that Clark was elected temporary president of the Martin Company in the place of Martin, who resigned. The 41 timber contracts and deeds of other lands were then turned over to the Detroit Company. The Martin Company owed Martin $17,456.79, so that he was entitled to receive about $52,000 as his share of the proceeds of the sale. Clark gave him on that day in the form of a check of the Detroit Company $27,456.79, and he went to St. Louis with him immediately, and caused the Detroit Company to assign to him a promissory note of the Bodcan Lumber Company for $25,000, which it owned. As soon as practicable after this sale the affairs of the Martin Company were wound up. Clark disliked the trouble of keeping an account of the timber cut on the lands covered by the timber contracts, and between April 1, 1901, and September 10, 1901, he caused the Detroit Company to procure conveyances to it of the title to the lands held by 24 of the patentees who had made timber contracts, and from the 3 who had not made such contracts, so that by September 10, 1901, it held the legal title to the lands of 27 of the 44 patentees. The Detroit Company paid from $6.25 to $75 for each of these deeds, but it paid $25 for each of 18 of them. In fulfillment of the sale of January 14, 1901, the Detroit Company increased its stock, and on April 22, 1901, issued stock of the par value of $25,000 to the Alexanders in place of the cash due them from the sale. A formal deed of all its property by the Martin Company to the Detroit Company, dated March 1, 1901, and acknowledged May 2, 1901, was made and delivered on the latter date to the Detroit Company. Clark was not acquainted in Arkansas when he made this purchase. The deeds of the lands and the timber contracts were turned over to him. The timber on the lands covered by the timber contracts cost the Martin Company about $18,000, and this timber was but a part of the property for which the Detroit Company paid $60,000. Martin and Alexander told Clark when he made the purchase that all the people under whom the Martin Company held land or timber had patents or final receipts for their lands, and that the company's title to the timber was perfect. He believed their statements, had no suspicion that they were not true, and made no farther investigation of the titles. He always calculated that the title was all right if the party had a final receipt. Neither Clark nor any of the officers of the Detroit Company ever had any knowledge or suspicion that there was any fraud in the procurement or any defect in the title of any of the 44 patentees or in the title the company purchased until the last of September or the first of October, 1901, more than four months after it had paid all this consideration and had received its deed for the property, and more than four months after the United States had issued its patents to all the lands. Upon this state of facts the Circuit Court found that no one of the patentees entered his or her land on speculation, or made any agreement whereby the title to it should inure to any one except himself or herself, and dismissed the bill. The government challenges the decree of dismissal by this appeal.

F. A. Youmans and Fred A. Maynard (James K. Barnes, on the brief), for appellant.

W. E. Hemingway and James F. Read (Thomas C. McRea, J. B. McDonough, U. M. Rose, George B. Rose, and J. C. Pinnix, on the brief), for appellees.

Before SANBORN and HOOK, Circuit Judges, and AMIDON, District Judge.

SANBORN, Circuit Judge, after stating the case as above, delivered the opinion of the court.

This is a suit in equity to enforce a forfeiture of the purchase price which the United States has received for certain of its lands, and to avoid the patents which constituted the consideration for the payment of this price. The act of June 3, 1878, c. 151, 20 Stat. 89 [U. S. Comp. St. 1901, p. 1545], provides that upon certain conditions a citizen of the United States may purchase not exceeding

160 acres of certain lands of the United States, which are valuable chiefly for timber and are unfit for cultivation. One of the conditions of this purchase is that the applicant shall file with the register of the proper district a written statement under oath that he does not apply to purchase the land he seeks to buy on speculation, and that he has not made any agreement with any person or persons by which the title that he might acquire from the government would inure to the benefit of any person except himself. The act provides that, if any person who makes oath to this statement shall swear falsely in the premises, he shall forfeit the money he may have paid for the lands, and all right and title to them, and that any grant or conveyance he may have made, except in the hands of bona fide purchasers, shall be void. Forty-four of the defendants in this suit took this oath and entered, and paid the government price for 44 tracts of land at various times between August 21, 1899, and September 6, 1900. Forty-one of them conveyed the timber on their land to the Martin-Alexander Company immediately after they made their respective entries and obtained their respective final receipts. On January 14, 1901, the defendant the Detroit Lumber Company bought this timber of the Martin Company, and the consideration for that purchase was paid by it and the timber was conveyed to it before May 3, 1901. Patents were issued for all the lands before May 9, 1901. In the month of April, 1901, the Detroit Company purchased the lands of the three patentees who had declined to execute timber contracts, and the legal title to that land and to the timber upon it was thus vested in that company. Between April 1, 1901, and September 10, 1901, the company purchased the legal title to the lands entered by 24 of the patentees who had made timber contracts, and this title was duly conveyed to it. In the last days of September or the first days of October, 1901, the company for the first time learned that the United States was suggesting that these lands had been illegally entered, and on April 5, 1902, the government commenced this suit. The lands without the timber upon them are worthless, and the real controversy here is between the United States and the Detroit Company.

