This Court follows the findings of fact of two courts below in
this case that the corporation was a mere tool of the individual
organizing and controlling it and holding most of its capital
stock, that his knowledge as to the fraud was its knowledge, and
that the corporation was a party to an effort to conceal the title
until the period of limitation had expired.
McCaskill Co. v.
United States, 216 U. S. 504.
Where the corporation was organized simply to take title to
lands and its first business was to record the deeds from the
owners of practically all of its stock, and there is doubt as to
whether they were actually delivered until then, the difference in
legal personality between the grantor and the corporation gives the
latter no greater rights than the former.
The fact that some third parties held stock of a corporation as
collateral for debts of the principal stockholder
held in
this case, following the findings of the courts below, not to have
altered the situation.
Where a secret transfer of wrongfully held land is made through
the medium of a corporation for the purpose of busying the United
States with the wrong person until the statute has run, service on
the man thus put forward is sufficient to avoid the statute.
Where the bills to set aside patents for fraud have been filed
and subpoenas issued and delivered for service before the statute
has run, and reasonable diligence shown in getting service, the
running of the statute is interrupted, and the rights of the United
States against the patents are saved.
Where the decision of the Secretary of the Interior that patents
should be issued has been obtained by such fraud as existed in this
case, it is
Page 236 U. S. 575
not conclusive; the matter is open for consideration by the
courts.
Washington Securities Co. v. United States,
234 U. S. 76.
196 F. 593, 203 F. 394, affirmed.
The facts, which involve the right of the United States to
cancel patents for land on the ground of fraud in the entries and
the application of the statute of limitations to the actions to
cancel, are stated in the opinion.
MR. JUSTICE HOLMES delivered the opinion of the Court.
These are suits in equity brought by the United States against
the appellants to annul patents issued under the Timber and Stone
Act of June 3, 1878, c. 151, 20 Stat. 89, on the ground that the
entries were fraudulent. Both of the courts below have found that
the entries were fraudulent, that the defendant Smith was either a
party to the fraud or chargeable with notice of it, and that the
Linn & Lane Timber Company stood in no better position than
Smith. The circuit court of appeals made decrees for the United
States in respect of all the lands concerned. 181 F. 545, 196 F.
593, 203 F. 394. The main question here concerns the statute of
limitations:
"Suits to vacate
Page 236 U. S. 576
and annul patents hereafter issued shall only be brought within
six years after the date of the issuance of such patents."
Act of March 3, 1891, c. 561, ยง 8, 26 Stat. 1095, 1099.
See act of March 3, 1891, c. 559, 26 Stat. 1093. In No.
46, the twenty-eight patents in controversy were issued on August
12, 1902. In No. 159, nine of the patents were issued on August 12,
1902, and eight on July 9, 1902. The bills were filed and subpoenas
were taken out and delivered to the marshal on May 25, 1908. On
July 20, the marshal returned
non est inventus as to
Smith. An order of notice was applied for on the same day,
suggesting that he was residing in Minneapolis, and was granted on
July 27. Smith was served with process on August 11, 1908, and the
corporation was made a party on November 16, and was served on
November 18, 1908, so that it will be seen that the corporation was
not brought into the suit until more than six years had run after
the issue of all the patents, and that Smith was served more than
six years after the issue of eight of the patents involved in No.
159. On the other hand, the bills were filed within six years.
The patented lands had been conveyed to various persons in trust
for Smith in 1900, shortly after the making of final proof. In May,
1906, Smith, still having the equitable or legal title, organized a
Minnesota corporation, the appellant, with 1,000 shares of $100
each, for the purpose of receiving and holding the title to these
and other lands. He took 998 shares, his wife 1, and his attorney
1. He then offered to pay for the stock with the land, and
subsequently caused to be executed deeds purporting to convey the
lands to the corporation, but he retained the deeds and did not
have them recorded until September 9, 1908, after the beginning of
these suits, and more than six years after the issue of the
patents. It is found, it would seem reasonably, that one purpose of
Smith was to keep the titles concealed until the statute of
Page 236 U. S. 577
limitations should have run. The United States was ignorant of
the transaction. But, a month from the recording of the conveyances
to the corporation, Smith and other defendants pleaded it in
abatement, and in November, as we have said, the United States
filed amended bills.
Upon the facts as found by the two courts below, we must take it
that the corporation was the mere tool of Smith, that his knowledge
was its knowledge (
McCaskill Co. v. United States,
216 U. S. 504),
and that it was party to an effort to keep the title concealed
until it was too late for the United States to complain. It even is
open to some doubt whether the deeds ever were delivered until they
were recorded, and it seems open to none that, as was said by the
circuit court of appeals, recording the deeds was the first
business the corporation did. This being so, the difference in
legal personality between Smith and the corporation gives the
corporation no greater rights than Smith. It cannot be privy to a
fraud, and on the ground of its success set up a title of which, if
that be material, Smith is to have substantially the whole
advantage, and thus defeat the adjudication against Smith that
otherwise would undo the fraud. There is no question of creditors'
rights, and the only ground for hesitation is that, before the bill
was filed, some of the shares had been pledged by Smith, and 15
shares had been transferred to one Johnson and also pledged for
Smith's debt. But we are of opinion with the findings that the
position was not changed as between the United States, Smith, and
the corporation in such a way as to give the last a better standing
in this case. Those who took the stock as security did not deal
with the corporation as outsiders, but became a part of it while it
still was under the manifest domination of Smith, and charged with
participation in Smith's fraud. The corporation cannot derive any
new right from them.
Wilson Coal Co. v. United
Page 236 U. S. 578
States, 188 F. 545. Whether they have a remedy is not a
question here.
We now are not considering the effect of a fraudulent
concealment of a cause of action. We are considering whether a man
who knows that his title is bad and will be attacked can call into
being a corporation which he owns in order to save the property,
make a deed to it, put the deed into his pocket, leave it
unrecorded, and, without the need of trusting even an accomplice,
can keep it with perfect security until the statute has run, and
then set up that his creature owns the land. We are deciding that,
if a secret transfer of wrongfully held land is made in this way
for the purpose of busying the United States with the wrong person
until the title shall be made good by time, service on the man thus
put forward is sufficient to avoid the statute, and the trick must
fail.
The bills were filed and subpoenas were taken out and delivered
to the marshal for service before the statute had run, reasonable
diligence was shown in getting service, and therefore the rights of
the United States against all the patents were saved. For, when so
followed up, the rule is pretty well established that the statute
is interrupted by the filing of the bill.
Coppin v. Gray,
1 Y. & C.C.C. 205, 207;
Purcell v. Blennerhassett, 3
Jo. & Lat. 24, 45;
Forster v. Thompson, 4 Dr. &
Warr. 303, 318;
Hele v. Bexley, 20 Beav. 127;
Hayden
v. Bucklin, 9 Paige, 512;
Aston v. Galloway, 38 N.C.
126;
Dilworth v. Mayfield, 36 Miss. 40, 52;
United
States v. American Lumber Co., 85 F. 827, 830;
United
States v. Miller, 164 F. 444.
There was an attempt made in argument to reopen the questions of
fact upon which the two courts below agreed, but we see no reason
to depart from the common rule, and therefore we do not advert to
any of those matters. It also was argued that the decision of the
Secretary of the Interior that the patents should be issued is
conclusive.
Page 236 U. S. 579
But the decision was obtained by such frauds that the matter was
open for reconsideration by the courts.
Washington Securities
Co. v. United States, 234 U. S. 76.
Decrees affirmed.
MR. JUSTICE McREYNOLDS took no part in the consideration or
decision of these cases.