Case Name: The Charleston Insurance and Trust Company vs. Edward Sebring and others
Court: South Carolina Court of Appeals
Jurisdiction: South Carolina
Decision Date: 1853-01
Citations: 5 Rich. Eq. 342
Docket Number: 
Parties: The Charleston Insurance and Trust Company vs. Edward Sebring and others.
Judges: Dunkin and Wardlaw, CC., concurred.
Reporter: South Carolina Equity Reports
Volume: 26
Pages: 342–349

Head Matter:
The Charleston Insurance and Trust Company vs. Edward Sebring and others.
Bill filed by a stockholder against the President and Directors of a banking corporation, to compel them to re-transfer to the Bank certain shares in the stock of the Bank, which the Bank itself had owned, and which the defendants had sold and purchased themselves, at less, it was alleged, than the market value: — Held, that the corporation should have been made a party to the bill.
Before Dunkin, Ch., at Charleston, June, 1851.
Dunkin, Ch. The State Bank is an institution with a capital of one million of dollars, divided into ten thousand shares, of one hundred dollars each. The complainants are stockholders of this institution, to the extent of two hundred and ninety-four shares. The allegations of the bill are, that the business of the State Bank is transacted by a President and Directors — twelve Directors ' being annually chosen by the stockholders, and the President being selected by the Directors, from their own body ; that, after the annual election in July, 1850, the Board consisted of Edward Sebring, President, and James H. Ladson, H. A. DeSaussure, George M. Coffin, John E. Cay, H. S. Hayden, E. W. Bancroft, Geo. Gibbon, M. P. Matheson, S. P. Ripley, Robt. Mure, and Thomas Trout; that the State Bank had been, some time previously, the owners of two thousand three hundred shares of their own stock — that, from various causes, the stock of the State Bank had depreciated from the par value, but that, in July, 1850, it had become a desirable investment, and the market value was above par; that, at-a meeting of the Board, held in July, 1850, the President and Directors of the said State Bank, or such of them as were present at the meeting, and who were willing to unite in the same, by a resolution among themselves, did agree, that they would, in certain proportions, determined by and among themselves, become the purchasers of the two thousand three hundred of the shares of the stock held by the Bank, and that it should be taken at $>100 per share, or the par value of the same; that “ the President and all the Directors assented to this sale to themselves, as individuals, with the exception, so far as complainants are informed, of James H. Ladson, George M. Coffin, and H. A. DeSaussure, who, as complainants are informed, were absent, or declined to participate in the same ”— that the agreement has been carried into effect by a transfer of the stock. The complainants insist that the President and Directors had no right to purchase for themselves, privately, the property of which they Avere possessed as trustees for the stockholders, and at less than the market value of the stock. The prayer of the bill is, that the defendants may answer as to the alleged agreement, &c., and which of them purchased, and Avhat number of shares each received, <fcc., and “ that the purchases so made shall be cancelled, and the President and Directors so purchasing be decreed to deliver back to the State Bank the shares so purchased by them, and account for the dividends which they have received ; and, in case the shares cannot be transferred back to the State Bank, that the said President and Directors may be decreed to account to the complainants, for their interest or proportion in the shares so purchased, and be decreed to pay to the complainants such damages as they have sustained by reason of the premises,” and for general relief. Subpoena is also prayed against all the individuals hereinbefore named — but no process is prayed against the State Bank, nor is that institution, in any way, a party to the proceedings.
The bill Avas filed on the 3d February, 1851. James H. Ladson, George M. Coffin, and H. A. DeSaussure have demurred to the bill. It is not suggested that they were present at the meeting in July; but, on the contrary, it is set forth that they neither assented to the sale nor participated in it, and no relief is sought against either of them. A discovery is only sought from those who were parties to the agreement, or participated in the result of the sale. The demurrer must therefore be sustained.
The defendants, Robert Mure and E. W. Bancroft, were absent when they were elected, in July, 1850 — had no knowledge, or concern, in relation to the transactions about which complaint is made, and did not return to Charleston until some time after they had been consummated. As to these defendants, the bill must stand dismissed.
