
    MURPHY v. KIRBY.
    Partnership ; Laches.
    A bill in equity filed in 1891 against a former partner of complainant, alleged that under a settlement of their accounts about sixteen years before, the profits of a certain partnership transaction with the District government, had been represented by the defendant to have been about $80,000, and a distribution between the partners was made on that basis; that the defendant was the son-in-law of the complainant, who trusted him implicitly and accepted his statements as true; that the defendant had exclusive management and control of the partnership transaction in question, which was conducted in his name, and he received payments made by the District government on account thereof, in his name; and that the complainant was in possession of no information tending to excite reasonable suspicion on his part and put him on inquiry, until shortly before the bill was filed, when certain suspicious circumstances led him to make an investigation, which developed the fact that the profits of the transaction had been $180,000 instead of $80,000. The complainant therefore prayed that the partnership accounts might be reopened and restated, and for a decree for the amount found to be due him. It was held, overruling a demurrer to the bill, first, that upon the facts alleged, the relation between the parties was more like that of trustee and cestui que trust than partners, and the complainant was entitled to the relief prayed for, unless he had lost his right by laches; and second,, that as both parties were living and competent to testify, and there had been no change in their situation, and no intervening claims or rights of other parties had accrued, the delay in bringing the suit would not bar its prosecution, unless on the hearing it appeared that the complainant was at the time of or shortly after the settlement, in such relation to the defendant, and possessed of the knowledge of such facts or circumstances as would be sufficient to put an ordinarily prudent person, under similar surroundings and circumstances, upon inquiry; in which event he would be held guilty of laches from the time that inquiry, if made with reasonable diligence, would have led to discovery.
    No. 300.
    Submitted March 20, 1894.
    Decided May 7, 1894.
    Hearing on an appeal by the complainant from a decree of the Supreme Court of the District of Columbia, holding an equity term, sustaining a demurrer to and dismissing a bill for the reopening and restatement of a partnership account.
    
      Reversed.
    
