HOWE, BROwN & 00. ". SANFORD FORlt & TOOL 00.
231
by which the debts could be paid out of the proceeds of the personalty, and the profits to be derived from the farm business to be carried on by the executor. The' executor has for years been engaged in performing the duties required of him by the will, and the creditors have reaped the benefits thereof. To enable the executor to retain control of the realty, it was necessary that the liens thereon should be' renewed, for which purpose successive loans were necessary; and, these loans having been procured in the interest of the creditors, it cannot be held that the creditors could reap the benefits thereof, and then assert that the loans were made subject to a prior lien, created by the will for the benefit of the creditors. The fact that the executor has not succeeded in realizing profits enough to pay, off the entire indebtedness on the realty, and that it now appears that it might have been better to have sold the realty in the beginning, does not change the rights of the pa.rties. The creditors and devisees were alike content to have the executor undertake the trusts created by the will, and to undertake the management of the farm in the mode therein prescribed, and they cannot now be heard to object to the validity of acts done by the executor under the powers conferred by the will. It must therefore be held that the mortgages in question are valid liens on the realty therein described, and are paramount to any lien, right, claim, or equity existing on behalf of any of the defendants. It appears in the:evidence that the creditors are proceeding in the state court, and have obtained an order for the sale of all the realty, including that covered by the mortgages to Ames. It would seem that by agreement a sale be had that would convey a clear: title, and thus secure the best possible price for the realty,. in which event it ought to realize enough to pay the mortgage lien thereon, and also the amount due the other creditors. , In each case a decree will be entered for complainant, adjudging the amount due on the debt secured by the mortgage, for a foreclosure of the mortgage, and sale of the premises therein described. .
HOWE, BROWN
& Co. et al. ". SANFORD FORK & TOOL Co. et
a.t
(Circuit Oourt, D. Indiana. December 9, 1890.) OoRPORATIONS-INSOLVENOY-PREFERENCES TO DIRECTORS.
Where 'a corporation, while still a going concern. is insolvent, a mortgage on its property. executed to secure, the directors, who are liable as indorsers for it to a large amount, is invalid as to general creditors, and that though the mortgage prooured by the directors without any actual fraudulent intent. "
InEquity.
On demurrer to the bill. ,.,,' &: McNutt, for complainants. McDonald, Butler&: Snow and George A.Knight, for defendants.
WOODS, J. The bill shows that the respondents McKean, Nixon, Minshall, Kidder, and Mayer are stockholders, and all except Mayer di-
232
FEDERaL REPORTER,
vol. 44.
rectors, of the Sanford Fork & Tool Company, incorporated, and that, being liable as indorsers of the paper of that company, overdue and about to become due, to the aggregate amount of $69,000, Mayer being liable jointly with the others, or some of them, upon a part of that paper, the said directors, on the 17th of March, 1890, after first procuring the consent and authority of the stockholders that it should be done, the officers of the company to execute a mortgage upon the corporate "buildings, machinery, and plant," to indemnify them and Mayer from loss on account of that liability; that the company was at the time deeply insolvent, its debts exceeding its assets by as much as $150,000, and that on the 13th of May it was put into the hands of a receiver by the circuit court of Vigo county. The complainants are shown to be general creditors of the company, with claims which, as allowed. by the Vigo circuit court, amount to $11,631.39; and they dispute the validity of the mortgage for the indemnity of the respomlents on the ground that the directors of the company had no right to obtain a preference for themsehes over other creditors. It is not alleged, nor was it claimed in argument, that the respondents, or any of them, did anything with an actual intent to defraud. The question whether or not an insolvent corporation which had not suspended business could prefer its directors or managing agents, who were its creditors, or liable as indorsers of its paper, was considered upon full argument and citation of authorities pro and con in the case of Lippincott v. Carriage Co., 25 Fed. Rep. 577, 586, and the conclusion was reached that the weight of authority and reason was against the validity of such preferences.. The theory upon which that conclusion was based is shown in the following extract from the opinion: "For while it is generally conceded that a corporation, notwithstanding insolvency, continues possessed [while a going concern] of a general power of management of its affairs, and, like natural persons, may give preferences by way of payment or security to one creditor or class of creditors over others, yet in close analogy to the rule which forbids the giving of preferences by individual debtors, for the purpose of securing. or in such manner as to secure, advantage or benefit to themselves, and in manifest accord with the tendency of judicial opinion. as expressed upon consideration of kindred questions, it has been decided in a number of cases that pref...rences given by insolvent corporations, in such manner as to be of special beneUt to the directors or managing agents, or any of them, will be set aside. Indeed, it has been often said by judges, including those of the federal supreme court, that the property of an IIlsolvent corporation is a trust fund, and the direct· ors trnstees for the creditors; and, if this were strictly so, it is manifest that no preferences could be allowed between creditors standing in the same rela· tJ,on to the fund. These statements are, however, trne in a qualified sense, and lead logically, if not necessarily, to the conclusion that in such cases, if of personal they give preferences, they must do it unbiased by advantage or gain." That ruling has the support of a of later decisions, in some of which it is expressly approved: White, etc., Manuf'g Co. v. Pettes Importing Co., 30 Fed. Rep. 864; Ada'IM v. Milling Co., 35 Fed. Rep. 433; Beach v. Miller, (Ill.) 22 N. E. Rep. 464; Haywood v. Lumber Co., 64
HOWE, BROWN & CO. V. SANFORD FORK & TOOL CO.
