UNITED STATES v. COOKSEY et al., 275 F. 670

HUNT, Circuit Judge (after stating the facts as above). The evidence sustains the finding that Cooksey, entryman, acquired the tract involved by unlawful practices, in that he swore falsely when he made affidavit that prior to his entry he had not made an agreemerit whereby title to be acquired was to be conveyed to another person. Cooksey made final proof in October, 1903, and a few days afterwards conveyed to Gregory. The deed to Gregory was recorded September 10, 1904. Gregory, in May, 1903, conveyed to the corporation, and the deed was recorded in October, 1909.

Gregory was ignorant of any fraud, though he was a trustee for Holbrook and Turnan; and, speaking generally of all the cases like Cooksey’s, clearly Gregory as a grantee was a trustee for Holbrook and Turnan. But when we inquire into the attitude of Holbrook and Collins and Curtis, our conclusion is against that of the District Court. Holbrook was vice president and general manager of the corporation from the time of its organization in August, 1902, until 1904 when he sold his stock to Collins. Holbrook drew checks of the corporation and signed them.

Turnan said that Holbrook talked with him, was advised of what was going on, and knew that he was lending money to applicants for entries. The circumstances show that he did. Holbrook established a bank account at Susanville, Cal., and Turnan was anthorized to draw against the account. In October, 1902, $1,728 was drawn from an account in the name of Collins and Holbrook in a Ban Francisco bank, and like amount was put to the credit of Holbrook in Susanville a few days afterwards.

Later in the same year other withdrawals from the same account in a San Francisco bank were made, and substantially equal sums put to Holbrook’s credit in the Lassen County Bank. It is but a reasonable inference that this money was used by Turnan to make payments for entiles. Although Collins and Curtis lived in Pennsylvania, they, together with Holbrook and Turnan, looked at the lands and timber in 1902 after the contract was made. D. G. Curtis, Jr., who was treasurer of the company also frequently went upon the lands.

Because of Tu-man’s claim that lie was entitled to an equal interest with Holbrook in the enterprise, a quarrel arose which resulted in a suit by Turnan against Holbrook, filed in 1904, for half oí the stock interest that Holbrook bad received. T. D. Collins was instrumental in effecting a compromise of the suit whereby Turnan accepted 200 shares of stock in the company and $10,000 in money. After the present suit was instituted Collins bought 200 shares of stock from Turnan, paying him $750 per share, a sum which Collins himself testified was much more than the stock was worth.

The explanation given by Collins for paying such a high price for the stock was that he understood an outsider in whose integrity he had no confidence wished to buy the shares. When considered with the other circmnsl anees, the transaction is suspicious. It is in evidence, too, that in 1904 and 1906 officials of the General Land Office were actively investigating entries of lands not involved in this case, but in the same vicinity, and which it was alleged by the officials had been sold to the Curtis, Collins & Holbrook Company.

Turnan discussed the matter with Holbrook and testified that Holbrook was opposed to defending the entries. He also talked over the matter with H. B. Collins and T. D. Collhis. T. D.

Collins admitted that he had talked about these lands, but they were lost, and “that was all there was to it.” Holbrook owned about 900 out of 5,000 shares of the capital stock of the corporation, and there are so many circumstances which go to show that he knew what Turnan was doing that it must he held that he Ud notice, actual or constructive, of fraud committed by Turnan, in the agreements made with the entrymen as to the titles, and that his knowledge is imputable to the corporation. Moreover, we cannot avoid (he conclusion that T. D. Collins and J. G.

Curtis, and their sons, were sufficiently informed of facts and circumstances to have put them upon inquiry. u Appellees had the burden of proof to establish the defense of bona fide purchasers. Wright-Blodgett Co. v. United States, 236 U. S. 397, 35 Sup. Ct. 339, 59 L. Ed. 637. There the court distinctly held that one who pleads that lie is an innocent purchaser without notice roust establish affirmatively his defense, in order to defeat the right of the government to cancellation of a conveyance, which fraud alone is shown to have induced. The same doctrine is laid down in Cooper v.

United States, 220 Fed. 871, 136 C. C. A. 501; No. Colo. Coal Co. v. United States, 234 Fed. 34, 148 C. C. A. 50. And in our judgment it was error on the part of the master and of the District Court to consider the case as one where the burden was on the government to prove that the purchaser had notice of the fraud. The evidence is undisputed that the purchases of lands were made in pursuance of the contract between Holbrook, party of the first part, and Collins and Curtis, parties of the second part.

By the terms of the contract there was an obligation upon the parties of the second part to deposit a large sum to be used, not by Holbrook, but by the bank, in payment for forest reserve lands, the lands to be deeded by the owners to the trustee and to be paid for by the bank upon Holbrook’s certificate that the vendors were entitled to payment and the certificate of the attorney that the title was good.

While the contract in its first part recites that Holbrook promises and agrees to sell the land describéd in the manner set forth thereafter in the contract in reality the contract is one, and was carried out as one, whereby the parties of the second part engaged the services of Holbrook as their agent to procure for them the title to the lands referred to, the purchase price of the lands to be paid by the parties of the second part out of their own funds and to be paid, not to Holbrook, but directly to the vendors of the lands.

The corporation took deeds from Gregory, but paid him no consideration whatever for the land. The purchase was not made from Holbrook and from Curtis and Collins individually, because neither Holbrook nor Curtis nor Collins had the title to the land and none of them were in possession thereof. In its real aspect the case is brought within the familiar rule that notice to, or knowledge of, an agent, while acting within the scope of his authority and in reference to a matter over which his authority extends, is notice to'or knowledge of the principal. Mechera on Agency, § 1803.

We can find no substantial ground upon which to conclude that the case is excepted from the general rule. It follows that Holbrook’s knowledge is imputable to his principals, and they must be held to have known of the method by which the title to the lands was acquired. No. Colo. Coal Co. v. United States, 234 Fed. 34, 148 C. C. A. 50. The decree is reversed, and the cause is remanded, with instructions to enter a décree canceling the patent. Reversed.