The following opinion was filed October 26, 1909:
Maeshall, J.The ground, in the main, upon which the trial court decided that plaintiff was entitled to recover, is that a corporation cannot, lawfully, under any circumstances, buy in its own stock, paying therefor by assets of the company. It may be- that this states too broadly the learned circuit court’s view of the law, but it is warranted, it is thought, by the language of the decision, and is certainly warranted by the argument of counsel for respondent in support of the judgment, citing authorities from foreign jurisdictions, supposed to directly, or inferentially, so hold, and deducing, by construction, the same doctrine from our statutes, and criticising decisions of this court, so fax as they directly or substantially hold otherwise.
True, under some circumstances, a purchase by a corporation of its -own stock would be a fraud on stockholders, and under other circumstances a fraud on present or future creditors, and so void or voidable at the instance of one or more' of them in an appropriate judicial proceeding, though the circumstances under which such a transaction may be impeached by future creditors must be quite special. So much so that it </ is often found stated, generally, by text-writers that, in case a corporation buys in some of its own stock, a subsequent creditor cannot complain. 1 Cook, Corp. (5th ed.) § 311.
By a long line of decisions here, in the absence of a plain statutory prohibition to the contrary, and we have none, or such prohibition in the articles of organization of the corporation, a corporation may, in general, so long as it acts in good !/ faith by authorization of its governing body, lawfully purchase its own stock, either as to stockholders or present or - future creditors, and without such authorization its officers may, acting in good faith, do so as regards consenting stock*382holders or such creditors. The court spoke decisively on the subject in Shoemaker v. Washburn L. Co. 97 Wis. 585, 594, 13 N. W. 333; Calteaux v. Mueller, 102 Wis. 525, 78 N. W. 1082; Marvin v. Anderson, 111 Wis. 387, 87 N. W. 226; Pabst v. Goodrich, 133 Wis. 43, 113 N. W. 398, and Gilchrist v. Highfield, 140 Wis. 476, 123 N. W. 102.
While it must be conceded that the common la,w of England and the judicial rule in a number of states is contrary to the foregoing, it has support in the decisions of many state and federal courts, significant among them being Dupee v. Boston W. P. Co. 114 Mass. 37; Leland v. Hayden, 102 Mass. 542; Tuttle v. Batchelder & L. Co. 170 Mass. 315, 49 N. E. 640; Republic L. Ins. Co. v. Swigert, 135 Ill. 150, 25 N. E. 680; First Nat. Bank v. Peoria W. Co. 191 Ill. 128, 60 N. E. 859; Blalock v. Kernersville Mfg. Co. 110 N. C. 99, 14 S. E. 501; Fremont C. Mfg. Co. v. Thomsen, 65 Neb. 370, 91 N. W. 376; Rollins v. Shaver W. & C. Co. 80 Iowa, 380, 45 N. W. 1037; West v. Averill G. Co. 109 Iowa, 488, 80 N. W. 555; Eggmann v. Blanke, 40 Mo. App. 318; City Bank v. Bruce, 17 N. Y. 507; Strong v. Brooklyn C. T. R. Co. 93 N. Y. 426; Taylor v. Miami E. Co. 6 Ohio, 176; Lowe v. Pioneer T. Co. 70 Fed. 646; First Nat. Bank v. Salem C. F. M. Co. 39 Fed. 89.
The doctrine here stated is said by the federal court in First Nat. Bank v. Salem C. F. M. Co., supra, to be well settled in the United States.
Many cases cited by text-book writers as following the English rule will be found on examination to be based on the fraudulent nature of the transaction involved, not want of •corporate power. Many other cases cited will be found grounded on the general doctrine that all- assets of a corporation, whether a going institution or not, constitute a trust fund for creditors, which has no support in this jurisdiction. Hinz v. Van Dusen, 95 Wis. 503, 70 N. W. 657; Slack v. Northwestern Nat. Bank, 103 Wis. 57, 79 N. W. 51; Marvin v. Anderson, 111 Wis. 387, 87 N. W. 226.
*383In general, where the doctrine heretofore here declared, as staled, and now approved obtains, it is held that, in case an ^ insolvent corporation buys its own stock, or the effect of such a purchase is to render it insolvent, the transaction is void as to existing creditors. German Sav. Bank v. Wulfekuhler, 19 Kan. 60; Clapp v. Peterson, 104 Ill. 26; Butler P. Co. v. Robbins, 151 Ill. 588, 38 N. E. 153; Currier v. Lebanon S. Co. 56 N. H. 262; Alexander v. Relfe, 74 Mo. 495 ; Hamor v. Taylor-Rice E. Co. 84 Fed. 392; Augsburg L. & I. Co. v. Pepper, 95 Va. 92, 27 S. E. 807. So far as such decisions are .grounded solely on the trust-fund doctrine alone, as applied in some jurisdictions to a going corporation, they might not apply here. Such doctrine does not rale this case, inasmuch as the corporation at the time of the transaction in question was a going concern and it satisfactorily appears that the purpose of the controlling power left in the organization was that it should continue in business as before, indefinitely, and there was no actual intent to defraud.
Counsel for respondent argue that the transaction in question, upon legal principles in general on the subject of remediable fraud upon the rights of creditors, was voidable at respondent’s election, and that bringing the action constituted such an election; that though there was no actual intent to hinder or delay, effectually or otherwise, existing or future creditors, such was the necessary effect of what occurred, which is equivalent to actual fraud. The court concurs in that view as applied to the facts of this case.
