EXPLORATION CO. v. US , 247 U.S. 435 (1918)

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, 191 , 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 Fed. 405. The Circuit Court of Appeals for the Eighth Circuit reversed this decision, and the [247 U.S. 435, 436]   case was sent back to the District Court. 203 Fed. 387, 121 C. C. A. 491. After trial a decree was rendered against the defendants, the present plaintiffs in error. 225 Fed. 854. This decree was affirmed by the Circuit Court of Appeals (235 Fed. 110, 148 C. C. A. 604), and the case comes here.

The District Court found the following facts:

The Exploration Company, defendant herein, is a corporation of Great Britian, 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 [247 U.S. 435, 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 entry men 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 entry men and women, but for the sole benefit of the Exploration Company, who in reality paid the gover ment 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 [247 U.S. 435, 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. [247 U.S. 435, 439]   Messrs. Henry McAllister, Jr., and George E. Tralles, both of Denver, Colo., for appellants.

[247 U.S. 435, 442]   Mr. Assistant Attorney General Kearful, for the United States.

[247 U.S. 435, 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 (Comp. St. 1916, 5114), 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.' [247 U.S. 435, 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 governmen 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 (Act March 2, 1867, c. 176, 14 Stat. 517), 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 [247 U.S. 435, 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 [247 U.S. 435, 448]   v. Sutton, 5 Mason, 143, 21 Fed. Cas. p. 1303, No. 12,782. 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 disc very of the fraud, he said (21 Fed. Cas. 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, 190 , 4 S. Sup. Ct. 382; Traer v. Clews, 115 U.S. 528, 537 , 538 S., 6 Sup. Ct. 155; Kirby v. Lake Shore, etc., R. R. Co., 120 U.S. 130, 136 , 7 S. Sup. Ct. 430; Avery v. Cleary, 132 U.S. 604, 609 , 10 S. Sup. Ct. 220. 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 Fed. 593, 116 C. C. A. 267; 203 Fed. 394, 121 C. C. A. 498. [247 U.S. 435, 449]   It is true that Mr. Justice Brewer, in delivering the opinion of the court, in United States v. Winona, etc., R. R. Co., 165 U.S. 463, 476 , 17 S. Sup. Ct. 368, 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 , 28 Sup. Ct. 579, 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 , 29 Sup. Ct. 31, 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 [247 U.S. 435, 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.