233
Wis. 639, 26 N. W. Rep. 184; Olney v. Land Co., 16 R. I. 361, 18 Atl. Rep. 181; Rm/Be v. Bank, (Ohio,) 22 N. E. Rep. 293. See, also, Hope v. Salt Co., 25 W. Va. 789; Gillet v. Moody, 3 N. Y. 479. On tlw contrary, the supreme court of Iowa, in the recent case of Garrett v. Plow Co., 70 Iowa, 697, 29 N. W. Rep. 395, has declared such prefermces valid if fairly given, and in support of that view counsel for the respondents have referred to the following cases, not cited in Lippincott v. Carriage Co., supra: Stratton v. Allen, 16 N. J. Eq. 229; WilkinIJon v. Bauerle, 41 N. J. Eq. 635,7 Atl. Rep. 514; Railroad Co. v. Dewey, 14 Mich. 477. It is not to be overlooked that some of the later decisions which deny the validity pf preferences in favor of directors proceed upon the theory that the directors of an insolvent corporation, even before a suspension of business, are trustees for the creditors. and, if that theory is essential to the conclusion, the question is perhaps already foreclosed in the federal courts; because, in Purifier Co. v. McGroarty, 136 U.S. 241, 10 Sup. Ct. Rep. 1017, the supreme court has said that the decision in Rouse v. B«nk, 8upra, "proceeded in part upon a theory that the property of an insolvent corporation is a trust fund for its creditors in a wider and more general sense than could be maintained upon general principles of equity jurisprudence." But I do not think that theory indispensable. 'It seems to me enough to say that a,sound public policy and a sense of common fairness forbid that the directors or I!Ianaging agents of a business corporation, when disaster has befallen or threatens the en. terprise, shall be permitted to convert their powers of management and their intimate, and it may be, exclusive, knowledge of the corporate affairs into means of self-protection to the harm of other creditors. They ought not to be competitors in a contest of which they must be the jUdges. The necessity for this limitation upon the right to give preferences among creditors when asserted by corporations may not have been perceived in earlier but the growing importance and variety of corporate enterprises and interests I think will compel its recognition and adoption. The fact in this case that the stockholders authorized the making of the mortgage seems to be immatE:rial. That action was, it is averred, ,procured by the directors proposed to be benefited, they, themselves, and, even if this were not averred, the case would not, I think, be essentially different. Whether or not such pref:' erences are fairly given is an impracticable inquiry, because there can be in ordinary cases no means of discovering the truth; and consequently the presumption to the contrary should in every case be conclusive. Concede that it is a question of proof, and that a preference in favor of a director wlU be, deemed valid if fairly given, and it may as well be declared to be a part of the law of corporations that in cases of insolvency debts to, directors and liabilities in which they have a. special interest. must be first discharged. That will be the practical effect, and the examples will multiply of individual enterprises prosecuted under the guise of corporate organization, for the purpose, not only of escaping the ordinary risks of business done in the owner's name, which may be legitimate enough, but of enabling the promoters and managers, when failure
234
FEDERAL REPORTER,
comes, to appropriate the remains of the wreck by declaring themselves favored creditors. Besides inconsistency with, that equality which, uity loves, such favors involve too many possibilities of dishonesty and successful fraud to be in an enlightened system of jurisprudence. The demurrer is .overruled. ,
UNITED STATES t7. WALLAMET VAL.
& C. M.
WAGON-RoAD
Co. et al.
(ctrcwU Court, D. Oregon. May 12,1890.) L.uro GIU,NT-WAGON.ROADfl, CoMPLETION OF-STALE Cu.m..,..ESTOPPEL-BONA FIDB , . PURCHASER.
In 1866 congress a 'g'i'imt of lands to the state of Oregon, to aid in the con. :Btruction of a wagon·road from Albany through the Cascl\,demouutains to the eastern boundary of tbe statil, and provided that the land might be sold as the worlrpro'gressed,on the certificate of the governor of the state, that the portion of the same ,coterminous with said landw8.s complete. The st;atl'l tralls'ferred the grant, with. ,out further condition or qualification, to the Valley & Cascade, MO)lntain Wagon-Road' Company, which undertook the construction of the road; and,' within the five years,allowed procured certificllltesfr0111 the: governora of the state thaMhe road was completed as required by law., Soon after, the company sold the lands to the defendants Weill and Cahn, who are now the legal owners thereof, except a s111&11 ;portion ,which has been disposed of. In 187.i congress authorized tbe of patentsfqrthese .lands to ,the state or wren it wassqown by tlie certificates of the governor that said road was "constructed' and completed." ,Betw.e.en Ib'1, and, 1883, a qUe,stion was made, before,. tb.e, department Q:llt,he interior' whether the company had completed the road accor4ing tp law, and testimony was received thereon, 'pro andean, and, after argument,' the secretary of the interior directed patell:ts ,to issue .to the company, which was Qn Ootober 30, for «0;856 acres, in addition to,a patent for 10'1,893 acres, on June 19, 11176. In , consel),uence of this, action' by t,hesecretary, 'the defendants believed that the due constructiQn;of the road'Wlla admitted by the complainant, and were thereby induced ,to expend a large sum of moneY' on and ab()ut said property. In 1889, congress passed an act requiring tbe attorney general to bring a suit in this court 'against ,all persons. claiming· an interest, in, this grant, to dotermil/6 ,the question of con,stfUction of the road, the legal effect of the governor's certificates, the right of the United States to resume the' grant, and to obtain judgment declaring the land coterminoUs, with any uticom,pleted portions of the road, forfeited, saving the rights of any bona fi,je purchasers; the suit to be tried and adjudicated like other suits in eq1Iity. On August 29,1889, i'D pursuance of this authority, this suit was com· ,menced to obtain the specified. The defendantl1Weill and Oahn filed two pleas to the bill, in one of ,which they set up the foregoing facts as, an estop'pel; and in the other the defense of a bona fide purchase for a valuable considera· tion, and without ,notice "of any failure an the part of the company to comply with the terms and conditions of the grant. Held, (1) that this suit must' be tried as a suit between private persons, in which the defendants may set up any defense, inclulling estoppel, and the statute of limitations, that they could if the ooIJiplainant was private person; (2) that the claim of the c.omplainant to set aside these'patents, and declare these lands forfeited, is, under these circumstances, a stale one, and therefore ought not to be allowed; (3) that thecoinplainant, by the pa8lilage of the either accepted the as conclusive evidence of tbe due constructIOn of,the road,or thereby waived alkfurthet performance of the condition on which the gr,ant was made; (4) ,that the, co111plainant, bv the action of its execu.tive department in issuing the patent of 1882, impliedly recognized and accepted the performance of such condition, and, having thereby induced the defendants to ohange, their relation to said property, by expending a large sum of mpney thereon and thereabOut, is now estopped to allege or claim that said conditionwasDot performed; (5) that the certificate of the 'governor of· Oregon was made, by the act of lS66"thB only evidence of the compliance with the terms al the ,grant by the Qompletion of the road; (6) that, upon the facts stated in the plea, thedetendantsare'purchaserS in good faith, and 'for a 'valuable consideration, ,,within the, ,ac\ of 188\), and within, \ll,e of , a,
UNITED STATES V. 'wALLUiET VAL. & C. M. WAGON-ROAD CO.
