Allen v. Fulton

ViNJE, J. This appeal raises the question whether a resident of this state, who through transactions carried on wholly within it buys, pays for, and receives stock in a foreign corporation that has not complied with the provisions of sec. 17705, Stats., can, after he has owned and retained such stock for a number of years, be held upon the stock liability created by the state of domicile of the foreign corporation. The answer to the question depends upon whether his transactions with the corporation are rendered void by the provisions of sub. 10, sec. 17705; for it was held in Southwestern S. Co. v. Stephens, 139 Wis. 616, 120 N. W. 408, that the purchase of stock in a foreign corporation was a transaction affecting the personal liability of the corporation and therefore came within the provisions of sub. 10 of said section, and was not governed by sub. 2. It may be noted in passing that all transactions with a foreign corporation that has failed to comply with the provisions of sec. 17705 come within the [354] scope of sub. 2 thereof and are made unlawful unless they also come under and are governed by the provisions of sub. 10. Sub. 10 takes all transactions affecting the personal liability of the corporation out of the general condemnation of sub. 2 and provides that, they may be enforced against but not by the corporation. They are therefore not void but voidable at the election of the party dealing with the corporation, as was held in the case of Lanz-Owen & Co. v. Garage E. M. Co. 151 Wis. 555, 139 N. W. 393. Such party may affirm or disaffirm the contract at his election. In the case of Southwestern S. Co. v. Stephens, 139 Wis. 616, 120 N. W. 408, the corporation brought an action to collect the balance due on a stock subscription. That was an action brought by the corporation itself to enforce an executory contract which could not be deemed to have been ratified, and the court held the contract came within the provisions of sub. 10 and hence it could not be enforced by the corporation. In this case the contract of stock subscription was fully executed at the time it was made and has been acquiesced in by the defendant from the time he bought the stock in 1910 till this action was brought in 1911. Defendant must therefore be deemed to have elected to affirm the contract of stock subscription. Having so elected, his liability as a stockholder attached and he can claim no immunity therefrom on the ground that the corporation had not complied with the provisions of sec. 1110b at the time he bought his stock. He could have dis-affirmed his stock subscription contract if seasonably done and have avoided liability as a stockholder. But he did not do so. He chose to affirm the contract, and the liabilities growing out of such affirmance may be enforced against him by the receiver in behalf of the creditors. This is not an action by the corporation to enforce the contract of stock subscription, but an action by the receiver in behalf of creditors to enforce the liability of the defendant growing out of his having elected to make a valid stock subscription contract. [355] When by an affirmance of wthe contract be elected to validate it, be became a lawful stockholder and bis liabilities as such at once attached. It follows that the order overruling the demurrer to the defense pleaded was erroneous. By the Oourt. — Order reversed, and cause remanded with directions to sustain the demurrer, and for further proceedings according to law.