This objection does not arise if the complaining subscribers and the guilty promoters comprise all the stockholders of the corporation.

In Krohn v. Williamson, 28 the promoters had by an agreement with a contractor, received and appropriated to themselves a large block of the company's shares, which should under the agreement of all the parties, as interpreted by the court, have been divided pro rata among the subscribers. The plaintiff subscribers having demanded an accounting, the defendant promoters objected that if the shares were to be treated as belonging to the original subscribers they would have to be treated as issued without consideration, and that the issue thereof as full paid stock constituted a fraud upon the company which a court of equity would not countenance by compelling a transfer thereof from one subscriber to another. The court held that the issue of stock was, however subject to attack by creditors, entirely valid as between the company and its stockholders.29

A different conclusion would perhaps have been reached by the New Jersey courts.30

§ 257. Defenses to actions for rescission.-Election to affirm. The subscriber's election, after discovery of the fraud, to affirm

and the shares cancelled, but that as the corporation was not made a party, and its non-joinder was not objected to, it was necessary for the court to determine the controversy between the parties as far as it could be done without prejudice to the rights of others.

See ante, § 22.

28. 62 Fed. Rep. 869, affirmed, sub nom. Williamson v. Krohn, 66 Fed. Rep. 655, 13 C. C. A. 668, 31 U. S. App. 325.

The fact that the terms of the

plaintiff's subscription were in violation of the statute requiring that shares should not be issued except for cash or property equal in value to the par value thereof, is no defense to a demand for a rescission of the subscription on the ground of fraud. Barcus v. Gates, 89 Fed. Rep. 783, 32 C. C. A. 337, 61 U. S. App. 596.

29. Citing Scoville v. Thayer, 105 U. S. 143, 153, 26 L. Ed. 968.

30. Volney v. Nixon, 68 N. J. Eq. 605, 60 Atl. 189, affirming, 67

his contract of subscription, is conclusive upon him and a complete answer to a subsequent rescission.31 An election to affirm a subscription cannot be inferred from any act done before the subscriber had knowledge of the fraud,32 but an election made with knowledge of the essential facts is binding though some of the incidents of the fraud be not discovered until a later time.33 Acts of affirmance after the discovery of the falsity of some representations do not bar a rescission of the subscription upon the subsequent discovery of the falsity of other and different representations.34 It has been held that a subscriber is bound at his peril promptly to inform himself of the contents of the charter and bylaws of the corporation and will not be heard to excuse his acts, or his failure to act, by a plea of ignorance thereof.35 It has like

N. J. Eq. 457, 58 Atl. 75; Tooker v.
National Sugar Refining Co., 80 N.
J. Eq. 305, 84 Atl. 10. See also
ante, § 22.

31. Wilson v. Hundley, 96 Va. 96, 101, 30 S. E. 492, 494, 70 Am. St. Rep. 837, and authorities cited; American Bldg. & Loan Assn. v. Rainbolt, 48 Neb. 434, 440, 67 N. W. 493, and authorities cited; Clarke v. Mercantile Trust Co., 110 N. Y. App. Div. 901, 95 Supp. 1118, (dissenting opinion), and cases cited; Cox v. Nat'l Coal & Oil Inv. Co., 61 W. Va. 291, 311, 56 S. E. 494, 502.

And see post, § 258.

32. City Bk. of Macon v. Bartlett, 71 Ga. 797; Ginn v. Almy, 212 Mass. 486, 500, 99 N. E. 276; White v. American Natl. Life Ins. Co., 115 Va. 305, 78 S. E. 582.

33. Wilson v. Hundley, 96 Va. 96, 101-103, 30 S. E. 492, 494, 70 Am. St. Rep. 837. 34. Hunter V.

French League

Safety Cure Co., 96 Iowa 573, 65 N.
W. 828; Ex parte Hale, 55 L. T. N.
S. 670.

It was held in Whitehouse's Case, L. R. 3 Eq. 790, 15 W. R. 891, (distinguishing Stewart's Case, L. R. 1 Ch. App. 574), that a subscriber after demanding the cancellation of his subscription on account of a variance between the prospectus and the articles of association, and having waived this discrepancy relying upon its being corrected, could not later insist upon being released because of the discovery of another discrepancy, the court saying that the moment the subscriber puts himself at arm's length with the company, he must be taken to know all the discrepancies upon which he intends to rely.

35. Upton v. Tribilcock, 91 U. S. 45, 54, 23 L. Ed. 203; Upton v. Engelhart, 3 Dill. (U. S.) 496, 501, 28 Fed. Cas. No. 16800.

West End Real Estate Co. v.

wise been held that the subscriber must examine his stock certificates when received by him, and may be charged with constructive notice of such matters as appear upon the face thereof.36

§ 258. Acts constituting election.