235
equity juriSprtJdeneejand (7) that, "on the ease made by the bill and thereto, it appellrsthat the complainant ought not to prevail In this suit, aDd therefore it is dismiliSed. (Syll.abuB by the Oourt.)
fendants.
Mr. Le:wis L. McArthur, for theUtiited States. Mr. John A. Stanley, Mr. C. E. S. Wood, and Mr. Henry AM, for de-
In Equity.
patents' for ,said lands. therefore be it enacted, ... /10 * i,hat, in all cases' wbElre ajd9f the construction of landI!, granted, " are shown by the cerLiticate of tbe governor of tbe state of Oregon. as in s"aid
DEADY, J. By the act of July 5,1866, (14 St. 89,) congress made a grant to the state of Oregon, to, aid in the construction of a military wagon-road from Albany to the eastern boundary of the state, of the odd sections of the public lands, equa1tothree sections per mile of said road, to be selected within six miles thereof, together with the right of way, for the same. The legislature of the state was authorized to dispose of the lands for the construction of the road, as the work progressed, and the governor of the state certified ",to the secretary of the interior" that any 10 miles of the same was com pleted. If the road was not completed within five )'enrs, no further sales ,were to be made, and the land reunsold should to the United States. The act also provided that the rqaq should Qe constructed with such "width, graduation, andbridges,aato permit of its regular use as a wagon-road," and in such other "special manner"as the state might prescribe; and that the road should remain a public highway for the use of the government oftheUnited States; Oil October 24,1866, the legislature of the state granted to the WalCompany, hereinafter lamet Valley & Cascade Mountain called the: "wagon-road company," a corporation theretofore formed, un- r del' the general laws of Oregon, for the purpose of constructing and maintainihga::wagon"road from Albany across the Cascade mountains to the Desehutes river"j'alIlands, right of way, rights, privileges, and immunitiEls,'" theretofore granted to th'e state "for the purpose of aiding sRid company" in constructing the road describetl in the act of congress, "upon the conditions andlimitatiol1s therein prescribed." Sess. Laws, 58. Between April 11, 1868, and June 24, 1871,both inclusive, there were issued by the governors of Oregon, and duly filed with the secretaryof the interior, four certificates, which, taken collectively, showed that the road had been completed accordingto the acts of congress, and of the 'legisln tive assembly, to the eastern boundary of the state;-a distance Of 448.7 miles. ' , On JUDe 18, 1874, congrer;ts passed" An,actto authorize the issne of patentafor lanos granted to the state of Oregoti in certain cases," (18 St. 80 t )whkh reads as follows: '. to Whereas. certainlluids have heretofore, by acts of congress. !:lean granted to the 'state of Oregon to aid in thaconstruction of certain military wagonroadelu'saldstate, and there exists 110 law providing for the issue of formal'
236
acts provided, to have been constructed and completed, patents for said lands shall issue in due form to the state of Oregon, as fast as the same shall, under said grants, be selected and certified, unless the state of Oregon shall, by public act, have transferred its interests in said lands to any corporation or corporations, in which case the patents shall issue from the general land-office to such corporation or corporations upon the payment of the necessary expenses thereof: provided, that this shall not be construed to revive any land grant already expired, nor to create any new rights, of any kind, except to provide for issuing patents to lands to which the state is already entitled... On June 19, 1876, and October 30, 1882, patents were issued to the wagon-road company, under the act of 1874, the first one for 107,893 acres, and the second one for 440,856 acres, since which no patent has been issued for any portion of the grant. On June 6, 1881, the secretary of the interior, in a communication addressed to the speaker of the house of representatives, estimated that the company is entitled, under the grant, to 1,346 sections of land, or 861,440 acres. On March 2, 1889, congress passed an act making it the duty of the attorney genera.l to cause a suit to be brought against all persons or corporations claiming an interest in the wagon-road grants made to the state of Oregon, including the one made by the act of 1866." To determine the questions of the seasonable and proper completion of said roads, in accordance with the terms of the granting acts, either in whole or in part; the legal effect of the several certificates of the governors of the state of Oregon of the completion of said roads; and the right of resumption of such granted lands by the United States; and to obtain jUdgment, which the court is hereby authorized to render, declaring forfeited to the United States all of such lands as are coterminous with the part or parts of either of said wagon-roads, which were not constructed in accordance with the requirements of the granting acts; and setting aside patents which have issued for any such lands; saving and preserving the rights of all bonafide purchasers of either of said grants or any portion of said grants, for a valuable consideration,if any such there be. Said suit or suits shall be tried and adjUdicated in like manner, and by the same principles and rules of jurisprudence, as other suits in eqUity are therein tried." The act also provides, among other things, for the disposition of the lands, in case the same are declared forfeited by the final determination of said suit. In pursuance of this act, this suit was commenced by the attorney general, on August29, 1889, on behalf of the United States against the wagon-road company and others, to have the lands included in the said grant forfeited to the United States, and the patents issued therefor, as well as the .certificates of the governors of Oregon, concerning the construction of the road, declared fraudulent and void, on the ground and for the reason, as alleged, that the road never was "constructed and maintained" as required by law, either in whole or in part, so as to be a public highway, over which the property, troops, or mail of the United States could be transported; that the proceeds of said lands were not applied to the construction of the road; that the certificates of the governors are false, and were obtained on the false and fraudulent repre
"
UNITED STATES 'V. WALI,AMET VAL.
