Wis. 639, 26 N. W. Rep. 184; Olney v. Land Co., 16 R. I. 361, 18 Atl. Rep. 181; Rouse v. Bank, (Ohio,) 22 N. E. Rep. 293. See, also, Hope v. Salt Co., 25 W. Va. 789; Gillet v. Moody, 3 N. Y, 479. On the contrary, the supreme court of Iowa, in the recent case of Garrett v. Plow Co., 70 Iowa, 697, 29 N. W. Rep. 395, has declared such preferences valid if fairly given, and in support of that view counsel for the respondents have referred to the following cases, not cited in Lippincott v. Carriage Co., supra: Stratton v. Allen, 16 N. J. Eq. 229; Wilkinson v. Bauerle, 41 N. J. Eq. 635, 7 Atl. Rep. 514; Railroad Co. v. Dewey, 14 Mich. 477. It is not to be overlooked that some of the later decisions which deny the validity of preferences in favor of directors proceed upon the theory that the directors of an insolvent corporation, even before a suspension of business, are trustees for the creditors, and, if that theory is essential to the conclusion, the question is perhaps already foreclosed in the federal courts; because, in Purifier Co. v. McGroarty, 136 U. S. 241, 10 Sup. Ct. Rep. 1017, the supreme court has said that the decision in Rouse v. Bank, supra, "procceded in part upon a theory that the property of an insolvent corporation is a trust fund for its creditors in a wider and more general sense than could be maintained upon general principles of equity jurisprudence." But I do not think that theory indispensable. It seems to me enough to say that a sound public policy and a sense of common fairness forbid that the directors or managing agents of a business corporation, when disaster has befallen or threatens the enterprise, shall be permitted to convert their powers of management and their intimate, and it may be, exclusive, knowledge of the corporate affairs into means of self-protection to the harm of other creditors, They ought not to be competitors in a contest of which they must be the judges. The necessity for this limitation upon the right to give preferences among creditors when asserted by corporations may not have been perceived in earlier times, but the growing importance and variety of modern corporate enterprises and interests I think will compel its recognition and adoption. The fact in this case that the stockholders authorized the making of the mortgage seems to be immaterial. That action was, it is averred, procured by the directors proposed to be benefited, they, themselves, being stockholders; and, even if this were not averred, the case would not, I think, be essentially different. Whether or not such preferences are fairly given is an impracticable inquiry, because there can be in ordinary cases no means of discovering the truth; and consequently the presumption to the contrary should in every case be conclusive. Concede that it is a question of proof, and that a preference in favor of a director will be deemed valid if fairly given, and it may as well be declared to be a part of the law of corporations that in cases of insolvency debts to directors and liabilities in which they have a special interest must be first discharged. That will be the practical effect, and the examples will multiply of individual enterprises prosecuted under the guise of corporate organization, for the purpose, not only of escaping the ordinary risks of business done in the owner's name, which may be legitimate enough, but of enabling the promoters and managers, when failure

comes, to appropriate the remains of the wreck by declaring themselves. favored creditors. Besides inconsistency with that equality which Equity loves, such favors involve too many possibilities of dishonesty and successful fraud to be tolerated in an enlightened system of jurisprudence. The demurrer is overruled.

UNITED STATES v. WALLAMET VAL. & C. M. WAGON-ROAD Co. et al. (Circuit Court, D. Oregon. May 12, 1890.)

PURCHASER.

