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June 22, 1914




White, McKenna, Holmes, Day, Hughes, Van Devanter, Lamar, Pitney; Lurton took no part in the decision of this case.

Author: Van Devanter

[ 234 U.S. Page 671]

 MR. JUSTICE VAN DEVANTER delivered the opinion of the court.

In 1910 Edmund Burke filed a bill in equity in the Circuit Court of the United States for the Southern District

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     of California, against the Southern Pacific Railroad Company, the Kern Trading and Oil Company, and several individuals, wherein he sought a decree establishing certain rights claimed by him in five sections of land in Fresno County, California, and enjoining the defendants from asserting any right or interest therein. A cross-bill was filed by J. I. Lamprecht and other individual defendants, and the two corporate defendants demurred to both bills. The demurrers were sustained and a decree was entered dismissing the bills, for reasons assigned in an opinion announced the same day in Roberts v. Southern Pacific Co., 186 Fed. Rep. 934. The complainant and cross-complainants appealed to the Circuit Court of Appeals, and it certified the case here under the Judicial Code, § 239, for instruction upon designated questions of law.

According to the certificate, the bill alleged, in substance, that in 1892 the five sections were public lands and were located as placer mining claims under the mining laws of the United States, each location being preceded by a discovery of mineral within its limits; that on May 9, 1892, the railroad company, with knowledge of these locations, made application at the local land office to have the five sections, with others, patented to it under the land grant made it it by the act of July 27, 1866, c. 278, 14 Stat. 292, §§ 3, 4, 18, and the joint resolution of June 28, 1870, 16 Stat. 382, No. 87, and did then corruptly cause one Madden, its land agent, to make and present at such land office, in support of such application, a false and fraudulent affidavit stating that the application contained a correct list of lands inuring to the railroad company under its grant, and that the listed lands were vacant, unappropriated and not interdicted, mineral or reserved lands; that no notice of such application was given to any of the placer claimants, and no hearing was had in the local office or in the Land Department with the purpose of

[ 234 U.S. Page 673]

     determining the character of the lands; that on July 10, 1894, without any such investigation or determination, a patent was issued to the railroad company purporting to convey to it, among other lands, the five sections in controversy; that the patent contained a clause reading: "Excluding the excepting all mineral lands should any such be found in the tracts aforesaid, but this exclusion and exception, according to the terms of the statute, shall not be construed to include coal and iron lands"; that the railroad company accepted the patent and caused it to be recorded in Fresno County; that in virtue of the patent the railroad company claims to own all the lands described therein, including the five sections; that in March, 1909, the original mineral claimants having failed to perform the required assessment or development work for the preceding year, the complainant and certain associates of his entered upon the five sections and relocated the same as placer mining claims under the mining laws of the United States, each of the new locations being preceded by a discovery of mineral within its limits; that the lands contain petroleum in commercial quantities, which makes them more valuable for mining than for agricultural purposes; that the complainant is the owner of an undivided one-tenth interest in the mining claims created by the new locations; and that the oil company, although claiming as a lessee of the railroad company, is a mere instrument of the latter, being entirely owned, dominated and controlled by it.

According to the certificate, the cross-bill set forth substantially a like state of facts, sought the same relief, and also contained the following allegation: "There cross-complainants further say and show unto the court that the said Southern Pacific Railroad Company, with full knowledge of all the facts and circumstances herein stated and alleged, did, for itself, its successors and assigns forever, accept and assent to, and submit to, and agree to

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     be bound by each and all of the provisions, stipulations, terms, conditions, restrictions, limitations, exclusions and reservations in said Act and Joint Resolution, and in said patent, or either or any of them contained, and so accepting the same and assenting and submitting thereto, and agreeing to be bound thereby, did receive and accept said alleged patent and cause the same to be recorded in the office of the Recorder of the County of Fresno, and State of California, and that said defendant, Southern Pacific Railroad Company, and all persons claiming any interest in said lands or any part thereof, under or through it by virtue of said Act of Congress and Joint Reslution, and said patent or any or either of them, are bound by all of said provisions, stipulations, terms, conditions, restrictions, limitations, exclusions, exceptions and reservations, and are in equity and in conscience estopped to resist or deny the binding force and effect of same or any part or any thereof."

