United States v. California Midway Oil Co. , 259 F. 343 ( 1919 )

BEAN, District Judge

(sitting by special assignment, after stating the facts as above). The record is exceedingly voluminous, consisting of many thousand pages of testimony and many exhibits. There is, however, but little, if any, substantial dispute as to the controlling facts, but the parties differ widely as to the inferences and conclusions to be drawn therefrom.

[1, 2] The locations made by McMurtry under the Chicago powers of attorney and the evidence in relation thereto may, I take it, be laid aside, except in so far as it may have a bearing, if any, upon McMurtry’s intention in asking for and obtaining the New York powers of attorney and making locations thereunder. None of the defendants claim under the Chicago locations, nor did the New York locators, at the time the powers of attorney were executed by them and the locations made in their names, have any notice or knowledge of the Chicago powers of attorney or McMurtry’s actions thereunder, nor did they obtain such information until long after the sale of their interests, if any, had béen completed and final payment made. The Chicago locations were mere paper locations, and whatever rights, if any, were acquired thereby lapsed or were abandoned before discovery. The property thereby became open to relocation by any qualified person or persons. Miller v. Chrisman, 140 Cal. 440, 73 Pac. 1083, 74 Pac. 444, 98 Am. St. Rep. 63; Bogwardt v. McKittrick Oil Co., 164 Cal. 650, 130 Pac. 417. Nor did the fact that McMurtry authorized the use of the names of New York parties by others invalidate the particular location in question, if it was in fact made in good faith.

[3] It is also clear that the defendant California Midway Oil Company and the Associated Oil Company acted in the utmost good faith, both in acquiring and purchasing the locators’ interests and paying therefor, without any notice, knowledge, or suspicion that there was or could be any question about the bona fides thereof. They made their contracts concerning an interest which was apparently valid. No circumstances were disclosed, until after the full performance of the contract and the payment of the purchase price, which cast any suspicion upon the title. They were not bound to presume that their vendors were wrongdoers, and therefore make a searching inquiry as to the validity of their claim to the property, but could rightfully deal with it on the assumption that their apparent right was acquired and held in good faith. United States v. Detroit Lumber Co., 200 U. S. 321, 26 Sup. Ct. 282, 50 L. Ed. 499. And while this would not be a defense to the suit, if the location was in fact fraudulent, because they were dealing with an equity, it is a circumstance not to be lost sight of in the consideration of the case.

We proceed, therefore, to a consideration of the good faith of the New York powers of attorney, the locations made thereunder, and the subsequent action and conduct of the parties in reference thereto. The signatures to the powers of attorney were obtained principally by C. W. Thorn, Edwin L. Powell, and J. B. Thickens at the request of McMurtry. [The court at length summarized the testimony of the witnesses C. W. Thorn, Edwin L. Powell, John B. Thickens, Wm. H. Mahr, Wm. H. Keenan, Herbert M. Walker, Eugene Metz, Frank H. Romaine, C. Hubert Walker, R. B. Welch, Harry E. Bashore, J. H. McLeod, and L. B. McMurtry.]

The foregoing is a fair summary of the controlling facts in the case as admitted and shown by the evidence, as I understand them, and upon which the government makes practically three contentions: (1) That the New York locators were dummies or tools of McMurtry, and had no intention at the time they executed the powers of attorney that locations should be made for their benefit, but the powers of attorney were executed and delivered with the fraudulent purpose and intent on the part of the makers and McMurtry that they should be used in violation of the mining laws and to enable McMurtry to acquire for himself more mineral lands in one location than the laws permit. (2) That if the powers of attorney were in fact executed and delivered in good faith and for a lawful purpose they were fraudulently used by McMurtry to make the locations for his individual benefit and not for his principals. (3) That the particular location in controversy in this suit was not made for the use and benefit of the named locators, but for the California Midway Oil Company, by enabling McMurtry to carry out his previous contract with Mrs. McLeod and others, under which it claims.

[4] The first two questions may be considered together, as they are governed by the same principles. There is so far no law of Congress dr regulation made in pursuance thereof limiting the number of placer mining claims an individual or association of individuals may make. On the contrary, the policy of the government seems to be to encourage the development of its mineral resources and to offer every facility for that purpose. To that end the law declares that all valuable mineral deposits in lands belonging to the United States are to be free and open to exploration and purchase, and the lands in which they are found to occupation and purchase by citizens of the United States and those who have declared their intention to become such, under regulations prescribed by law and according to the local customs or rules of miners in the several mining districts so far as applicable, and not inconsistent with the laws of the United States. Rev. St. 2319 (Comp. St. § 4614). Fraud or wrongdoing, therefore, is not to be inferred or imputed in this case solely because of the number of locations made.

