and stated that the appellant desired to exercise his right under the option given him by the company, ratified and confirmed by the stockholders at their last meeting, to purchase 1,175 shares of the Canal & Land Company's stock at $1 per share, and that the motion was carried.

The evidence was that the appellant's check for $1,175 was presented at that meeting by Wernse, but was not cashed by the trust company; that shortly after that date the $1,175 was loaned to the appellant upon his promissory note, and $1,093 was also loaned to him upon his note; that neither of the notes was ever paid; and that the statute of limitations was permitted to run against both. Wernse testified that no meeting of the directors considered or authorized either of the loans. The court below found that the transfer of the 1,175 shares of stock in the Canal & Land Company was the merest sham, and was not made in good faith, that the intention was to transfer the stock to the appellant without any consideration whatever, and that the trust company having failed to act in the premises for its own protection, the appellees were entitled to recover the stock for the corporate benefit.

We find no ground to disturb the finding of the trial court. At no meeting of the stockholders was the question of the sale of the company's assets considered. The board consisted of five members, of whom three were a quorum. At the meeting of the stockholders of November 10, 1906, at which the option was offered for ratification and approval, it was necessary to vote the appellant's stock in order to constitute a sufficient representation of stock to hold the meeting, and to carry the resolution. At the following meeting of the directors on December 20, 1906, but three directors were present, and the appellant was counted a member of the board in order to make a quorum. At no meeting of the directors was a resolution passed authorizing either of the loans to the appellant. The court below found that during all this period the appellant had virtual control of the majority of the board of directors, and that they were ever ready to do his bidding. These transactions constitute actual and not constructive fraud.

[2] The trust company raises the question of jurisdiction, asserting that the company is not an adversary party to the plaintiffs in the suit, but is the real party in interest as plaintiff, and that consequently there is no diversity of citizenship. But this is not a case in which the trust company, although made a defendant, should be realigned as a plaintiff, as in Hamer v. New York Railways, 244 U. S. 266, 274, 37 Sup. Ct. 511, 61 L. Ed. 1125. Here the attitude of the trust company is hostile to the plaintiffs. It appeared in a joint answer with the appellant, and by the same counsel, and it denied the allegations of the bill and prayed for the dismissal thereof. The cause is therefore one in which plaintiffs, citizens of Illinois, bring suit against defendants who are citizens of California. Doctor v. Harrington, 196 U. S. 579, 25 Sup. Ct. 355, 49 L. Ed. 606; Venner v. Great Northern Railway, 209 U. S. 24, 28 Sup. Ct. 328, 52 L. Ed. 666.

[3] The appellant relies upon the defense of laches. The only assignment which brings that question before us is that the court below erred in overruling the motion to dismiss the complaint, one ground

of which motion was that it appeared from the complaint that the plaintiffs therein were guilty of laches, in that the sale of stock complained of occurred in October, 1906, and the suit was not brought until February 19, 1913, "by reason whereof the causes of action are barred." This presents the question whether, upon the allegations of the bill, the delay in bringing the suit constitutes laches. The complaint alleged that the plaintiffs, during all the times referred to therein, were citizens and residents of the state of Illinois; that the appellant purposely, intentionally, and fraudulently concealed his fraudulent practices and the performance of said acts and doings from the plaintiffs and other stockholders, by causing to be kept insufficient and inaccurate books of account and corporate records of the affairs of said company, and lulled the plaintiffs and other stockholders into seeming security by statements made by him that all the stockholders of the trust company should be jointly interested with him in all profits which might accrue out of any of his transactions with or pertaining to the business, property, and affairs of the trust company, and that he would hold the title of the 1,175 shares of stock of the land company in trust for the trust company; that the plaintiffs were made to believe that the acts of the appellant, so far as any of them were known to plaintiffs, were for the best interests of the trust company, and its stockholders, and that the appellant was honest in the performance of all such acts; that, acting under such belief, plaintiffs made no careful investigation of the records and transactions of the appellant, and that they did not discover his fraud and fraudulent practices until on or about the month of January, 1913; that the appellant was the president and a director of the trust company, and acted in a fiduciary capacity for and towards the plaintiffs.

Taking these allegations to be true, they were sufficient, we think, to show prima facie that the causes of action were not barred. In Bailey v. Glover, 21 Wall. 342, 22 L. Ed. 636, Mr. Justice Miller said:

"In suits in equity, where relief is sought on the ground of fraud, the authorities are without conflict in support of the doctrine that, where the ignorance of the fraud has been produced by affirmative acts of the guilty party in concealing the facts from the other, the statute will not bar relief, provided suit is brought within proper time after the discovery of the fraud."

In that case the allegations of the complaint were that the defendants "kept secret their said fraudulent acts, and endeavored to conceal them from the knowledge" of the plaintiff, whereby he was "prevented from obtaining any sufficient knowledge or information thereof until within the last two years."

