GAIlQUET tl. CRESCENT CITY BREWING
(CCrcuU Court, E. D. Lowtsfana. February 5, 1892.)
CoIlPOltATIO:Ns-BTOOX PLEDGBD. BY DmEOTOBS-EsTOPPEL.
Where stock is issued 'on the vote of directors, and used by them a8 a pledge to obtain a loan, the corporatiou is estopped from setting up that the issue of stock Dot paid up is prohibited by the oonstitution, and the hollier will be entitled to the BaIne to the extent of the loan.
In Equity. On exceptions to master's report. W. S. Benedict and Richard De Gray, for petitioners. E. Howard McCaleb, for respondent.
BILLINGS, Distnct Judge. In this matter there seems to be no question f!,$ to the 1acts. Mrs. Graham claims 400 shares of stock in the defendant corporation under a pledge to repay a debt of $14,000. The itockwas never paid-Up stockj and the charter of the corporation prohibited the issuance of stock not paid up. But the directors voted to issue the stock, and it was, with their sanction, used as a pledge to obtain t11ese loans for the corporation from Mrs. Graham, which aggregated 814,000.' In the hands of Mr. Ames the result would have been different, but upon the grounds stated so Clearly by the master; and upon the authorities cited by him, I think his conclusion is correct, to-wit, that the corporation is estopped from setting up the want of power to issue the st6ckj and Mrs. Ames, who has inherited the equities of Mrs. Graham, is entitled to have the pledge maintained or held as valid to the extent of the dividends upon thesbares not to exceed the amount loaned. ·The exceptions are overruled, and the report confirmed.
UNITED STATES tl. CALIFORNIA
& O. LAND Co.
Courted Appeal" N(nth CflrcufL March 10,1892.)
Lu'D Ga..Nn-CANoBLLATIoN-FltAUD-BoIU FIDB
In i& suit by the United States to forfeit oertain lands granted in aid of a mllitar;r road, defendant claimed to be a bona fide purchaser under a deed which declared tllatthe road company "does hereby alien, release, bargaln, sell, and oonTey" to the grantee, "his heirs and Wlsigns, the undiVIded one-half of all the right, title, and interest" of the g,rsntor "in and to all the lands lying. and being in the .tate Of OreKOn, granted or intended to beJranted to the state of Oregon by the act of congress approved July 2, 1864, * * and granted by the state of Oregon" to the. grantor.by Act Or. Oot. 24, 1864; "and the undivided one-half of the right, title, and interest" of the grantor" to said grant of land under the. several aots afore,said, whether listed and approved or otherwisei also the undivided one-half of all future right, title, interest, claim, property, ana demllnd "which the grantor "may at anytime hereafter acqUIre to any lands by virtue of any further compliance with the requirements of said acts of congress, together with the hereditaments and appurtenanoes; * * * to have and to hold the lands hereby granted unto" the grantee, "his heirB and assigns forever." that this deed shows an intent to grant the land. themselves, and not merely any interest whioh the grantor mq
UNITED STATES '11. CALIFORNIA & O. LAND CO.
have tbereln; and bence that it Is not a mere g,ultclaim,. sucb as 1eprives the grantee of the right to rely upon the plea of an mnocent purchase for value. IUNFORD, District .Judge, dissenting.
Appeal from the Circuit Court of the United States for the District of Oregon. Suit under Act Congo March 2, 1889, to forfeit certain lands granted to the state of Oregon by Act Congo July 2,1864, to aid in the constructionof a military road, and by the state to the Oregon Central Military Road Company by the act of October 24, 1864.
STATEMENT BY HANFORD, DISTRICT JUDGE, (DISSENTING.)
