Statement of Facts.

TRAER & Another v. CLEWS.

IN ERROR TO THE SUPREME COURT OF THE STATE OF IOWA.

Argued November 9, 10, 1885.-Decided November 23, 1885.

A suit in which the purchaser from a trustee in bankruptcy of property of the bankrupt estate asserts title against a defendant claiming an adverse interest therein, though brought more than two years after the cause of action accrues to the trustee, is not barred by the limitation of two years prescribed by Rev. Stat. § 5057, if the defendant acquired title by a fraud practised by him on the trustee, and the fraud was concealed by the defendant from the trustee and the purchaser, until within two years before the suit was brought.

When an incorporated company has been dissolved, and its affairs are in the course of liquidation, a sale and transier by a stockholder of all his claims and demands on account of his stock is not void, because the vendee may be compelled to bring suit to enforce his right to such claims and demands. There is nothing in the policy or terms of the bankrupt act which forbids the bankrupt from purchasing from the trustee property of the bankrupt estate.

A trustee in bankruptcy may sell the unencumbered property of the estate on credit, when he thinks it most for the interest of the creditors.

The Construc

Henry Clews, the defendant in error, on January 17, 1878, brought this suit in the Circuit Court of Linn County, Iowa, against John W. Traer and others, to recover the value of fifty shares, of one thousand dollars each, of capital stock in the Cedar Rapids Northwestern Construction Company, and the dividends which had been declared thereon. The stock had been originally subscribed and owned by Clews. tion Company was organized in 1870. The dividends sued for were declared, ten thousand dollars in December, 1873, and five hundred dollars in January, 1874, and were in the treasury of the company ready to be paid out to the holder of the stock. On November 28, 1874, Clews was adjudicated a bankrupt, and his stock in the Construction Company, with the dividends which had been declared. thereon, passed to J. Nelson Tappan, trustee of his bankrupt estate. In February, 1875, the Construction Company went into voluntary dissolution and liquidation, and John W. Traer, John F. Ely, and William

Argument for Plaintiffs in Error.

Green were appointed trustees to settle up its affairs and divide its assets among its stockholders, according to their interest therein. Traer, knowing that the dividends above mentioned had been declared, and the same being unknown to Clews and Tappan, his trustee in bankruptcy, on March 4, 1876, for the consideration of twelve hundred dollars, through the intervention of one Armstrong, who did not disclose his agency, purchased of Tappan, the trustee, the fifty shares of stock above mentioned. Traer alleged, and it appeared. that the purchase was made by him for his wife, Mrs. Alla D, Traer.

Afterwards, on December 6, 1877, Tappan, the trustee in bankruptcy, assuming, as it may be supposed, that the sale of the stock made at the instance of Armstrong was void for fraud, sold all his claims and demands on account of the stock to Clews, who, on January 17, 1878, brought this suit. John W. Traer and others, who had been officers and trustees of the Construction Company, were made defendants to the original petition. The defendants demurred to the petition on the ground that it did not state facts sufficient to entitle the plaintiff to the relief demanded. The court overruled the demurrer. Afterwards, the plaintiff having discovered that, on March 4, 1876, the stock in the Construction Company had been assigned to Alla D. Traer, on October 28, 1879, amended his petition by making her a party defendant to his suit. Upon final hearing in the Circuit Court for Linn County, the suit was dismissed as to all the defendants except John W. Træer and Alla D. Traer, and judgment was rendered against them for fifteen thousand dollars. Traer and his wife appealed from this judgment to the Supreme Court of Iowa, which affirmed the judgment of the Circuit Court. By the present writ of error Traer and wife ask a review of the judgment of the Supreme Court of Iowa.

Mr. N. M. Hubbard and Mr. Charles A. Clark for plaintiffs in error.-I. The jurisdiction of this court arises under Rev. Stat. § 709, and is invoked on two grounds. (1) To review the action of the court below in deciding against defendants' plea of the two years statute of limitations contained in the

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Argument for Plaintiffs in Error.

bankrupt act, Rev. Stat. § 5057. This section applies to suits by and against trustees, as well as assignees in bankruptcy. Rev. Stat. § 5103. No question can arise as to the jurisdiction under this head. (2) The plaintiffs in error specially set up and claimed title to the stock and dividends under a written assignment from Tappan, trustee in bankruptcy, who held his commission, and exercised his authority under the United States, and the decision below was "against the title thus specially pleaded and claimed." This action of the State court is subject to review in this court under the statute cited, which confers jurisdiction to review the action of the State courts, "Where any title, right · . is claimed under any commis

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specially set

commission

sion held, or authority exercised under the United States, and the decision is against the title, right, up or claimed by either party under such or authority." The decisions fully sustain the jurisdiction of this court upon the last-mentioned ground. New Orleans, &c., Railroad Co. v. Delamore, 114 U. S. 501; Factors' & Traders' Ins. Co. v. Murphy, 111 U. S. 738; Ray v. Norseworthy, 23 Wall. 128; Crapo v. Kelly, 16 Wall. 610; Green v. Van Buskirk, 5 Wall. 307; Sharpe v. Doyle, 102 U. S. 686.

