UNITED STATES v. CLARK, 138 F. 294

ROSS, Circuit Judge, after making the foregoing statement, delivered the opinion of the court. From the view we take of 'this case it becomes unnecessary to decide whether all, or any, of the various frauds alleged by the government to have been committed by Cobban, Griswold, and Catlin, and the respective entrymen and entrywomen, in entering the respective parcels of land in suit and obtaining the government title thereto, were or were not committed.

And as it is not, in our opinion, necessary to decide those questions in this case, we think it would be particularly improper to do so because of the fact, of which we are informed by counsel for the government, that there are now pending against those parties, in the United States District Court for the District of Montana, indictments charging them with the commission of the alleged frauds. We shall therefore, for the purposes of our present decision, assume, without deciding, that Cob-ban, Griswold, Catlin, and the various entrymen and entrywomen did commit the frauds alleged in the bill.

There are, then, but two questions presented by the record, both of which are simple and of easy solution, although they are made the subjects of most elaborate briefs by counsel.

The first contention on the part of the government, and the one most strenuously insisted on, is that the appellee is not a bona fide purchaser of the lands in suit, for the reason that at the time of his respective purchases the legal title thereto remained in the government; that he got, at best, but an equitable title under the receiver’s receipts issued to the various entrymen and entrywomen, and their conveyances to Cobban, and his conveyances to the appellee, which equitable title the appellee must be held to have known was subject to be defeated by the government, should it afterwards find that the lands were not the subject of disposition under the acts of Congress under which the title was undertaken to be acquired, or should it be found that there was fraud or error in the proceedings taken for the acquirement of such title.

So long as the appellee held the equitable title only, the contention on the part of the government is undoubtedly well founded, was not questioned by the court below, and is not questioned by the counsel for the appellee. Indeed, it could not be successfully questioned, for it is the well-established doctrine of the courts, both supreme and subordinate. Hawley v. Diller, 178 U. S. 476, 20 Sup. Ct. 986, 44 L. Ed. 1157, and cases there cited.

But in the present case the counsel for the government go further, and insist that the same right continues in the government after the issuance of its patent in confirmation of the sale, not only against the patentee, but also against an innocent purchaser for value of the equity, then possessed also of the legal title. And counsel for the government repeatedly ask in their briefs if it is possible that such a right exists in the government up to the time of the issuance of its patent and does not exist the very day after.

We answer yes, for the reason that in the one case the innocent purchaser for value has not the legal title, and in the other case he has. Let us put the counsel’s proposition in another way: If it exists the day after the patent is issued, it manifestly continues indefinitely, for neither the statute of limitations nor laches runs against the government. What, then, becomes of the security intended to be given by such an instrument? The innocent holder for value under such a patent would have absolutely no security.

He could never know what day, week, month, or year the government might bring him into court and take away the title, bought in good faith and for value, because of the sins of others, of which he knew nothing.

The numerous cases which hold that the receiver’s final receipt is but prima facie evidence of the right of the entryman to a patent, and that until the patent is issued the power is vested in the Land Department to set aside the receipt and cancel the entry it evidences, for fraud or error, after notice to the parties in interest, and in this way take away even from an innocent purchaser for value this prima facie evidence of title, do not at all support the proposition that this may be done by a court of equity, as against such innocent purchaser for value, after the Land Department, instead of avoiding, has confirmed the prima facie evidence of title by issuing the government patent, and thus vesting the innocent holder of the equitable title with the legal title as well.

In the first place, it would not be equitable to do so. An innocent purchaser for value of an equitable title may always fortify that title by acquiring the legal title, and, when he does so, it is a complete answer in a court of equity to one who asserts only a prior equity. “Strong as a plaintiff’s equity may be,” said the Supreme Court in the case of Boone v. Chiles, 10 Pet. 177, 209, 9 L.

Ed. 388, “it can in no case be stronger than that of a purchaser who has put himself in peril by purchasing a title and paying a valuable consideration, without notice of any defect in it, or adverse claim to it; and when, in addition, he shows a legal title from one seised and possessed of the property purchased, he has a right to demand protection and relief (9 Ves. 30 — 4), which a court of equity imparts liberally.” See, also, Story’s Eq. Jur. §§ 64c, 411, 436; 2 Pom. Eq. Jur. §§ 738-740; Sugden on Vendors (2d Am. Ed.) p. 519; Bassett v. Nosworthy, 2 Leading Cases in Equity, p. 1.

As a matter of course, when the government comes as a suitor into a court of equity, its claims appeal to the chancellor with no greater force than do those of an individual under like circumstances. No case has been cited which sustains the proposition of the complainant now under discussion, and we will not be the first to announce it. On the contrary, the precise point here made was presented to the Circuit Court of Appeals for the Eighth Circuit, in the case of United States v.

