Traer v. Clews

• Decision Date: 23 November 1885
• Citation: 29 L.Ed. 467,6 S.Ct. 155,115 U.S. 528
• Parties: TRAER and another v. CLEWS. 1 Filed
• Court: U.S. Supreme Court

6 S.Ct. 155

115 U.S. 528

29 L.Ed. 467

TRAER and another v. CLEWS.¹

Filed November 23, 1885.

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 50 shares, of $1,000 each, of capital stock in the Cedar Rapids North western Construction Company, and the dividends which had been declared thereon. The stock had been originally subscribed and owned by Clews. The construction company was organized in 1870. The dividends sued for were declared, $10,000 in December, 1873, and $500 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 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 $1,200, through the intervention of one Armstrong, who did not disclose his agency, purchased of Tappan, the trustee, the 50 shares of stock above mentioned. Traer alleged, and it appeared, that the purchase was made by him for his wife, Mrs. Ella 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 Ella 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. Traer and Ella D. Traer, and judgment was rendered against them for $15,000. 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.

N. M. Hubbard and Chas A. Clark, for plaintiffs in error, John W. Traer and another.

[Argument of Counsel from pages 529-533 intentionally omitted] L. Deane and Frank G. Clark, for defendant in error, Henry Clews.

WOODS, J.

The defendant in error questions the jurisdiction of this court. As the record shows that the plaintiff in error dispute the validity of a transfer to the defendant in error of the property in controversy, made to him by a trustee in bankruptcy, appointed under and deriving his authority from the bankrupt act, and as the question is made whether the suit is barred by the limitation prescribed by the same act, we are of opinion that the jurisdiction of the court to decide these questions is clear. Factors' Ins. Co. v. Murphy, 111 U. S. 738; S. C. 4 Sup. Ct. Rep. 679; New Orleans R. Co. v. Delamore, 114 U. S. 501; S. C. 5 Sup. Ct. Rep. 1009.

The record does not leave it in doubt that the purchase by Traer from Tappan of the rights incident to the stock in the construction company belonging to the bankrupt estate of Clews was brought about by the fraudulent practices of Traer. As stated by the supreme court of Iowa, he was a stockholder, officer, and trustee of the construction company, and had been, from the first, actively engaged in the management of its affairs. As trustee he was solely intrusted with the custody of the assets, books, and papers of the corporation, and had full and complete knowledge of all matters pertaining to the assets and business of the company. He knew that the plaintiff or his bankrupt estate was entitled to dividends amounting to at least $10,500, received by Traer upon entering upon the discharge of his duties as trustee. The assets of the company, much of them being in money, he held as a trustee for the stockholders, being so constituted by the act of dissolution of the corporation. He misrepresented the value of these assets to both Tappan and Clews, and induced them to believe that the sum to which they were entitled did not greatly exceed $1,200 in value, the amount of the consideration of the assignment of the stock by Tappan. He employed attorneys and agents to negotiate for the purchase of the stock, who concealed from Tappan that the purchase was made for Traer or his wife. These agents knew that they were making the purchase for Traer or his wife, and neither of them at any time was a good-faith purchaser. In all of the transactions connected with the purchase of the stock Traer acted as the agent of his wife, who knew that her husband was a trustee holding the assets for the stockholders of the construction company, and knew their value, and was guided in her purchase by his advice and direction. She knew that Tappan was ignorant of the value of the assets, and she had knowledge of the devices used by her husband to secure the purchase of the stock and dividends. By means of these fraudulent devices she purchased from Tappan, for the price of $1,200, property which the state circuit court found to be of the value of $15,000. The charge of fraud made in the petition was therefore fully sustained.

Among other defenses pleaded by Ella D. Traer was the following: 'That plaintiff's pretended right of action herein accrued in favor of plaintiff's assignor, J. Nelson Tappan, as trustee in bankruptcy of plaintiff's estate, more than two years before the commencement of this suit against this defendant, and more than two years before she was made a party defendant herein, and that this action is fully barred as to her by the provisions of the act of congress in that behalf, and was so barred before she was made a party defendant herein.' This plea sets up the bar prescribed by the second section of the bankrupt act, now forming section 5057 of the Revised Statutes, which declares: 'No suit, either at law or in equity, shall be maintained in any court between an assignee in bankruptcy and a person claiming an adverse interest touching any property or rights of property transferable to or vested in such assignee, unless brought within two years from the time the cause of action accrued for or against such assignee.' The suit was brought against John D. Traer within two years after the fraudulent purchase and transfer of the stock and dividends, but Mrs. Traer was not made a party to the suit until after the lapse of three years and a half from the time of the purchase and transfer. The question is presented by one of the assignments of error whether, upon the circumstances of this case, the suit was barred as to Mrs. Traer.

The amended petition filed in the case on October 28, 1879, the day after Mrs. Traer had been made a defendant, averred that John W. Traer, while holding the office of trustee of the construction company, falsely represented to Tappan that there were no dividends due the estate of Clews from the stock held by him in the construction company, and falsely and fraudulently concealed from him the true condition of the company with the intent of undervaluing the stock and divi- dends declared thereon; that Traer and his wife employed one Armstrong to purchase for Mrs. Traer the said stock and dividends; that Armstrong took from Tappan an assignment of the certificate of stock to Mrs. Traer; that he forwarded the certificate to one Howard, whom Traer and his wife had previously employed, and Howard, following the instructions of Traer and his wife, carried the certificate to the headquaters of the construction company at Cedar Rapids, and demanded of Traer, as trustee, the dividends and interest thereon; whereupon Traer paid over to Howard, his own and his wife's attorney, the sum of $11,913.75 on account of said dividends and interest, and Howard, while pretending to act for Armstrong, 'carefully concealed, from those who might inform the said plaintiff's trustee in bankruptcy, and from the papers and receipts, that he was acting as the attorney for John W. Traer and Ella D. Traer his wife,' and that after receiving said sum of money, and receipting the vouchers prepared by Traer, as trustee, he paid back the money to Traer and his wife, less the amount of his own share as co-conspiratory and attorney. Afterwards, it was alleged, Traer transferred the stock to his wife upon the books of the company. These averments show, not only a fraudulent concealment of the value of the stock and dividends from Tappan by Traer, acting as agent for his wife, but a carefully devised plan by which the payment of the dividends to Mrs. Traer was concealed from Tappan, and no trace of such payment left upon the books and vouchers of the construction company. Subsequently, and before the trial of the case, the following amendment was made to the petition: 'That as to the matters and things herein set forth as a cause of action against the said Ella D. Traer, the said fraudulent transactions with which she was connected and her part therein were studiously concealed from the plaintiff and his assignor, and he had no means of discovering the same, nor had his assignor any means of discovering the same until...