This cause has been heard twice by the United States circuit court for the district of Oregon, and once by the supreme court of the United States. The opinions of the circuit court on the first hearing and of the supreme court, each containing a full statement of the facts and circumstances from which the case has arisen, have been published, and reference thereto is made for the purposes of this opinion, in lieu of a more extensive and detailed statement. See U. S. v. Road 0:>. t 41 Fed. Rep. 493; U. S. V. Road Co.· Id. 501; U. S. v. Road G>., ahd kindred cases, 140 U. S. 599, 11 Sup. Ct. Rep. 988. After being remandedto the circuit court, the case went to trial upon issues joined by a replication to the pleas and answer of the defendant, the California & Oregon Land Company, denying the allegations of the said defendant that the "Several promoters and organizers of said company were bona fide purchasers of the land in controversy, for the full value thereof, without notice or reason to believe or sU!lpect that there had been any fraudulent act committed or misrepresentation made affecting the title of their vendors, or that the wagon road, in aid of which the lands were granted, had not been wholly, seasonably, and properly completed in accordance with the requirements of the granting acts. The pleadings admit, but only by implication, that the wagon road was never constructed, and that the certificates given by the governor of Oregon were untrue. The only issue of fact in the case is made by the second plea, which is a negative plea, raising simply a question whether the defendant is entitled to the protection which a court of equity gives to bonafide purchasers of the legal title to real estate. The circuit court so construed the pleadings, and held the parties strictly within the limits of that issue in the introduction of evidence, and even made a ruling excluding all evidence offered On the part of the government to prove that the wagon road had never been constructed. Upon the final hearing the following decree was rendered by the circuit court: "Tbis cause was beard upon the bill, the amended pleas, and answer of the defendant, the California and Oregon Land Company, the replication thereto, the testimony and exhibits, and was argued by Mr. Franklin P. Mays. Unitei:l States attorney, and Mr. Albert H. Tanner, of counsel, for the plaintiff, and Mr. Rufus Mallory, for said defendant; on consideration whereof the court finds that the' certificates of the governor of Oregon. declaring the road mentioned iu,thebill to have been duly constructed, were tl'uthfully made, without fraud or misrepresentation on the part of anyone; and that said defendv.49F.no.7-32
FEDEnAL REPORTER ,"01. 49.
ant; the Califorliitl, and OregOhLand Coirll'lally, is the purchaser of the land in described in said bill from the Oreg6noentral good faith, for a valuable consideration, and without notice of any fraud or on the part qflJaid Oreg,()n Central Military U()ad CoIIlpany or anyone else. It is therefore ordered; adjudged, and decreed that the said plea of said defendant be, and the same is hereby, sustained, and that said bill of complaint be,and the same is hereby, dismissed, as to said defendant, the Oaliforniaand Oregon Land Company."
Ftanklin P. May8, U. S.Atty., and Albert H. Tanner, Sp. Asst; Atty.· . Rufus Mallory and W. Belcher, for appellee. . BefQre HANFORP, HAWLEY, and MORROW, District Judges.
OPINION OF THE COURT. District Judge. I am of opinion that the circuit court did not in findinpthat defendant was thepuTchaser of th.eland in ques· and fora valuable consideration, without: notice of tio l1 . ip fraud .on part of the Oregon Oentral Military Company or II,ny one else. . This is, in my opinion, by the evidence, and the therefore justified in sustaining the defendant!$ opiection tp .the testirr:OQY the defendant l1adr!\Sted its case, to shQW that said road, had never built, and that the..cer.tificates of the governor of Oregon that it was. b»ilt were obtained by misrepresentation and fraud. In Iron Co. v. U. S" 123 U. S. 813, 8 Sup. Ct. Rep. 131, the court said: "It is fUlly established by the evidence that there were in fact no actual settlements and improvements on any of ,the lands, as falsely set out in the affidavits in support of the..pre-emptioll claims and in the ,certificates issued United Rtates; sullithereo.n. This undoubtedly constituted a.fraud upon cimit hI equity, as agllinst the parties perpetrating it, or those cllliming under them ·wlth notice of it, to justify the cancellation of the patents issued to them. But Wtsnot sucb a fraud as prevents the passing of the legal title by the pattmts.,· It follows that, to a bill in equityto cancel the patents upon these grounds slone, the defense of a bonajlde purchaser for value Without notice is pl;lrfellt. " .A'pplying the principles therein announced to the facts presented by in this case, itriecessarily fo1lbws that the question whether the road was ·Il.ctually built or not wholly immate'rial, unless it was showri'that defendant was a purchaser' with notice: Independent of the general principles of law are alwa.ys applied by courts where the plea. ofa.bonafide purchaser for value is presented, the act of congress authorizing this and other suits to be brought to forfeit the lands hitherto granted expreSSly preserved the rights of such purchasers in the follow' ing .. "SaV'ingand preserving the rights of allbonajld6pnrchasers of either of sRid grants, or any portion of said grants, for a valuable consideration, if any such there be. 'Said Buit 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." 25 St. at Large,8Sl, ". .
