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the time Miller received the payments in dispute, and also the existence or not of reasonable cause on his part to believe that such payments would, if enforced, effect a preference (section 60b of the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 562 (U. S. Comp. St. 1901, p. 3445)], as amended by Act June 25, 1910, c. 412, § 11, 36 Stat. 842 (U. S. Comp. St. Supp. 1911, p. 1506]), we think the case is rightly pending here upon appeal, under section 25a (3) of the Bankruptcy Act. Matter of Loving, 224 U. S. 183, 188, 32 Sup. Ct. 446, 56 L. Ed. 725; Kiskadden, Trustee, v. Steinle, 203 Fed. 375 (C. C. A. 6th Cir.). The trustee also filed a petition to revise in matter of law, but this is inconsistent with the appeal, and must be dismissed for that reason. Barnes v. Pampel, 192 Fed. 525, 113 C. C. A. 81 (C. C. A. 6th Cir.); Martin v. Globe Bank & Trust Company, 201 Fed. 31 (C. C. A. 6th Cir.).

2] We thus reach the question stated at the beginning of this opinion. The sums of money which the referee ordered Miller to return to the bankrupt estate were received by him, as stated, on January 9 and 13, 1911. Miller testified that when he became connected with the company, April 1, 1910, he thought it was insolvent, because upon examination he found that it "owed $25,000 more than they had represented. Q. You found they were insolvent when you went in there? A. Yes; I didn't know it at the time. I found that out later. I want to correct that statement.”

After stating later that he “thought there was a chance to pull it out," he testified that in June and July, 1910, he thought the company was insolvent. Again he was asked:

"What were the assets and liabilities of the company at the time you took charge? A. I don't know exactly, but I think it was about $165,000"meaning, as he stated, "debts hanging over it, mortgages, etc."

He explained, further, that the property and assets of the company had not been increased, stating :

“I didn't buy any furniture. I didn't buy anything. It took all my time to fix the plumbing up and the elevators. I didn't buy anything, except something to eat.”

This was succeeded by the following questions and answers: "Then the assets at the time Mr. Cooper took charge as receiver, and the time that you went in as president of the company, were the same? A. Yes. Q. How about the debts? Did the debts increase any during that year? A. Yes; they increased. Q. How much? A. Well, I think along about $7,000 or $8,000."

Thus Miller was well situated to gain knowledge of the company's financial condition, but not to escape the effect of that knowledge when receiving the money.

While the intent of the company is not, by reason of the amendment, important here, yet the company was chargeable with the knowledge of its president, and both the company and Miller must have known that the debtor could not pay its other creditors a percentage of their claims similar to the rate he was paying himself, and, consequently, that the enforcement of the transfer would inevitably give to him a preference over the other creditors of the

203 F.-25

same class. It also appears that there was a heavy mortgage upon the property; but we do not discover that the company could pay the interest accruing under the mortgage, any more than it could meet its current taxes. The learned trial judge said, among other things, in his opinion:

"The property covered by the mortgage was not sufficient by several thousand dollars to discharge the mortgage debt. The bankrupt's personal property brought several thousand dollars, from which the general creditors may receive a small dividend only. There is no possibility of a surplus for the bankrupt corporation, or all the holders of its capital stock. They inevitably lose all.

The dual relation of Miller to the company, as its official head and as creditor, we think, justifies the inference that his admissions of the company's insolvent condition meant that he understood the fair value of its property to be less than its debts (section 1, par. 15, of the Bankruptcy Act); and hence it is unnecessary to attempt to determine the full effect of the last amendment to section 606.1

We are constrained to hold that the trustee is entitled to recover of Miller the sums so received by him, with interest, and that, in view of section 57g of the Bankruptcy Act, Miller's claims as a general creditor shall not be allowed unless and until he shall return the money so transferred to him. We cannot from the present record safely estimate or state the amounts of such claims, but they can be readily ascertained and fixed below.