    The Court in its opinion stated the case as follows:
    The original bill in this cause was filed in the Supreme Court of the District of Columbia, October 18, 1892, by the appellant, Morris Murphy, to reopen a settlement of partnership account, made in 1876, between him and defendant, Thomas Kirby. The facts are set out with more detail in an amended bill filed June 10, 1893, which was dismissed upon demurrer thereto, and from which decree of dismissal this appeal has been taken.
    The substantial allegations of the bill are as follows: About March 19, 1874, defendant entered into a contract with the District of Columbia to do certain grading, paving, sewerage, etc., in Boundary street, which said contract was modified and extended to additional work in June and in August, 1875. Complainant had formerly been a partner with defendant in similar works, and when this contract was awarded to defendant, they entered into an agreement by which the complainant was to become surety on the bond required of defendant, and was to furnish him with money to commence and prosecute the work until such time as moneys could be procured upon the certificates and estimates as it progressed. In consideration of the foregoing, plaintiff was to have one-half of the profits which might be made under the contract and its modifications and extensions. Complainant became surety on the bond, and during the years 1874 and 1875, advanced defendant between $7,000 and $8,000, which was expended on the work until the certificates for estimates thereon came in. It is also alleged that at the time of the completion of the contract, the defendant had received altogether certificates for about $180,000; that at the time of the completion of the work or thereabouts the said defendant, to whom all the accounts of the work were entrusted, who kept the books and was the sole financial manager of the work, and to whom the certificates were issued and in whom the complainant had the most entire confidence, stated to the complainant that the entire amount of certificates received on account of this work was nearly, but less than, $80,000, and that the amount coming to the complainant by way of profits and reimbursements for moneys advanced, as he then computed them, was about $17,000 in 3.65 bonds of the District of Columbia, into which said certificates had been converted, and that said defendant thereupon turned over to the complainant the sum of about $17,000 in bonds, which was received by complainant as the proper amount coming to him from said work, which $17,-000 was to reimburse him for the money which complainant had advanced and to give him his share of the profits to which he was entitled.
    The complainant says that whereas he had been for a long time associated with the defendant as partner in similar work and had never had cause to doubt the honesty and fairness of defendant, and that whereas defendant was his own son-in-law, that he had the utmost confidence in the truth of the defendant’s statement and in his honesty and fairness in reference thereto, and that, although he was somewhat surprised that the work had not produced more than the defendant had said, he believed such statements to be true and accepted the said $17,000 in bonds upon his faith in the truth of defendant’s statements, complainant not having any personal knowledge of the state of the accounts or of the books of the work or the amounts of the certificates issued by the District of Columbia on account of the work.
    Complainant says that some time during the year 1877, in order to be entirely satisfied as to the amount of the certificates issued to the defendant Kirby, on account of contract No. 1050 and its extensions, he went to the offices of the Commissioners of the District of Columbia, to make inquiry of Daniel Donovan, who was the custodian of the books and papers which contained, among other things, the record of certificates issued by the District of Columbia upon contracts for street improvements made by the Board of Public Works and the said Commissioners prior to that time, including the said contract No. 1050 and its extensions, and made inquiries of the said Daniel Donovan, he being supposed by complainant to have full knowledge of the subject of the amount of certificates issued to the said Kirby on account of the said work and its extensions, and in response to the said inquiry the said Donovan then informed him that he had made examination, and that he found and so stated to this complainant that the amount of certificates issued to the said Kirby on account of said contract and its extensions was about eighty thousand dollars ($80,000). Complainant believed such statement to be true, and for that reason, and also relying upon the statement of said Kirby, substantially to the same effect, he did not suspect the falsity thereof until his suspicions were aroused by circumstances arising as hereinafter stated.
    The bill then proceeds to state that his suspicions were aroused in the year 1891 by certain conduct of defendant in other matters, that the settlement made between them was unfair, and he again made inquiry of the said Donovan as to the amount of certificates issued to defendant, and was again informed that the same was about $80,000. The evasive answers of defendant, as well as other matters which had recently transpired, so shook complainant’s confidence as to cause him to make a complete investigation of the payment made to defendant on account of said contract. Again being inquired of, Donovan proceeded to the book which showed the issuance of the certificates for about $80,000. But upon examination of other books and papers, it was ascertained that the certificates issued amounted in the aggregate to about $180,000. Until this time complainant did not know that the true amount exceeded $80,000. The settlement was made in this belief and the said sum of $17,000 accepted therein. The said settlement would not have been made nor said sum accepted had complainant then known the truth. On account of the fraud and false representations of the defendant, he prays to have the account reopened and restated, and for a decree for the amount due him upon a fair and full settlement, etc. The bill contains no charge of fraud as to said Donovan, or of collusion between him and defendant to deceive complainant.
    
