Appeal from the District Court of the United States for the Western District of Wisconsin.
Before ALSCHULER, EVANS, and PAGE, Circuit Judges.
PAGE, Circuit Judge. Iver Pederson died in September, 1914, leaving individually owned real estate and a three-fifths interest in Iver Pederson & Co., a copartnership conducting a general mercantile and milling business on his real estate. By his will he directed his executors to raise, out of his estate, a trust fund of $8,000, the income from which was to be paid to Mary Pederson, his widow, during her life. Until the trust fund was created, she was to be paid $500 per year by the executors, who were a son, Albert M. Pederson, and a son-in-law, P. M. Benrud. Instead of creating the trust fund, as directed, Iver Pederson's four children (including Albert M. Pederson and the wife of Benrud) incorporated the Iver Pederson Company to which they deeded testator's real estate on October 30, 1915, for a stated consideration of $12,325, and also turned over to it testator's interest in the partnership assets, which amounted, after the payment of the partnership debts, to less than $6,000. In 1927, the corporation was adjudged a bankrupt.
The widow and the executors (appellants) filed a petition in the bankruptcy proceedings asking that the estate in the trustee's possession be impressed with a trust in favor of the widow. The defense was made by the trustee in bankruptcy and three mortgagees. The District Court, in dismissing the petition, held: (1) That the mortgagees were innocent purchasers; (2) that the widow, having acquiesced in the leaving of her legacy in the business of the corporation for upwards of ten years, was estopped; (3) that the statute of limitations did not run in favor of the corporation.
The main contention by appellees is that the statute of limitations of Wisconsin, St. Wis. 1927, § 330.10 had run because the corporation had been in adverse possession under the deed from the heirs for more than ten years. As the mortgages were taken in 1925, within two years of the adjudication in bankruptcy, the statute could not of course have run in favor of the mortgagees.
Iver Pederson's will gave his wife, in lieu of all statutory rights, furniture, household goods, etc., absolutely, the homestead for life, and made the following trust fund provision:
"I further give and bequeath to the executors of this my last will and testament, in trust for my said wife, Mary Pederson, the sum of $8,000, to have and to hold the same during the life of my said wife and to pay to her on the first day of January of each year during her life time, the total income from the said $8,000 which amount shall not be less than $500 per year; I further will and direct that my said executors shall as soon as it is practicable to realize from my said estate without sacrifice said sum of $8,000 invest said sum in first class security and continually thereafter during her life as much as practicable maintain and continue such investments; and until such investments can be made I will and direct that my executors pay to her annually on the first day of January in each year the sum of five hundred dollars ($500)."
It is stated, off the record, that the will was probated February 9, 1915, in the county court of Trempealeau county, Wisconsin, where the testator resided and the property was situated. A bond, dated February 13, 1915, was made by the executors, as trustees, to H. A. Anderson, county judge of that county, conditioned that it should be void if said trustees
"shall carry out and execute the provisions of said trust in accordance with said will and the law applicable thereto, and shall make and return to the County Court aforesaid, within such time as the Court shall direct:
"1. A true inventory of the manner of investing said trust estate under the terms of the will,
"2. Shall annually render an account to such Court of the trust in their hands and of the management, disposition and annual income thereof, * * *."
It contained other provisions, not here material. There are here shown only four items relating to the administration of the estate: (1) sometime between December 2nd and 13th, 1915, the executors filed a petition for final settlement, a part of which purports to be a statement of the personal property received by the executors, and of claims paid by them; (2) as of December 13, 1915, appears an order made by Judge Anderson, fixing February 1, 1916, as the day for hearing the petition; (3) a certificate of publication of that order; (4) following the testimony of one of the executors concerning the account shown in the application for discharge is this entry:
"This matter came on for hearing on a petition for final settlement and upon an order for the determination and adjustment of the inheritance tax. O. J. Eggum, attorney for petitioner. No minors. A. M. Pederson, one of the executors, sworn and examined. * * * Inheritance tax adjusted and paid. Final judgment entered."
Albert M. Pederson and one Runnestrand, who owned the two-fifths interest in the copartnership not owned by Iver Pederson, carried on the copartnership business during the last illness of Iver Pederson, When the corporation was organized the business was managed by Albert M. Pederson, its president, and other children of testator. The capital stock of the corporation, as first organized, was $25,000, but it was later increased to $60,000. How much stock was issued to any person does not appear, except that a son-in-law of Iver Pederson, one Aaby, who was an officer of the corporation, paid $5,000 for stock. Albert M. Pederson, without notice to the widow or to his coexecutor, had a certificate issued for 80 shares of stock to "A. M. Pederson and P. M. Benrud, as Adm. for Mrs. Iver Pederson." It also appears that stock was issued to A. M. Pederson and Runnestrand for their two-fifths interest in the copartnership. There is some testimony indicating that each got in excess of $2,000.Stock was also issued to A. M. Pederson and each of his three sisters to represent ...