The order covered by the present appeal must be reversed, with costs, and the cause remanded for further proceedings not inconsistent with this opinion.

i The learned judge who decided the present case considered this amendment in Re Sam Z. Lorch & Co. (D. C.) 199 Fed. 944, 947. See, also, In re F. M. & S. Q. Carlile (D. C.) 199 Fed. 612; 1 Loveland on Bankruptcy (4th Ed.) 8 492; 3 Remington on Bankruptcy, Supplement, & 140142

(Circuit Court of Appeals, Eighth Circuit. January 13, 1913.)

No. 3,808.

One made a party defendant merely because he was a conduit through which title to lands in controversy passed to the real defendants, and who as shown by the record had no interest in the suit, need not be joined in an appeal.

[Ed. Note. For other cases, see Appeal and Error, Cent. Dig. 88 1814

1820, 1822–1835; Dec. Dig. & 327.*] 2. LIMITATION OF ACTIONS (8 100*)-SUITS TO CANCEL PATENTS-LIMITATION


Act March 3, 1891, c. 561, § 8, 26 Stat. 1099 (U. S. Comp. St. 1901, p. 1521), providing that suits by the United States to cancel patents to lands thereafter issued shall only be brought within six years after the date of the issuance of such patents, is subject to the long-established equitable rule that in suits for fraud, where the fraud has been concealed, limitation does not begin to run until its discovery by the party defrauded, and cannot be invoked in bar of a suit to cancel patents to lands fraudulently acquired through dummy entries, where the perpetrators and beneficiaries of the fraud, by means of secret conveyances pur. posely withheld from record, have concealed it until after six years from the date of the patents, and where the suit is commenced within six years from the time the fraud was or could have been discovered by the officers of the government.

(Ed. Note.-For other cases, see Limitation of Actions, Cent. Dig. $8 823, 480-493; Dec. Dig. 8 100.*] Appeal from the District Court of the United States for the District of Colorado; Robert E. Lewis, Judge.

Suit in equity by the United States against the Exploration Company, Limited, and Philip L. Foster. Decree for defendants, and complainant appeals. Reversed.

For opinion below, see 190 Fed. 405.

B. D. Townsend, Sp. Asst. Atty. Gen., of Washington, D. C. (Harry E. Kelly, U. S. Atty., of Denver, Colo., on the brief), for the United States.

Henry McAllister, Jr., of Denver, Colo. (Joel F. Vaile and William N. Vaile, both of Denver, Colo., on the brief), for appellees.

Before SANBORN and CARLAND, Circuit Judges, and W. H. MUNGER, District Judge.

CARLAND, Circuit Judge. This is an appeal from a decree of the District Court of the United States for the District of Colorado, dismissing upon demurrer a bill of the United States filed for the purpose of having set aside and declared null and void certain patents for coal lands,

[1] Appellees move to dismiss the appeal for the reason that Alexander Burrell was a party defendant in the court below, and is not made a party on this appeal. We do not think the record shows that Burrell had any interest in the subject-matter of the suit. There is a *For other cases see same topic & $ NUMBER ’n Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

Rehearing denied April 26, 1913.

general allegation in the bill that the defendants, including Burrell, claimed some interest in themands in controversy; but this allegation must be construed as to Burrell with reference to the specific allegation that he was simply a conduit through which the title to the lands passed to one Smith, and that he took no beneficial interest therein. Taking the allegations of the bill to be true, no relief could be granted thereunder against Burrell. The motion to dismiss, therefore, will be denied.

The bill was dismissed in the court below for the reason that the statute of limitations (Acts March 3, 1891, cc. 559, 561, § 8, 26 Stat. 1093, 1099 [U. S. Comp. St. 1901, p. 1521), and Act March 2, 1896, c. 39, 29 Stat. 42 [U. S. Comp. St. 1901, p. 1603]) had barred the action. The statute referred to, so far as material, reads as follows:

"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."

