#### Thronson, Appellant, vs. Universal Manufacturing Company and others, Respondents.

*September 13*

October *3, 1916.*

*Corporations: Unlawftil issuance of stock: Invalidity: Right of purchaser to rescind: Public policy: Unlicensed foreign corporations.*

1. A sale by a corporation, of its theretofore unissued corporate stock for less than par value, being prohibited by sec. 1763, Stats., and in violation of the public policy of the state, is void.

*452. Both the purchaser and the corporation in such case are participants in an illegal transaction, and the former cannot have judicial aid to secure a rescission of the transaction and restoration of the consideration paid.

3. In view of sub. 10, sec. 17706, Stats., subjecting foreign corporations to the same restrictions that are imposed upon domestic corporations, the rules above stated are applicable to both.

4. The fact that a foreign corporation so unlawfully selling its stock in this state has not been licensed to do business here does not debar it from the benefit of the public policy of the state which precludes a rescission of the sale at the suit of the purchaser, and it is the duty of the courts to enforce such policy whether invoked by a litigant or not.

Appeal from a judgment of tbe circuit court for Bacine county: Geobge ClekeNtsoN, Judge.

*Affirmed.*

An equitable action to rescind the sale of 134 shares of the corporate stock of defendant company on the ground of fraud. The claim of plaintiff, was that he was induced to purchase stock of a corporation by false representations made in its behalf, particularly, by defendant *Ernest H. Bmieding*as manager, paying for such stock $10,000. Plaintiff sought to avoid the sale and to recover back the sum paid. The alleged grounds of fraud are, briefly, as follows:

February 2, 1914, *Ernest H. Bmieding,*as general manager and treasurer of defendant corporation, solicited plaintiff to purchase shares of its corporate stock, representing that it was sole owner of letters patent covering automobile accessories which it was manufacturing, and of the ground and buildings in Kacine, Wisconsin, where its manufacturing business was being carried on, which was ample for all probable needed additions to the plant; that its indebtedness to banks did not exceed $6,000, and that one Carpenter, a prominent business man of Eacine, was owner of $40,000 par value of the stock. Plaintiff requested a financial statement, showing the condition of the corporation, which was declined upon the ground that it would require shutting down and taking an inventory, *Bmieding*assuring plaintiff that *46everything was all right and as he had stated; that the stock was well worth par; that the business was rapidly increasing and would soon pay good dividends; that a limited amount of the stock was being offered at $15 per share because of urgent needs of the company for more capital; that everything was O. K., the company in good condition, its assets greatly exceeding its liabilities, and that no reason existed why any one could not safely buy the stock at the price it was offered at. Defendant Ered W. Stillwell, in behalf of the corporation, assured plaintiff that no preferred stock had been issued and that the statements made by *Smieding*were correct. Plaintiff paid $10,000 for 134 shares of the stock of the corporation, relying upon such representations being true, whereas they were false and known to be so by the person who made them. The corporation did not own any patents, nor its factory 'building and premises, nor any grounds (adjoining. The patents were owned by persons to whom the corporation was obligated to pay royalties. The indebtedness of the corporation to banks exceeded $16,000. Charles R. Carpenter held $35,000 preferred stock as owner or security for indebtedness and the corporate stock was ‘in fact valueless. The facts were fraudulently concealed from plaintiff as to the true condition of the corporation and that most of the stockholders had obtained their stock without paying anything therefor, lie did not learn the truth as to the financial condition until August 20, 1914, nor of the fraudulent concealment until September 19, 1914.

The complaint stated other matters which, so far as necessary to appear here, are referred to in the findings.

There were answers putting in issue all the allegations of fraud.

Upon the evidence, the court decided the facts to be: (1) Defendant corporation was organized under the laws of the state of Michigan with a capital of $300,000, divided *47into 3,000 shares of $100 each, 1,000 shares being common, and 2,000 shares preferred stock. During the times mentioned in the pleadings, it was such foreign corporation, engaged in manufacturing automobile accessories in the city of Eacine, Wisconsin, but was never licensed to engage in business in this state. (2) Ered W. Stillwell was the secretary, and defendant *Bmieding,*treasurer and general manager. (3) February 14, 1914, plaintiff purchased of the corporation, acting by said Bmieding, sixty-six shares of its common stock, paying $5,000 cash therefor, and, shortly thereafter, so purchased sixty-eight shares more of such stock, paying a like agreed price therefor; but in property, so the corporation realized not more than $3,500 in money. (4) Plaintiff so purchased the stock because he could obtain it for much less than par value, and because of general repute and statements of others than defendants that the corporation was becoming successful and its business increasing, and his desire to obtain a place for his son, and not by any misrepresentations or fraud of defendants. (5) *Smieding*did not make any of the alleged misrepresentations. What he did say was based, as plaintiff knew, upon expected future business and estimated profits, was said in good faith and as expressions of opinion, as plaintiff knew; he was neither misled nor induced thereby to purchase the stock. (6) Upon acquiring the stock, plaintiff was made a director of the corporation and, April 16, 1914, was made president, which office he held until September 22, 1914, when he resigned. AVhen he was elected president, he knew the corporation was not authorized to do business in this state, and knew, or from circumstances brought to his attention ought to have known, the truth of all matters in respect to which false representations and fraud are claimed, yet elected to retain his position with the company until after the failure of the Merchants & Savings Bank of the city of Eacine, September 17, 1914, to which the corpora*48tion was largely indebted, sucb event rendering probable, as be thought, failure to realize the anticipated profit from the stock.

