Robinson, C. J.,
delivered the opinion of the Court.
The plaintiff is the ^Trustee of the Valley Land and Improvement Company, ‘chartered by the State of Virginia, and this is a suit to enforce the payment of the defendant’s subscription to the capital stock of the company. The de[442]*442fence is that the defendant was induced to become a subscriber on the faith of certain representations set forth in. a prospectus issued by the company ; that these representations were false and fraudulent, and that the defendant, as soon as he became or could by reasonable diligence become aware of the fraud, and before the insolvency of the company, repudiated his contract of subscription and so notified the company.^'', f
The defence is substantially the same as that relied on in Bartlett, Trustee, v. Savage., 78 Md. 561, in a suit by the present plaintiff against the defendant in that case to recover his subscription to the stock of the same company. - And in that case we said that if the defendant was induced to become a shareholder on the faith of certain representations contained in a prospectus issued by the company, and that these representations were false, and that within a reasonable time after the discovery of the fraud, and before the insolvency of the company, he repudiated his contract of subscription and so notified the company, these facts, if found by the jury, constituted a valid defense to the action.
The counsel for the appellee did not seem to think we had gone so far in that case, and in view of the fact that there are a number of other suits in the Court below involving the same defence, the question has again been fully argued and fully considered by us ; and we see no reason to modify or qualify in the least the judgment in the Savage case. We cannot agree that it is in any manner in conflict with what is known as the trust fund doctrine, now recognized in this country. This doctrine, it has been said, was first announced in Wood's case, 3 Mason, 308, where the stockholders of a bank divided among themselves two-thirds of its capital, stock, without leaving sufficient funds to pay its creditors, and Mr. Justice Story held, and justly held, that the property of the bank must first be applied to the payment of its creditors, before there could be any dis-. tribution of its assets among the stockholders. And the most emphatic enunciation of the doctrine is to be found in [443]*443the opinion of Mr. Justice Miller, in Sawyer v. Hoag, 17 Wallace, 610, where a stockholder of an insurance company having given his note for his subscription to its capital stock, after the insolvency of the company and with full knowledge of its insolvency bought up claims against the company for one-third their face value, and then set up these claims as a set-off to his unpaid subscription.
But whatever may have been the origin of the doctrine, it means and can only mean, that when a corporation has been lawfully dissolved or has -become insolvent, its entire property, including unpaid subscriptions to its capital stock, becomes a trust fund for the payment of its debts, and that creditors are entitled in equity to have their debts paid out of the assets of the company before there can be any distribution among the stockholders. Fogg v. Blair, 133 U. S. 534; Railroad Co. v. Ham. 114 U. S. 587 ; Brandt v. Ehlen, 59 Md. 1. And no one can question the justice and sound sense of the doctrine as thus understood. But it is only when the company has been dissolved or has become insolvent that this equitable doctrine arises. So long as the company is a going concern, having the possession and management of its property', contracts made by and with the company are governed by the same principles of law as contracts between individuals. And such being the casq/, if one is induced to become a subscriber to its capital stock by the fraud of the company and within a reasonable time after the discovery of the fraud, there being no laches on his part in discovering the fraud, repudiates his subscription, and this too before the insolvency of the company, under such circumstances he is, according to the settled law of this country, relieved of all liability on account of his subscription. He is relieved because he has the right to avoid a fraudulent contract, and because he has exercised this right. The subsequent insolvency of the company can upon no principle make him liable on a fraudulent contract which he has thus £ repudiated. / v And under such circumstances we cannot agree that the equities of the creditor are superior to those of the [444]*444defrauded shareholder. Whether the subscriber could repudiate his subscription obtained by the fraud of the company after its insolvency, when he had no opportunity of becoming aware of the fraud before the insolvency, is a question in regard to which we are not to be understood as expressing any opinion. For the authorities in support of the views we have expressed, we may refer to Savage's case, 78 Md. 561.
And even in England, whére the Companies Act of 1862, provides for the appointment of a public officer, whose duty it is to register the name, the capital stock, together with a statement as to the object and purposes of every company or. corporation, with the names, addresses and number of shares taken by each subscriber, and the amount paid on each share, which register is open to the inspection of all persons, and which further provides, that every subscriber whose name appears upon the register shall, upon the winding up of the company, contribute to the payment of its debts, even under this Act it is now well-settled that a shareholder, whose subscription was obtained by fraud, may rescind the contract before the insolvency of the company. Reese River Mining Company v. Smith, L. R. 4, H. L. 64.