In Rosenthal v. Walker, 111 U. S. 185, 4 Sup. Ct. 382, 28 L. Ed. 395, the court reaffirmed the rule that where it is sought to obtain redress against fraud concealed by the defendant, or which, from its nature remains secret, the bar of the statute of limitations does not begin to run until the fraud is discovered, citing Bailey v. Glover, which case, said the court, "has been often cited by this court, but has never been doubted or qualified." We followed and applied the doctrine of those cases in Pickens v. Merriam, 242 Fed. 363, 155 C. C. A. 139.

In Townsend v. Vanderwerker, 160 U. S. 171, 186, 16 Sup. Ct. 258, 262 (40 L. Ed. 383), it was said:

"The question of laches does not depend, as does the statute of limitations, upon the fact that a certain definite time has elapsed since the cause of action accrued, but whether, under all the circumstances of the particular case, plaintiff is chargeable with a want of due diligence in failing to institute proceedings before he did."

[4] It is contended that interest was erroneously allowed on the money due from the appellant for his subscription to the 523 shares of the stock of the trust company. No assignment of error presents that question, but nevertheless we have given it consideration. The shares were subscribed in various amounts from April, 1904, to September, 1906, and $10 per share were to be paid therefor. The master found from the evidence that the shares were to be paid for in cash upon delivery. The shares not having been paid for when payment was due, interest was payable thereon at 7 per cent. per annum under the provisions of section 1917, Civil Code of California, which makes interest payable upon moneys at the rate of 7 per cent. per annum as they "become due on any instrument in writing except a judgment."

But the appellant contends that the matter falls within another provision of the same section, which provides that interest shall be paid on money due on a statement of account from the day on which the balance is ascertained, and this for the reason that in his dealings with the trust company various payments had been entered to his credit up to the time of the accounting before the master, and he asserts that interest can run only upon the balance found due at that time. The master allowed the appellant interest on all his payments from the time when made, and this was proper. From and after August, 1907, all the said payments were for state license taxes and other taxes and advertising. There was no mutual account. The appellant could not stop interest on the sums he owed on and prior to September 1, 1906, by thereafter making from time to time payments to the corporation or for its benefit.

The decree is affirmed.

LUCK V. STAPLES (two cases).

In re LUCK CONST. CO., Inc.

(Circuit Court of Appeals, Fourth Circuit. October 1, 1918.)

Nos. 1634, 1649.

1. BANKRUPTCY 440-APPELLATE PROCEEdings-Mode of Review. An order of a bankruptcy court denying validity of a lien, where the matter was determined on questions of fact, is reviewable by appeal, and not on petition to revise.

2. BANKRUPTCY 467-FINDINGS OF FACT-REVIEW ON APPEAL

Order of a bankruptcy court, made on report of referee finding that a mortgage on the property of bankrupt corporation, executed when it was insolvent by its president, to secure a past indebtedness to himself as executor, was executed without authority and void, and subject to attack by the trustee, would be affirmed.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

On Petition to Superintend and Revise in Matter of Law Proceedings of and Appeal from the District Court of the United States for the Western District of Virginia, at Roanoke, in Bankruptcy; Henry Clay McDowell, Judge.

In the matter of the Luck Construction Company, bankrupt; Abram P. Staples, Trustee. Petition to revise and appeal by H. M. Luck, executor, to review order of District Court. Petition to revise dismissed, and order affirmed on appeal.

W. L. Welborn, of Roanoke, Va., for petitioner and appellant. Horace M. Fox and Abram P. Staples, both of Roanoke, Va., for respondent and appellee.

Before PRITCHARD and KNAPP, Circuit Judges, and CONNOR, District Judge.

PRITCHARD, Circuit Judge. As will be observed by the caption, these causes come here (No. 1634) on petition to superintend and revise in matter of law and (No. 1649) on appeal from the District Court, sitting as a court of bankruptcy, for the Western District of Virginia.

[1, 2] On the petition to superintend and revise in matter of law, we will consider first the point as to whether a petition to superintend and revise in matter of law is the proper mode of having the cause reviewed. The main question involved is as to the validity of a lien of a deed of trust and chattel mortgage dated August 29 and September 1, 1916, upon practically all of the assets of the bankrupt alleged to have been given to secure H. M. Luck, executor of N. C. Luck, deceased, the payment of $3,000. It appears that the controversy herein involved is as to the validity of said lien, and is a controversy arising in bankruptcy between the trustee on one side, representing the other creditors, and the said executor on the other.