      Messrs. Willoughby & Willoughby and Mr. A. S. Worth-ington for the appellant.
    The sole justification for the existence of the doctrine of laches is, that there may and do arise cases in which, though the original equity of the demands of the complainant be admitted, yet he has knowingly so slept upon his rights as to permit such change of the condition of other parties interested as will render it unconscionable for a court of equity to enforce the original rights. The doctrine of laches should be limited in its application to cases of this kind.
    In the case at bar, not only have the interests of no third parties intervened, but there is nothing that can be suggested that would render the rectification of the original fraud a present injustice between the original parties. The position of the defendant is, that the faith of one- man in another’s integrity, even when such faith is justified by past evidences of honesty in other transactions, and trebly reinforced by the natural trust arising from close family relationships, and confirmed by the statement of the officer who was the very one to know, and who professed to speak from the record, that such a faith shall be held to have been improperly held, and as such, to have rendered the one so holding it guilty of such a negligence as will defeat his claim for redress when he has discovered his right, and will protect the guilty one in the possession of his ill-gotten gains.
    Such a position is condemned in Perheim v. Randolph, 4 How. (Miss.), 451, where it was claimed that the party might have found the representation as to title to have been false by examining the record. See also Kerr on Fraud and Mistake, pages 79, 255.
    In seeking relief in equity, there is a great difference between those cases where relief is sought upon the ground of mistake, irregularity of proceedings, etc., and where it is sought upon the ground of fraud. What might be regarded as laches in the former cases may not be so regarded as laches in the latter. The courts make this distinction as the authorities show.
    But there is also a distinction between different cases of fraud. There is actual fraud and constructive fraud. There may be fraud on account of the relations existing between the parties, as between guardian and child or between attorney and client; and again, there is fraud on account of misrepresentations by the one party or the other, or in other words where the party is trusted and betrays his trust by a direct falsehood. In this last case the courts are most severe against the fraudulent party. He cannot be permitted for a moment to say that the party who trusted him and acted upon the faith of his statement was unwise or negligent in not making further inquiries. This is sound morality, and the courts sustain this doctrine to the fullest extent. And if this be so for a day, it is so for a year or many years, and until discovery is made, there is no reason for saying that the party defrauded may rely upon the false statement for a short time and not for a long time, and not until the discovery of the fraud, however long it may be.
    This court has held and decided in Lewis v. Denison, 2 App. D. C., 387, that even the positive prohibitions of the statute of limitations will not preclude a party from bringing a suit where, by fraud, he has been kept in ignorance of his right, and after discovery thereof he brings his suit within the statutory period.
    If such concealed fraud has such force in regard to such positive prohibition of statute, how much greater force should it have in a court of equity, where, as it has been repeatedly held, the question of laches is one depending upon the particular circumstances of each case, and to a considerable extent upon the discretion of the court.
    If it should be suggested that the complainant was lacking in due diligence in not looking at the partnership books, the answer is: 1st. That he had a right to rely upon the statement of the defendant, and, 2d. That the account of certificates received would not be an item that would necessarily appear upon such books. See the following authorities on the subject of laches: Walliston v. Tribe, L. R. 9 Eq., 44; Pacific R. R. v. Mo. R. R., 2 McCrary, 227; Colwell v. Miles, 2 Del. Ch., no; Cotterell v. Purchase, Forrester, 66; Alden v. Gregory, 2 Eden, 285; Pickering v. Stamford, 2 Ves. Jr., 280; 1 Fonblanque’s Equity, 330; Prevost v. Grata, 6 Wheat., 481; Michaud v. Girod, 4 How., 561; Warner v. Daniels, 1 W. & M., 3; Hovenden v. Annesley, 2 Sch. & Lef., 633-4; Vernon v. Vawdry, 2 Atk., 119 ; Hammond v. Hopkins, 143 U. S., 224; Felix v. Patrick, 145 U. S., 317; Foster v. Mansfield, 146 U. S„ 88.
    
