an election to affirm it.51 Acts which would otherwise be sufficient for that purpose do not constitute a ratification if induced by the promise of the guilty parties to expurgate the fraud and its consequences from the transaction.52

The commencement by a subscriber of an action for damages for fraud and deceit in procuring the subscription, has been held to be a conclusive affirmance of the subscription, and a bar to a subsequent rescission.58

§ 259. Effect of election to affirm.

An election to affirm a subscription is a mere consent to be bound by the provisions of the contract, and while a bar to a rescission and perhaps to an action for damages against the corporation,54 is not a bar to an action for damages for fraud and deceit against the individuals guilty of the fraud.55

$260. Defense of laches.

Laches on the part of the plaintiff is a valid defense to an action in equity for a rescission.56 While a subscriber desiring to rescind

51. See post, § 261.

52. West End Real Estate Co. v. Claiborne, 97 Va. 734, 752-753, 34 S. E. 900, 907.

Or if induced by a reasonable expectation that the fraud would be remedied. White v. American Nat. Life Ins. Co., 115 Va. 305, 78 S. E. 582, citing Cook on Corporations, § 161.

53. Franey v. Wauwatosa Park Co., 99 Wis. 40, 74 N. W. 548.

54. Wilson v. Hundley, 96 Va. 96, 103-105, 30 S. E. 492, 70 Am. St. Rep. 837.

55. Maryland.-McAleer v. Horsey, 35 Md. 439, 461.

Michigan.-St. Johns Mfg. Co. v. Munger, 106 Mich. 90, 64 N. W. 3,

29 L. R. A. 63, 58 Am. St. Rep. 468.

New York. Whitney v. Allaire, 1 N. Y. 305, 312; Potts v. Lambie, 138 App. Div. 144, 122 Supp. 935.

Texas.-Kennedy v. Bender, 104 Tex. 149, 135 S. W. 524.

Virginia.-Wilson v. Hundley, 96 Va. 96, 101, 103-104, 30 S. E. 492, 494, 495, 70 Am. St. Rep. 837, and cases cited.

United Kingdom and Colonies.Arnison v. Smith, L. R. 41 Ch. Div. 348, 361.

Cf. Schanck v. Morris, 30 N. Y. Super. 658.

56. As to the defense of laches generally, see note to Fear v. Bartlett, 33 L. R. A. 721, 724-725.

The defense of laches was in Peek

his subscription must act promptly upon the discovery of the fraud, no account will ordinarily be taken of the lapse of time prior to the discovery of the fraud.57 The subscriber is not called upon to suspect the promoters of violating their fiduciary obligations and will not be held guilty of laches because, having faith in the promoters, he did not discover their fraud as soon as he might.58

The subscriber should investigate promptly when once his suspicions have been aroused,59 but mere rumors which the plaintiff has no means of substantiating are not sufficient to put him on inquiry,60 and the ultimate failure of the enterprise does not necessarily give rise to any suspicion of fraud in the organization of the company.61 A subscriber will not be charged with knowledge of facts disclosed at a meeting of the stockholders which he did not attend, and at which his proxy was held by one of the guilty promoters.62 A postponement of action at the request of the defendants is not laches,63 and a period during which negotiations for a peaceable settlement are pending cannot be charged to the

Butler, 83 Iowa 124, 48 N. W. 1026, where the court fails to distinguish between the assertion of fraudulent representations inducing the purchase of shares when rights of creditors are involved, and the assertion of the same claim when rights of creditors are not involved. See post, § 262. Cf. also Peek v. Gurney, L. R. 13 Eq. 79, 119, et seq., affirmed, L. R. 6 H. L. 377; Perkins v. Merchants' & Farmers' Bank, 103 Miss. 179, 60 So. 131, Am. & Eng. Ann. Cas., 1915 B. 788; C. & K. Turnpike Co. v. McConaby, 16 Serg. & R. 140.

The subscriber is chargeable with notice of the ordinary and plain meaning of a circular received and read by him. Scholey v. Central Ry. Co. of Venezuela, L. R. 9 Eq. 266.

Greater vigilance may perhaps be demanded of a subscriber who is also a director. Ex parte Munster, 14 L. T. N. S. 723, 14 W. R. 957.

59. Higgins v. Crouse, 147 N. Y. 411, 42 N. E. 6; Virginia Land Co. v. Haupt, 90 Va. 533, 19 S. E. 168,

44 Am. St. R. 939, citing Cook on Corporations, § 162; Ex parte Blackstone, 16 L. T. N. S. 273, and see Skelton's Case, 68 L. T. N. S. 210.

But he may await the results of an investigation undertaken by the directors themselves. Smith's Case, L. R. 2 Ch. App. 604.

60. Aaron's Reefs, Ltd., v. Twiss, 1896, App. Cas. 273, 290, 293, and see Directors of Central Ry. Co. of Venezuela v. Kisch, L. R. 2 H. L. 99, 112, 16 L. T. N. S. 500, also Higgins v. Crouse, 147 N. Y. 411, 42 N. E. 6; cf. Ex parte Blackstone, 16 L. T. N. S. 273.

61. Higgins v. Crouse, 147 N. Y. 411, 42 N. E. 6.

62. Virginia Land Co. v. Haupt, 90 Va. 533, 19 S. E. 168, 44 Am. St. R. 939.

The shareholder may, in general, be charged with knowledge of what was said and done at a meeting at which he was represented by proxy. See ante, § 112n.

63. Cox v. National Coal and Oil Inv. Co., 61 W. Va. 291, 310-312, 56 S. E. 494, 502-503.

complainant in estimating his laches.64 The burden is upon the party asserting laches to prove both that the other party had knowledge of the facts, and that he unreasonably delayed action.65

§ 261. Delay as defense to action upon a rescission.

The defense of laches is an equitable doctrine which has, strictly speaking, no application to a suit at law. If the subscriber, instead of bringing an action for a rescission in equity, gives notice of disaffirmance and brings his suit at law for money had and received, laches cannot be pleaded as a defense, but the same result is arrived at by the application of the rule that a subscriber wishing to rescind because of fraud must act promptly upon discovering the facts.66

§ 262. Rescission after insolvency of corporation.

It is, after insolvency or bankruptcy proceedings have been instituted against the corporation, too late, according to the weight of authority, to rescind a subscription because of the fraudulent representations by which it was induced. When such proceedings have been commenced, and it has become clear that there is nothing to be gained by remaining a stockholder, the temptation to rescind one's subscription and thus become a creditor is strong, and these belated complaints must necessarily be viewed with suspicion.