The order of the District Court, in disallowing this debt and disallowing this claim as a secured claim, is challenged in the petition to superintend and revise in matter of law, wherein it is alleged that the court below erred in certain findings of fact, as set out in said petition under paragraphs 3, 4, 5, 6, 7, 8, 9, 11, and 14; therefore it will be observed that the real issue involved in this controversy is as to questions involved in issues of fact. We think that the law as to this point it so well settled that it is unnecessary to enter into an extended discussion of the same, further than to cite the following cases: Coder v. Arts, 213 U. S. 223, 29 Sup. Ct. 436, 53 L. Ed. 772, 16 Ann. Cas. 1008; Security Warehousing Co. v. Hand, 206 U. S. 415, 27 Sup! Ct. 720, 51 L. Ed. 1117, 11 Ann. Cas. 789; Home Bank for Savings v. Lohm, 223 Fed. 633, 139 C. C. A. 179 (4th Cir.); Holden v. Stratton, 191 U. S. 115, 24 Sup. Ct. 45, 48 L. Ed. 116; Matter of Loving, 224 U. S. 183, 32 Sup. Ct. 446, 56 L. Ed. 725; American Piano Co. v. Heazel, 38 Am. Bankr. Rep. 677, 240 Fed. 410, 153 C. C. A. 336 (4th Cir.).

For the reasons stated, the petition to superintend and revise is dismissed.

The referee found the facts as follows:

"The Luck Construction Company, Incorporated, the bankrupt, was a Virginia corporation. Its officers were H. M. Luck, president; G. T. Fogel, secretary and treasurer; E. E. Francey, vice president. These three parties owned all the stock of the corporation and were its directors. While E. E. Francey had advanced to G. T. Fogel the money with which to purchase his stock, yet the Fogel stock, amounting to $10,000 par value, had been issued to him (Fogel) and stood on the books of the company in his name.

"In the spring and summer of 1916 the Luck Construction Company was engaged in doing certain railroad construction in Nelson county, Va., for the Blue Ridge Railway Company, and so far as the record shows this was all the business it had at this time. Some years prior to 1916, N. C. Luck, father of H. M. Luck, had died, leaving a will whereunder H. M. Luck was appointed executor, and H. M. Luck afterwards qualified as such. Under said will the beneficiaries were the said H. M. Luck and his four sisters, Mrs. Welborn, Mrs. Marshall, Mrs. Runge, and Mrs. Wilson. That certain funds of the N. C. Luck estate came into the hands of H. M. Luck as executor, either prior to or about June, 1916. That by a paper purporting to be dated June 6, 1916, the Luck Construction Company, by H. M. Luck, as president, and R. S. Sale, purporting to be assistant secretary, undertook to give a chattel mortgage on certain steel rail belonging to the Luck Construction Company at Westport, Md., to secure H. M. Luck, executor, $2,000. This instrument was not in fact executed by Luck and Sale until after June 21, 1916. That Sale was never elected by the stockholders or directors' assistant secretary, but undertook to act as such under a power of attorney from G. T. Fogel, given on March 10, 1911. That Luck, as president, and Sale, purporting to be assistant secretary, had no authority from either the board of directors, nor from Francey or Fogel, individually or as stockholders to give this chattel mortgage and in fact Fogel was never informed of it and Francey probably never heard of it, certainly not till long after it had been given. This paper was never taken out of the office of the company or recorded. That on June 21. 1916, H. M. Luck, executor, advanced the Luck Construction Company $1.000; on June 22, 1916, $1,000; and on July 3, 1916, $1,000. That on August 30, 1916, he advanced $250; August 30th, $629.07; September 8, $100; September 16, $300; September 20, $200. The first $3,000 so advanced, on June 21, June 22, and July 3, are the $3.000 claimed as secured by the deed of trust and chattel mortgage of August 29, 1916, here, particularly in controversy. That the accounts of the Luck Construction Company were being kept in the Colonial Bank & Trust Company of Roanoke, Va., in the name of H. M. Luck personally, during this time. That the rail at Westport was sold by the Luck Construction Company in July, 1916, for $2,000, and the money was paid to the company and entered on the books as 'Julys Rail Westport $776.25;' 'August 20th-By check rail from Westport $1,370.33.' These payments were to the company, and the money thereby received was the property of the company. No formal release was made of the attempted chattel mortgage which Luck and Sale had undertaken to give on this rail, but the rail was sold clear of liens to the purchasers. At the time these rails were sold by Luck Construction Company there was no understanding of any kind between that company and H. M. Luck, executor, that he should receive other security for $2,000.

"The entire $3,000 advanced by Luck, executor, to the Luck Construction Company, was expended and paid out by the Luck Construction Company on the Virginia Blue Ridge job in June, July, and August, 1916. That on August 29, 1916, and for some months prior thereto, the Luck Construction Company was hopelessly insolvent, owing debts of about $50,000 or over, with assets as nearly as can be judged of less than $10,000. That in July the Luck Construction Company had assigned all its equities and profits in the Virginia Blue Ridge Railway Company job to a trustee to secure certain Lynchburg creditors, and the amount of $1,279 then afterwards received paid only a small portion of these Lynchburg debts. That on August 29, 1916, the said company had no other assets, except certain equipment, which as sold in this proceeding brought only $5,000, which was a very fair price.

"That on or about August 29, 1916, H. M. Luck undertook as president of the Luck Construction Company to give a deed of trust and chattel mortgage