The facts found in the light of the evidence indicate, pretty clearly, that appellant Smith mpst have known, if he paid reasonable attention to the matter when he received the greater proportion of the assets of the corporation in exchange for his stock, contemplating that the company would continue to do business notwithstanding its impoverished condition, that suspension was quite liable to occur, resulting in creditors suffering loss. "What he ought to have known under the circum•stances he must be held chargeable with having known, and *384the natural and probable effect of the conditions, of which he must be held to have had at least constructive knowledge, he must be held to have intended, and the corporation, to- have intended as well. If this goes further than the general rule as to-transactions in fraud of present and future creditors it seems that tire doctrine is a just one and a necessary limitation upon the right of a corporation and its stockholders to deplete its assets by exchanging the latter for its corporate stock, in order to prevent such right being exercised in a manner highly prejudicial to the public.
A transaction, as in this case, where, by treaty, the corporation is at once changed from a solvent to an insolvent concern, to the manifest advantage of a stockholder over existing creditors, the parties concerned contemplating that it may and probably will incur other indebtedness, while having the semblance of solvency as before, should be regarded, as to all creditors prejudiced thereby, characterized by bad faith and so as. not having the essential necessary to- uphold it under the decisions of this court to which we have referred. In other f words, a purchase by a corporation of its own stock, known by the parties to the transaction, or which ought to be known by them, to render it insolvent, is not a purchase in good faith as to existing creditors and not such as to future creditors if the parties to the transaction contemplate that the corporation will continue to do business and incur indebtedness, as before, on the faith of its previously supposed solvency continuing. In such a case the stockholder surrendering his stock is to be regarded as having acted fraudulently, at least constructively, as to1 existing creditors and subsequent creditors as well, and held, as to the latter, estopped by his conduct from denying his continuance as a stockholder so far as such denial to effect would prejudice such creditors trusting the corporation upon the appearance of solvéncy, and such continuance is necessary to liability to the corporation for the benefit of creditors or to statutory liability to them.
*385We are not unmindful that the rule, in general, as to avoidance of a transfer of property in fraud of future creditors applies only in case of actual intent to defraud them. Sommermeyer v. Schwartz, 89 Wis. 66, 71, 61 N. W. 311; Case v. Phelps, 39 N. Y. 164. That rule as stated is out of harmony with some adjudications, but is supported by the great weight of authority under statutes similar to our sec. 2320, Stats. (1898), as indicated by the text in 1 Moore on Fraudulent Conveyances at page 191 and authorities cited in note 23, and Bump on Fraudulent Conveyances (4th ed.) § 292, and cases cited. It is too restrictive, as generally stated, to apply to the situation we have here, and should, it is thought, be extended to include it, upon the theory that the duty of a stockholder not to deplete for his advantage corporate assets below the subscribed capital and become a party to a continuance of solvent appearance supplies the need for actual intent to defraud, where the natural and 'probable effect is to prejudice persons subsequently dealing with the corporation as solvent; condemning the transaction for want of that good faith necessary to sustain a purchase by a corporation of its stock, — while at the same time, so far as necessary to fully protect the rights of creditors, the doctrine of estoppel applies to prevent the stockholder from claiming, to effect, that his relations as such holder were terminated by such transaction.
Counsel for appellant contend that, since this action is grounded on the statutory liability of-stockholders to creditors of a corporation whose credits accrue in the course of its business transactions in violation of sec. 1773, Stats. (1898), limiting such liability as to obligations thus incurred to> the signers of the articles “and the subscriber or subscribers for stock transacting such business or authorizing the same, or having knowledge thereof, consenting to the incurring of the’’ liability “as well as the stockholders then existing,” that there was no liability of Smith here, except upon the first cause of action, because his transfer of stock must be held to have ter*386minated bis relations to tbe corporation, as a stockholder, till such transfer shall have been set aside by some judicial determination. That is wrong for several reasons: First, respondent was entitled to the benefit of the law of estoppel to bar the claim of severance of such relations; second, the transaction was void at law, under the circumstances, by force of sec. 2320, Stats. (1898) ; third, where a transaction is voidable as to creditors and they do not need the use of equity jurisdiction to remove a cloud on title or for an accounting or some other relief within the peculiar field of such jurisdiction, they may treat it as a nullity and proceed at law as if such transaction had never occurred. Of the latter the following are illustrations: Bates v. Simmons, 62 Wis. 69, 22 N. W. 335; First Nat. Bank v. Knowles, 67 Wis. 373, 28 N. W. 225; Leslie v. Keepers, 68 Wis. 123, 31 N. W. 486.
In the last case cited an accord and satisfaction, in form, pleaded as matter of defense to an action on the original claim, was met by proof, under objection, that the settlement was obtained by fraud. It was contended on appeal that the settlement could only be avoided in equity. The decision of the court was otherwise.
Counsel for appellant misapprehend the nature of this action, in making the assertion that it is to set aside the purchase of the stock as fraudulent, and misapprehend the law in supposing that such an action is necessary in order to charge Smith with statutory liability. The action is against him upon the theory that, as to plaintiff, the stock was never transferred, just as in Leslie v. Keepers, supra, the action was commenced upon the theory that no accord and satisfaction had occurred except one effectually avoidable at plaintiffs election and that the commencement of the action was a sufficient election, the circumstances of the transaction not requiring any restor ation as a condition of recovery.
What has been said sufficiently, it is thought, deals with all objections advanced to the judgment and all reasons given by *387■counsel for its affirmance to indicate that, although the major ground for the judgment stated in the circuit court’s decision and urged upon our attention in support thereof cannot be approved, it is right and must be affirmed.
By the Gourt. — So ordered.