness in making advances for him on the renewals and his obligation to indemnify Maybin, and he, Clarke, drew a note to Maybin, payable at the Branch Bank, which was left in blank, as neither Elmore nor Clarke knew the amount that had been paid by Maybin, and he drew a power of attorney to Maybin, authorizing Maybin to reinstate and renew the said note as often as might be necessary and pledging his said stock anew for the previous advances of Maybin, and for any he might make subsequently. Both Clarke and Elmore at this time supposed that the original note of January 9, ¡J.844, had been made by Clarke and endorsed by Maybin, and so described it in the power of attorney, and from this mis-description the paper was unsuitable and unused.

On January 15, 1847, Clarke, in consideration of his indebtedness to the S. C. M. Co. in the sum of $17,753 29, sold and transferred to said Company his 265 shares in the stock of said Company, 19 mules, 4 horses, stock of cows and calves, all his wagons, carts and harness, all his corn, fodder, oats and hay, all *110his wood, coal and ore on hand, and all his tools as carpenter and farmer, and for the furnace or for coaling or raising ore or cutting wood, conditioned that unless he paid his debt within two months, the agent of the company might sell the same, after two months’ public notice of the time and place of sale. This mortgage was executed by Clarke, diming his last illness, in the presence of one J. Gr. Clowdy.

Clarke died January 17, 1847, and administration of his estate was granted February 22, 1847, to Bobert Arnold who is a defendant in this suit. His estate is utterly insolvent.

On July 23, 1847, Maybin brought suits at law as second endorser of the note in the Commercial Bank, against Kirby as maker and Bobo as first endorser of said note. The case against Kirby was tried on the circuit, at March term, 1849, and resulted in a verdict for defendant, (which was confirmed by the Court of Appeals at December term, 1849,) on the ground that the note in the Commercial Bank was in fact paid by Clarke, *for whose*accommodation it was discounted. The equities of the plaintiff, growing out of his payments on the note in the Branch Bank, were not concluded. The case against Bobo has not been tried, but on the motion of the defendant, I put the plaintiff to his election as to Bobo, to proceed at law or in this forum; he elected to proceed in equity. I also mention, to avoid any appearance of suppression, that I overruled the exceptions filed by the plaintiff to the answers, and that I rejected the depositions of Colonel Elmore, taken in the cases at law, but not read there.

On December 6, 1847, William Walker, as agent of the S. C. M. Co., under the mortgage of January 15, 1847, sold at public outcry after two months’ public notice, 185 shares in the stock of said Company, being the whole of Clarke’s shares, after deducting the 80 assigned to the Company on January 1, 1847, and they were bought by the Company at 35 dollars a share, making the aggregate sum of $6,475. At this sale it was announced by the agent that the Company .would assume the risk of paying or discharging all precedent liens, and that the purchaser should *111bare an unincumbered title. This announcement, according to the answer of Walker, Agent and President of the Company, was made in reference to any claim that might bé set up under the mortgage to Kirby and Bobo, “ as the. plaintiff, since Clarke’s death, had intimated that he intended to make the Company pay.”

A. W. Thomson, from the beginning a stockholder in this Company, testified that Maybin, in his presence, got' from the Branch Bank the original notes to the Commercial Bank, and the Branch Bank, and the papers connected therewith, and that before the suits at law were brought, he, the witness, offered on the part of Maybin to Bobo, who was Secretary and Solicitor of tho Company, to surrender the scrip for Clarke’s shares and all liens to the Company, if Maybin’s claim should be paid; but he mentioned nothing of Clarke’s payments to the Branch Bank, nor of the noto to the Branch Bank, regarding the note in the Commercial Bank, as the measure of Maybin’s damages. Bobo and Walker, in tlieir answers do not admit, but deny notice of Maybin’s possession of this scrip, before the suits at law or the sale in December, 1847, and if the fact be important, it is not proved according to the rules of evidence; in my view the fact is unimportant. It is admitted that before this bill was filed the Company had full notice of Maybin’s claim.

At a meeting of the stockholders of the S. C. M. Company, held January 27, 1837, a bye-law was adopted, *“*that all transfers of stock shall hereafter appear on the books of the Secretary by the certificate of the person selling.” Again at the meeting in January, 1839, these bye-laws were adopted, “ that the transfer of stock shall be made on the books as now required, and that when any stockholder sells less than the amount of his whole shares he shall produce his certificate to the Secretary, who shall indorse thereon the number of shares sold, and to whom sold; whereupon the new stockholder shall be entitled to his-certificate; that when a stockholder sells out his whole stock, he shall transfer in writing his certificate of stock to the purchaser; whereupon the new purchaser may demand his certificate; that so far as the Company *112and its interests are concerned, no transfer of stock shall bo considered as perfect until the foregoing regulations for transfers, are complied with.”