&;'
O. M. WAGON-ROAD CO.
237
sentations of the wagon-road oompany, witHout examination on the partof said governors, and in one instance, that of September's, 1870; with his knowledge that thesarne was false; all of which was known to the: defendants at the time they acquired an interest in these lands. The bill also shows that by sundry conveyances, commencing with that of the wagon-road company of August 19, 1871, to H. K. W. Clarke, and ending with, that ofFred W. Clarke, the son of said H. K. W. Clarke, to Alexander Weill, of April 9, 1879, the title to said lands has become vested in the defendants Alexander Weill and David Cahn; and that T. Edgenton Hogg, arid certain corporations of which he is an officer, made defendants in the bill, claim an interest in said lands. The defendants Weill andCahn, by leave!of the court, have filed two pleas to the bill and their joint and several answers in support thereof. The first plea may be oalled an estoppel. ' Briefly, it alleges that, after these defendants had acquired theiitle to the lands in question, as stated in the bill, and in March, 1878, a complaint was received at the office of the secretary of the inter-ior, to the effect that the road had not been constructed, as required by the act of July, 186'6, in consequence of which the commissioner ofthe general land-office, with the approval ofsaid secretary, appointed a special agent, to examine the road and report thereon; that, in October, 1880,said: agent reported that the road, had not been constructed, as required by law; that said report, and the evidence accompanying the same, was laid: before congress, and in the house of representati ves was referred to the committee' on military' affairs, which committee, upon consideration .of said report and evidence,and evidence contradictory thereof, made a ,report in February I 1881-, recommending that no action of congress be had in the premises; , .In their report the committee say they...... "Do not feel called upon to investigate the disputed question of fraud arising from the e:v parte testimony submitted, or warranted in expressing an opinion in rpgard to the same, but believe that to be a matter within the province of the judicial and not the legislative department of the government." And concludes as follows: "(1) That the act of congress approved JUly 5, 1866, vested a preiJAnt title to the land in question in the state of Oregon. (2) That, by the act of ina legislature. and the acts of the governor of Oregon, the titltl to said land was vested in the Wal1amet Valley & Cascade Mountain Wagon-Road Company. (3) That, by the deed of said compliny to Clarke, and the subsequent deeds from Clarke and others, the title of said land is nowlawfullv vested in the present claimant, Alexander Weill. (4) 'fhat ,S&i.d title can not" be forfeited or annulled or reinvested in the United States, excepting by a jndicial proc,l'eding, and that the same has become a vested riJ{bt which congress cannot ilppair or take away." " That afterwards, on February 8, 1882, a communication from the secretary of the interior WIlS laid before congress, containing further charges and alleged proofs that the road was not 'constructed as required by the act of July 5, 1866, and the mattell was referred in the house of
238
n:DEUL) nEP()RTEB,
representatives to the committee on public lands, and in the senate to the. committee on military affairs, which committees reported, ing that congtess take no action in the premises. Both these reports are annexed to the plea, and· made a part thereof, and each state that the title to this land passed to the state, and its assigns under the act of congress and the state legislature. The senate committee says that "it is impossible" for them "to make such an investigation al!l will justify action by congress which would do justice and equity in the premises;" and that "the executive department ofthe government ,had ample authority, in law," to investigate the matter, and, if necessary, to institute legal proceedings in the courts of the United States to secure a forfeiture of the grant, or any part thereof, for failure to comply with, the terms and conditions thereof, "without any legislation or instruction from the legislative department." That. by the proceedings thus had, the matter of the completion of the road was referred to the executive departmel1t of the government, whereupon the secretary of the interior, after due investigation of the subject, including the bearing of argument thereon, did, on July 5, 1882, direct the commissioner of the general land-office to proceed and certify the lands for patent under the act of June 18, 1874, and thereafter, in Octpber, 1882, said patent for 440,856 acreS was duly issued to· the wagon-road company; that these defendantll, relying in good faith lipon the action of the legislative and executive departments of the government, were induced to, and did, before the passage of the act ofl889, "so alter and change their position, in reference to said lands," as toconsist. in part. in the expenditure of $2.660.6<:l in securing the issue patents therefor; in the payment of'$29.875.79 of taxt"s levied thereon; in the payment of $109.8UO',97 to Hgents and for selecting, and platting said lands. and: defending 'the possession oftbe same from ad-rerse clahtlHntsand trespassers, by the sale of sunJry parcels of said lands with Wttrranty of title, all which the liability of tlw derendantsexceeds the sum uf ·$22,609,71; in the in rebuilding and impruving said road, through its entire lenll:th, which has greatly increased the value of the lands along the line thereof. a very larll:e pnrtion of which still belongs to theoomplainant. and in the paymAnt of $01.651.71 interest Oil said sums of money, making in all the su.m of $28U,754.0:3."