From such facts the court concluded that plaintiff was not entitled to relief on the ground of the alleged false representations, and, in any event, was precluded from obtaining the relief sought by reason of his having purchased the stock at less than its par value and his subsequent conduct.

Plaintiff requested findings inconsistent with those made, which were refused. Exceptions were duly filed to the findings which were inconsistent therewith. Judgment was entered, as ordered, dismissing the complaint with costs.

For the appellant there was a brief by *Thompson, Myers & Kearney,*and oral argument by *Wm. D. Thompson.*

For' the respondent *Smieding*there was a brief by *N. L. Baker & W. J.*Zimmers, and oral argument by *Mr. Baker.*

*Vilas H. Whaley,*for the respondent *Dwight,*trustee in bankruptcy of the *Universal Manufacturing Company.*

Maeshall, J.

It is considered that appellant was properly denied relief, irrespective of whether the trial court reached the right conclusion in respect to whether he was induced to purchase the stock by false representations of material facts.

It is undisputed that appellant purchased original stock from the corporation and the certificate therefor was issued to him for less than par value. Sec. 1153, Stats., provides as follows:

> “No corporation shall issue any stock or certificate of stock except in consideration of money or of labor or property estimated at its true money value, actually received by it, equal to the par value thereof, . . . and all stocks . . . issued contrary to the provisions of law . . . shall be void.”

Under such statute this court held in *Clarke v. Lincoln L. Co.*59 Wis. 655, 18 N. W. 492, that a sale by a corporation of its corporate stock, as in this case, for less than par value, *49being prohibited by law and in violation of the public policy of the state, is void and that the purchaser and seller are participants in an illegal transaction and, so, notwithstanding the illegality, judicial remedies axe not available to the former to recover back the consideration paid. By the same reasoning with which that conclusion was reached, such a purchaser of stock is not entitled, under any circumstances, to judicial aid to secure a rescission of the transaction and restoration of the consideration he parted with. The courts will leave both parties where they have placed themselves.

True, the cited case dealt with a domestic corporation, but since language wras used, referring to corporations in general, it does not seem that the decision can be restricted to domestic corporations in view of sub. 10, sec. *1110b,*which is as follows :

> “All foreign corporations and the officers and agents thereof doing business in this state, shall be subjected to all the liabilities and restrictions that are, or may be imposed upon corporations of like character, organized under the laws of this state, and shall have no other or greater powers.”

That was adopted from the state of Illinois. The purpose of it was “to produce uniformity in the powers, liabilities, duties and restrictions of foreign and domestic corporations of like character and bring them all under the influence of the same law.” *Stevens v.*Pratt, 101 Ill. 206; *Floyd v. Nat. L. & I. Co.*49 W. Va. 321, 38 S. E. 653; *Farmers’ L. & T. Co. v. Lake St. E. R. Co.*173 Ill. 432, 51 N. E. 55; *Connolly v. Union S. P. Co.*184 U. S. 540, 22 Sup. Ct. 421. So we are unable to see why *Clarke v. Lincoln L. Co.*59 Wis. 655, 18 N. W. 492, does not apply here. It clearly does by the reasoning of the Illinois court which must be presumed to have been adopted by the legislature in adopting the statute of that state.

No more need be said in this ease. If it was open for a decision on the merits, aside from the statutory condemnation, a different result might he reached; but we seem to be *50precluded by tbe settled law from efficiently going into that subject.

We do not overlook tbe point made by appellant that respondents cannot properly have tbe benefit of tbe statutory prohibition because of noncompliance by tbe corporation with tbe law as regards becoming licensed to do business here. That might be true if tbe situation were not one where tbe public policy of tbe state is involved. In such a situation, it is tbe duty of tbe court to enforce such policy, irrespective of whether it is invoked by a litigant or not. *Pearson v. Kelly,*122 Wis. 660, 100 N. W. 1064.

*By Hie Court.*— Tbe judgment is affirmed.