II. As to the statute of limitations. (1) The stock and accrued dividends were assigned to Mrs. Traer March 4, 1876. The dividends were paid to her March 20, 1876. The suit, as to her, was begun October 28, 1879. In the absence of fraud it was barred in two years from the time when the cause of action accrued as to Tappan by the statute; and consequently as to Clews who stood in his shoes. Gifford v. Helms, 98 U. S. 248; Bailey v. Glover, 21 Wall. 342. Thus the bar was complete as to Mrs. Traer when the suit against her was commenced. To avoid this Clews alleged against her fraudulent concealment, by amendments to his petition. The rules laid down by this court in Wood v. Carpenter, 101 U. S. 135, as to the fraud and cor.cealment which will take a case out of the statute of limitations hold the party attempting it to stringent rules of pleading and evidence. He must declare what his discovery is, how it was made, why it was not made sooner, and that he used due diligence to detect. As to all these the circum

Argument for Plaintiffs in Error.

stances must be fully stated and proved, and the delay which has occurred must be shown to be consistent with the requisite diligence. Now the allegations as to the discovery are that "Mrs. Traer's connection with the transaction was studiously concealed from plaintiff and his assignor," and that plaintiff had no knowledge of it previous to his discovery, September 24, 1879. The only proof to sustain this is the stipulation that the plaintiff's attorneys, who "conducted all the investigations touching such stock and dividends as such attorneys," had no such knowledge or information. Here there is neither pleading nor proof to avoid the bar, under the rulings above cited. (2) As to Traer, the cause of action was first set up in the amendment filed February 9, 1880. It accrued in March, 1876, when the dividends were paid over. The statute continued to run, after the commencement of the action and until the amendment was filed. Holmes v. Trout, 7 Pet. 171, 213; Illinois Central Railroad Co. v. Cobb, 64 Ill. 128, 140; Commissioners of Delaware County v. Andrews, 18 Ohio St. 49; Marble v. Hinds, 67 Maine, 203; Wooddridge v. Hathaway, 43 Texas, 380; Lansford v. Scott, 51 Ala. 557; Hawthorne v. State, 57 Ind. 286; Selma Railroad Co. v. Lacey, 49 Geo. 106. Clews did not attempt to remove the bar as to Traer, by charging discovery of the fraud within two years. He only attempted it as to Mrs. Traer. Hence as to Traer the charge is complete so far as the dividends are concerned. An assignment of the stock would not carry accrued dividends unless specially included. Jermain v. Lake Shore & Mich. Sou. Railroad Co., 91 N. Y. 483; Bright v. Lord, 51 Ind. 272.

III. The alleged assignment to Clews was not a conveyance of the stock, nor of the dividends, but only a transfer of a right of action to set aside a conveyance of the legal title to them without the right of possession which alone gives a party a standing place, even in a court of equity. Brace v. Reid, 3 Greene (Iowa), 422; French v. Shotwell, 5 Johns. Ch. 555, 566; S. C., 20 Johns. 668; Shufelt v. Shufelt, 9 Paige, 144, 146; De Hoyton v. Money, 2 L. R. Ch. 164; Prosser v. Edmonds, 1 Young. & Col. Exch. Eq. 481; Dickinson v. Beaver, 44 Mich. 631; Crocker v. Bellangee, 6 Wisc. 645; Graham v.

Argument for Plaintiffs in Error.

Railroad Co., 102 U. S. 148. It does not admit of question that Mrs. Traer took title to the stock and dividends by the assignment. Johnston v. Laflin, 103 U. S. 800; National Bank v. Watsontown Bank, 105 U. S. 217.

IV. The assignment to Mrs. Traer in no event was void. At most it was voidable. For decisions in parallel cases see Tippecanoe County v. Reynolds, 44 Ind. 509, 514, 516; Carpenter v. Danforth, 52 Barb. 581; Wardell v. Railroad Co., 103 U. S. 651; Thomas v. Brownville Railroad Co., 109 U. S. 522; Pneumatic Gas Co. v. Berry, 113 U. S. 322, 327; and especially Twin Lick Co. v. Marbury, 91 U. S. 587. Mrs. Traer is not a trustee. If she were so in any sense, she did not unite the character of purchaser and seller at her own sale, but purchased of Tappan, who was sui juris; and if there was fraud, that rendered her solemn written muniment of title subject to impeachment therefor, but not a nullity. Of course an action at law for damages for the alleged fraud might be maintained by the defrauded party if he elected not to avoid the contract. But there can be no pretence that this is such an action. This is in fact a suit to rescind and avoid the assignment of the legal title to Mrs. Traer. Before any other relief than an award of damages could be given, such rescission must take place. As is said in Twin Lick Co. v. Marbury, the doctrine is well settled that the option to avoid such a contract must be exercised within a reasonable time. Grymes v. Sanders, 93 U. S. 55, says, on page 62, it must be exercised at once.

V. There could be no rescission without tender. The party seeking to avoid a contract for fraud must avoid in toto, if at all. If he treats the property as his own he will be held to have waived the objection, and will be bound as if the fraud or mistake had not occurred. Mason v. Bonet, 1 Denio, 74; Grymes v. Sanders, cited above. See also Coolidge v. Brigham, 1 Met. 547; Perley v. Balch, 23 Pick. 283; Thayer v. Turner, 8 Met. 550; Bowen v. Schuler, 41 Ill. 192; Buchenau v. Horney, 12 Ill. 336; Cooley v. Harper, 4 Ind. 454; Moore v. Bare, 11 Iowa, 198; Baker v. Robbins, 2 Denio, 136; Bisbee v. Ham, 47 Maine, 543; Potter v. Monmouth Ins. Co., 63 Maine, 440.