1. The policy of the Bankrupt Law is
speedy as well as
equal distribution of the bankrupt's assets among his creditors,
and the one is almost as important as the other. The delays in the
inferior courts commented on.
2. Hence, the clause limiting the commencement of actions by and
against the assignee to two years after the right of action accrues
applies to all judicial contests between the assignee and any
person whose interest is adverse to his.
3. But though this clause in terms includes all suits at law or
in equity, the general principle applies here that where the action
is intended to obtain redress against a fraud concealed by the
party, or which from its nature remains secret, the bar does not
commence to run until the fraud is discovered.
4. And this doctrine is equally applicable on principle and
authority to suits at law as well as in equity.
Bailey, assignee in bankruptcy of Benjamin Glover, and appointed
as such December 1, 1869, filed a bill on the 20th of January, 1873
(three years and seven weeks, therefore, after the date of his
appointment) against Elenora Glover, wife of the bankrupt, Hugh
Weir, his father-in-law, and Nathaniel Glover, his son, to set
aside certain conveyances.
The bill alleged that Glover, the bankrupt, owed Winston &
Co. $13,580, and that judgment had been obtained against him for
that debt; that Glover was a man of fortune -- possessed
Page 88 U. S. 343
of at least $50,000 in different kinds of property -- and owed
no debt but the one just mentioned; that being thus entirely
solvent and able to pay that debt, but fraudulently intending to
avoid its payment by applying for the benefit of and getting a
discharge under the Bankrupt Law, he previously to applying
conveyed, without any or upon grossly inadequate considerations,
all his estate to the defendants, and then with fraudulent intent
filed a petition in voluntary bankruptcy, setting forth that he
owed the debt to Winston & Co., that this was the only debt
which he did owe, and that he had no property or effects whatever
except such as the law exempted from execution.
The bill further alleged that on his petition as aforesaid he
was, on the 11th of April, 1870, discharged under the Bankrupt Act,
Winston & Co. proving their debt as creditors, and he, the
complainant, being appointed assignee in the bankruptcy.
The bill further alleged that the bankrupt and his wife, son,
and father-in-law -- these being the already-named defendants in
the case -- kept secret their said fraudulent acts and endeavored
to conceal them from the knowledge both of the assignee and of the
said Winston & Co., whereby both were prevented from obtaining
any sufficient knowledge or information thereof until within the
last two years, and that even up to the present time they had not
been able to obtain full and particular information as to the
fraudulent disposition made by the bankrupt of a large part of his
property.
It also alleged that the surviving partner of Winston & Co.,
in December, 1871, filed a petition in the district court against
the bankrupt in order to have his discharge set aside for this
fraud, but before process could be served on the bankrupt, he
died.
These were the material allegations of the bill, and if true
they showed, of course, a very clear case of fraudulent conspiracy
between the bankrupt and his family connections to defraud the only
creditor named in his petition -- a scheme of gross fraud, in short
-- concealed by the defendants from
Page 88 U. S. 344
the knowledge of the assignee and from Winston & Co.,
against whom the fraud was perpetrated.
The defendants demurred to the bill because the suit was not
brought within two years from the appointment of the assignee, and
their demurrer was sustained. This appeal was taken from the decree
of the court dismissing the bill, and the sole question here was
whether on the case made by the bill this decision of the circuit
court was right.
The second section of the Bankrupt Act of 1867, under which
section the case arose, reads as follows:
"The circuit court shall have concurrent jurisdiction of all
suits at law or in equity brought by the assignee against any
person claiming an adverse interest, or by such person against the
assignee touching the property of the bankrupt transferable to or
vested in the assignee; but no suit at law or in equity shall in
any case be maintainable by or against such assignee, or by or
against any person claiming an adverse interest, touching the
property or rights of property aforesaid, in any court whatsoever,
unless the same shall be brought
within two years from the time
of the cause of action accrued for or against such assignee.
"
Page 88 U. S. 346
MR. JUSTICE MILLER delivered the opinion of the Court.
Counsel for the appellant argues that the provision of the
second section of the Bankrupt Act has no application to the
present case because it is not shown that the defendants have set
up or asserted any claim to the property now sought to be recovered
adverse to that of the assignee. It is rather difficult to see
exactly what is meant by this proposition. The suit is brought to
be relieved from some supposed claim of right or interest in the
property on the part of the defendants. If no such claim exists, it
does not stand in the way of complainant, and he does not need the
aid of a court of equity to set it aside. If it is intended to
argue that until someone asserts in words that he claims a right to
property transferred to the assignee by virtue of the act which is
adverse to the bankrupt, the statute does not begin to run though
such person is in possession of the property, acting as owner, and
admitting no other title to it, we think the construction of the
proviso entirely too narrow.
This is a statute of limitation. It is precisely like other
statutes of limitation, and applies to all judicial contests
between the assignee and other persons touching the property or
rights of property of the bankrupt transferable to or vested in the
assignee, where the interests are adverse and have so existed for
more than two years from the time when the cause of action accrued,
for or against the assignee. Such is almost the language in which
the provision in expressed in section 5057 of the Revised
Statutes.
It is obviously one of the purposes of the Bankrupt Law that
there should be a speedy disposition of the bankrupt's assets. This
is only second in importance to securing equality of distribution.
