Curtis, Collins & Holbrook Co. v. United States
262 U.S. 215 (1923)

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U.S. Supreme Court

Curtis, Collins & Holbrook Co. v. United States, 262 U.S. 215 (1923)

Curtis, Collins & Holbrook Co. v. United States

No. 341, and Nos. 342-364

Argued April 9, 10, 1923

Decided May 21, 1923

262 U.S. 215

Syllabus

1. Where stockholders of a corporation, imposing no safeguard other than that the paper titles should be passed on by a reputable attorney, entrusted another stockholder, who was also vice-president and active manager of the company, with the business of

Page 262 U. S. 216

procuring title to lands, to be patented under the Timber and Stone Act, for which he was to be paid a stated sum per acre, and where lands were so procured, by means of frauds on the act, of which the person thus acting as agent for all had knowledge, and by means of conveyances from the fraudulent entrymen to a naked trustee and from the trustee to the corporation, held that the knowledge of the agent was imputable to the corporation and all its shareholders, and that the defense of bona fide purchaser was not available to the corporation in a suit by the United States to annul the patents because of the fraud. P. 262 U. S. 221.

2. Where an agent employed to procure titles to land, procures it, contrary to his instructions, through a fraud practiced on the owner, the fact that the agent has an adverse or independent interest, in that, having a share in the adventure, his own profits will increase with the number of titles procured, cannot save his principal from imputation of the agent's knowledge in a suit by the landowner to set aside the conveyances because of the fraud. P. 223. American National Bank v. Miller,229 U. S. 517, distinguished.

3. The defense of bona fide purchaser is an affirmative one, and the burden of sustaining it rests upon the party who asserts it. P. 262 U. S. 225.

275 F. 670 and 674 affirmed.

In November, 1912, the United States filed 79 bills in the District Court of the United States for the Northern District of California seeking to set aside patents for land in the Susanville land district in California, issued by it under the Timber and Stone Act (Act of Congress, June 3, 1878, 20 Stat. 89, as amended by Act Aug. 4, 1892, 27 Stat. 348, c. 375, § 2), to various patentees, and by them conveyed to one Gregory, and by him to the Curtis, Collins & Holbrook Company, a corporation of California, on the ground that the patents had been obtained by fraud. The entries were filed and the patents were issued in the last six months of the year 1902 and shortly thereafter. The cases were consolidated into groups, and were referred to a master, who reported at length, finding that, as to the 79 patents, only 24 had been obtained in fraud of the United

Page 262 U. S. 217

States and in violation of the statute, but that, as to all of these, the Curtis, Collins & Holbrook Company was a bona fide purchaser for value without notice of the fraud. The district court sustained the findings of the master and dismissed the bills. The United States then prosecuted appeals as to the 24 patents whose issue had been found by the master to have been obtained by fraud, to reverse the finding by the master and the district court that the Curtis, Collins & Holbrook Company was a bona fide purchaser without notice of the fraud. The Circuit Court of Appeals of the Ninth Circuit, to which the appeals were taken, found with the government on this issue, reversed the decree of the district court in the 24 cases, and remanded them with direction to cancel the patents. The Curtis, Collins & Holbrook Company has now prosecuted appeals to this Court in all these 24 cases, under § 241 of the Judicial Code. The parties, as the master did below, selected as a typical case of the 24 cases in which fraud was found, the patent issued to one Edward L. Cooksey. That has been argued in this Court, with the understanding that the other 23 cases are to abide the decree in this, because the facts, so far as notice of the fraud is concerned, are substantially the same.

In 1901, persons owning lands within the limits of the national forests could convey them to the United States and select in lieu thereof, and secure title by patent to, timber lands belonging to the United States outside of the forest reservations. One Tuman and C. H. Holbrook agreed to seek capitalists and induce them to purchase lands in forest reservations and exchange them for timber land outside. Tuman was a cruiser, who had prepared a list of desirable lieu lands which could be selected. In December, 1901, Holbook made a contract with Curtis and Collins by which he agreed to sell to them at $7.50 an acre 42,000 acres of timber land in California --

