Statutes of limitation upon suits to set aside fraudulent
transactions do not begin to run until discovery of the fraud.
Bailey v.
Glover, 21 Wall. 342.
This rule applies to the provision of the Act of March 3, 1891,
26 Stat. 1093, that suits to vacate land patents shall only be
brought within six years after the dates of the issuance of the
patent.
235 F. 110 affirmed.
This suit was brought in the United States District Court for
the District of Colorado to cancel nine coal land patents embracing
1,120 acres of land in Colorado which, it was charged, had been
procured from the United States by fraud. A further purpose of the
suit was to cancel deeds of the same land from various persons to
one Philip L. Foster alleged to be in secret trust for the
Exploration Company, a foreign corporation, for whose benefit it is
alleged the frauds were committed. Six of the patents were of date
of October 16, 1902, and three of date of September 6, 1902. The
suit was brought March 3, 1911, about eight and a half years after
the dates of the patents, the bill alleging that the fraud by which
the patents were obtained was self-concealing in its nature, was
concealed from the government by the wrongdoers, and was not
discovered until 1909. The defendants demurred on the ground that
the suit was barred by the statute of limitations, and the demurrer
was sustained by the district court. 190 F. 405. The Circuit Court
of Appeals for the Eighth Circuit reversed this decision, and
the
Page 247 U. S. 436
case was sent back to the district court. 203 F. 387. After
trial, a decree was rendered against the defendants, the present
plaintiffs in error. 225 F. 854. This decree was affirmed by the
circuit court of appeals, 235 F. 110, and the case comes here.
The district court found the following facts:
The Exploration Company, defendant herein, is a corporation of
Great Britain, authorized to purchase, own, and operate mines, and
to purchase and own shares of stock in mines in all parts of the
world. It was the owner of mines and mining lands in different
parts of the world, and also of shares of stock of corporations
engaged in mining in the United States and other countries. In 1901
and for several years thereafter, its representative in this
country was Charles A. Molson, to whom it had executed a general
power of attorney to represent it in all matters in the United
States. The Exploration Company desired to acquire certain coal
lands in the State of Colorado which were a part of the public
domain of the United States, but was unable to do so because it was
a foreign corporation, and desired more of these coal lands than a
domestic corporation could obtain under the laws of the United
States. It therefore conceived and carried into effect the
following scheme for the purpose of acquiring them: Mr. Molson
employed one Henry Burrell to obtain title to the lands. Burrell
employed other agents, who were sent to residents of Colorado,
legally entitled to acquire public coal lands from the United
States, and induced them to make entry of such lands as were
pointed out to them by the Exploration Company's agents, and which
were supposed to contain valuable veins of coal. A large number of
such entries were made on lands situated in the Counties of
Gunnison and Delta, the parties having filed declaratory statements
as required by law. Many of these lands were abandoned and no
patents applied for, but the filings on the lands herein involved
were paid for and
Page 247 U. S. 437
patents therefor secured. Henry Burrell was a witness in most,
if not all, of these entries. The parties who made the entries were
promised the sum of twenty-five dollars for their services in so
doing. Burrell was to pay all fees, as well as the purchase money,
with funds furnished by the Exploration Company. The entrymen and
women executed deeds of conveyance for their respective tracts of
land and delivered them to Burrell as soon as the final proofs were
made and the money paid by the Exploration Company's agent to the
respective officers of the land offices within whose jurisdiction
the lands were situated. Henry Burrell caused these deeds to be
made to Alexander Burrell, his brother, and Alexander Burrell later
conveyed the lands to Alberta L. Smith, a resident of Montana, the
only consideration for the conveyance being that Smith promised to
hold them in trust for and to convey them to any person designated
by the agent of the Exploration Company. The agent Charles A.
Molson having died, the Exploration Company appointed Philip L.
Foster to succeed him as its duly authorized general agent in the
United States, and Smith conveyed these lands to Foster, without
any other consideration, who holds the legal title in secret trust
for the Exploration Company. In 1902, patents to these lands were
issued by the United States, but the fact that they were secured by
false affidavits, and not for the benefit of the entrymen and
women, but for the sole benefit of the Exploration Company, who in
reality paid the government the purchase money, was kept secret,
and did not become known to any of the officers of the government,
nor did any facts become known to them which could arouse the
suspicion of one reasonably diligent that the patents had been
obtained by false affidavits for the sole benefit of the
Exploration Company until 1909, more than six years after issuance
of the patents, and then it only became known to the officers of
the government by reason of the fact that a
Page 247 U. S. 438
Utah corporation had acquired a great many of the public lands
in the same manner that these lands were obtained, and, this being
discovered in 1909, the Secretary of the Interior directed in that
year an examination of all coal land entries made in the States of
Utah and Colorado. The facts were for the first time discovered in
this investigation. There was nothing in the records, or on file in
the General Land Office of the United States or the Department of
the Interior which could possibly have aroused a suspicion that
these lands had been obtained for the sole benefit of the
Exploration Company until the reports of the special agents of the
General Land Office were made in the latter part of 1909. As soon
as the facts were ascertained, the Secretary of the Interior
transmitted them to the Department of Justice with the request to
institute suits to set aside the patents to the lands, and this
suit was accordingly instituted on March 3, 1911, several months
less than two years after the discovery of the alleged fraudulent
acts.