UNITED STATES V. CALIFORNIA & O. LAND 00
Without discussing the evidence, it is perfectly clear to my mind that defendant was a bona fide purchaser for value without notice. This must be admitted, unless it be that the deeds from the Oregon Central Military Road CQmpany to Pengra were quitclaim deeds pure and simple, and that a purchaser under a quitclaim deed cannot claim to be a bona fide purchaser for value. A full investigation of that question would open up a wide field of inquiry in regard to which I deem it unnecessary to enter at any length. There are numerous and many conflicting authorities upon this subject, which I shall not attempt to review. It is sufficient to say that, in my opinion, the weight of reason and authorities is made to depend upon the real character of the deed, as to whether or not it purports to convey, or does in fact convey, simply the speculative right, title, and interest of the pa,rty, or whether or not it purports to convey, and does in fact convey, the lands mentioned. If the deed is a quitclaim in the strict sense of that species of conveyance, then it will not support the defense of an innocent purchaser. "Whether the conveyance be a quitclaim or not is dependent upon the intent of the partics to it. as that intent appears from the language of the instrument itself. If the deed purports and is intended to convey only the right, title, and interest in the land, as distinguished from the land itself, it comes within the strict sense of a quitclaim deed, and will not sustain the defense of innocfmt purchaser. If it appears that it was the intimtion to convey the land itself, then it is not such quitclaim deed, although it may possess characteristics peculiar to such deeds. The use of the word 'quitclaim' does not restrict the conveyance if other language employed in the instrument indicates the intention to convey the land itself." Garrett v. Christopher, 74 Tex. 453, 12 S. W. Rep. 67. The true charllcterofthe deed, and the real intent of the parties, is to be deidea is termined by the terms of the con\'eyance itself. This fully recognized by the decisions of the supreme court of the United States. In Van RenslJClaerv. Kearney, 11 How. 322, the court, in speaking of the effect of a deed by way of release or quitclaim of the grantor's right, title, and interest, said: .. But. this principle is applicable to a dl'E'd of bargain lind sale by relpase or qUitclaim ill the strict and propel' sense of that speciE'S of conveyancl'; and therefore. if the deed bears on its face evidence that the grantors intended to convey. and the grantee expected to become investel! with, an estate of a particular de!\cription or quality. and that the bargain had pruceded IIpt>n that ...n the partif's, then, although it lOay not contain any eovenants of title, in the technical sense of the term, still the legal operation and effect of the instrument will be as binding lIpon the grantor and those under bim, in respect to the estate thus described, as if a'formal covenant to that effect bad been inserted. " The language or the first deed, conveying an undivIded one-half 'no terest to Pengra, dated May 12, 1874, is as follows: "The Oregon Central Military Road Company has aliened, released. granted, bargained, and sold, and does hereby alit-n, release, grant,bar;.:ain, sell, and convey, unto the said B. J. Pengra. the party of the second part,bis heirs and assign..; the Undivided '·one-half of all the rigbt, title. anel interest. of
the sald party of the first part in and to all the lands lying and being in the state of Oregon granted or intended to be granted to tbe state' of Oregon by tM.ct of congress approved July 2d, 1864, ... ... ..... and granted by the state of Oregon to the said Oregon Central Military RQad, Company by an act of tbe legislative assembly of said state of Oregon approved October 24th, 1864, ... ,* ... and the undivided one-half of the right, title, and interest of said party of the first part to said grant of land under the several acts aforesaid, whether listed and approved or otherwise; also the undivided onehalf of all future right, title, interest, claim. property, .and demand which the party of the first part may at any time hereafter acqUire to any lands by virtue of any further compliance with the reqUirements of said acts of congress, together with the hereditaments and appurtenances. ... ... ... To have and to hold the lands hereby granted unto the said party of the second part, his heirs and assigns forever. "
From this language, as well as of all other conditions, reservations, and co\'enants in said deed expressed, it is clear to my mind that the parties intended by this instrumvnt to convey, and did convey, the land itself, and that it is not such a quitclaim deed as deprives deJendant of the right to rely upon the plea of an innocent purchaser for value. The second deed contains the same language as the' first. The deeds from Pengra to Colby and others are regular bargain and sale deeds of the land in question. From a careful consideration of all the evidence in the record, and of the principles of law applicable thereto, I am of opinion that the decision and rulings of the circuit court were correct. I am authorized to say that Judge MORROW concurs with me 'in the views I have expressed: The judgment of the circuit court is therefore affirmed.
HANFORD, District Judge, (dissenting.) The supreme court reversed the first decree of the circuit court for error in refusing to allow a replication to the pleas, and remanded the cause for the express purpose of having a full investigation and determination of the facts in the light of all the testimony affecting the question of the bema fldM of the transactions by and through which the defendant has, or claims to have, acquired title to the land. The important questions of law involved in the case, and which were fully discussed in the opinion of the circuit judge, are only referred to in the briefest manner by the supreme court. The supreme court could not, after making the careful and full statement ofthe case included in its opinion, have passed overthese questionsthrough mere inadvertence. Evidently, except in so far as it was intended to reverse the decision made by the circuit judge, the supreme court intentionally refrained from expressing an opinion upon the questions of law, until there could be aiull presentation of the case, and a decision of all questions of law and fact, after the introdttctionof the evidence. The act of congress authorizing the suit expressly as one of the subjects to be adjudicated the question as to the legal effect of the ceftificates of the governor of Oregon. The circuit judge decided that question, and in deciding it affirmed the validity of the defendant's title to the land; but the..snpreme court did not by any expression in its opinion approve or criticise the decision of that.question·. We can
UNITED STATES V. CALIFORNIA & O. LAND CO.