Page 262 U. S. 218

described in a schedule -- title to which Holbrook was to obtain by conveying to the United States lands of the same amount in national forest reservations. The forest reservation lands were to be conveyed to Thompson, trustee, by the owners, who were to be paid, upon request of Holbrook and on an attorney's certificate of title, not exceeding $5 an acre, to be paid by the Bank of California out of a fund of $200,000 deposited with it by Curtis and Collins. The trustee was then to make application for the lieu lands described in the list, and, when he had acquired title, he was, upon notice from Holbrook that he had been paid, to convey to Curtis and Collins or to anyone to whom they directed. After the title to the whole amount had been acquired, Holbrook was to receive the balance of the price for the lands, amounting to more than $115,000, partly in cash and promissory notes and in 789 shares of stock in a corporation of California to be formed with 5,000 shares, of $100 par value each, to which the lands were to be conveyed. Curtis and Collins were to receive 3,156 shares, 1,844 shares remaining in the treasury, out of which Holbrook's shares were to be taken. Holbrook was to be a director and vice-president and general manager. If Holbrook could not secure the whole of the 42,000 acres from the forest reserve rights, he was given the right to obtain it through any other legal means or source.

Holbrook and his son, with Tuman's assistance, procured the whole 42,000 acres in lieu of forest reservation lands. Holbrook reported to Curtis and Collins that forest reservation lands had become scarce and expensive, and suggested that there were valuable timber lands which could be secured under the Timber and Stone Act, ubi supra. Under this law, land belonging to the United States valued chiefly for timber or stone, and unfit for cultivation, in quantities not exceeding 160 acres, could be sold to a citizen of the United States at a minimum

Page 262 U. S. 219

price of $2.50 an acre. But any person seeking such land was required to file with the register of the proper district a written statement, under oath, in duplicate, setting forth a number of necessary facts concerning the land, and also

"that he has made no other application under this act; that he does not apply to purchase the same on speculation, but in good faith to appropriate it to his own exclusive use and benefit, and that he has not, directly or indirectly, made any agreement or contract, in any way or manner with any person or persons whatsoever by which the title which he might acquire from the government of the United States should inure, in whole or in part, to the benefit of any person except himself."

Curtis and Collins accepted Holbrook's suggestion as to the Timber and Stone Act, and it was orally agreed that about 30,000 acres should be thus acquired, and that Holbrook was to be paid $10.00 an acre. The entries in this and the other 23 cases were procured by agents of Tuman, who made entries under an agreement to convey the lands to anyone he might direct, he paying all the expenses and $100 for each entry, and the entrymen making false oaths in violation of the statute. The land thus entered was conveyed by the entrymen to one Gregory, whose name was used with his consent as trustee by Tuman and Holbrook. Gregory neither paid nor received any money, and merely acted as a conduit for the titles. All the stone and timber entries were filed in the last six months of 1902, and the deeds to Gregory were made soon after proof by the entrymen, but were not recorded until 1904. The Curtis, Collins & Holbrook Company was organized in accord with the terms of the original contract, August 14, 1902, the incorporators being J. G. Curtis and his son, D. G. Curtis, T.D. Collins and his son, E. S. Collins, Charles H. Holbrook and his son, Charles H. Holbrook, Jr., and Irving

Page 262 U. S. 220

F. Moulton. Gregory conveyed to this corporation the interests conveyed to him by the entrymen at different times up to 1904, but none of the deeds to the corporation was recorded until October, 1909, and some were not recorded until 1910 and 1911.

Curtis and Collins lived in Pennsylvania, but they, together with Tuman and Holbrook, went out to look at the lands in 1902, after the contract was made. D. G. Curtis, Jr., who was treasurer of the company, also frequently went upon the lands. Young Curtis testified that he talked much with Holbrook, who managed the company and did everything in connection with the acquisition of these lands by it, and that they all had the utmost confidence in his getting them good titles.

Tuman and Holbrook fell out as to the division of the profit between them. Collins, Sr., effected a compromise whereby Tuman received 200 shares in the company and $10,000 cash, and, after this litigation was begun, Collins paid Tuman $750 a share for this stock, although it was twice what it was worth, as Collins admitted. Tuman was a witness, and testified that he told Holbrook what he had done in procuring the entries to be made and in paying expenses and the $100 apiece to the entrymen, and there was evidence strongly tending to show that the money used to pay these expenses came from an account in a San Francisco bank, opened by Holbrook in the name of Collins and Holbrook, upon which checks were drawn in favor of an account in Holbrook's name in a bank at Susanville upon which Tuman drew checks for this work. There was no evidence that Collins knew of the San Francisco account in the name of Collins and Holbrook. There was evidence that, in 1904 and 1906, land office agents were investigating the validity of entries made as to other lands suspected of having been sold in advance to the Curtis, Collins & Holbrook Company, and that Tuman, Holbrook, and Collins talked over

Page 262 U. S. 221

the matter, and that Collins agreed they were lost, and "that was all there was to it."

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