      Mr. William A. Cook and Mr. W. L. Cole for the appellee.
    1. The complainant admits in his bill that he was surprised at the time of the settlement to be told by the defendant that the amount of the bonds received was only $80,000. He now says that shortly before filing the bill he discovered the amount was $180,000.' If in fact the complainant settled on the basis of $80,000, he was guilty of greater negligence and stupidity than a man of ordinary intelligence. If he was suspicious that the amount had been stated too low, he was guilty of still greater negligence by waiting seventeen years before trying to inform himself upon the subject.
    What led the complainant to make the alleged discovery is not stated. It is only alleged that in a business transaction in 1891 the defendants conduct was such as to induce the complainant-to think there was something wrong in the old settlement. What the circumstances were he does not deem of enough importance to state. It is therefore apparent that there is no reasonable explanation of the long delay in bringing this suit, and that it would be extremely inequitable to open a settlement made seventeen years ago, when books, papers and vouchers have become scattered and lost, when many witnesses are dead or cannot be found, and facts are but imperfectly remembered.
    2. Law and equity have concurrent jurisdiction of suits for the settlement of partnership accounts. An action of account lies .at common law for the settlement of such an account. The statute of limitations of three years in force in this District would apply to such an action, and therefore would apply to a bill in equity for the same purpose. God-den v. Kimmell, 99 U. S., 210; Hewett v. Lewis, 4 Mackey, 10; Kane v. Bloodgood, 7 John., ill.
    The statute of limitations being applicable, the allegations of fraud and concealment in the bill are wholly insufficient to take the case out of the operation of the statute. Bates v. Preble, 151 „U. S., 158-162, and cases referred to, especially Wood v. Carpenter, xoi U. S., 143.
    This doctrine is not only applicable where it is sought by proper averments to remove the apparent bar of the statute, but is equally so where the attempt is made in the bill to explain laches and avoid the consequences thereof.
    3. In a case where laches is apparent upon the face of the bill, in order to remove the objection the bill should not only clearly and distinctly allege a fraud, but where there has been unreasonable delay in suing for its correction, there should also be allegations showing that the defendant made some positive representation, or did some act, reasonably tending to conceal the fraud and to prevent the party imposed upon from discovering it, and finally when and how it was discovered. Each of- these allegations is equally necessary to a good bill. The absence of any one of them is fatal upon demurrer. Foster v. R. R. Co., 146 U. S., 88 ; Felix v. Patrick, 145 U. S., 317; Gattiher v. Cadwell, 145 U. S., 368 (see especially pages 371-3); Wallensak v. Reiches, 115 U. S., 102; Wood v. Carpenter, 101 U. S., 135, 140; Godden v. Kimmell, 99 U. S., 210; Marsh v. Whitmore, 21 Wall., 178; Badger v. Badger, 2 Wall., 87; Richard v. Mackall, 124 U. S., 183; Philippi v. Philippi, 115 U. S., 156; Speidel v. Heurich, 120 U. S., 387; Sullivan v. R. R. Co., 94 U. S., 811; Brown v. County of Buena Vista, 95 U. S., 160-1; Godden v. Kimmell, 99 U. S., 212; Beaubien v. Beaubien, 23 How., 190; Roderick’s Will, 21 Wall., 519; Graham v. R. R. Co., 118 U. S., 179; Boone Co. v. R. R. fo., 139 U. S., 684.
    
      
       About the summer of 1875, according to the record. — Reporter.
    
   Mr. Justice Shepard

delivered the opinion of the Court:

1. The allegations of the bill make out a case of undue advantage taken of the complainant, and of gross fraud practiced upon him by one holding most confidential relations. Defendant had been his partner in other similar business, was his trusted friend and the husband of his daughter. He became surety upon the defendant’s bond, advanced the money from time to time to enable him to commence the work, and left everything, including all the payments and. receipts of money, to his exclusive management and control. Defendant kept the accounts and complainant relied upon his doing- so fairly. When the work was completed, complainant accepted defendant’s statement of the expenditures and receipts, and received without question the amount thereby shown tó be due him. The relation between them was more like that of a trustee and cestui que trust than of copartners. Under such a statement of facts it is within the power and becomes the duty óf a court of equity, unless the complainant shall have lost his right to the remedy by his laches, to direct the whole account between the parties to be opened and taken de novo, 1 Story Eq. Jur., Sec. 523; Vernon v. Vawdry, 2 Atk., 119.

2. It remains to consider whether this right to reopen the account has been lost by reason of complainant’s long delay. The settlement was had about sixteen years before the filing of the bill. The parties are both living in the same place and competent to testify. The records of the -District of Columbia will ’show the payments made on account of the contract, and they, as well as the books of defendant, are presumably in existence.' There has been no change in the situation of the parties. No intervening claims or rights of other persons have accrued. There is no equitable consideration in the way of relief except the staleness of the demand — the. naked lapse of time. Without reasonable explanation, this lapse of time would be sufficient to bar relief, and hence it was incumbent upon complainant to allege with reasonable precision the necessary facts which may excuse his delay. Badger v. Badger, 2 Wall., 94; Felix v. Patrick, 145 U. S., 331.