any right'" '" '" to forfeit ot reclailll said lands; that these
"Render it inequitable and unconscionable for the complainant to aSRert
'In the ,seconc1 plea, tJiese derendants aVer that they are good faith for a valuable considerl,ltion; and, in support there!,)f, allege in anbatance and effect that, ,in 1871, said lands were in the market for sale, when Weill and H, K.W. Clarke purchased' the same of the r?adcompany, their agent, T.Edgerlton Hogg; that ,in ati'ceofsilid sale, the "endor conveyed th'e lands, on to said Clarke, who. on September 1st, of that year, conveYed the same tothe defendant Cabn,in trust for Weill. Clarke, and Hogg; that,atthis timej the.·greater portion of these lanuswere unsurveyed, and that, for the purpose of 'continuing the existence of the wagoq-road company, ana thereby securing the ,selection;, and patenting of" the lands, Weill
in
UNITED STATES '11.: WALLAMET VAL. &
WAGON-ROAD CO.
239
Clarke, pUllchased the stoekofsaid I00mpany,amd, i llo,llIatterof conye;nience, some of said stock was boughtilin for Weill and Clarke, but saidstQck the name'ofHogg, and by had no valuel apttrt:from said landgrantj that,at the time of the convey· ance of said land-s, by the, company, Weill had expended in the. purchase thereof $140,636.39, and Clarke $20,000; that, at the time of said pur'certifi:cates of the governors of Oregon to the construcchase, the road, as required by the adt of July·5, 1866, tion and were on file in the departmellt of the interioll, and the office,ofthe secretary of state of Oregonjand these defendant$ then believed, and do still believe, that the same were altogether true, and never heard anything to the contl>ary, until 1880, when the I\ttention of congress was called to the matter 'by the secretary of Hwdnterior; that, before .purchasing the lands,. Weill employed counsel learned in the law, whoad¥isedlhim·that the titIeofthewag'On-roadcompilny to the same was perfect; and that he had a right to.rely:oh the.celltificatesof. the governors as conclusive evidence that the conditions had been duly performed; that, in making said p1;l).'chase, he did: so rely, l1nd but for the exis.tence of said certificates would not have made it; :that, at the da.te of tpepurchase, these defendants were living in San Francisco and had:never been in'Oregon, ex¢epllO$hn, who wast-here a short.:time' in JUlle,. 18,67, nor has either of them-ev:erbeen.there since';. that ,prior to' s3iid :purchase', neither Hogg nor Clarke had any knowledge or. information' that these -.not true in pront of fact, and if they or either ofthem ,was obtainj;ld ,by, false or fraudulent means"neither of these defendants nor Hogg nor Clarke had any knowledge odnformation thereof;that l in all the interest of Hogg and Clarke in said Jands, the same being 11-24 thereof, for $21,400,and,therelease to the. former, and the estate of the latter, from the repayment to him ofthekpropor. tions"";'amountingtomany thousands of dollars---ofthe money advanced byhilllj.IL the purcbJa,se of the lands, and received COllyeya;nces from them Mcordingly ,i forth in complainant's' bill. ,I· " Theansweril!l,auppor.t ofthe 'plea avers thaUhe price paid by Weill, denies on Augua.t 19, lS:fhfdrthe lands, was the aU knqwledge ornptice that the road had notthlm been duJy constructed by the act or that the certificates and completed, oftheigo:vernors .in any respect, untrue 'or had been procured by false or fraudulent representations. The eil.Se WaS heard. ,on fhesufficiency of the pleas, admitting the truth 'f of the factll' stated :therein. Th!;li act ltuthori1,ing the bringing of this suit empowers the court to consider ,a.nddetermine these three questions, .and nO others: ,.. (1) Wll;Sthe road:seasona.bly and pr.operlyoompleted1either in whole orinp$rt,IlllPI»yidedin the act making ithe grant? What is· effect· of the· governors' certificates: concerning . the completlonof.t'be. ro.ad? And (3) What right has the United States to resume the granted ;lands? U. S, ,v. UnionRI;t'C.:"R. 608.