The district court found that the defendants did not actively
conceal the facts which constitute fraud in this case by enjoining
silence on the entrymen and patentees, or by directing them or the
agents who acted for it to refuse to give any information relating
to the entries, if asked by the officers of the government, but
were guilty of a passive concealment. When the investigation was
made by the agents of the General Land Office in 1909 in relation
to these entries, the patentees as well as the company's agents
stated the facts truthfully, but until that time, the fact that the
entries were all made for the benefit of the Exploration Company
and that the legal title held by the defendant Foster was for the
benefit of the company was concealed. There were no facts or
circumstances within the knowledge of any official of the
government prior to the investigation in 1909 which could arouse
even a bare suspicion that the entries were made in the manner
hereinbefore described and for the benefit of the Exploration
Company.
Page 247 U. S. 445
MR. JUSTICE DAY, after making the foregoing statement, delivered
the opinion of the Court.
The circuit court of appeals found that the evidence fully
supported the findings of the trial court. We find no occasion to
disturb the findings of fact by two courts. The question presented
for our consideration is whether the suit was barred by the statute
of limitations under the Act of March 3, 1891, c. 561, 26 Stat.
1099, which provides:
"That suits by the United States to vacate and annul any patent
heretofore issued shall only be brought within five years from the
passage of this act, and suits to vacate and annul patents
hereafter issued shall only be brought within six years after the
date of the issuance of such patents. "
Page 247 U. S. 446
As averred in the bill and found by the courts, the frauds were
concealed until after six years had elapsed from the issuance of
the patents.
"After it was supposed the statute of limitations had barred any
action, the participants in the fraud talked very freely, telling
the truth when it was thought it would do no harm."
It is the contention of the appellants that the statute was
intended to bar all actions after six years from the date of the
issuance of the patent, that, if for six years the government has
failed to discover the fraud, no matter what its diligence in that
respect may be, its action against the guilty parties is forever
barred, and they may hold in security the lands thus obtained by
grant from the United States by means of fraud perpetrated in
defiance of its laws enacted for the disposition of the public
domain. We are unable to agree with this contention. We think the
true rule is established in federal jurisprudence by the decision
of this Court in
Bailey v.
Glover, 21 Wall. 342. In that case, a question was
presented under the Bankruptcy Act of 1867, which provided that no
suit at law or in equity should be maintained by or against an
assignee in bankruptcy, or by or against any person claiming an
adverse interest, touching the property or rights of property of
the bankrupt, in any court whatever, unless the same should be
brought within two years from the time the cause of action accrued
for or against the assignee. The action was brought to set aside a
conveyance on the ground of fraud. Among other things, it was
charged that the bankrupt, his wife, son, and father-in-law being
defendants in the case, kept secret their fraudulent acts and
endeavored to conceal them from the knowledge both of the assignee
and of Winston & Company, a creditor proving a debt, whereby
both were prevented from obtaining any sufficient knowledge or
information thereof until within the previous two years, and that,
even up to the time suit was instituted, they had not been able to
obtain
Page 247 U. S. 447
full and particular information as to the fraudulent disposition
made by the bankrupt of a large part of his property. A general
demurrer was filed to the bill on the ground that the suit was not
brought within two years, as required by the statute. It is thus
apparent that no attempt was made to prosecute the action within
two years from the time the same accrued. It was contended that the
statute was imperative, that it made no exceptions, and that the
action was consequently barred by limitation. This Court, after a
full review of decisions English and American, decided that,
notwithstanding the positive terms of the statute, it did not begin
to run until after the discovery of the fraud. In the course of the
opinion Mr. Justice Miller said:
"They [statutes of limitation] were enacted to prevent frauds;
to prevent parties from asserting rights after the lapse of time
had destroyed or impaired the evidence which would show that such
rights never existed, or had been satisfied, transferred, or
extinguished, if they ever did exist. To hold that, by concealing a
fraud or by committing a fraud in a manner that it concealed itself
until such time as the party committing the fraud could plead the
statute of limitations to protect it, is to make the law which was
designed to prevent fraud the means by which it is made successful
and secure."