An election to affirm may be manifested in many different ways: 37 by accepting the stock certificates,38 by consenting to act as a director of the corporation,39 by the acceptance of dividends,40 by the payment of installments of the subscription price,11 by the

Claiborne, 97 Va. 734, 750, 34 S.
E. 900, 906; West End Real Estate
Co. v. Nash, 51 W. Va. 341, 41 S.
E. 182.

Oakes v. Turquand, L. R. 2 H. L. 325, 351-352, 369, and cases cited; Lawrence's Case, L. R. 2 Ch. App. 412; Kincaid's Case, L. R. 2 Ch. App. 412; Peel's Case, L. R. 2 Ch. App. 674; Wilkinson's Case, L. R. 2 Ch. App. 536, 12 W. R. 499; Sheffield's Case, Johns. Ch. 451, 5 Jur. N. S. 216; Sleigh v. Glasgow & Transvaal Options, Ltd., Sess. Cas. 6 Fraser 420, 427.

Cf. Clarksburg, etc., Land Co. v. Davis, W. Va. 86 S. E. 929; Stewart's Case, L. R. 1 Ch. App. 574, and Webster's Case, L. R. 2 Eq. 741, also Ship's Case, 2 DeG. J. & S. 544, affirmed, sub nom. Downes v. Ship, L. R. 3 H. L. 343. The decision of the House of Lords in the case last cited, turned entirely upon the fact that the sole appellant had himself been a party to, and therefore could not be heard to charge the subscriber with negligence in failing to discover, the fraud.

36. Nat'l Park Bank v. Nichols,

38. Cobb v. Hatfield, 46 N. Y. 533, 536.

39. American Bldg. & Loan Assn. v. Rainbolt, 48 Neb. 434, 67 N. W. 493.

40. American Bldg. & Loan Assn. v. Rainbolt, 48 Neb. 434, 440-441, 67 N. W. 493, 496, (citing Cook on Stock & Stockholders, (2nd ed.), § 198); Dassler v. Rowe, 91 Neb. 637, 136 N. W. 846; Stewart's Case, L. R. I. Ch. App. 574, 587; Ex parte Spartali, 17 L. T. N. S. 193.

V.

41. Great Western Telegraph Co. v. Bush, 35 Ill. App. 213; Ossippee Hosiery & Woolen Mfg. Co. Canney, 54 N. H. 295; West End Real Estate Co. v. Claiborne, 97 Va. 734, 750, 34 S. E. 900, 906.

It was held in Re Dunlop-Truffault C. & T. Mfg. Co., Ltd., 13

payment of an assessment,42 or even by attendance at a stockholders' meeting.43 A voluntary discontinuance of an action for a rescission has been held an election to affirm the subscription.44 It was held in Ex parte Briggs,15 that the making by the sub

scriber of a contract for the sale of his shares, which sale ultimately fell through without his fault, was an act of acquiescence upon his part. A mere attempt to sell shares was held in Stewart's Case 46 not to constitute an affirmance. A sale, before knowledge of the fraud, of a portion of the shares received under a subscription, will not defeat a rescission of the subscription as to such shares as are still held by the subscriber at the time when the fraud is discovered. A more serious question might arise if there were different kinds of shares purchased as a part of a single transaction, for the vendor could not in such case be restored to his previous situation, and it would generally be impossible to determine what part of the consideration applied to the shares of each character. 48

The approval by a subscriber of a settlement, between the corporation and the promoters, of differences arising out of the promoters' fraud, may well bar a disaffirmance of his subscription because of the same fraud.4

49

A statement of a subscriber, after knowledge of the facts, that he has confidence in the management and will stay with the corporation, has been held an election to affirm his subscription.50 A mere failure to act with reasonable promptness upon the discovery of the fraud may amount to a ratification of the subscription and

bell v. Fleming, 1 Ad. & El. 40; Dassler v. Rowe, 91 Neb. 637, 136 N. W. 846.

The buying or selling of other shares in the same company is obviously of no moment. Mulholland v. Washington Match Co., 35 Wash. 315, 77 Pac. 497.

46. L. R. 1 Ch. App. 574, 583, (opinion of Vice Chancellor), and see Ex parte Edwards, 64 L. T. N. S. 561.

47. Ex parte West, 56 L. T. N. S. 622, and cases cited.

48. Maturin v. Tredinnick, 9 L. T. N. S. 82, 2 New. R. 514, 10 L. T. N. S. 331, 4 New. R. 15.

49. See Buker v. Leighton Lea Assoc., 18 N. Y. App. Div. 548, 46 Supp. 35, reversed, but on another point, 164 N. Y. 557, 58 N. E. 1085.

50. Wilson v. Hundley, 96 Va. 96, 100, 30 S. E. 492, 494, 70 Am. St. Rep. 837; Peek v. Derry, L. R. 37 Ch. Div. 541, 576, reversed on another point, sub nom. Derry v. Peek, L. R. 14 App. Cas. 337.