as
240
In the detennination of these questions, the court is required, by the act of 1889, to proceed "in like manner," and be governed "by the same principles and rules of jurisprudence,". as in other suits in equity ,-that is, as in suits between private individuals. And such is the rule of procedure and adjudication in the case, independent of the directions of the statute. When the United States comes into court of equity to assert a claim, it is subject and inust submit to the rules of procedure and principles of jurisprudence which obtain in suits between private partIes. U. S. v. Arredondo, 6 Pet. 711; U.S. v. Flint, 4 Sawy. 58; U. S. v. Tichenor, 8 Sawy. 156, 12 Fed. Rep. 449. The grant of 1866 was a grant in pr8'!8enti. The language of the act is: "That there be and hereby is granted to the state of Oregon." As soon as the line of the road was designated, the grant attached to the odd numbered sections, within the prescribed limits, on either side of said line, and took effect from the date thereof. Cahn v. Barnes, 7 Sawy. 53, 5 Fed. Rep. 326; Pengra v. Mum, 12 Sawy. 238, 29 Fed. Rep. 830; Schulenberg v. Harriman, 21 Wall. 44; Mi.'l8ouri, etc., Ry. Co. v. Kansas Pac. Ry. Co., 97 U. S. 491; Van Wyck v. Knevals, 106 U. S. 360,1 Sup. Ct. Rep. 336. The grant, however, was a conditional one, the condition being that the road should be completed, in the manner provided, within five years from the date of the act. This was a condition subsequent, and, unless it was complied with, the complainant, as grantor, might, by proper legislation or judicial proceedings, have enforced the forfeiture of the grant on the account of such failure. But no one else could do so, and, unless the grantor does, the title remains unimpaired in the grantee. Schulenberg v. Harriman, supra, 6is. As appears from the first plea, congress has repeatedly refused to declare the forfeiture of the grant, or take upon it&elf the investigation of the question whether the condition had been complied with or not. The attorney general has declined to institute judicial proceedings to that end, until required to do so by the act of 1889, which appears to have been passed on the memorial of the legislature of the state. It is also well understood that congress was influenced to the passage of the act by the desire of these defendants to have a speedy and complete determination of their rights in the premises. On the facts stated in this plea, the demand made by this suit for the forfeiture of this grant, on the ground stated in the bill, is what is known in equity as a "stale claim," and therefore ought not to be allowed. The period prescribed for the construction of this road expired in July, 1871, full 18 years before the commencement of this suit. During all this time it was open to the complainant to bring this suit by its attorney general to have this grant declared forfeited on the grounds now stated in its bill. U. S. v. Throckmorton, 98 U. S.70; U. S. v. San Jacinta .Tin Co., 125 U. S. 278, 8 Sup. Rep. 850. This, in my judgment, is such a delay or lapse of time as renders the
UNITED STATES V. WALLAMET VAL. & C. M. WAGON-ROAD CO.
241
claim stale, and constitutes, under the circumstances, a bar to the relief sought. Lapse of time, particularly when coupled with possession) as in this case, is a defense in equity in cases not within the reach of the statute of limitation. StolJ"t.Eq. PI. § 813; 2 Story, Eq. Jur. § 1520; U. B. v. TWhenor,8 Sawy. 156, 12 Fed. Rep. 449; U. B. v. Beebee, 4 McCrary, 12, 17 Fed. Rep. 36. For seven years 'after the expiration ot the time prescribed for the construction of the road, and filing of the certificates of the governors, in which its completion was fomlally and officially declared, nothing appears to have been said or suggested to the contrary by anyone, when a trespasser on the lands made a complaint to the secretary of the interior, that the road had not been constructed according to law. Investigation ensued, under the direction of the secretary, and the matter was sub11,1itted to congress, who referred it back to the executive department in 1882, where; after due consideration, patents were ordered issued to the company under the act of 1874, which was done as to the greater portion of the lands. Tqe statute of limitations does not ordinarily run against the United States. But this suit is required, by the act of congress, to be tried and adjudicated as a suit between private parties, and therefore, in my judgment, the lapse of time, or the bar of the statute of limitations, is to . have the same effect as in a suit between such parties. Since 1878, the analogous action at law, to recover the possession of these lands, on account of a breach of the condition on which they wen granted, would be barred in 10 years, and prior to that time in 20 years. And although the statute of limitations does not apply, proprio vigore, to suits in equity. yet, in cases like this, of concurrent jurisdiction at law, the court will apply the same limitation to one as the other. Hall v. RU88ell, 3 Sawy. 515; Manning v.Hayden, 5 Sawy. 379. No case has been cited from the supreme court in which it has been distinctly held that the defense of estoppel can be made against the national government. But in many cases it is so assumed, even where the term is not used. For instance, in Clark v. U. B., 95 U. S. 543, it was held that a defenseto a claim against the government for the use of a steam-boat, which involved bad faith on its part, could not be made. In Branson v. Wi1·th, 17 Wall. 39, it is assumed, in the opinion of the court,that the United States may be estopped. In U. B. v. McLaughlin, 12 Sawy. 200, 30 Fed. Rep. 147, it was said by Judge SAWYER: "That the law of estoppel in a proper case applies to· the government." In Indiana v. Milk, 11 Biss. 209. 11 Fed. Rep. 389, the court having found that the state by its conduct had recognized the validity of the defendants' title, and thereby induced them to alter their position by investing their money on the ,strength of it, Judge GRESHAM said: "The state cannot now in fairness or law assert its invalidity. Resolute good faith should charaoterize the conduct ot states in their dealings with inv.44F.no.4-16
242 .'
dXlERAL REPORTER, voL 44.