hardly suppose .that the court intended to dispose of the case finally by simply reversing the decision of the circuit court, without giving some expression of opinion upon this important question. Therefore we may fairly infer that the question has been reserved for future consiJeration by that court. The grounds of the supreme court's decision.appear in the following extracts therefrom: "Weare of opi nion that the circuit court erred in not permitting the plaintiffs to reply to the pleas, and in dismissing the bill absolutely. 'I< 'I< ... The decree mllst be reversed in so far as it dismisses the bill, and the case be remanded to the circuit court, with a direction to allow the plaintiff to reply to and join issue on the pleas. * · 'I< It is manifest that, although the act says that the suits are to be tried and adjudicated in like manner and by the same principles and rules of jurisprudence as other suits in equity, can· gress intended a full, legal investigation of the facts, and did not intend that the important interests involved should be determined upon the untested alle. gations of the defendants. * * "'. The government has had no opportunity to prove the charges of fraud made in the bill, and there is no proof but the allegations of the pleas as to the bona fides of the defendants, and as to the amounts expended by them in good faith in connection with the roads or the lands. It cannot be properly held that, under the act of 1889, final adju.o.ication can be made, on such pleadings alone. as to the extensive interests in vol ved in this litigation. In view of the course which the case has already taken, it seems to be unnecessary, if not improper, for this court at the present time to do more than decide whether, upon the evidence, the defense of a bona fide purchase has been made out, and whether the court erred in excluding evidence material for the government. The latter inquiry, being of l1n incidental and preliminary character, will be first disposed of. The facts as to the completion of the road, or failure to construct it, are impOl'tant matters of evidence bearing directly upon the question at issue,· -as to whether the defendant, at the time of the purchase of the land from the Oregon Central Military Road Com'pany, had notice of the failure of that company to earn the grant by constructing the road. The existence of such an important highway extending from the heart of the Willamette valley to the eastern boundary of the state, if it does exist, must necessarily be a matter of such general notoriety as to be presumably within the knowledge of all business men having the means and disposition to purchase on speculation the lands granted for the purpose of .aiding in its construction, and located adjacent thereto; and the nonexistence of such highway, if in fact it never was constructed, is such an extraordinary circumstance, when considered in connection with the transfer of the land grant to private individuals, that, without explanation, it is imposf:ible to understand how the purchaser could have failed to have taken notice of it. The reason given for the exclusion of the ·evidence bearing upon this point is that, by tailing to deny them, the pleas and answer admit the averments of the bill as to the non-construction of the road, and the falsity of the government's certificates, and .dispenses with the necessity of proof thereof, and that the taking of such proof would itnpose a grievous burden upon the parties by reason of .the amount of it and the great expense and consumption of time neeIt
essary for the purpose. The supreme court, however, has held that the case .000n11ot .properly be decided until the proofs shall have been taken; and, having remanded the cause for the express purpose of having an investigation of the facts, the trial court is left without discretion, Bnd must .proceed according to the mandate. . There is another reason for holding that the circuit court was in error in excluding the evidence offered by the government. It is this: The answer does not deny nor expressly admit the charges made in the bill that the lands were not earned according to the terms of the granting acts, and that the certificates are untrue, and that the same were obtained by false representations and fraud. The plea is a negative plea, and 40es controvert the averments of the bill, so that proof thereof is required to disprove the plea. Where the plaintiff has replied to a plea which'eonstructively admits the averments of the bill, or the part of the bill to which it refers, he· "may rest satisfied with that admission, and need not go into evidence. as to that part of his case which the plea is intended to cover, unless the plea is a negative plea; for in that case it will be. necessary for him to prove the matter negatived, for the purpose of disproving the plea, in the same manner 88 he may enter into evidence for the purpose of disproving matter which has been pleaded affirmatively.·" 1 Daniel, Ch. PI. & Pro (5th Ed.) 837. The answering defendant, in order to prove the of the second plea, WaS ohliged to and didintroduce the deeds by which it claims to have acquired title to the land, and to show by other evidence the particulars of the transaction attending the negotiations for and consummation of the purchase from the Oregon Central Military Road Company, from which it is the promoters and organizers of the defendant corporation first bargained with the Oregon Central Military Road Company for an undivided one-half ofthe lands granted for the price of $100,000, and the right'to purchase tQe other half at a corresponding price; that, after examining an abstract of title, and obtaining the advice of eminent lawyers as to the right of said cOlllpany to sell the land, they paid 8100,000, and thereupon said company I by its deed, granted and conveyf"d one-half of all the right, title, and interest of said company, and one-halfof the right, title, and interest which it might thereal'ter acquire, in and to said lands, toone P. J. Pengra, who, on the next dayarter the recording of said de.ed, by his bargain and sale deed conveyed the lands to the persons who.afterwards organized this defendant corporation; and so.me five months after the conveyance of said one-half interest the other half was conveyed in a similar manner,-that is to say, the corporation first made a deed of merely its right, title, and interest in and to thtl property to Pengra, and he, by a bargain and salA deed, conveyed the property to the purchfi,sers. This evidence does not sustain the plea. The rule to be applied is this: In equity, a purchaser of real estate from the, apparent owner thereof, who; after payment of the reasonable of the property, IflCeives a conveyance of the legal title, without knowledge of equitable right to the property existing in another, or notice of facts.wbicJJ. would cause an prudent person to in-
UNITED STATES ,tI. CALIFORNIA· .to. LAND CO.