The questions propounded in the certificate are as follows:

"FIRST. Did the said grant to the Southern Pacific Railroad Company include mineral lands which were known to be such at or prior to the date of the patent of July 10, 1894?

"SECOND. Does a patent to a railroad company under a grant which excludes mineral lands, as in the present case, but which is issued without any investigation upon the part of the officers of the Land Office or of the Department of the Interior as to the quality of the land, whether agricultural or mineral, and without hearing upon or determination of the quality of the lands, operate to convey lands which are thereafter ascertained to be mineral?

"THIRD. Is the reservation and exception contained in the grant in the patent to the Southern Pacific Railroad Company void and of no effect?

"FOURTH. If the reservation of mineral lands as expressed

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     in the patent is void, then is the patent, upon a collateral attack, a conclusive and official declaration that the land is agricultural and that all the requirements preliminary to the issuance of the patent have been complied with?

"FIFTH. Is petroleum or mineral oil within the meaning of the term 'mineral' as it was used in said acts of Congress reserving mineral land from the railroad land grants?

"SIXTH. Does the fact that the appellant was not in privity with the Government in any respect at the time when the patent was issued to the railroad company prevent him from attacking the patent on the ground of fraud, error or irregularity in the issuance thereof as so alleged in the bill?

"SEVENTH. If the mineral exception clause was inserted in the patent with the consent of the defendant, Southern Pacific Railroad Company, and under an understanding and agreement between it and the officers of the Interior Department, that said clause should be effective to keep in the United States title to such of the lands described in the patent as were, in fact, mineral, are the defendants, Southern Pacific Railroad Company and the Kern Trading and Oil Company, estopped to deny the validity of said clause?"

At the outset it is well to observe that this is not a suit by the Government to cancel or annul a patent for fraud practiced upon the land officers in its procurement or for any fraudulent act, error of law, or mistake committed by them in issuing it [see United States v. Minor, 114 U.S. 233; United States v. San Jacinto Tin Co., 125 U.S. 273; United States v. Trinidad Coal Co., 137 U.S. 160; Germania Iron Co. v. United States, 165 U.S. 379]; nor is it a suit to have one to whom a patent has issued declared a trustee for another who, at the time of its issue, had acquired such a right to the land as to entitle him to that form of equitable relief (see Silver v. Ladd, 7 Wall. 219, 228; Lee v.

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     exception of mineral lands, were made, the extraction of oil from its natural reservoir in subterranean rocks had come to be a promising industry and was extending over an increasing area through discoveries of new oil fields. An official report laid before Congress a few months before this grant was made showed that the daily output of the oil wells in Pennsylvania, Ohio, West Virginia, and Kentucky was 12,000 barrels. H.R. Ex. Doc. No. 51, 39th Cong., 1st Sess. In the same year the Supreme Court of Pennsylvania, in disposing of an oil-land controversy, not only treated the oil as a mineral but spoke of the work of extracting it from the containing rocks as "mining for oil," and, in concluding the opinion, said: "Until our scientific knowledge on the subject is increased, this is the light in which the courts will be likely to regard this valuable production of the earth." Funk v. Haldeman, 53 Pa. St. 229. And in another case that court said: "It is a mineral substance obtained from the earth by a process of mining, and lands from which it is obtained may with propriety be called mining lands." Gill v. Weston, 110 Pa. St. 312, 317. Its mineral character has also been affirmed by the courts of other States. Williamson v. Jones, 39 W. Va. 231, 256; Kelley v. Ohio Oil Co., 57 Oh. St. 317, 328; Murray v. Allred, 100 Tennessee, 100; Wagner v. Mallory, 169 N.Y. 501, 505. Congress at different times has spoken of it as a mineral (15 Stat. 58, 59, c. 41, § 1; Id. 125, 167, c. 186, § 109; 29 Stat. 526, c. 216; 32 Stat. 691, 702, c. 1369, § 42; 36 Stat. 847, c. 421), and this court did so in Ohio Oil Co. v. Indian a, 177 U.S. 190, 202.

