United States v. Flint & P. M. Ry. Co.

95 F. 551, 37 C.C.A. 156, 1899 U.S. App. LEXIS 2477

• Court: Court of Appeals for the Sixth Circuit
• Decided: July 5, 1899
• Docket: No. 582
• Status: Published

Opinion

TAFT, Circuit Judge

(after stating the facts). We do not think thai this case can he distinguished from the case of U. S. v. Winona & St. P. R. Co., 165 U. S. 463, 17 Sup. Ct. 368. In that case the controversy was in regard to lands certified under an act of congress of March 3, 1857 (11 Slat. 195), making a railroad grant to the state of Minnesota in all respects similar to the act of June 3, 1856, here involved. At the time of the passage of the act, the sections in suit were covered by homestead entries and pre-emption filings, and it was contended by the United States, under the decision of the supreme court in Railway Co. v. Dunmeyer, 113 U. S. 629, 5 Sup. Ct. 566, that the grant under the act was in prtesenti, and all land entered for homestead or pre-empted at the time of filing the map of definite location was excepted from Hie grant, and remained public land, although such entries were subsequently, and before the construction of the road, abandoned or canceled. The supreme court, speaking by Mr. Justice Brewer, held that the effect of the acts of March 3, 1887, c. 376 (24 Stat 556), and of March 2, 1896, c. 39 (29 Stat. 42), if the certification was made after the lands became restored to the public, domain, and if the lands had been earned by the. railroad company, was to confirm the title to the same in any purchaser in good faith, of the lands from the original patentee, the railroad company. Mr. Justice Brewer stated the case before the court as follows:

“These facts appear: First. The railroad company has constructed its road, and has earned the land grant. Second. It has received no more land than congress, by the act referred to, proposed to grant to aid in the construction of the road. Third. At the time that the lands were certified to the state for its benefit, they were not subject to any homestead or pre-emption entry. They were free from all claims other than those of the railroad company itself, and were, except as subject to such claims, in the fullest sense public lands, and within the jurisdiction of the land department. Fourth. Up to March 2, 1885, (when Railway Co. v. Dunmeyer, 113 U. S. 629, 5 Sup. Ct. 566, was decided by this court), the uniform ruling of the land department had been that the title to railroad lands became settled at the time the fine of the railroad was surveyed, staked out, and marked on the face of the earth, and not at the time of the filing of the map of definite location in the land department; that a homestead entry, though apparently regular and valid, was open to question by the railroad company, and, if shown to have been fraudulent or irregular in inception, or that it had been abandoned before the right of the company attached, was held not to except the land from the gi'ant; and also that a preemption claim existing at- the time of the attaching of a railroad grant, if subsequently abandoned, and not consummated, — even though in all respects, legal and bona fide, — did not defeat the grant, but upon the failure of such claim •the land covered thereby inured to the grant as of the date when it became effective. Fifth. Under such rules of construction, the land in controversy was all properly certified to the state for the benefit of the railroad company. Sixth. The lands were sold and conveyed by the railroad company to parties who paid full value, and bought in good faith, believing the title which the railroad company assumed to convey to be perfect.”

There is certainly no distinction between this case and the Winona Case unless we yield to the contention of counsel for the government that the lands here in suit were not sold by the railway company, the original patentee, but were merely conveyed by it in trust, and by way of mortgage, and are excepted from the remedial operation of the acts of 1887 and 1896, upon which the Winona decision rests, by an express proviso in the act of 1887. The act of 1887 was passed for the purpose of adjusting land grants to railroad companies, and restoring to the public domain land improperly certified under such grants, by bills in equity to be filed by the attorney general. The third and fourth sections contain exceptions based on equitable considerations. Section 4 of the act provides, in effect, that title to all lands — with certain exceptions, not here material — which have been erroneously certified or patented to a railroad company in aid of the construction of a railroad, and which have been sold by the grantee company to citizens of the United States, or to persons who have declared their intention to become such citizens, shall be confirmed in such purchasers buying in good faith, upon their mailing proof of the necessary facts to the secretary of the interior, and patents shall is.sue to them relating back to the original certification or patenting; '•but it is expressly provided “that a mortgage or pledge of lands by the company shall not be considered as a sale for the purpose of the act.” The act of March 3, 1891, was an act of limitation, providing that all suits to annul a patent should be brought within six years after the issuing of such patent. The act of March 2, 1896, amends the limitation in one respect, but contains further important provisions in respect to bona fide purchasers. The first section contains this clause: “But no patent to any lands held by a bona fide purchaser shall be vacated or annulled, but the right and title of such purchaser is hereby confirmed.” The second and third sections provide (hat any bona fide purchaser of lands erroneously patented or certified may apply to the secretary of the interior prior to the bringing of a suit, and, if it appears that he is a bona fide purchaser, the secretary shall request the suit to be brought against the original patentee'for the value of the land, and the title of the claimant shall stand confirmed; but, if the claimant is made a party defendant to the suit, and is found to be a bona fide purchaser, the court shall decree a confirmation of the title in his behalf, and a recovery in behalf of the TJniied States against the original patentee for the value of the land. This act expressly recognizes corpora 1 ions as entitled to claim as bona, fide purchasers under the act. The present bill in equity was filed before the passage of the act of March 2, 1896, hut the supreme court, in the Winona Base, held that the act was intended to apply as well to suits then pending under the act of 1887 as to those thereafter brought. The act of 1887 limits the benefits of the fourth section to citizens or persons who have declared their intention to become citizens, and. if we were confined to that act, it might be argued wiili novae force that this, refers to a citizenship which only natural persons are capable of acquiring, and so excludes corporations; but we are relieved from this difficulty by the express inclusion of corporations among those who are to share (he benefits of the act of 1896. The supreme court has left no doubt as to the meaning of the words “bona fide purchaser” in the act. Mr. Justice Brewer in the Winona Case, speaking of the acts of 1887 and 1896, said:

