This is a suit in equity by petitioners on behalf of themselves and all other creditors of the Southern Minnesota Joint Stock Land Bank of Minneapolis to enforce the liability imposed upon shareholders of the Bank by § 16 of the Federal Farm Loan Act, equal to one hundred percent of their holdings. 39 Stat. 360, 374, 12 U.S.C. § 812.
The respondents made two defenses: (1) they invoked a New York statute of limitation barring such an action after ten years, New York Civil Practice Act, § 53; (2) they urged laches, claiming that petitioners had unduly
In Guaranty Trust Co. v. York, supra, we ruled that when a State statute bars recovery of a suit in a State court on a State-created right, it likewise bars recovery of such a suit on the equity side of a federal court brought there merely because it was "between Citizens of different States" under Art. III, § 2 of the Constitution. The amenability of such a federal suit to a State statute of limitation cannot be regarded as a problem in terminology, whereby the practical effect of a statute of limitation would turn on the content which abstract analysis may attribute to "substance" and "procedure." We held, on the contrary, that a statute of limitation is a significant part of the legal rules which determine the outcome of a litigation. As such, it is as significant in enforcing a State-created right by an exclusively equitable remedy as it is in an action at law. But in the York case we pointed out with almost wearisome reiteration, in reaching this result, that we were there concerned solely with State-created rights. For purposes of diversity suits a federal court is, in effect, "only another court of the State." Guaranty Trust Co. v. York, supra, at 108. The considerations that urge adjudication by the same law in all courts within a State when enforcing a right created by that State are hardly relevant for determining the rules which bar enforcement of an equitable right created not by a State legislature but by Congress.
The present case concerns not only a federally-created right but a federal right for which the sole remedy is in equity. Wheeler v. Greene, 280 U.S. 49; Christopher v. Brusselback, 302 U.S. 500; Russell v. Todd, 309 U.S. 280, 285. And so we have the reverse of the situation in Guaranty Trust Co. v. York, supra. We do not have the duty of a federal court, sitting as it were as a court of a State, to approximate as closely as may be State law in order to vindicate without discrimination a right derived solely from a State. We have the duty of federal courts, sitting as national courts throughout the country, to apply their own principles in enforcing an equitable right created by Congress. When Congress leaves to the federal courts the formulation of remedial details, it can hardly expect them to break with historic principles of equity in the enforcement of federally-created equitable rights.
Equity eschews mechanical rules; it depends on flexibility. Equity has acted on the principle that "laches is not like limitation, a mere matter of time; but principally a question of the inequity of permitting the claim to be enforced — an inequity founded upon some change in the condition or relations of the property or the parties." Galliher v. Cadwell, 145 U.S. 368, 373; see Southern Pacific Co. v. Bogert, 250 U.S. 483, 488-89. And so, a suit in equity may lie though a comparable cause of action at law would be barred. If want of due diligence by the plaintiff may make it unfair to pursue the defendant, fraudulent conduct on the part of the defendant may have prevented the plaintiff from being diligent and may make it unfair to bar appeal to equity because of mere lapse of time.
Equity will not lend itself to such fraud and historically has relieved from it. It bars a defendant from setting up
This equitable doctrine is read into every federal statute of limitation. If the Federal Farm Loan Act had an explicit statute of limitation for bringing suit under § 16, the time would not have begun to run until after petitioners had discovered, or had failed in reasonable diligence to discover, the alleged deception by Bache which is the basis of this suit. Bailey v. Glover, supra; Exploration Co. v. United States, supra; United States v. Diamond Coal Co., 255 U.S. 323, 333. It would be too incongruous to confine a federal right within the bare terms of a State statute of limitation unrelieved by the settled federal equitable doctrine as to fraud, when even a federal statute in the same terms would be given the mitigating construction required by that doctrine.
We conclude that the decision in the York case is inapplicable to the enforcement of federal equitable rights. The federal doctrine applied in Bailey v. Glover, supra, and in the series of cases following it, governs. When the liability, if any, accrued in this case, cf. Rawlings v. Ray, supra, at 98, and whether the petitioners are chargeable with laches, see Foster v. Mansfield, C. & L.M.R. Co., 146 U.S. 88, 99; Southern Pacific Co. v. Bogert, supra, at 488, are questions as to which we imply no views. We
Reversed and remanded.
MR. JUSTICE JACKSON took no part in the consideration or decision of this case.
MR. JUSTICE RUTLEDGE, concurring.
I agree with the result and with the opinion, reserving however any intimation, explicit or implied, as to the full scope to which the doctrine of Guaranty Trust Co. v. York, 326 U.S. 99, may be applied in diversity cases. Many of the considerations now stated by the Court for refusing to extend that doctrine to cases concerning federally created rights, relating to the flexibility of remedies in equity either to cut down or to extend the state statutory period of limitations, seemed to me to be applicable whenever a federal court might be asked to extend the aid of its equity arm, whether in its diversity jurisdiction or other. The ruling in the York case however may be accepted generally for diversity cases and, moreover, rejected for extension to cases of this sort, without indicating that there may not be some cases even of diversity jurisdiction to which federal courts may not be required to apply it. With this reservation I join in the Court's action.