trom the doctrine of estoppel." In my judgment, the complainant ought not, in fairness and justice, be allowed to assert, .as against these defEmdants. that this road was not completed, as required by law, and claim a forfeiture of the grant on that ground. In the first place, the certificates of the governors to the completion of the road are the acts of the agents of the complainant. By the express terms of the grant, the gonrnor oithe state was authorized and required to determine if, and when, the road was constructed, as provided therein; and his certificate to that effect is the necessary and only legal evidence ()f that fact. On the faith of these certificates, the truth of which was then and for ·lotlg after· unquestioned, ,these defendants invested their money in these lands. By this means, the complainant proclaimed to these defendants: This road has been constructed according to law. The condition on which this grant was made has been complied with, and the same has become absolute; and' it ought not now to be heard to allege anything to the contrary, evenif it should be true, to the prejudice or injury of those, who, lika these defendants, have, in good faith, acted upon such representa. 'tion as true. . In the second ,place,after the investigations in congress and the de,partment of the interior, between the years of 1873· and 1882, concerning the effect and verity of these certificates, and the fact of the compliance by the wagon-road C()mpany with the conditions of the grant, the complainant practically. affirmed the right of the company to the lands, and listed the same for patent, under the act of 1874, and. actually issued such patent, for the greater portion of the grant, on the faith of all which these defendants were induced to materially change their position in r&lation to the property by expending large sums of money thereon and thereabout, including the payment of ,$29,885.79 taxes levied thereon by the authority of the state, and $86,805.75 disbursed in the repair and improvement of the road. In addition to the grounds above stated I on which .this estoppel ought .to be allowed, as against the United States, there is the expressprovision in the act of 1889, to the effect that this suit shall be tried and ad'judicated as a suit in equity between private individuals. This direction is without qualification or exception, and, in my judgment, includes :the setting up of an estoppel, as well as any .other procedure or defense ·known to equity practice orjurisprudence; By this provision the complainant consents in advance that an estoppel for conduct may be availed of against it in this suit. And even admitting, what is denied by the plea, that their certifi·cates are false in. fact, and were procured by the fraud of the wagon-road company, .and that these defendants had notice of the sllll}e when the.Y' made thElPurcQase, and, therefore, the,colllplainantisnot estopped to .ahowthtlSefacte in any litigation between it and them. in which they
dividuals, and there Is no reason in moraIs 'or law that Will exempt thetJ!,
UNITED STATES V.'WALI,AMETVAL. & C. M.WAGON-ROAD CO.
243
may be by the deliberate·,aetion of lhe complainant the inquiry has beeomeimrriaterial. CC}Dgress had, the' same right to waive the performance of the condition subsequent to the grant, as to make it in the first place. When, therefore, congress decided by the act of 1874 that patents should issue for these lands, in case it was shown by the certificates of the governors of Oregon that the road was "constructed and completed," inefIect, it thereby affirmed, for the purpose of the grant, the integrity. and efficacy of said certificates; and accepted them as final and conclusive evidence of the performance of the terms and conditions of the grant, or waived the same. Again, admitting that the complainant could, as a matter of fact, and the certificates to the contrary, show that the road was not completed in all respects according to Jaw, and that these defendants hadllotice thereof, still, the complainant,having subsequently the question upon evidence taken pro and con thereon, and decided by and through its proper officers that the grantee, or its assignee, the wagon-road .company, was entitled to a patent for the lands, under the act of 1874"eitheJ.\on the ground that the road had been sufficiently constructed, or thatj under said act,. the certificates were conclusive of that fact, in consequence of which these deflmdants made the expenditures, and incurred the liabilities, on and about the property, as above stated, the complainant would be estopped to show such failure or notice in this suit. The second plea is also good.. All the elements of a bonafide. purchase appear in the transaction. 'fhe original grant passed the legal title to the state,which it transferred to the wagon-road company , who conveyed the same to these defendants. Their grantor was not, only the apparent, but the actual, owner of ,the property. The purchase is al·leged tahave been made in good Jaith,and nothing appears to the traryjsnd it was made 'for a valullbleconsideration,-$140,636. It is a matter of common knowledge, of which 'the court may take notice, that, at the date of this purchase, the country along the greater portion ofthe line of this road was unsettled, and much of it occupied by at within the range of wild Indians. Its va]ue was purely speculative. Neither had lh:e purchasers any notice of any defect or flaw in the title of their grantor, or any failure on its part to comply with the condition, of the grant;, ( , ' , Butj on this point,thedistrict attorney eontends,that the grant having been made. by' statute ana condition 'subsequent, thepurchllser!1 were bound to inquire lind see ,that this condition was fulfilled, .beJore thElycan. claim to have' purchased in good fn.ith. Admit this. But how were they toaseertain whether the condition ,was fulfilled or nut? district attorney answers: By,s. :personal examination of the wO:rk on the grbund., This would bea,verY:.unsaJe proceeding. 'fha: :pur-ohasers might think the wonk was al1tha-tl the ,law req\lired,and some judge or jury, before whom the question might be raised yea1'$ after.wlll·ds, niight:think ,otherwise.:' The onlyispecifie direction, in the act (>n'the subjeot beconstrueted soas'!,topermit
244
of its regular use as a wagon-road, and in such other special manner as the state of Oregon may prescribe." The state assigned the grant to the wagon-road company without prescribing any "special manner" in which the road should be constructed. It follows that the construction was only to be such as "to permit of its regular use as a wagon-road." Nothing could be more indefinite than this. Probably no two men in Oregon could have been found who would agree in all particulars as to what was necessary to constitute such a road. The act provides for the sale of the lands as the work progresses in seotions of not less that 10 continuous miles, on the certificate of the governor to the secretary of the interior that the same "are completed." No lands were in fact sold until the certificates wer:e furnished of the completion of the whole road. But this is a matter of which the grantor cannot complain. The provision was intended solely for the benefit of the grantee, and could be waived, as it was. The power to declare the road, or any portion thereof, not less than 10 miles, "completed," was thus vested in the governor. When his .certificate to that effect was filed with the secretary of the interior, the fact of completion was established. And anyone thereafter seeking to purchase the lands need go no further or seek elsewhere for information on this point. And so, these defendants finding the evidence on file, as to the completion of the road, that authorized the sale of the lands, freed from all conditions thereabout, purchased the same in good faith, and for a \1'aluable consideration. On the facts stated in the plea, there can be but one conclusion in the premises,-that these defendants are bona fide purchasers, within the purview of the act of 1889, and the principles of equity jurisprudence on that subject; therefore they are not liable to have the lands so purchased by them declared forfeited to the United States, even if the certificates of the 'governors should prove false and fraudulent, of which there is no evidence beyond the formal allegations of the bill, unsupported by any specific statement showing wherein or how they are false or fraudulent. The pleas are both sustained, and, in my judgment, the bill ought to be dismissed. The facts stated in them are not only admitted for the purpose of this hearing, hut they are manifestly true.' The only exception to this statement is the denial of the falsity of the certificate, or, if they are false, notice to these defendants of that fact. That they ever had any such notice is extremely improbable under the circumstances. Natur.. ally enough, a purchaser would rely on the certificates, and not travel hundreds of miles through an unsettled country to determine, by personal observation, a matter which the law made the governor the qualified judge of, and which, as I have said, no two persons were likely to agree about. . Admitting that the falsity of the certificates may be shown in conjunction with notice to these defendants of that fact, the time whlcb has elapsed
UNITED STATES'll. WALLAMET VAL. & C. M. WAGON-ROAD CO.