The suit presents two issues: (1) Whether or not the patentees applied to purchase the lands on speculation, or had made agreements before they filed their applications by which the titles they hoped to acquire would inure to the benefit of any person except themselves; and, if so, (2) whether or not the Detroit Company had knowledge or notice of that fact, so that the complainant is entitled in equity to an avoidance of the title to the timber which that company has acquired. The case of the government did not appeal with compelling force to the conscience of the chancellor below. He found the first issue in favor of the defendants, and dismissed the bill. This finding is vigorously assailed. If, however, the Detroit Company was a bona fide purchaser of the timber without notice of the alleged fraud and perjury of the patentees, it is not material to the issue between the government and that company whether or not the patentees were guilty of these crimes. The act of June 3, 1878, expressly exempts from avoidance

conveyances in the hands of bona fide purchasers. The evidence which conditions the issue of the fraud of the patentees is voluminous and contradictory, and for the purpose of the consideration of the other issue, which, if determined in favor of the Detroit Company, must practically dispose of this case, it is conceded that each of the patentees applied to enter the tract which he or she secured on speculation, or that he or she, before making the application, had made a contract whereby the title to the lands would inure to the benefit of the MartinAlexander Lumber Company. The question then becomes, had the Detroit Company any notice or knowledge, actual or constructive, of this conceded fact, before it completed its purchase of the timber? It bought the timber contracts, together with all the property of the Martin Company, on January 14, 1901. It made its first payment of $27,456.29 in cash on that day, its second payment of $25,000 a day or two later, and its final payment of $25,000 of stock on April 22, 1901. The timber contracts, the deeds for the lands bought, and the possession and control of the property of the Martin Company were delivered to the Detroit Company on January 14, 1901, and the formal bill of sale and deed upon May 2, 1901. It is not material at what date prior to the 2d day of May, 1901, this sale is deemed effective, because the notice to the Detroit Company or the lack of it remained the same during all this time. On January 14, 1901, when the sale was initiated, receiver's final receipts had been issued to all of the 44 patentees, and patents had been delivered to 13 of them. On May 2, 1901, when the sale was completed, patents had been issued to 40 of them. The Detroit Company was dealing with the Martin Company at arm's length. It was the vendee; the Martin Company was the vendor. The latter exhibited its contracts and deeds, and declared that the titles under them were perfect, and that every grantor under whom it held had a patent or a final receipt for his land. Clark, the president of the Detroit Company, who conducted the negotiation and made the purchase, examined and checked the contracts and deeds, believed the statements of the officers of the vendor, and completed the purchase. The evidence is clear, positive, and without dispute that neither the Detroit Company nor its officers ever had any knowledge or suspicion that any of the lands here in controversy were irregularly or fraudulently entered until the latter part of September, 1901, more than four months after the purchase had been completed and after all the patents had issued.

But counsel for the government maintain that, although the purchaser had no actual notice, it had legal or constructive notice of the fraud in the entries of the lands, (1) because there was no actual sale of property by the Martin Company to the Detroit Company, but a mere merger of the two corporations into one; (2) because notice sufficient to put a person of ordinary prudence on inquiry is notice of all that a reasonably diligent investigation would disclose, and the Detroit Company had such notice; (3) because the timber contracts were not conveyances, but mere executory agreements to convey; and (4) because a legal estate is indispensable to the defense of a bona fide purchase, and the final receipts, which had not ripened into patents when the Detroit Company made its purchase, evidenced equitable titles only,

131 F.-43

and constituted notice that their issue was induced by fraud and perjury. Let us consider these arguments in their order.