In the legislation of Congress the term "mineral lands" is not confined to railroad land grants. It occurs in the mining laws, in an excepting clause in the homestead law, and in like clauses in other public-land laws. Evidently it has the same meaning in all. The administration of these laws has rested with the Land Department, and therefore

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     its course of action in respect of oil-bearing lands -- whether it has held them to be mineral or otherwise -- requires to be noticed. The various mining circulars, instructions and decisions, as published from time to time, show that the matter probably was not considered prior to the first mining circular, July 15, 1873, but that since then the Department has regarded petroleum as a mineral and has treated lands chiefly valuable therefor as mineral lands.*fn1 With a single exception, the rulings have been uniform, and lands of great value have passed into private ownership under them. The single exception is the case of Union Oil Co., 23 L.D. 222, 226, decided August 27, 1896, which was revoked on a motion for review November 6, 1897, 25 L.D. 351. It appears from the later decision that action upon other pending cases turning upon the same question had been suspended in the meantime, so, practically speaking, there has been no break in the Department's rulings. The case of Union Oil Company presented a controversy between that company and the Southern Pacific Railroad Company over a tract of land in California, the former claiming under a placer mining claim and insisting that the land was chiefly valuable for petroleum and therefore mineral, and the latter seeking a patent under its land grant and insisting that the land, even if chiefly valuable for petroleum, was not mineral. In the original decision the Secretary of the Interior held that the word "mineral" embraced only "the more precious metals," such as "gold, silver, cinnabar, etc.," but on the rehearing this view was rejected and the prior rulings holding petroleum to be a mineral

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     were reaffirmed and applied, the railroad company's application for a patent being denied.

Notwithstanding these persuasive considerations for now regarding petroleum lands as mineral lands within the meaning of the excepting clause in the granting act, we are asked to give effect to the strictly scientific view that petroleum is a resultant of the decomposition of organic matter under certain conditions of temperature and pressure and therefore is not a mineral. As we understand it, scientists are not in full accord upon this point, some ascribing to petroleum an inorganic origin. Encyclopaedia Britannica, 11th ed., Vol. 21, p. 318. But, passing this seeming divergence in opinion and assuming that when subjected to a strictly scientific test petroleum is not a mineral, we think that is not the test contemplated by the statute. It was dealing with a practical subject in a practical way, and we think it used the words "mineral lands," and intended that they should be applied, in their ordinary and popular sense. In that sense, as before indicated, they embrace lands chiefly valuable for petroleum.

Our answer to the fifth question must therefore be in the affirmative.

The other questions are so closely related one to another and turn so largely upon principles of general application to controversies arising out of the public-land laws, including railroad land grants, that it seems the better course to consider them in a general way in connection with those principles, and then to come to the specific answers to be given to them separately.

We first notice a contention advanced on the part of the mineral claimants, to the effect that the grant to the railroad company was merely a gift from the United States, and should be construed and applied accordingly. The granting act not only does not support the contention but refutes it. The act did not follow the building of

[ 234 U.S. Page 680]

     the road but preceded it. Instead of giving a gratuitous reward for something already done, the act made a proposal to the company to the effect that if the latter would locate, construct and put into operation a designated line of railroad, patents would be issued to the company confirming in it the right and title to the public lands falling within the descriptive terms of the grant. The purpose was to bring about the construction of the road, with the resulting advantages to the Government and the public, and to that end provision was made for compensating the company, if it should do the work, by patenting to it the lands indicated. The company was at liberty to accept or reject the proposal. It accepted in the mode contemplated by the act, and thereby the parties were brought into such contractual relations that the terms of the proposal became obligatory on both. Menotti v. Dillon, 167 U.S. 703, 721. And when, by constructing the road and putting it in operation, the company performed its part of the contract, it became entitled to performance by the Government. In other words, it earned the right to the lands described. Of course, any ambiguity or uncertainty in the terms employed should be resolved in favor of the Government, but the grant should not be treated as a mere gift.

