Northern Colorado Coal Co. v. United States

• Citation: 234 F. 34
• Decision Date: 01 May 1916
• Docket Number: 4438.,4437
• Parties: NORTHERN COLORADO COAL CO. v. UNITED STATES. UNITED STATES v. NORTHERN COLORADO COAL CO. et al.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

234 F. 34

NORTHERN COLORADO COAL CO. v. UNITED STATES.

UNITED STATES v. NORTHERN COLORADO COAL CO. et al.

Nos. 4437, 4438.

United States Court of Appeals, Eighth Circuit.

May 1, 1916

John A Gordon, Asst. U.S. Atty., of Denver, Colo. (Harry B. Tedrow U.S. Atty., of Denver, Colo., on the brief), for the United States.

Henry McAllister, Jr., of Denver, Colo. (N. E. Corthell, of Laramie, Wyo., and Joel F. Vaile and William N. Vaile, both of Denver, Colo., on the brief), for defendants.

Before CARLAND, Circuit Judge, and AMIDON and VAN VALKENBURGH District Judges.

AMIDON District Judge.

This is a suit brought by the United States to cancel patents for 1,280 acres of coal land situated in Larimer county, Colo. Title to 800 acres of the property is held by the defendant Coal Company as purchaser. The remaining 480 acres is held by the defendants Miller, Peters, and Smith under patents issued upon their individual entries. The bill asserts that the company derives its title through dummy entrymen, and further asserts that the individual defendants at the time they made their entries were stockholders of the Coal Company; and as it had already acquired coal lands in excess of the 320 acres allowed by the United States Revised Statutes, Secs. 2348-2350 (Comp. St. 1913, Secs. 4660-4662), they, as stockholders, were disentitled to file individual claims. The trial court entered a decree in favor of the government against the Coal Company, canceling the patents under which it claims, and dismissed the bill on the merits as against the individual defendants. Cross-appeals are brought to review the decree.

To understand the case the facts must be stated more fully. Two brothers by the name of Riach executed a bond for a deed in favor of a Mr. Lee, bearing date December 16, 1902, binding them to convey to him by perfect title 4,240 acres of land, specifically described by tracts, and including the 800 acres involved in this suit. The bond was acknowledged and presumptively delivered January 9, 1903. On December 26, 1902, Mr. Lee organized the defendant corporation, and became its secretary, and a member of its board of directors. January 15, 1903, he entered into an agreement with the company binding himself to convey to it 3,600 acres of land, including 160 acres of the 800 acres here involved, also three mining claims, and a controlling interest in the stock of a gold and copper mining company. This agreement is acknowledged and was presumptively delivered March 22, 1903. August 5, 1904, Lee released the company from all existing obligations under this contract. On the same day he assigned to it his bond with the Riachs, the company acquiring all his rights and assuming all his obligations under the bond.

Nearly two years afterwards one of the brothers, James C. Riach, employed dummy entrymen to give him the use of their names for the purpose of acquiring title to the 800 acres under the coal land statutes. These entrymen appointed Mr. Riach their attorney to make and perfect the entries. He paid all the expenses and the purchase price of the land. The first of the entries was made in April, 1905, three of them in March, 1906, and the fifth in August, 1906. Receiver's receipts were issued on the first claim in April, 1905, and on the other claims in 1906, at about the time the entries were made. As soon as the receiver's receipts were issued, deeds were executed for the property by the several entrymen to James C. Riach. Patents were issued on the five claims as follows: Three in August, 1906, and two in July, 1907. James C. Riach executed a warranty deed for the 800 acres to the company in October, 1907.

It is conceded that under the law as declared by the Supreme Court in U.S. v. Keitel, 211 U.S. 370, 29 Sup.Ct. 123, 53 L.Ed. 230, and U.S. v. Munday, 222 U.S. 175, 32 Sup.Ct. 53, 56 L.Ed. 149, the patents as against the entrymen and Riach are void. The Coal Company must prevail, if at all, as a good-faith purchaser. The law in regard to that defense, when title is derived through fraudulent patents, has been greatly clarified by the decision of the Supreme Court in Wright-Blodgett Company v. United States, 236 U.S. 397, 35 Sup.Ct. 339, 59 L.Ed. 637. In many opinions language will be found to the effect that, when the government seeks to set aside a patent for fraud, the respect due to such instruments and the stability of titles emanating from the government demand that the case be established by clear and convincing proof. This rule has sometimes been extended so as to require the government to show, not only that the patent was obtained by fraud, but also that a purchaser acquiring title upon the faith of the patent had actual notice of the fraud. Such is not the law. All that the government is required to do is to show that the patent was obtained by fraud. It is then entitled to a cancellation of the patent, except as against a holder who can show that he acquired title to the land as a good-faith purchaser. That defense is affirmative. The burden of proving it rests upon the purchaser. The government is not required to show that he took the title with notice of the fraud. On the contrary, the burden is upon him to show that he acquired the title for a valuable consideration and without notice. Under the law as thus declared in the Wright-Blodgett Case, the government here is entitled to a cancellation of the patents, unless the coal company has shown by a preponderance of the evidence that it is a good-faith purchaser. Has it discharged that burden? For two reasons we think the trial court properly held that it has not.

First. By taking from Mr. Lee the assignment of his bond for a deed the Coal Company stepped into his shoes and sustains the same relations to the lands which he sustained. At the time this assignment was made the lands were still a part of the public domain, and remained such for nearly two years before the fraudulent entries were made. The company had actual knowledge that the lands were public lands. This is a fair inference from the language of the bond for the deed, and from the whole course of dealing between the parties. The officers of the company were also intimately familiar with the lands. Mr. Miller, its vice president, had visited the properties from time to time every year subsequent to the year 1902. He also had a coal claim of his own, which was situated within one mile of the several tracts which made up the 800 acres. During all of this time he was on intimate terms with James C. Riach, and made his home when visiting the property at Mr. Riach's house. Other officers of the company had a similar, though less extensive, knowledge of the properties. What is the fair import of the bond for a deed in the light of this knowledge? The company knew that the land was coal land, and that title...