The other defendants have answered fully. The principal answer, of Edward Sebring and others, submits that, as the prayer is, that “ the defendants should be decreed to deliver back to the State Bank the shares purchased, and account for the dividends received,” that institution should be made a party to the proceedings, and they insist on the want of such party, in the same manner as if they had demurred for that cause. This presents a preliminary inquiry for adjudication. The bill assumes that the defendants were agents of the State Bank, for the sale of the two thousand three hundred shares which belonged to the institution, and that the transfer or-sale, which they had made, was a breach of their duty, and should be set aside and cancelled, and the stock be re-transferred to the State Bank. The complainants proceed on the well established principle, that a sale of this character is voidable, at the instance of the principal, or cestui que trust. On the other hand, it cannot be doubted that it is at the option of the principal to acquiesce in the sale, as advantageous to himself, or to set it aside. Nor is it less clear, that the principal, or cestui que trust, in this case, is the incorporated institution called the “State Bank.”
The prayer of the bill is, (and could only be,) that the defendants may re-transfer to the State Bank ; but this necessarily implies a rescisión of the contract, and that, consequently, the State Bank should refund to the defendants the par value of the stock, at which it was purchased. The inquiry is not, whether this would be an advantageous arrangement for the institution; but can the Court make such decree, or prosecute such inquiry, in a proceeding to which the State Bank is no party? It is true, the difficulty lies deeper. The State Bank is composed of the stockholders in that institution. They appoint their agents for conducting the business of the Bank, and remove them at pleasure. This is done by a majority of the stockholders, who have also the right to do any act, within the limits of the charter, which they may conceive beneficial to the institution. A minority may not concur, or may be dissatisfied, but, in the absence of fraud, collusion, or other abuse, on the part of the stockholders, the will of the majority must be regarded as the act of the institution itself. See Foss vs. Har-bottle, 2 Hare, 493 ; Mozley vs. Alston, 1 Phil. 700, and Lord vs. Copper Mining Company, 2 Phil. 740.
The complainants are merely shareholders in the incorporation, and it is unimportant, in discussing their rights, whether they hold one share or three hundred shares. Nor is it important whether the subject matter of complaint was stock improperly sold, and purchased by the President, or a banking house, which had belonged to himself, and which he had sold to the institution. Generally, none but the Bank could impeach the transaction, and although an individual stockholder may, perhaps, present a case which would entitle him to a hearing, the incorporated institution, as such, must be a party to the proceedings. In anticipation of the possible judgment of the Court upon this objection of the defendants, a motion was submitted by the complainants, that, in that event, they should have leave to amend the pleadings, by making the State Bank a party thereto. As the objection was not taken at the threshold, and this is, necessarily, very much a matter of discretion, the Court is unwilling to deprive the complainants of any advantage which such amendment may be supposed to afford them.
As to the defendants, James H. Ladson, George M. Coffin, and H. A. DeSaussure, and also, as to the defendants, Robert Mure and E. W. Bancroft, it is ordered and decreed that the bill be dismissed.
It is further ordered, that the complainants have leave to amend their pleadings,. by making the State Bank a party thereto, in such manner as they may be advised.
The complainants appealed on the grounds :
■ 1. Because the case made in the bill, and supported by the testimony, entitled the complainants to relief.
2. Because it was not necessary, for the purposes of this suit? that the State Bank should be made a party.
3. Because, if the State Bank, in this case, is a necessary party, the rights of individual stockholders of the Bank are to be determined, not by the established laws of the land, but the power of a majority: and while such a rule may be recognized in relation to the ordinary matters of the Bank, it cannot be applied to a case where the Directors acted in opposition to the established principles which govern all who act in a fiduciary capacity, and which had no proper connection with their duties as officers of the State Bank, but was, in fact, an admitted violation of the same.
4. Because the Chancellor erred in dismissing the bill, as to the five defendants, Messrs. DeSaussure, Ladson, Coffin, Mure and Bancroft.
5. Because the decree is unsupported by the evidence and the law applicable to the case.
Magrath, McCready, for appellants.
DeSaussure, Petigru, Memminger, contra.