quire into such existing equitable rights, or who, after makiug the in. quiry, and the exercise of rensonable diligence, has failed to discover an existing defect in his grantor's title, is entitled to the same protection as the purchaser of personal property in market overt. The rule is founded upon the doctrine of estoppel, which does not all0.w..an owner of proP:' erty. who has permitted a concealment of his claim Or rights to thereafter assert them to the prejudice of an honest purchaser,unable, by reason of such concealment, to learn of the existence of such claim or rights in time to avoid imposition. As in aU cases where rights depend upon the doctrine of estoppel, a defense of this sort requires Jheclearest proof of all the facts essential to .create the estoppel, andeq'uity does not permit a. party to derive benefit from his own ignurance of' facts which he could' have learned by the pxercise of ordinary prudence and diligence. This defense is not available to a person who, by the circumstances con.. nected with his purchase, Or the form of the conveyance which he accepts, is apprised that his grantor has not intended or is unable to conveya perfect title, without additional proof showing that the purchaser, after due diligence, failed to discover any valid, adverse claim to the property. One whoC<>litracts for and pays the prj.ce for a particular piu'Cel of real estate, and obtains a deed which, by its terms, purports to convey the title to the property whicbit describes, occupies a posi.. tion entireLy different from that of the purchaser who is content to receivemerely a conveyance of the right, title, and. interest of his grantor in and to the property. By many of the adjudged. cases he is held to be chargeable with constructive notice, inherent in the. deed, of the aetual right and title of bisgrantor, as contradistinguished from what ma.y at the time appear to be, by his visiblepossession of the property, or muniments of title shown 1;Iy the public record. Blanchard v. Broolc8, 12 Pick. 47; Springer v. Bartle. 46 Iowa, 688; Steele v. Bank, 79 Iowa, 339,44 N. W. Rep. 564; Peters v. Cartier; 80 Mich. N. Rep. 73; .Pealc8 v. Blethen. 77 Me. 510, 1 Atl. Rep. 451; Logan v. Neill, 128 Pa. St. 457, 18Atl. Rep. 343; Ha8tings v. Nisstm,31 Fell. Rep. 597; Ge8t v.Packwood, 84 Fed. Rep.372; Mortgage 0>. v. H'ldchin80n, (Or.) 24 Pac. Rep. 515; 3 Washb. Real Prop. (4th Ed.) margo p.607; 2 Porn. Eq. Jur. § 753; 1 Devlin, Deeds, § 674. This rule, in all its rigor, has been declared and applied by the supreme court of the United States repeatedly. In the case of Oliver v.Piatt; 3 How. 333,the.question as to the rightof the grantee of a right, title. and interest to- property to claim protection in equity as a bona fide purchaser was elaborately argued. by able counsel, and received careful consideration. The opinion of the court was written by Mr. Justice STORY, wherein he expressed the view of the court as follows: "Another significant circumstance is that this very agreement contains a stipulation that Oliver should give a qUitclaim deed only for the tracts; and thesu})sequent deeds given by Oliver tobim accordingly were drawn up Without any covenants of warranty, except against pelsons claiming under Oliverol'ltis heirs or assigns; Ii11egal e1fect, therefore. they did convey nQ moretban Ollver's right. title. and interest ,in and to the property; and under 'auch it is ditticultllO concei Va llOW be. mm claim protection, &II