. In this state of facts this bill was filed by Maybin on April 18, 1850. In the prayer of the bill and in *the*argument of -his counsel, his claim to bo reimbursed for the monies he has paid on account of Clarke is maintained in various forms and on different grounds of equity.

First, it is said the defendants are personally liable to him. To this it is well answered, that Clarke’s estate, represented by defendant Arnoldj is utterly insolvent; that there is no privity of contract between the plaintiff and the S. 0. M. Co., and that the claim by contract against Kirby and Bobo, if not determined by the Court of Law, is barred by the plea of the statute of limitations, of which these defendants have availed themselves.

Again : It is strongly urged that Maybin’s note in the Branch Bank was merely a substitution for the note of Kirby endorsed by Bobo and discounted in the Commercial Bank, and that the latter being negotiated for the purpose of paying a portion of Kilgore’s execution, and the proceeds being so actually used, it should represent so much of this execution .as it paid, with all its collateral securities; consequently, that the plaintiff, by subrogation or substitution is entitled to the benefit of the 60 shares in the stock of the S. C. M. Co., assigned by Clarke to Kilgore as collateral security, and to 80 of the 100 shares assigned to Kirby and Bobo, as collateral security for the note made and endorsed by them, granting that 20 of these latter shares were assigned to Bobo individually for the Cleveland debt. It is not my purpose to discuss the doubtful doctrines thus presented, inasmuch as after the decision at law in Maybin *vs.*Kirby, comity requires me to determine that there is no foundation in fact for this superstructure of principles. If the Kirby note were discounted for Clarke’s accommodation and paid by the money of him as endorser, this contract with all its incidents would seem to be extinguished, and *113the note in the Branch Bank is a new and independent arrangement.

Finally,' the plaintiff rested his claim to be reimbursed for his payments on the note in the Branch Bank upon the deposit with him by Clarke, in January, 1844, of his scrip for shares in the S. C. M. Co.

This scrip was the title of Clarke to his shares of the capital of said Company ; and the delivery of it to Maybin, in consideration of the liability he had incurred for the owner, creates a lien in equity upon these shares, to the extent of his liability. Ever since *Russel*vs. *Russel, (1*Bro. C. C. 269,) it has been recognized, that a deposit of title deed, upon an advance of money, constitutes an equitable mortgage, even of lands, notwithstanding the provisions of the statute of frauds. See *Welsh*vs. *Usher, (2*Hill, Ch. 170,) where at the time of the sale of a ship, an in-dorsement was made on her Register, that the vessel should not be sold until the notes given for the purchase money were paid; and the Register was left with the vendor. This was held to be an equitable mortgage of the ship to the vendor, valid against the claims of subsequent attaching creditors. Similar liens have been recognized in *Read*vs. *Simmons,*(2 Des. 552;) *Menude*vs. *Re-laire,*(Id. 565;) *Massy*vs. *MeRwain,*(2 Hill, Ch. 421;) *Row*vs. *Ker,*(Sp. Eq. 417.)

Such a lien would not prevail against a subsequent purchaser, for valuable consideration without notice. But the defendants cannot bring themselves within the protection of this plea, because they have not formally pleaded the plea, nor actually paid any part of the purchase money, nor acquired the legal title. *(Williams*vs. *Hollingsworth,*1 Strob. Eq. 118 ; *McBee*vs. *Loftis § Hampton¡*Id. 95; *CrocJcer*vs. *Hillard Kirby,*Sp. Eq. 27; *Shultz*vs. *Garter,*Id. 542; *Bush*vs. *Bush,*3 Strob. Eq. 135.) The purchase of a chose in action — and such I consider to be the character of the contract made with the S. C. M. Co. in December, 1847 — is not within the rule which protects purchasers for a valuable consideration ; and the vendee takes only such in*114terest as the assignor has in the subject, and he will be bound by all the equities binding on the latter. Where the equities of persons, claiming under the original holder of a chose in action, are equal, the maxim *prior in tempore, potior in jure,*will apply. If the first purchaser or assignee be guilty of fraud, or what is equivalent, of such gross *negligence in*the assertion of his right, as enables the assignor to practice a deceit on a second purchaser, his equity will be postponed to that of the second *bona fide*purchaser. *(2d White Tudor's L. 0. pt. 2,*234.) Thus, where a party suffers stock, or other choses in action belonging to him, to stand in the name of another, perhaps his equity may be postponed to that of an innocent purchaser from the latter. It was so decided in *Hedfearn*vs. *Terrier,*(1 Dow, 50,) under the Scotch law, although Sir Samuel Eomilly treated the doctrine as unknown to the English law.