And when we speak of the right of the defrauded shareholder to rescind his contract before the insolvency of the company, we mean before proceedings in insolvency voluntary or involuntary have been instituted, or some act done that in law is regarded as an act of insolvency, for until then the trust fund doctrine relied on by the appellee has no application. Graham v. Railroad Company, 102 U. S. 148.
It follows from what we have said there was error in granting the second and third prayers of the plaintiff and in refusing to grant the defendant’s second and third prayers. And there was error also in granting the plaintiff’s first prayer, that upon the testimony of the defendant himself there was no such repudiation of his contract as to discharge him from liability. We agree that it was incumbent on the defendant ’to repudiate his contract within a reason[445]*445able time after the discovery of the fraud, and we agree, too, it must be a real and not a pretended repudiation, and we agree, too, that what amounts to a repudiation must largely depend upon the facts and circumstances of each particular case. Now, in this case, the defendant’s subscription was made in July, 1890, and there is proof tending to show that early in September of the same year, two months after the subscription, upon discovering the fraud alleged to have been practised upon him, he at once repudiated his contract of subscription.
Now it appears that in September of the next year Mr.
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Robinson, C. J.,
delivered the opinion of the Court.
The plaintiff is the ^Trustee of the Valley Land and Improvement Company, ‘chartered by the State of Virginia, and this is a suit to enforce the payment of the defendant’s subscription to the capital stock of the company. The de[442]*442fence is that the defendant was induced to become a subscriber on the faith of certain representations set forth in. a prospectus issued by the company ; that these representations were false and fraudulent, and that the defendant, as soon as he became or could by reasonable diligence become aware of the fraud, and before the insolvency of the company, repudiated his contract of subscription and so notified the company.^'', f
The defence is substantially the same as that relied on in Bartlett, Trustee, v. Savage., 78 Md. 561, in a suit by the present plaintiff against the defendant in that case to recover his subscription to the stock of the same company. - And in that case we said that if the defendant was induced to become a shareholder on the faith of certain representations contained in a prospectus issued by the company, and that these representations were false, and that within a reasonable time after the discovery of the fraud, and before the insolvency of the company, he repudiated his contract of subscription and so notified the company, these facts, if found by the jury, constituted a valid defense to the action.
The counsel for the appellee did not seem to think we had gone so far in that case, and in view of the fact that there are a number of other suits in the Court below involving the same defence, the question has again been fully argued and fully considered by us ; and we see no reason to modify or qualify in the least the judgment in the Savage case. We cannot agree that it is in any manner in conflict with what is known as the trust fund doctrine, now recognized in this country. This doctrine, it has been said, was first announced in Wood's case, 3 Mason, 308, where the stockholders of a bank divided among themselves two-thirds of its capital, stock, without leaving sufficient funds to pay its creditors, and Mr. Justice Story held, and justly held, that the property of the bank must first be applied to the payment of its creditors, before there could be any dis-. tribution of its assets among the stockholders. And the most emphatic enunciation of the doctrine is to be found in [443]*443the opinion of Mr. Justice Miller, in Sawyer v. Hoag, 17 Wallace, 610, where a stockholder of an insurance company having given his note for his subscription to its capital stock, after the insolvency of the company and with full knowledge of its insolvency bought up claims against the company for one-third their face value, and then set up these claims as a set-off to his unpaid subscription.