[5-10] The right to possess or acquire mineral lands, however, is a privilege granted by Congress, and can only be exercised within the limits prescribed in the grant. The law provides that no mining claim shall exceed 20 acres for an individual (section 2331, Rev. St. [Comp. St. § 4630]) or 160 acres for an association of eight persons (section 2330, Rev. St. [Comp. St. § 4629]). Any device, therefore, whereby one person is to acquire more than 20 acres, or an association more than 160 acres, by one location, is a violation of law, a fraud upon the government, and without legal support. United States v. Brookshire Oil Co. (D. C.) 242 Fed. 718.

It is the government’s position in this case that it was the intention of the makers of the powers of attorney and of McMurtry to circumvent the law by permitting McMurtry to secure the location of' more than 20 acres in one claim, and that there was, in effect, a conspiracy between McMurtry and the makers of the powers of attorney to violate the statute.

The question thus presented is one of fraud. There are certain well-settled rules to guide the court in determining such an issue. Fraud is never presumed, but must be established by clear, unequivocal, and convincing proof. Proof which merely creates suspicion is not enough. “Fraud is not presumed,” says Judge Story. “It must * * * be clearly established. Suspicion is not enough. * * * The balance of the testimony is not to be nicely weighed.” Sanborn v. Stetson, 21 Fed. Cas. 315. And the Supreme Court of the United States says that, “while certain circumstances will give rise to an inference of fraud, yet the law never presumes it. It devolves upon him who alleges fraud to show the same by satisfactory proof. * * * The law presumes, in the absence of evidence to the contrary, that the business transactions of every man are done in good faith and for an honest purpose; and any one who alleges that such acts are done in bad faith, or for a dishonest and fraudulent purpose, takes upon himself the business of showing the same.” Jones v. Simpson, 116 U. S. 615, 6 Sup. Ct. 541, 29 L. Ed. 742. If the circumstances proven are just as consistent with honesty and good faith as with a fraudulent intent, the inference of fraud is not warranted. In short, where two inferences can be drawn from proven facts, one in favor of fair dealing and good faith and the other of a corrupt motive, it is the duty of the trier of fact to draw the' inference favorable to good faith and fair dealing. In re Hawks (D. C.) 204 Fed. 316; Ryder v. Bamberger, 172 Cal. 797, 158 Pac. 753. It is, of course, not essential that fraud be established by direct and positive proof, for that is often impossible. The circumstances proven may be sufficient to warrant a finding of fraud, but in such case the evidence must be of such a nature as to be convincing and inconsistent with the presumption of honesty.

1 am of the opinion that the government has not established the fraud charged within these rules. There are certainly two inferences which can be drawn from the testimony, one of which is in favor of good faith on the part of all parties concerned at the time the powers of attorney were executed and the locations made, and that is the crucial question in the case.

The evidence of the New York locators, as well as that o,f McMurtry and his associates, is clear that there was no expressed understanding or agreement, at the time the powers of attorney were executed, or prior thereto, or at any time, that they should be used for Mc-Murtry for a fraudulent purpose, or for any purpose other than to make, develop, and dispose of mining locations for the use and benefit of the locators, and in my judgment such understanding is not to be inferred from the circumstances. But few, if any, of the signers knew McMurtry by sight or had any communication with him about the matter. They executed the powers of attorney at the request of either Thorn, Thickens, or Powell, in whom they had the utmost confidence, and upon whose representations they relied in so doing. They were led to believe that McMurtry was an honest man familiar with the mining laws, and that he intended to make locations for them and in their names, if he could find property open to entry. It is true they were not familiar with the mining laws and made no particular inquiry concerning same, nor after executing the powers of attorney did they manifest any particular interest in what had been done, if anything, thereunder, but signed such papers and receipts, and accepted such sums of money as were presented and paid to them from time to time. All this may well have been because of their confidence in their principal and his associates, and reliance upon the statements and representations made to them. The *fact that their confidence was misplaced does not render their acts fraudulent, and although McMurtry’s conduct subsequent to the locations was not such as should have characterized the relations between a principal and his agent, •he nevertheless at all times up to and for some time after the sale to the Associated Oil Company, and notwithstanding the indorsements on the checks and the other .papers executed by the locators, treated them as the owners of the locations and dealt with them and the property as such. All contracts and conveyances made by him were made and executed in the name and for and on behalf of his principals. He recognized their rights or claim to the property by from time to time seeking and obtaining releases and acquittances from them, and by causing to be issued to them stock in the Pacific Oil Lands Company, the holding corporation, and obtaining their consent to the corporate meetings and distribution of dividends therein. In July, 1910, he freely acknowledged that, notwithstanding previous conveyances made by and to him, the property was in fact held in trust by the grantees for the locators, and was willing to execute and have executed declarations to that effect.