“Our conclusion is that those acts operate to confirm the title to every pin-cha sev from a railroad company of lands certified or patented to or for ifer benefit, nolwilhstanding nn.\ mere errors or irregularities in the proceedings of the land department, and nol withstanding the fact that the lands so certified or patented were, by the true construction of the land grants, although within the limits ol' the grants, excepted from their operation, providing that he, inn-chased in good faith, paid value for the lands, and providing, also, that ihe lands were public lands in the statutory sense of the term, and free from individual and other claims.”

It was thus held that the expression did not have the technical meaning it has in equity, and the opportunity of the purchaser by reference to public records to advise himself, before he bought, of the nullity of the certification, did not strip him of his bona fide character under the act, if, in fact, he believed that the original grantee had a good title. It is a question of some doubt whether the proviso of the act of 1887 excluding mortgagees and pledgees from benefits secured to the class of purchasers in good faith is to be regarded as a limitation of the class of bona fide purchasers protected by the act of 1896. Assuming, without deciding, that the two acts are in pari materia, and that the proviso of the earlier act continues its force in the later, we are of opinion that the defendants the Flint & Pere Marquette Railroad Company and W. W. Crapo, the trustee, are bona fide purchasers of the lands in question under an absolute sale by the Flint & Fere Marquette Railway Company, the original grantee, and so within the saving of the second and third sections of the act of 1890. The facts,-shortly stated, are that the original grantee, by three deeds conveyed the fee of all the land-grant lands to trustees to secure certain bond issues, with power to sell the lands, and apply the proceeds of sale to the payment of the bonds. This was, so far as the trustees and the bondholders were concerned, and until the lands were sold, only a mortgage or pledge. The equity of redemption in the lands remained in the original grantee of the United States, the railway company. By a subsequent deed the railway company purported to convey to the trustees the equity of redemption in the lands unsold. This, it is contended by counsel for the defendants and appellees, was a sale, because it passed all title to the trustees. We do not think so. The trustees still held the land under the same trusts as under the former deeds. Those trusts were to sell the land, to apply the proceeds to the bonds, and to account for them to the railway company. If the railway company, under the former deeds, had the right, as it had by express provision, to tender the full amount of the indebtedness to the bondholders, and demand a reconveyance of the land unsold from the trustees, the last deed certainly did not extinguish this right. Although it purported to do so, yet no consideration, moved to the railway company for such conveyance of the equity of redemption. The bondholders did not release the company from any part of its indebtedness in consideration of the conveyance,, and the company expressly retained its right to call the trustees to account for their sales. The last deed was executed merely for the’ purpose of more completely assuring to the trustees the right and power to sell to third persons the interest of the railway company in the land, so that the latter need not join in the conveyance. It fortified the purchasers from .the trustees against the railway company in their fee-simple title, but, as between the trustees and the company, in respect of the equity of redemption in the land unsold, it worked no change at all. It is true that a mortgagee may purchase-the equity of redemption from his mortgagor, but courts will view the transaction with suspicion, and will not uphold it when it appears that the consideration was not adequate. Webb v. Rorke, 2 Schoales & L. 661; Ford v. Olden, L. R. 3 Eq. 461. Here, as there-was no consideration, the transfer was of no effect, and the equity remained in the old company. The deed we are discussing did not purport to convey the legal title; the trustees already had that. It was only the transfer of the equity; and if, in equity, it did not work the transfer, it was, for such a purpose, as if it had not been made. It needed no action of a court to set it aside, for, as it dealt with an equity, it had no efficacy save in equity, and there it was a nullity. When, therefore, the trustees under the railroad mortgages securing the consolidated bonds filed their bill in foreclosure, the legal title to the lands unsold was in the land trustees, with power of absolute sale to secure the bondholders named in the deeds, and the equity of redemption was in the debtor railway company, with the incidental right to call the trustees to account for their proceedings under the trust. The decree of sale and the master’s deed conveyed to the purchasers all the interest of the defendant railway company in the lands, which interest was described in the decree and deed only as its right to call the trustees to account, but which, of necessity, included its equity of redemption. By the judicial sale, all interest of the defendant railway company was completely devested, and the title passed as absolutely as where a mortgagor sells the land incumbered by a mortgage or trust to a stranger. The proviso in the act of 1887 excludes mortgagees, but it does not exeludí' purchasers of the title subject to a mortgage. The purchasers paid $1,000,000 fertile property of the old railway company, including its interest in these lands. Because, before the sale, they happened to be, or to represent:, bondholders and mortgagees of the old company, and paid part of the $1,000,000 by release of their mortgage debt, they are not the less outright purchasers for value, and not the more to be charged, under the statute of 1896, with knowledge of the defects in the title of the old company. These purchasers transferred their interest in these lands to the new Flint & Pere Marquette Railroad Company. The equitable title of this company in these lands cannot be annulled under the acts of 1887 and 1896.