The bill charged that the Exploration Company was a corporation organized and existing under the laws of Great Britain, and that neither said Exploration Company nor any of its officers or stockholders were qualified by law to enter, purchase, or hold any of the coal lands of the United States under any of the public land laws; that, notwithstanding this, the Exploration Company, through its duly authorized officers and representatives, devised a scheme to defraud the United States of the title, use, and possession of a large quantity of valuable coal lands situate in the state of Colorado, including the lands particularly described in the bill; and that this scheme to defraud was to be accomplished by means of what are known as "dummy" entries. The bill sets forth in detail the false and fraudulent affidavits and other means by which the officers of the United States were induced to issue patents. Six of the patents in suit were dated October 16, 1902, and three were dated September 16, 1902. The fraud was discovered in 1909, and the bill filed March 3, 1911.

Anticipating the defense of the statute of limitations, above quoted, the bill charged that it was a part of the conspiracy that the frauds

erpetrated upon the United States should be, and that they in fact were, concealed from the United States until after six years had elapsed from the date of the issuance of the patents, for the express purpose of defrauding the United States of its equitable remedy, namely, a cancellation of the patents. The bill also charged that this purpose of concealment was accomplished by affirmative acts of fraud consummated by and on behalf of the defendants during the period of concealment. These subsequent fraudulent acts included (a) the execution of conveyances by the “dummy” entrymen, which conveyances were in fact executed at the time applications were made to enter the lands, but the dates of which were left blank, and afterwards false dates inserted; (b) the execution of several mesne conveyances to secret trustees, through which the title was finally merged in the defendant Exploration Company; (c) the withholding from the records

and from the knowledge of the United States of these conveyances, which, if known, would have disclosed the true facts in the premises. Other fraudulent devices to conceal the transaction are also alleged.

[2] The question presented for decision is concisely stated in appellant's brief, as follows:

"If the United States is defrauded of public lands by means of 'dummy' entries, and the perpetrators and beneficiaries of the fraud by subsequent and affirmative acts of fraud conceal the original fraud from the knowledge of the government until after six years have elapsed from the date of the issuance of the patents, will a court of equity permit the wrongdoers to enjoy the fruits of their fraud, by pleading the statute of limitations as a defense, when the delay in the institution of suit was deliberately induced by fraud practiced upon the government for the express purpose of gaining the benefits of the statute?”

This is an equitable action in a court of equity, and the statute of limitations was passed with direct reference to this class of actions, so there can be no controversy over the binding force of the statute. It is not ambiguous, and its construction is not difficult in ordinary actions of fraud to set aside patents for land. The real question before us is whether the enactment of the statute repealed the equitable rule, enforced by courts of equity, 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. The existence of this rule cannot be questioned. In Bailey v. Glover, 88 U. S. (21 Wall.) 342, 347, 348 (22 L. Ed. 636), Mr. Justice Miller, in delivering the opinion of the court, said:

"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, 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.

Booth v. Lord Warrington, 4 Brown's Parliamentary Cases, 163; South Sea Co. v. Wymondsell, 3 Peere Williams, 143; Hovenden v. Lord Annesley, 2 Schoales & Lefroy, 634; Stearns v. Page, 7 How. 819 [12 L. Ed. 928]; Moore v. Greene, 19 How. 69 [15 L. Ed. 533]; Sherwood v. Sutton, 5 Mason, 143 [Fed. Cas. No. 12,782] ; Snodgrass v. Bank of Decatur, 25 Ala. 161 [60 Am. Dec. 505).

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.”

In Kirby v. Lake Shore, etc., Railroad, 120 U. S. 130, 136, 7 Sup. Ct. 430; 433 (30 L. Ed. 569), Mr. Justice Harlan said:

"Be that as it may, it is an established rule of equity, as administered in the courts of the United States, that, where relief is asked on the ground


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