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U.S. Supreme Court

United States v. Detroit Lumber Co., 200 U.S. 321 (1906)

United States v. Detroit Timber and Lumber Company

Nos. 106, 165

Argued December 7, 1905

Decided February 19, 1906

200 U.S. 321


The rule of law concerning good faith is the same in respect to purchases of land and timber as that which obtains in other commercial transactions, and no one is bound to assume that the party with whom he deals is a wrongdoer; but, on paying full value for the property presented, the title to which is apparently valid and in regard to which there are no suspicious circumstances, he will acquire the rights of a bona fide purchaser.

Equity looks at the substance, and not at the mere form in which a transaction takes place, and constructive fraud in the entries of land purchased

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by one company from another will not be charged to the purchaser where there is nothing which casts imputation on its conduct, or tends to show that it was not a purchaser in good faith, because after the actual purchase and payment therefor, but prior to the final conveyance, an officer of the vendee company became an officer of the vendor company for the purpose of closing up its business.

Although the doctrine of relation is but a fiction of law, it is resorted to whenever justice requires, and under it, patents for lands when issued by the United States become operative as of the dates of the entries -- the inception of the equitable right upon which the patent is based -- and the doctrine can be applied to protect a bona fide purchaser of timber notwithstanding the wrongful character of the entries of which he is ignorant. But the doctrine of relation never carries a patent back to the date of any entry other than that on which it is issued.

The headnotes to the opinions of this Court are not the work of the Court, but are simply the work of the Reporter, giving his understanding of the decision, prepared for the convenience of the profession.

A final receipt is an acknowledgment by the government that it has received full pay for the land and holds the title in trust for the entryman and will in due course issue to him a patent, and thereupon he becomes the equitable owner of the land.

Until the patent which passes the legal title is issued, the legal title remains in the government, and is subject to investigation and determination by the Land Department, but this power will not be exercised arbitrarily or without notice, and if improperly exercised, the rights of the entryman may be enforced in the courts after the patent has been issued to other parties.

The principles of equity exist independently of, and anterior to, all Congressional legislation, and the statutes are either annunciations of those principles or their applications to particular cases, and a party dealing with an entryman the evidences of whose entry are in form good and sufficient is justly entitled to the consideration of a court of equity, and one who has in good faith cut and removed timber under contract with such an entryman whose entry is subsequently cancelled and purchase money retained by the government cannot be compelled to account to the government for the timber cut and removed in reliance on such contract.

These are cross-appeals from a decree of the Circuit Court of Appeals for the Eighth Circuit affirming in part and reversing in part a decree of the Circuit Court for the Western District of Arkansas.

The bill was filed on April 5, 1902, by the United States against the Detroit Timber & Lumber Company, the Martin-Alexander

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Lumber Company, and a number of individual defendants. The object of the bill was to set aside patents to forty-four tracts of land issued to the individual defendants, and all conveyances, contracts, and leases from them purporting to convey title to or a right to cut and remove timber from the lands, and also for an accounting of the timber cut and removed from the lands by the two companies, and judgment therefor.

The charge was that the lands were entered under the Timber Act of June 3, 1878, 20 Stat. 89, and in fraud of its provisions, in that the purchase money was advanced by the Martin-Alexander Company under contracts with the entrymen that, after the entries, they should convey to it all the standing timber thereon. The Martin-Alexander Company denied that there were any such contracts, and the Detroit Company in addition pleaded that it was a bona fide purchaser from the former company. It appeared from the testimony that for some time prior to January 14, 1901, the Martin-Alexander Company owned and operated a sawmill plant in the vicinity of these lands; that most, if not all, of the entrymen were its employees; that it furnished all the money for the purchase prices of these lands, as well as for the expenses connected with the entries, and that, after the entries, the entrymen, with three exceptions, executed conveyances to it of all the standing timber. Fifty-eight and one-half percent of the stock of the Martin-Alexander Company belonged to E. B. Martin, while A. V. Alexander controlled the remainder, which was owned by himself, his wife, and J. O. Means.

On January 14, 1901, the Detroit Company purchased the entire property of the Martin-Alexander Company for $60,000 cash and an assumption of its obligations, amounting to $17,456.79. Prior to May 9, 1901, patents were issued for all the lands, thirteen having been issued before January 14, 1901. After the purchase from the Martin-Alexander Company, the Detroit Company obtained deeds of the lands from the patentees of twenty-seven of the tracts.

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The circuit court found that the transactions between the entrymen and the Martin-Alexander Company were not in conflict with the statute, that there were no agreements between them and it prior to the entries in respect to conveyances of the standing timber, and that there was only the mere expectation on the part of the company that it would be able to purchase the timber. Thereupon it dismissed the bill. 124 F.3d 3. The court of appeals, reviewing the testimony, held that there were contracts between the parties making the entries and the Martin-Alexander Company prior to the entries, and that therefore those entries were in fraud of the act, but it also found that the purchase by the Detroit Company was in good faith, and that therefore that company was entitled to protection in its purchase. It ordered the bill dismissed as to the twenty-seven tracts for which patents had been issued and conveyances made to the Detroit Company. As to the seventeen which had not been conveyed, it ordered a decree cancelling the patents, but dismissing the bill so far as respects any relief claimed against the Detroit Company. 131 F.6d 8.

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