It will be observed in that statute, as in the one now under
consideration, there was no provision that the cause of action
should not be deemed to have accrued until the discovery of the
fraud. But it was held that, for the purpose of such statutes, the
cause of action did not accrue until the discovery of the fraud;
that such was the undisputed doctrine of courts of equity, and that
the weight of authority, English and American, applied the same
rule to actions at law.
Among other cases cited by Mr. Justice Miller is the decision of
Mr. Justice Story at the circuit in
Sherwood
Page 247 U. S. 448
v. Sutton, 5 Mason 143. That case involved a statute of
the State of New Hampshire which provided that actions for fraud
and deceit should be brought within six years. It contained no
exception as to actions founded on fraud where the same had been
concealed during the period of limitation, and the question was
whether such exception was implied. The cases were very fully
reviewed by Mr. Justice Story, and, in holding that the statute did
not begin to run until the discovery of the fraud, he said (p.
1307):
"What, then, is the reason upon which this exception has been
established? It is that every statute is to be expounded reasonably
so as to suppress, and not to extend, the mischiefs which it was
designed to cure. The statute of limitations was mainly intended to
suppress fraud by preventing fraudulent and unjust claims from
starting up at great distances of time, when the evidence might no
longer be within the reach of the other party by which they could
be repelled. It ought not, then, to be so construed as to become an
instrument to encourage fraud if it admits of any other reasonable
interpretation, and cases of fraud therefore form an implied
exception, to be acted upon by courts of law and equity according
to the nature of their respective jurisdictions. Such, it seems to
me, is the reason on which the exception is built, and not merely
that there is an equity binding upon the conscience of the party
which the statute does not reach or control."
Bailey v. Glover has never been overruled nor modified
in this Court, and has been approved and followed.
Rosenthal v.
Walker, 111 U. S. 185,
111 U. S. 190;
Traer v. Clews, 115 U. S. 528,
115 U. S.
537-538;
Kirby v. Lake Shore & Michigan Southern
Railroad, 120 U. S. 130,
120 U. S. 136;
Avery v. Cleary, 132 U. S. 604,
132 U. S. 609.
It was also applied in the Court of Appeals for the Ninth Circuit
in the case of
Linn & Lane Timber Co. v. United
States, 196 F. 593; 203 F. 394.
Page 247 U. S. 449
It is true that Mr. Justice Brewer, in delivering the opinion of
the Court in
United States v. Winona & St. Peter R.
Co., 165 U. S. 463,
165 U. S. 476,
said that no matter what the mistake or error of the Land
Department was, or what the frauds of the patentee, the patent
would become conclusive as a transfer of title after the lapse of
six years. But the learned Justice said in the same opinion that
this limitation could not be availed of because the suit was
commenced before the expiration of the time prescribed, and that it
was referred to as showing the purpose of Congress to uphold titles
arising under certification or patent after the lapse of a certain
time. It therefore appears that the question was not involved in
that case. Nor does it contain any discussion of the doctrine
previously laid down in
Bailey v. Glover, supra.
In
United States v. Chandler-Dunbar Co., 209 U.
S. 447, cited by appellants, no question was made as to
the effect of concealment of fraud until after the running of the
statute. The same is true of
Louisiana v. Garfield,
211 U. S. 70, also
relied upon by appellants.
When Congress passed the act in question, the rule of
Bailey
v. Glover was the established doctrine of this Court. It was
presumably enacted with the ruling of that case in mind. We cannot
believe that Congress intended to give immunity to those who, for
the period named in the statute, might be able to conceal their
fraudulent action from the knowledge of the agents of the
government. We are aware of no good reason why the rule, now almost
universal, that statutes of limitations to set aside fraudulent
transactions shall not begin to run until the discovery of the
fraud should not apply in favor of the government, as well as a
private individual. It is not our belief that Congress intended
that the government should be deprived of title to public lands by
those who add to the fraud by which they were obtained artifices
which enabled them to conceal the fraudulent manner
Page 247 U. S. 450
in which they were secured until the action was supposed to be
barred by the lapse of six years.
The decree of the circuit court of appeals is
Affirmed.
MR. JUSTICE McKENNA and MR. JUSTICE VAN DEVANTER dissent.
MR. JUSTICE McREYNOLDS took no part in this decision.