In making the locations and subsequent contracts in reference thereto, the fair ponclusion from the evidence, in my judgment, is that Mc-Murtry was acting for and on behalf of his principals and with no intention at that time of fraudulently acquiring the land or the proceeds thereof for himself. It was not until it became apparent that a large sum of money could be realized from the transaction that his avarice or cupidity seems to have influenced him to appropriate to his own use the bulk thereof, without accounting to his principals, and in violation of his trust. Clearly his conduct after location and discovery and sale of the property, however wrongful it may be, cannot relate back to and characterize as fraudulent the execution of the powers of attorney or the locations made thereunder. Evidence in relation thereto was only admissible and can only be considered in so far as it tends to establish a fraudulent purpose at the time of the locations. United States v. Kettenbach, 208 Fed. 209, 125 C. C. A. 409. The locations were either fraudulent at the time they were made, or not at all, and it is to that question the inquiry is to be confined. The law permits locations of mining claims in the names of persons not present. Moore v. Hamerstag, 109 Cal. 122, 41 Pac. 805. When so made, all the right or title any one can acquire by the location vests in the persons located. The interest, whatever it is, thus acquired becomes theirs, to dispose of as they please. Whiting v. Straup, 17 Wyo. 1, 95 Pac. 854, 129 Am. St. Rep. 1093. When, therefore, a location was made by McMurtry in the name of his New York principals, they became immediately vested with whatever right or title such location gave, in the absence of fraud or bad faith, and such title was not changed or rendered "fraudulent by the subsequent failure of McMurtry to account to them for the proceeds of the property disposed of by him under his power of attorney, or by any secret or undisclosed purpose he may have had with reference thereto. I conclude, therefore, that upon the first two points the findings must be for the defendants.

' [11] Nor in my judgment is the claim that the particular location in controversy in this suit was for the benefit of the California Midway Oil Company, by enabling McMurtry to comply with his previous contract with Mrs. McLeod and others, sustained by the testimony. The same question was raised in United States v. Thirty-Two Oil Co. (D. C.) 242 Fed. 730, involving the southeast quarter of section 32. The case was decided on another point, but in the opinion it is said (242 Fed. 733) that “there can be no question -from the evidence but what the alleged locations made fii 1909 were not for the use and benefit of the named locators, but to enable McMurtry to consummate and carry out the provisions of a contract made by him with McLeod and others for the disposal of the property as heretofore stated.” This observation was not necessary to the decision.. It was, however, based upon the undisputed evidence in the then pending case, in which McMurtry testified to the effect stated, but in the instant case his testimony is that since the trial of the former case he has verified his recollection of the matter from accessible data and that he was in error in his former testimony; that as a matter of fact the locations were not made to enable him to carry out his previous contract, but because of an intention on his part to abandon the former locations and make new ones in the name of and for his New York principals, and neither the California Midway Oil Company or McLeod or his associates knew that -the land was to be relocated until after the location had been made, and in this he is corroborated in the testimony of McLeod and. others.

So that upon the record as it now stands, and upon the testimony in the present case, it appears that the locations made in 1909 were for the use and benefit of the New York locators, and not for the purpose of enabling McMurtry to consummate a previous contract made by him as attorney in fact for the Chicago locators. The so-called Chicago location of the property in controversy was but a paper location. No discovery had been made thereunder, and no work done upon the property, except the moving of some material thereon by the California Midway Company, and therefore no right as against the government had vested in the locators. The property was still open to peaceable relocation, so that when McMurtry, acting as attorney in fact for the Chicago locators, abandoned their location and relocated in the name of the New York principals, the latter became, from the date of such locations, entitled to whatever rights were thus acquired, and that was the right to explore for valuable mineral deposit therein and to be protected while working towards discovery from forcible, fraudulent, surreptitious, or clandestine intrusion upon their possession. Union Oil Co. v. Smith, 249 U. S. 337, 39 Sup. Ct. 308, 63 L. Ed. 635 (March 31, 1919); Consolidated Mutual Oil et al. v. United States, 245 Fed. 524, 157 C. C. A. 633.

Bill of complaint is therefore dismissed.