But whatever may have been the origin of the doctrine, it means and can only mean, that when a corporation has been lawfully dissolved or has -become insolvent, its entire property, including unpaid subscriptions to its capital stock, becomes a trust fund for the payment of its debts, and that creditors are entitled in equity to have their debts paid out of the assets of the company before there can be any distribution among the stockholders. Fogg v. Blair, 133 U. S. 534; Railroad Co. v. Ham. 114 U. S. 587 ; Brandt v. Ehlen, 59 Md. 1. And no one can question the justice and sound sense of the doctrine as thus understood. But it is only when the company has been dissolved or has become insolvent that this equitable doctrine arises. So long as the company is a going concern, having the possession and management of its property', contracts made by and with the company are governed by the same principles of law as contracts between individuals. And such being the casq/, if one is induced to become a subscriber to its capital stock by the fraud of the company and within a reasonable time after the discovery of the fraud, there being no laches on his part in discovering the fraud, repudiates his subscription, and this too before the insolvency of the company, under such circumstances he is, according to the settled law of this country, relieved of all liability on account of his subscription. He is relieved because he has the right to avoid a fraudulent contract, and because he has exercised this right. The subsequent insolvency of the company can upon no principle make him liable on a fraudulent contract which he has thus £ repudiated. / v And under such circumstances we cannot agree that the equities of the creditor are superior to those of the [444]*444defrauded shareholder. Whether the subscriber could repudiate his subscription obtained by the fraud of the company after its insolvency, when he had no opportunity of becoming aware of the fraud before the insolvency, is a question in regard to which we are not to be understood as expressing any opinion. For the authorities in support of the views we have expressed, we may refer to Savage's case, 78 Md. 561.
And even in England, whére the Companies Act of 1862, provides for the appointment of a public officer, whose duty it is to register the name, the capital stock, together with a statement as to the object and purposes of every company or. corporation, with the names, addresses and number of shares taken by each subscriber, and the amount paid on each share, which register is open to the inspection of all persons, and which further provides, that every subscriber whose name appears upon the register shall, upon the winding up of the company, contribute to the payment of its debts, even under this Act it is now well-settled that a shareholder, whose subscription was obtained by fraud, may rescind the contract before the insolvency of the company. Reese River Mining Company v. Smith, L. R. 4, H. L. 64.
And when we speak of the right of the defrauded shareholder to rescind his contract before the insolvency of the company, we mean before proceedings in insolvency voluntary or involuntary have been instituted, or some act done that in law is regarded as an act of insolvency, for until then the trust fund doctrine relied on by the appellee has no application. Graham v. Railroad Company, 102 U. S. 148.
It follows from what we have said there was error in granting the second and third prayers of the plaintiff and in refusing to grant the defendant’s second and third prayers. And there was error also in granting the plaintiff’s first prayer, that upon the testimony of the defendant himself there was no such repudiation of his contract as to discharge him from liability. We agree that it was incumbent on the defendant ’to repudiate his contract within a reason[445]*445able time after the discovery of the fraud, and we agree, too, it must be a real and not a pretended repudiation, and we agree, too, that what amounts to a repudiation must largely depend upon the facts and circumstances of each particular case. Now, in this case, the defendant’s subscription was made in July, 1890, and there is proof tending to show that early in September of the same year, two months after the subscription, upon discovering the fraud alleged to have been practised upon him, he at once repudiated his contract of subscription.
Now it appears that in September of the next year Mr. Condon, one of the directors of the company, and who had been somewhat instrumental in getting the defendant to subscribe for the stock in question, called on the defendant and told him there was more trouble at Luray and that he wanted to get ten thousand dollars to save the property of the company, and that he had paid five thousand dollars in cash on account of his stock, and wanted to try and save what he had paid. To this the defendant replied: ■“ I will never give another dollar towards that subscription to the stock.” After some further conversation the defendant said he was willing to give a thousand dollars to save what he had already paid on his subscription, and thereupon gave to Condon his cheque for that amount. But all through his testimony the defendant insisted that the amount thus paid by him was contributed solely for the purpose of saving the two thousand dollars paid by him at the time of his subscription, and was never meant or intended as a further payment on account of such subscription. The defendant is, it appears, unable to read or write, aud it would be unfair, under all these circumstances, to say that the thousand dollars thus paid by him is to be treated as amounting in law to an affirmation of his subscription, especially in view of his declarations made at the time it was paid that he never would pay another dollar on account of his subscription.
In dealing with the defendant’s subscription, we have [446]*446treated it as a Virginia contract. The company was chartered by that State, with its office and place of business in that State, and although the subscription was made in this State, the contract was to be performed in Virginia. And this being so, the rights and liabilities of the parties under it are to be determined by the law of that State. And what we have said as to the right of the defendant to repudiate his subscription on the ground that it was procured through the fraud of the company, is strictly in accord with decision of the Court of Appeals of that State in Weisiger and others v. Richmond Ice Machine Company, 90 Va. 795.
(Decided June 19th, 1895.)
Judgment reversed and new trial awarded.