Detroit Timber & Lumber Company, 131 Led. 668, and, in a well-considered opinion, was there decided against the contention of the government. Judge Sanborn, who delivered the opinion of the court, said: “The receiver’s final receipts were not notice of fraud and perjury in their procurement. They were notice of honesty and legality in the proceedings that induced their issue. They were prima facie evidence that those who received them had the right to patents to the lands, and they raised the legal presumption that entrymen and officers alike had complied with the law.

They were notice to the Detroit Company of the power of the Land Department to avoid them'for fraud or error before the patents were issued, and of no other defect or danger, and the authorities cited for complainant express no different opinion. The Detroit Company took its equitable title to-the timber subject to this notice, and subject to the possible exercise by the Land Department of this power. That department exercised the power, as the legal presumption was that it would exercise it, by affirming the validity •of the voidable titles, and by issuing the patents upon them.

Here the effect of the notice from the purchase of the equitable titles ceased. The only reason that purchase gave notice of a voidable title was the fact that it did not acquire the legal title. The moment the legal estate inured to the benefit of the Detroit Company by the issue of the patents without notice of any fraud or irregularity in their procurement, its defense of a bona fide purchase was complete. It contained every essential element of a complete defense except the legal title before the patents were delivered.

It was the lack of the legal title, and that alone, that made its defense vulnerable in the Land Office. When the patents had issued, the power of the Land Department had ceased, and the Detroit Company’s position was conditioned by every attribute of that ■of a bona fide purchaser. Conceding that the indispensable elements of such a defense are absence of notice of the fraud or defect, good faith, payment of value, and the legal estate, it is not material at what time or in what order the purchaser acquires them. It is only necessary that they all concur in him at the same time.

It is indispensable to this defense that the consideration should be paid before notice of the defect. But it is not essential that it should be paid before or at the time the title is conveyed. It is sufficient if the payment is completed at any time before notice of the defect is received. It is not more essential that the legal title should be secured before or at the time when the consideration is paid.

It is enough if it is acquired before notice of the alleged fraud or perjury is fastened upon the purchaser.” These views seem to us to be entirely correct, and we think they sufficiently answer the main point of counsel for the appellant in the present case, which, of course, assumes that the appellee was an innocent purchaser for value of the equitable title to the lands in suit.

But it is also claimed on the part of the government that the appellee was not an innocent purchaser of the equitable title, but, on the contrary, knew or had good reason to know, at the time of his respective purchases, of the alleged frauds on the part of Cobban, Griswold, Catlin, and the respective entrymen and entrywomen. On this point the allegations of the bill are: “And your orator charges that the said defendant, William A.

Clark, well knew in a general way, if not in detail, at the time the said conveyances of all of said lands were made to him by said Cobban, the facts hereinbefore stated, and well knew, and had good cause to know, that the said lands had been entered in violation of the laws of Congress under which said entries were made, and that the several parties had entered the same for hire and upon speculation, and for the purpose of enabling him, the said defendant, to procure title to the same by evasion and violation of said laws of Congress.” In the opening brief of counsel for the appellant this contention •is not very strongly urged, but in their brief filed in reply to that of the appellee it is much insisted on, and it is there in effect claimed that the appellee was in fact a party to those alleged frauds. .We are of the opinion that the evidence does not sustain either of those contentions.

In the first place, if the appellee had been willing to become a party, with Cobban and the others named, to the alleged frauds upon the government, or if Cobban had been acting as the agent of the appellee, as is alleged in the bill, it is passing ■strange that the appellee should have paid Cobban $217,571.25 for the timber and lands in question, as the counsel for the government admit that he did.' Cobban, it is claimed, paid only the government price of $2.50 an acre for the lands, $100 to each of the entry-men and entrywomen, and the incidental fees and expenses, and it. is incredible that a man of brains and of large business affairs, as the record shows the appellee to be, would, if Cobban had been his agent, or if the appellee had been dishonest enough to have joined Cobban in the alleged fraudulent scheme to obtain lands from the government in violation of its laws, have paid him $217,571.25 for what Cobban, in pursuance of the same undertaking, paid but a mere trifle in comparison.

It is, we think, incredible that the appellee would have permitted his partner in the fraud to profit so largely at his expense, if he had been a party to it. The evidence, in our opinion, fails to justify the contention of appellant’s counsel that Cobban was at any time acting for the appellee, or that the latter was in any way a party to the alleged frauds, or ever heard anything of them until after he had made his purchases and paid his money.

It shows that the appellee was a man of large business affairs, engaged in extensive mining operations requiring large quantities of timber, and also engaged in the lumber business on a large scale. He needed timber lands, or, at least, the timber growing upon them. Cobban claimed to own such timber and timber lands. The case shows that the appellee’s operations were so extensive that it was necessary for him to operate largely through agents. A man named Wethey was his general manager, and one McLaughlin his timber agent.