245
since the period for the construction of the road has expired, the absence of any resident population along its line at that time, would render it extremely difficult to make any satisfactory proof on the subject. The company was not bound to do more than construct the road. Its maintenance was no part of the condition of the grant. If the state had constructed the road, it would no doubt have been left to the people who wanted the use of it to keep it in repair, as in the case of the other public roads. The state assigned the grant to the wagon-road company without condition in this respect. Nor is it likely that anyone would, at that day, have accepted the grant on the onerous and uncertain condition of keeping the road indefinitely in repair. The fact that the act authorized the land to be sold, freed from all conditions of course, as fast as the· road was constructed, shows conclusively that the grant was not intended to be charged with the burden of maintaining the road through all time or at all. In the nature of things, in many places the road would soon deteriorate and disappear if not kept in repair. Snow and rain, floods, washouts, and slides must occur yearly on the line of this road, or some portion of it. Therefore it would be Very difficult to show at this late day what was the character and qunntity of work done in its construction. The persons employed on the work,who would be the best and almost the only witnesses on this point, are likely. in 20 or more years, to have died or disappeared. These alone are probably sufficient reasons for dismissing this bill. But the conclusions reached on the first plea make it certain, in the judgment of this court, that the complail)ant cannot and ought not to prevail in· this suit-First, because the claim is clearly a stale one, and also by analogy to the statute of limitations is barred by the lapse of time; spcond, because, by the act of 1874, it has either accepted the certificates as conclusive evidence of the due construction of the road, or · thereby waived all furtber performance of the condition subsequent; and, third, by the action of its executive department prior to 1883, whereby it distinctly recognized and accepted the performance of such <londition, and thereby induced these defendants to so alter their position in relation to the property that it would be unconscionable and unjust now to allege the contrary to their serious injury and prejudice. As an authority applicable to this case generally, see U. S. v. Dalles MililaryRoad Co., 41 Fed. Rep. 493. Let a decre.e be entered dismissing the bill as to these defendants.
246
I'EDERAL REPORTER,
FIRST- NAT."BANK OF GRAND HAVEN ". FOREST. (Circuit Cowrt, N. D. Iowa, E. D. November 25, 1890.) DBPOSITTONS DE BENE ESSII-FILING.
A deposition de bene essehtaken on interrogatories propounded by both parties, ianot under the control of t e one at whose iostanOtl it was taken; and, if at his request, the commissioner withholds the deposition, an order will issue requiring its return, the court having no discretion to refuse the order because the party was SUrprised by the testimony given.
At Law· ..Motion for an order requiring a commissioner to file in court a deposition taken de beM 688e. (]has. A. Clark, for plaintiff. Boies, HU8ted & BCYies and Henderfml., Hurd, Danw & Kieael, for defendant. SHIRAS, J. This action is based· upon certain promissory notes signed "Forest Bro!!.," it being claimed thatthedefendant'wlls a member of the firm, and therefore liable upon the Dotes. The defendant denies that he was a member or such firm, and this is the main issue in the case. In June last, plaintiff's attorneys served written notice on attorneys for defendant that the deposition of George Forest. would be taken at Flint, Mich., before Henry R. Lovell, a United States commissioner, the reason 'assigned for taking the same beiug·"that the said George Forest resides in the'state.of Michigan, outside of the northern district of Iowa, and more thanone.bundred miles from the city of Dubuque, the place where it is expected ,the said action will bEl tried.'t In other words, it wall proposed to take the deposition under' what is commonly known as the de bene 688eprovisionsof the statute, and' which now form sections 863, 864, andr866 of the··Revised Statutes of the United States. On · the day named in the notice, counsel for the respective parties appeared at Flint, Mich., and the deposition of the witness was taken upon oral tnterrogations andreducedtQ writing by the commissioner. It now ap" pears that the deposition thus taken has never been returned into court by the commissioner,and:, in reply to a letter of inquiry addressed him bycounselfor he writes under date of 1890, as follows: "HeplyingtoYofirs rilf22dlnst.· Mr. Farr. who appeared for the plalntiif In the matter in question, instructed me to hold the del'0sition subject to bis
R. LoVELL, U. S. Commissioner." The motion now submitted on behalf of defendant is for an order directing the commissioner to return the deposition forthwith, as the CRse is noticed for trial at the present term. So Jar as the action of the commissioner is concerned, it is clear that hcmiiConceives his duty in the premises. . It is his duty to deliver the "HENRY
order, and 1 am still so holding it. "Very respectfully,