The complainant alleged in its bill, the defendant admitted in its answer, and the evidence demonstrated that the Martin Company sold, assigned, and transferred the timber contracts to the Detroit Company on January 14, 1901. No merger of the two corporations was pleaded; none was proved. The transfer of the stock of Martin in his company to Clark and to the Detroit Company and the substitution of Clark for Martin as president of the former company when the sale was made was nothing but a means to an end, a device to effect the sale and to transfer the immediate possession and control of the property to the vendee. That transfer was not intended to merge, and it did not merge, the two corporations into one, nor did it charge Clark or the Detroit Company with notice of any of the acts or transactions of the Martin Company of which he was not otherwise aware. In his relations to the Martin Company and to its grantors, the United States and the entrymen and entrywomen, Clark was still the agent and representative of the purchaser, and not of the seller. There is no evidence in this record that notice of facts sufficient to put a person of ordinary prudence on inquiry for fraud and perjury in the applications for the purchase of these lands was ever given to the Detroit Company, or to any of its officers, before it consummated its purchase; nor is there any evidence that a reasonably diligent inquiry would have discovered fraud or perjury if it had been instituted. Clark saw the timber contracts, and received the assurance of the vendor that all the grantors in them had patents or final receipts for their lands, and that the title under them was perfect. These were all the facts relative to this matter of which Clark received notice. The contracts were such as any entryman might lawfully make under the opinion of the Supreme Court in U. S. v. Budd, 144 U. S. 154, 163, 12 Sup. Ct. 575, 36 L. Ed. 384. They were not of the same date, but were executed at various times between July, 1899, and September 6, 1900. There was nothing here to incite a reasonably prudent man to inquire for fraud in the entries of the land. Nor would a reasonably diligent inquiry have discovered any fraud. If the question had been put to the entrymen, to the entry women, to Martin, and to Alexander, they would have answered with a single voice that the statements in the applications were true, for they have so testified here. If inquiry had been made of the officers of the land department, they would have replied that there was no falsehood. in the statements and that the entries were lawfully and regularly made, for they issued the final receipts and the patents upon them in that belief.

Nor was there any duty upon this purchaser, in the absence of other facts suggesting inquiry, when the seller presented conveyances to it apparently valid, and gave its assurance that they vested perfect titles in it, to make further investigation. The presumption always is, in the absence of countervailing evidence, that men tell the truth and that bills of sale and deeds prima facie valid are actually so, and purchasers may lawfully act upon this presumption. Jones v. Simpson, 116 U. S. 609, 615, 6 Sup. Ct. 538, 29 L. Ed. 742. "Where a person has not

actual notice, he ought not to be treated as if he had notice, unless the circumstances are such as enable the court to say not only that he might have acquired, but also that he ought to have acquired, the notice with which it is sought to affect him; that he would have acquired it but for his gross negligence in the conduct of the business in question." Ware v. Lord Egmont, 4 D. M. & G. 460, 473; Sugden on Vendors, 622; Wilson v. Wall, 73 U. S. 83, 91, 18 L. Ed. 727. "What makes inquiry a duty is such a visible state of things as is inconsistent with a perfect right in him who proposes to sell." Meehan v. Williams, 48 Pa. 238, 241; Townsend v. Little, 109 U. S. 504, 511, 3 Sup. Ct. 357, 27 L. Ed. 1012; Colorado Coal Co. v. U. S., 123 U. S. 307, 316, 319, 8 Sup. Ct. 131, 31 L. Ed. 182; Crawford v. Neal, 144 U. S. 585, 595, 12 Sup. Ct. 759, 36 L. Ed. 552. The notice to the Detroit Company meets none of these tests of constructive notice where actual notice is absent.

The next contention is that the timber contracts conveyed nothing but an equitable claim to the title of the grantors in them to the timber, because they were executory contracts to sell, and that, therefore, the Detroit Company could not be a bona fide purchaser, because it acquired no legal estate under them. But the contracts were not executory agreements to sell, but absolute conveyances in præsenti of the timber growing upon the land. They therefore vested in the Martin Company and its grantors an interest in the real estate. White v. Foster, 102 Mass. 375; Russell v. Myers, 32 Mich. 522.

Finally, counsel for the government say-and this seems to be the argument upon which they most implicitly rely-that acquisition of the legal title was indispensable to the defense of a bona fide purchase; that the legal title to all but 13 of the 44 tracts was in the United States when the Detroit Company purchased; that the title to the timber on these 31 tracts which the Detroit Company bought was a mere equitable title evidenced by the final receipts; that these receipts constituted notice to the Detroit Company that they had been secured by the fraud and perjury of the entrymen and entrywomen, and that the company could not divest itself of this notice by the subsequent issue of the patents and the acquisition of the legal title which inured to it thereunder. There are many reasons why this argument is not persuasive. In the first place, conceding for the present, without admitting or deciding this to be the law, that a legal estate in the vendee is an essential condition of the defense of a bona fide purchase, such an estate vested in the Detroit Company before it received any notice of the alleged fraud. In the second place, the patents, when issued, related back to the dates of the applications upon which they were founded, and vested the legal estate in the timber in the Detroit Company as of the date of its purchase from the Martin Company, and before it had notice of the fraud. And, in the third place, the Detroit Company was an innocent purchaser for value, in good faith, of the equitable title to the timber, evidenced by the final receipts, and the legal title vested in it by the issuance of the patents before the government assailed either.

Counsel for the government cite in support of their position that one who innocently purchases the equitable title evidenced by receiv