Opinion:
The opinion of the Court was delivered by
Dargan, Ch.
It is necessary to add but little to what has been said in the Circuit decree.
A corporation is an artificial person, the creature of the law, and manifesting its existence only by the exercise, after a prescribed form, of certain franchises and functions given to it by law. Or, as defined by Chief Justice Marshall, in the case of Dartmouth College vs. Woodward, 4 Wheat. 636, it " is an artificial being, invisible, intangible, and existing only in contemplation of law." In the Providence Bank vs. Billings, 4 Peters, 514, it is said by the same eminent Judge, that, "the great object of an incorporation is to bestow the character and properties of individuality on a collective and changing body of men."
A corporation aggregate is but one person, having the same unity in its corporate character and existence as a natural person. However numerous they may be, the will and individuality of the corporators are lost or merged in the will and individuality of the whole. A corporation can have but one will, and that will can only be manifested by the potential and uncontrollable voice of the majority. It has, and can have, from the nature of things, no other mode of action.
As long, therefore, as a corporation confines itself, in the management of its affairs, within the limits of its chartered powers, and commits no fraud upon the rights of the individual corporators, (facts which are not alleged in this case,) it is idle, and it is inconsistent, to talk of the rights of individual members oí the corporation, as distinct from, or opposed to those of the corporation itself. In case that the corporation should commit a fraud upon the rights of individual members, the Court of Equity would take cognizance of the transaction, and would afford its protection and relief, as in any other case of fraud ; and upon the principles applicable to frauds generally.
The Directors of an incorporated company are not technically trustees: they are the agents of the company, and, so far as the doctrines which prevail in this Court, in reference to trusts, are applicable to the relations of principal and agent, the same would be enforced against the Directors, in favor of the Corporation. I am at a loss to perceive any difference as to the duties and liabilities of the agents of a natural person, and the agents of that artificial or political body, known as a corporation.
The Directors are the agents, not of the natural persons, or individual members composing it, but of the corporation : that is to say, of all the corporators, in their associated and corporate character. If the agents commit default — if they embezzle become indebted, or liable for mismanagement, or neglect — no action would lie in this, or any other Court, in behalf of indi vidual corporators, for their supposed aliquot part of the amount embezzled, or of the damages resulting from the default. But such defaulting agents would be responsible to their principal alone, which is the corporation. And the action must be in the name of the corporation.
When, in this case, the Directors of the State Bank, having in charge the shares of stock belonging to the company, with authority to sell, sold the said shares to themselves, at less than their marketable value, I do not hesitate to say that they did a very improper act. It was a breach of trust. I do not wish to be understood to say that it was a wilfully corrupt breach of trust. Yet it was a devastavit, for which this Court would make them liable. The same principles would be enforced against them, as would be enforced against trustees, under like circumstances. They would be compelled to re-assign the stock, or to account for the profits which they had realized in the transaction, at the option of the aggrieved party.
But who is the aggrieved party? Who is the principal? These questions are already answered. A principal, who is a natural person, might not choose to contend in law for his extreme rights, against a defaulting agent. Just so of a corporation. The conduct of the defaulter might be looked upon with a lenient eye, on account of past fidelity and services; or he may have made restitution, or a compromise ; or the amount to be recovered by action might not be thought worth the cost and trouble of the pursuit. Certainly, a corporation has the power of exercising its discretion in such matters — and the exercise of its discretion would be conclusive upon the individual corpora-tors. Can it be doubted that the corporation would have the right to confirm to the Directors the illegal sale of the stock, which they made to themselves.
For a small constituent of this banking corporation to bring their suit against the agents of the corporation, without making the latter a party, for their supposed share of the loss which resulted from the illegal sale of stock shares, is not warranted by principle or authority. The Circuit decree, without adjudg ing the case upon its merits, orders the corporation, as the State Bank of South-Carolina, to be made a party. This Court is satisfied with the decree. The appeal is dismissed, and the Circuit decree is affirmed.
Dunkin and Wardlaw, CC., concurred.
Johnston, Ch., absent at the hearihg.
Appeal dismissed.