Two distinct land grants were made to the Southern Pacific Railroad Company, one on behalf of the construction of a main line, and the other (act March 3, 1871, 16 Stat. 573, 579, c. 122, § 23) on behalf of a branch line. We are not here concerned with the latter. The former was made by the act of July 27, 1866, 14 Stat. 292, c. 278. That act first made provision for the construction of a line of railroad, by the Atlantic & Pacific Railroad Company, from Springfield, Missouri, westward through northern Arizona to the Pacific Ocean, and by its third and fourth sections made the following grant of public lands to that company:

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     "SEC. 3. That there be, and hereby is, granted to the Atlantic and Pacific Railroad Company, its successors and assigns, for the purpose of aiding in the construction of said railroad and telegraph line to the Pacific coast, and to secure the safe and speedy transportation of the mails, troops, munitions of war, and public stores, over the route of said line of railway and its branches, every alternate section of public land, not mineral, designated by odd numbers, to the amount of twenty alternate sections per mile, on each side of said railroad line, as said company may adopt, through the Territories of the United States, and ten alternate sections of land per mile on each side of said railroad whenever it passes through any State, and whenever, on the line thereof, the United States have full title, not reserved, sold, granted, or otherwise appropriated, and free from preemption or other claims or rights, at the time the line of said road is designated by a plat thereof, filed in the office of the commissioner of the general land office, and whenever, prior to said time, any of said sections or parts of sections shall have been granted, sold, reserved, occupied by homestead settlers, or preempted, or otherwise disposed of, other lands shall be selected by said company in lieu thereof, under the direction of the Secretary of the Interior, in alternate sections, and designated by odd numbers, not more than ten miles beyond the limits of said alternate sections, and not including the reserved numbers: . . . Provided, further, That all mineral lands be, and the same are hereby, excluded from the operations of this act, and in lieu thereof a like quantity of unoccupied and unappropriated agricultural lands in odd-numbered sections nearest to the line of said road, and within twenty miles thereof, may be selected as above provided: And provided further, That the word 'mineral,' when it occurs in this act, shall not be held to include iron or coal: . . .

"SEC. 4. That whenever said Atlantic and Pacific Railroad

[ 234 U.S. Page 682]

     Company shall have twenty-five consecutive miles of any portion of said railroad and telegraph line ready for the service contemplated, the President of the United States shall appoint three commissioners to examine the same, who shall be paid a reasonable compensation for their services by the company, to be determined by the Secretary of the Interior; and if it shall appear that twenty-five consecutive miles of said road and telegraph line have been completed in a good, substantial and workmanlike manner, as in all other respects required by this act, the commissioners shall so report under oath, to the President of the United States, and patents of lands, as aforesaid, shall be issued to said company, confirming to said company the right and title to said lands situated opposite to and coterminous with said completed section of said road. And from time to time, whenever twenty-five additional consecutive miles shall have been constructed, completed, and in readiness as aforesaid, and verified by said commissioners to the President of the United States, then patents shall be issued to said company conveying the additional sections of land as aforesaid, and so on as fast as every twenty-five miles of said road is completed as aforesaid."

By its eighteenth section the act made provision for the construction by the Southern Pacific Railroad Company of a connecting line of railroad from the eastern boundary of California to San Francisco, and in that connection made the grant now under consideration. That section reads:

"That the Southern Pacific Railroad, a company incorporated under the laws of the State of California, is hereby authorized to connect with the said Atlantic and Pacific Railroad, formed under this act, at such point, near the boundary line of the State of California, as they shall deem most suitable for a railroad line to San Francisco, and shall have a uniform gauge and rate of freight or fare

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     with said road; and in consideration thereof, to aid in its construction, shall have similar grants of land, subject to all the conditions and limitations herein provided, and shall be required to construct its road on the like regulations, as to time and manner, with the Atlantic and Pacific Railroad herein provided for."

Turning to §§ 3 and 4, as must be done, to ascertain the nature, extent, conditions and limitations of the grant made by this section, it will be seen that it was of "every alternate section of public land, not mineral, designated by odd numbers," etc., and was accompanied by a declaration "That all mineral lands be, and the same are hereby, excluded from the operations of this act, and in lieu thereof a like quantity of unoccupied and unappropriated agricultural lands in odd-numbered sections nearest to the line of said road, and within twenty miles thereof, may be selected as above provided." Words hardly could make it plainer that mineral lands were not included but expressly excluded. This is fully recognized by counsel on both sides. But by whom and when was it to be determined whether lands otherwise within the grant were mineral and therefore excluded, or non-mineral and therefore included? How long was the question of the exclusion or inclusion of particular sections to be an open one? Was it to depend upon a discovery of mineral at any time in the future, even a hundred years after the completion of the railroad, or was it intended that the mineral or non-mineral character of the lands should be determined in administering the ...

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