But it may be argued that the trustee’s title to the lands has not been changed by the judicial sale; that he and the bondholders occupy the same position they did before the sale, to wit, that of a mortgagee of the old company, with power of sale; and are thus as much excluded by the proviso of 1887 as before. They derive no title, it is said, through the sale, and therefore cannot strengthen their previous defective title by reason of it. We do not think the proviso of the statute is to be construed so strictly. When the original grantee has parted with all its interests for a valuable consideration, whether by one absolute sale or by a mortgage followed by a conveyance of the equity of redemption, we think the case has been taken out: of the proviso, and the mortgagee and grantee are to be regarded as bona fide purchasers, within the meaning of the statute. The reason and justice of the proviso are not very apparent, and it is not the duty of the court to include more in it than its words require. Its language is that “a mortgage or pledge of said lands by the company shall not he considered as a sale for the purpose of this act.” This does not mean, if the words are given their natural meaning,' that: a mortgage and a sale of the equity shall not be so considered. The statute seems to contemplate only two alternative modes of recovery for the government, — ■ one of the fee simple, and the other of the value of the land from the original patentee. It makes no provision for the recovery of the interest: of a mortgagee of the original patentee in land after the equity has been purchased by a bona fide purchaser as defined hv the .statute. The value of such an interest, without special statutory direction, would be difficult to determine, especially in a case like this, where the land is only a, part — and probably a small part —of the whole security for the debt. We do not think congress intended a recovery against the mortgagee, but, at the most, only an avoiding of the mortgage. The purchasers at the judicial sale took title subject only to the interest of the bondholders, if that is void, tlie purchasers would take the land freed from lien, and the trustee would hold the legal title for them; but the purchaser would be estopped to deny the interest of the bondholders, for it is recited to be a valid and prior interest in the deed and decree under which alone they can claim title. Therefore the mortgage bondholders would acquire an interest through the very sale protected by the statute.

It is suggested that the interest of the purchasers is only an equity at most, and that there is no such thing known as a bona fide purchaser of an equitable interest. Latham v. Barney, 14 Fed. 44C. We have referred to the fact that the'supreme court has distinctly decided that the words “bona fide purchaser” in this statute are not to have their technical meaning in equity, and the failure to obtain the full legal title would, therefore, not prevent the purchasers of the whole interest in the land from claiming the benefit of the statute. Moreover, in the case at bar the legal title of the trustee would be under the control of the purchasers at the judicial sale if the trust in favor of the bondholders were void; and if, on the other hand, the trust deed and judicial, sale are to be regarded together as a parting by the original patentee with the whole interest in the land, and a sale by it within the Statute, then the bondholders and the purchasers certainly have the legal title of the trustees in their control, so that they would have no difficulty, on this account, in claiming as bona fide purchasers, even under the strict equity rule. The decree of the circuit court is affirmed.