The act is filled with provisions for quick and summary disposal of
questions arising in the progress of the case, without regard to
usual modes of trial attended by some necessary delay. Appeals in
some instances
Page 88 U. S. 347
must be taken within ten days, and provisions are made to
facilitate sales of property, compromises of doubtful claims, and
generally for the early discharge of the bankrupt and the speedy
settlement of his estate. It is a wise policy, and if those who
administer the law could be induced to act upon its spirit, would
do much to make the statute more acceptable than it is. But instead
of this, the inferior courts are filled with suits by or against
assignees, each of whom, as soon as appointed, retains an attorney
if property enough comes to his hands to pay one, and then instead
of speedy sales, reasonable compromises, and efforts to adjust
differences, the estate is wasted in profitless litigation and the
fees of the officers who execute the law.
To prevent this as much as possible, Congress has said to the
assignee, you shall commence no suit two years after the cause of
action has accrued to you, nor shall you be harassed by suits when
the cause of action has accrued more than two years against you.
Within that time, the estate ought to be nearly settled up and your
functions discharged, and we close the door to all litigation not
commenced before it has elapsed.
But the appellant relies in this Court upon another proposition
which has been very often applied by the courts under proper
circumstances in mitigation of the strict letter of general
statutes of limitation -- namely that when the object of the suit
is to obtain relief against a fraud, the bar of the statute does
not commence to run until the fraud is discovered or becomes known
to the party injured by it.
This proposition has been incorporated in different forms in the
statutes of many of the states, and presented to the courts under
several aspects where there were no such statutes. And while there
is unanimity in regard to some of these aspects there is not in
regard to others.
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
Page 88 U. S. 348
provided suit is brought within proper time after the discovery
of the fraud.
We also think that in suits in equity, the decided weight of
authority is in favor of the proposition that where the party
injured by the fraud remains in ignorance of it without any fault
or want of diligence or care on his part, the bar of the statute
does not begin to run until the fraud is discovered, though there
be no special circumstances or efforts on the part of the party
committing the fraud to conceal it from the knowledge of the other
party. [
Footnote 1]
On the question as it arises in actions at law, there is in this
country a very decided conflict of authority. Many of the courts
hold that the rule is sustained in courts of equity only on the
ground that these courts are not bound by the mere force of the
statute as courts of common law are, but only as they have adopted
its principle as expressing their own rule of applying the doctrine
of laches in analogous cases. They therefore make concealed fraud
an exception on purely equitable principles. [
Footnote 2]
On the other hand, the English courts and the courts of
Connecticut, Massachusetts, Pennsylvania, and others of great
respectability hold that the doctrine is equally applicable to
cases at law. [
Footnote 3]
As the case before us is a suit in equity and as the bill
contains a distinct allegation that the defendants kept secret and
concealed from the parties interested the fraud which is
Page 88 U. S. 349
sought to be redressed, we might rest this case on what we have
said is the undisputed doctrine of the courts of equity, but for
the peculiar language of the statute we are considering. We cannot
say in regard to this act of limitations that courts of equity are
not bound by its terms, for its very words are that "no suit
at
law or in equity shall in any case be maintained . . . unless
brought within two years" &c. It is quite clear that this
statute must be held to apply equally by its own force to courts of
equity and to courts of law, and if there be an exception to the
universality of its language, it must be one which applies under
the same state of facts to suits at law as well as to suits in
equity.
But we are of opinion, as already stated, that the weight of
judicial authority both in this country and in England is in favor
of the application of the rule to suits at law as well as in
equity. And we are also of opinion that this is founded in a sound
and philosophical view of the principles of the statutes of
limitation. They 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.
And we see no reason why this principle should not be as applicable
to suits tried on the common law side of the court's calendar as to
those on the equity side.
While we might follow the construction of the state courts in
this matter, where those statutes governed the case, in construing
this statute of limitation passed by the Congress of the
United States as part of the law of bankruptcy, we hold that when
there has been no negligence or laches on the part of a plaintiff
in coming to the knowledge of the fraud which is the foundation of
the suit, and when the fraud has been concealed or is of such
character as to
Page 88 U. S. 350
conceal itself, the statute does not begin to run until the
fraud is discovered by, or becomes known to, the party suing or
those in privity with him.
The result of this proposition is that the decree of the circuit
court sustaining the demurrer and dismissing the bill must be
Reversed with directions for further proceedings in
conformity to this opinion.
[
Footnote 1]
Booth v. Lord Warrington, 4 Brown's Parliamentary Cases
163;
South Sea Company v. Wymondsell, 3 Peere Williams
143;
Hovenden v. Lord Annesley, 2 Schoales & Lefroy
634;
Stearns v.
Page, 7 How. 819;
Moore v.
Greene, 19 How. 69;
Sherwood v. Sutton, 5
Mason 143;
Snodgrass v. Bank of Decatur, 25 Ala. 161.
[
Footnote 2]
Troup v. Smith, 20 Johnson 33;
Callis v.
Waddy, 2 Munford 511;
Miles v. Barry, 1 Hill (South
Carolina) 296;
York v. Bright, 4 Humphry 312.
[
Footnote 3]
Bree v. Holbech, Douglas 655;
Clarke v.
Hougham, 3 Dowling & Ryland 322;
Cranger v.
George, 5 Barnewall & Cresswell 149;
Turnpike Co. v.
Field, 3 Mass. 201;
Welles v. Fish, 3 Pickering 75;
Jones v. Caraway, 4 Yeates 109;
Rush v. Barr, 1
Watts 110;
Pennock v. Freeman, ib., 401;
Mitchell v.
Thompson, 1 McLean 9;
Carr v. Hilton, 1 Curtis
230.