In their reply brief, counsel for the government contend that the appellee commenced negotiating for the lands in question before he made his purchases. We do not think that the fair conclusion to be drawn from the evidence. It seems that the appellee first authorized Wethey to buy 40,000,000 feet of lumber. Cobban representing that he owned lands containing the required timber, persons were sent by the respective parties-to examine the lands and estimate*the number of feet of lumber each tract contained.

The price to be paid for the land was, according to the agreement between Cobban and the appellee, to. be an amount equal to $1.25 for each thousand feet of lumber the land contained; and the method adopted by the parties was that when the respective estimates were made they were submitted to McLaughlin, who, when satisfied of the amount and . quality of the timber, would submit an abstract of title to the lands, together with a deed from Cobban, to Mr.

Bickford, the attorney of the appellee, and upon a favorable report in respect to the title by the attorney, the money was paid over by Wethey, the general manager of the appellee, and the deed to the latter from Cobban delivered. The first two of such deeds were so delivered July 19, 1899, and the next two September 16, 1899. These, according to the evidence, were the only absolute sales, from their inception, by Cobban to the appellee. But subsequently Cobban and the appellee, through his agents, commenced negotiations for additional lumber and timber' lands.

Cobban wanted the appellee to loan him money, bearing interest, with which to carry on his operations and to acquire additional lands, and to take as security his (Cobban’

s) deeds covering the lands, the amount of such advances to be at the rate of 50 cents for every thousand feet of lumber on lands acquired by Cobban under scrip locations, and 75 cents a thousand feet for every thousand feet of lumber on other lands, subject to like examination as to the quantity and quality of the timber by the appellee’s agents, and to like approval of Cobban’s title by the appellee’s attorney.

That arrangement was agreed to by Cobban and the appellee, and the first of those transactions was consummated November 11, 1899, the next November 13th of the same year, the next two January 9, 1900, the next June 15, 1900, and the last June 16, 1900. Subsequently, by agreement of the respective parties, these mortgages were, for a money consideration, converted into absolute sales.

While it is true that the record shows that the appellee knew that some of the money he loaned Cobban was intended to be used by him in acquiring additional lands, it does not show that the appellee knew, or had any reason to know, that he expected to acquire them fraudulently or in any way unlawfully. United States patents cannot be annulled upon mere suspicion of fraud, even if it could be properly held that any such suspicion arises upon this record against the appellee. The rule upon that subject is thus stated by the Supreme Court in the Maxwell Land Grant Case, 121 U. S. 381, 7 Sup. Ct. 1015, 30 L.

Ed. 949: “We take the general doctrine to be that when in a court of equity it is proposed to set aside, to annul, or to correct a written instrument for fraud or mistake in the execution of the instrument itself, the testimony on which this is done must be clear, unequivocal, and convincing, and that it cannot be done upon a bare preponderance of evidence which leaves the issue in doubt.

If the proposition as thus laid down in the cases cited is sound in regard to the ordinary contracts of private individuals, how much more should it be observed where the attempt is to annul the grants, the patents, and other solemn evidences of title emanating from the government of the United States under its official seal.

In this class of cases, the respect due to a patent, the presumptions that all the preceding steps required by the law had been observed before its issue? the immense importance and necessity of the stability of titles dependent upon these official instruments, demand that the effort to set them aside, to annul them, or to correct mistakes in them should only be successful when the allegations on which this is attempted are clearly étated and fully sustained by proof.

It is not to be admitted that the titles by which so much property in this country and so many rights are held, purporting to emanate from the authoritative action of the officers of the government, and, as in this case, under the seal and signature of the President of the United States himself, shall be dependent upon the hazard of successful resistance to the whims and caprices of every person who chooses to attack them in a court of justice; but it should be well understood that only that class of evidence which commands respect, and that amount of it which produces conviction, shall make such an attempt successful.” The testimony of the appellee is positive and clear that he knew nothing of the circumstances attending the entries of the various tracts of land in question by the respective entrymen and entry-women or the conveyances from them to Cobban, and that he never suspected that they were obtained by any fraudulent, unlawful, or irregular means, but that, on the contrary, he bought and paid for them in good faith, relying upon the advice of his attorney in respect to the regularity of the proceedings and the validity of the title, and upon his agents as to the quality and quantity of lumber they contained.

In these respects the appellee’s testimony is corroborated by that of his attorney, general manager, and timber agent.

It may be added that the officers of the Land Office where the entries in question were made testified that they knew of no fraud or irregularities in connection with them, and the entrymen and entrywomen who were examined as witnesses in this case testified to the effect that they had not made any agreement with any person or persons by which the title that they might acquire from the government would inure to the benefit of any other person, nor did they seek to buy the land applied for on speculation, but for their own individual use and benefit.

However that may be — a question, as has been said, not necessary to be here determined— we think that the evidence in the present record falls far short of establishing that the .appellee knew, or had reason to know, of any such frauds at the time of his respective purchases. We are of the opinion that the judgment of the court below is right, and it is accordingly affirmed.