It was urged in this case, on the part of the S. C. M. Co., that the plaintiff by neglecting to give notice to the Company of his possession of Clarke’s scrip until they had purchased, and by neglecting to comply with the bye-laws of the Company, as to transfers of stock, had forfeited his prior equity. There would have been much force in this argument, as to notice, if the plaintiff had allowed Clarke to retain the scrip, which was the evidence of title, and thus hold-himself out as unincumbered owner; but in fact the plaintiff kept the scrip, and produced it at the trial. The argument would have had some weight if Clarke had practiced upon the credulity of the Company, by pretending, at any time, that his scrip was lost or mislaid; but there is no evidence that in any of the transactions between Clarke and the Company, any inquiry or representation was made as to the scrip. If the Company, in taking transfers from Clarke, had pursued the terms of their byelaws, and of their certificates of stock, by requiring the production of Clarke’s certificate, they might have ascertained the plaintiff’s mortgage. A plea of purchase for valuable consideration, without notice, is no protection against an adverse claim of which the purchaser might have had notice, by using due diligence in *115investigating tbe title. *(Jackson*vs. *Rowe,*2 Sim. and Stu. 472, 1 C. E. C.- C. 550; *Qrocker*vs. *Dillard,*Sp. Eq. *27*— Oostor and *Boyce,*MSS. Charleston, 1850.) Again: Thomson, one of the stockholders of the Company, had explicit notice of plaintiff’s mortgage ; and it is manifest from the answer of the President of the Company, that the Company, before the sale, knew the plaintiff’s intention to make the Company pay in some mode or other.

It' is not clear that the bye-laws of the Company, concerning transfers of stock, extend beyond the case of absolute *sales;*but it is unnecessary to determine any thing on this point — for if they include conditional sales, as mortgages, the Company has violated them; at least as much as the plaintiff, in neglecting to have Clarke’s certificate produced and assigned. It does not appear that the sale of December, 1847, has been entered in the books of the Company. But on what sound principle can it be maintained, that the private regulations of a corporate body, bind other persons than stockholders,'who have no notice of such regulations ?

I conclude that the. plaintiff and the Company have both merely equities as to Clarke’s stock, and that there is no circumstance to rebut the prevalence of the plaintiff’s equity, according to its date.

In this view, and regarding the liens of Kilgore and Kirby and Bobo as extinguished — the plaintiff’s mortgage is anterior to all other liens or assignments, except those to the Company of 100 shares, on September 21, 1843. As to this last, no proof was offered beyond the execution of the assignment; but its validity may be conceded, as the remaining shares are adequate to satisfy, many times over, the plaintiff’s claim.

As to the amount for which plaintiff is entitled to reimburse-nmnt, there must be a reference to the commissioner. A mortgagee coming into equity for foreclosure, can demand only the debt secured by the mortgage. *(Walling*vs. *Aiken,*McMull. Eq. 1.) The plaintiff here must be limited to his payments on the note in the. Branch Bank. It was said in the argument, that on the *116renewal note in tbe Bank, something still remained unpaid. But as the plaintiff produced the original note, I conclude that the renewal note of Maybin was accepted by the Bank, in satisfaction of the original liability, and that the plaintiff is entitled to reimbursement for the whole of the original sum, with interest and legal expenses, except such sums as by his admissions, or other ■proof, have been paid by Clarke, or other persons for him.

It is ordered and decreed, that it be referred to the commissioner of this Court, to inquire and report as to the sums paid by the plaintiff on the note to the Branch Bank, of January 9,1844, and the renewals thereof; and that if the South Carolina Manufacturing Company do not pay to the plaintiff the amount of such sums, with interest, when ascertained, the commissioner of this Court proceed to sell so many of the shares held by said William Clarke, in the stock of said Company, not exceeding 165 shares, as will satisfy the amount due to the plaintiff. It is also ordered, that the said S. C. M. Company pay all the costs of this suit.

The South Carolina Manufacturing Company appealed, and moved this Court to reverse the circuit decision, on the grounds :

1. Because the deposit of the scrip with the complainant created no lien upon the stock of Clarke.

2. Because the defendants had the first and only legal lien upon the stock of William Clarke; and having sold the stock under their lien, and being the purchasers thereof without notice ■of the complainant’s claim, they ought, in justice and equity, to hold it.

3. Because, if the complainant ever had any just claim upon ■the stock, he forfeited it by neglecting to give notice of his claim in a reasonable time.

4. Because the decision was against law and equity, and the usages and practice of this Court.

*Bobo,*for appellants.

Thomson, contra.

*117
      *Per Curiam.*

This Court concurs in tbe decree of tbe Chancellor ; and it is hereby affirmed and tbe appeal dismissed.

Johnston, Dunkin, Dargan and Wardlaw, CC., concurring.

*Appeal dismissed.*