The excuses for this delay, as presented by the bill, are substantially these: 1. The contract out of which the claim grew, and all transactions concerning it with the District government, were in defendant’s name. 2. Defendant managed and controlled everything, kept the accounts, and handled all the money. 3. Defendant was the son-in-law of complainant, who had implicit confidence in his integrity, accepted his statements as true, and was in possession of no information tending to excite reasonable suspicion and put him upon inquiry. Are these excuses sufficient? ■

The latest expression of opinion by the Supreme Court with respect to the effect of laches is given by Mr. Justice Brewer as follows: “The length of time during which the party neglects the assertion of his rights which must pass in order to show laches, varies with the peculiar circumstances of each case, and is not, like the matter of limitations, subject to an arbitrary rule. It is an equitable defense, controlled by equitable considerations, and the lapse of time must be so great, and the relations of the defendant to the right such, that it would be inequitable to permit the plaintiff to now assert them. There must of course have been knowledge on the part of the plaintiff of the existence of the rights, for there can be no laches in failing to exert rights of which a party is wholly ignorant, and whose existence he had no reason to apprehend.” Halstead v. Grinnan, 152 U. S., 412.

Tested by the foregoing, we think the facts alleged in the bill sufficient to excuse complainant’s delay. Admitting in its full scope the soundness of the doctrine that mere ignorance of a right of action will not excuse delay, and that one must exercise proper diligence in -all cases, and be charged with the knowledge he would have acquired if he had exercised it, we can see no room for its application here. Some relations between persons dealing with each other excuse the want of the exercise of a care ordinary and proper in others. Some frauds do not require active or continuous efforts to keep them concealed; they conceal themselves. This case presents both phases. The trust relation between the parties, strengthened by close family ties, caused the complainant to accept as true that which, by careful investigation/he could have proved to be false. To charge him with the consequences of his confidence in the integrity of his son-in-law and partner, is virtually to say that it is want of proper care to give confidence under any circumstances; it is to say that complainant was bound to suspect falsehood, treachery and imposition on the part of the defendant. Such a doctrine would be at war with the better impulses of human nature. We cannot subscribe to.it. In an analogous case, the Supreme Court of Missouri replies to a like suggestion in the following forcible words: “It is no excuse for, nor does it lie in the mouth of the defendant to aver that plaintiff might have discovered the wrong and prevented its accomplishment had he exercised watchfulness, because this is equivalent to saying, you trusted me, therefore I had the right to betray you,!'

The view we have taken is supported by the following well considered cases: Wickersham v. Lee, 83 Pa. St., 416; Watson v. Ivey, 32 Miss., 233; Bank v. Harris, 118 Mass., 147. In this last case, money was turned over by the bank to its president for the purpose of paying a certain debt, which he failed to do. The bank did not learn of this failure until after its right of action for the default had become barred. Undér the statute of Massachusetts it is provided that if the person liable to the action fraudulently conceals the cause thereof from the knowledge of the person entitled to bring the same, the action may be commenced at any time within six years after the person so entitled discovers that he has such cause of action. The court held that the relation of the parties was a good excuse for failure to make inquiry and discovery. The case has been cited with approval by the Supreme Court of the United States in a case before it arising under the same statute, Bates v. Preble, 151 U. S., 158, wherein the Massachusetts decisions are reviewed, and the distinction drawn between the cases where the transactions were between parties dealing, so to speak, as strangers to each other, and those where they occupied relations of trust, and where the frauds were of such nature as ordinarily to conceal themselves. We have heretofore applied the principle also in a case where fraud, practiced by an agent upon his unsuspecting principal, was held to suspend the running of the statute of limitations in an action at law. Lewis v. Denison, 2 App. D. C., 387.

It follows from what has been said that the facts alleged m the bill, on their face, present a sufficient excuse for the delay in bringing the suit, and render it necessary for defendant to make answer thereto. Upon the hearing, however, complainant will be held to strict proof of his allegations, and if it should appear that he was at the time of, or shortly after the settlement, in such relation to the defendant, and possessed of the knowledge of such facts or circumstances as would be sufficient to put an ordinarily prudent person, under similar surroundings and circumstances, upon inquiry, he will be held guilty of laches from the time that inquiry, if made with reasonable diligence, would have led to discovery.

The decree appealed from must be reversed, with costs to the appellant, and the cause remanded with direction to overrule the demurrer ; and it is so ordered.  