LAND GRANT-WAGON-ROADS, COMPLETION OF-STALE CLAIM-ESTOPPEL-BONA FIDE In 1866 congress made a grant of lands to the state of Oregon, to aid in the construction of a wagon-road from Albany through the Cascade mountains to the eastern boundary of the state, and provided that the land might be sold as the work progressed, on the certificate of the governor of the state, that the portion of the same coterminous with said land was complete. The state transferred the grant, without further condition or qualification, to the Wallamet Valley & Cascade Mountain Wagon-Road Company, which undertook the construction of the road; and, within the five years allowed therefor, procured certificates from the governors of the state that the road was completed as required by law. Soon after, the company sold the lands to the defendants Weill and Cahn, who are now the legal owners thereof, except a small portion which has been disposed of. In 1874 congress authorized the issue of patents for these lands to the state or its assignee, when it was shown by the certificates of the governor that said road was "constructed and completed. Between 1878 and 1883 a question was made before the department of the interior whether the company had completed the road according to law, and testimony was received thereon, pro and con, and, after argument, the secretary of the interior directed patents to issue to the company, which was done on October 30, 1882, for 440,856 acres, in addition to a patent for 107,893 acres, issued on June 19, 1876. In consequence of this action by the secretary, the defendants believed that the due construction of the road was admitted by the complainant, and were thereby induced to expend a large sum of money on and about said property. In 1889, congress passed an act requiring the attorney general to bring a suit in this court against all persons claiming an interest in this grant, to determine the question of construction of the road, the legal effect of the governor's certificates, the right of the United States to resume the grant, and to obtain judgment declaring the land coterminous with any uncompleted portions of the road forfeited, saving the rights of any bona fide purchasers; the suit to be tried and adjudicated like other suits in equity. On August 29, 1889, in pursuance of this authority, this suit was commenced to obtain the relief therein specified. The defendants Weill and Cahn filed two pleas to the bill, in one of which they set up the foregoing facts as an estoppel, and in the other the defense of a bona fide purchase for a valuable considera. tion, and without notice of any failure on the part of the company to comply with the terms and conditions of the grant. Held, (1) that this suit must be tried as a suit between private persons, in which the defendants may set up any defense, including estoppel, and the statute of limitations, that they could if the complainant was merely a private person; (2) that the claim of the complainant to set aside these patents, and declare these lands forfeited, is, under these circumstances, a stale one, and therefore ought not to be allowed; (3) that the complainant, by the passage of the act of 1874, either accepted the certificates, as conclusive evidence of the due construction of the road, or thereby waived all further performance of the condition on which the grant was made; (4) that the complainant, by the action of its executive department in issuing the patent of 1882, impliedly recognized and accepted the performance of such condition, and, having thereby induced the defendants to change their relation to said property, by expending a large sum of money thereon and thereabout, is now estopped to allege or claim that said condition was not performed; (5) that the certificate of the governor of Oregon was made, by the act of 1866, the only evidence of the compliance with the terms of the grant by the completion of the road; (6) that, upon the facts stated in the plea, the defendants are purchasers in good faith, and for a valuable consideration, within the saving clause of the act of 1889, and within the general principles of

equity jurisprudence; and (7) that, on the case made by the bill and first plea thereto, it appears that the complainant ought not to prevail in this suit, and therefore it is dismissed.

(Syllabus by the Court.)

In Equity.

Mr. Lewis L. McArthur, for the United States.

Mr. John A. Stanley, Mr. C. E. S. Wood, and Mr. Henry Ach, for defendants.

DEADY, J. By the act of July 5, 1866, (14 St. 89,) congress made a grant to the state of Oregon, to aid in the construction of a military. wagon-road from Albany to the eastern boundary of the state, of the odd sections of the public lands, equal to three sections per mile of said road, to be selected within six miles thereof, together with the right of way for the same. The legislature of the state was authorized to dispose of the lands for the construction of the road, as the work progressed, and the governor of the state certified "to the secretary of the interior" that any 10 miles of the same was completed. If the road was not completed within five years, no further sales were to be made, and the land remaining unsold should "revert" to the United States. The act also provided that the road should be constructed with such "width, graduation, and bridges, as to permit of its regular use as a wagon-road," and in such other "special manner" as the state might prescribe; and that the road should remain a public highway for the use of the government of the United States.

On October 24, 1866, the legislature of the state granted to the Wallamet Valley & Cascade Mountain Wagon-Road Company, hereinafter called the "wagon-road company," a corporation theretofore formed, under the general laws of Oregon, for the purpose of constructing and maintaining a wagon-road from Albany across the Cascade mountains to the Deschutes river, "all lands, right of way, rights, privileges, and immunities," theretofore granted to the state "for the purpose of aiding said company" in constructing the road described in the act of congress, "upon the conditions and limitations therein prescribed." Sess. Laws, 58. Between April 11, 1868, and June 24, 1871, both inclusive, there were issued by the governors of Oregon, and duly filed with the secretary of the interior, four certificates, which, taken collectively, showed that the road had been completed according to the acts of congress, and of the legislative assembly, to the eastern boundary of the state,-a distance of 448.7 miles.

On June 18, 1874, congress passed "An act to authorize the issue of patents for lands granted to the state of Oregon in certain cases," (18 St. 80,) which reads as follows:

"Whereas, certain lands have heretofore, by acts of congress, been granted to the state of Oregon to aid in the construction of certain military wagonroads in said state, and there exists no law providing for the issue of formal patents for said lands, therefore be it enacted * * * that, in all cases where the roads, in aid of the construction of which said lands were granted, are shown by the certificate of the governor of the state of Oregon, as in said

acts provided, to have been constructed and completed, patents for said lands shall issue in due form to the state of Oregon, as fast as the same shall, under said grants, be selected and certified, unless the state of Oregon shall, by public act, have transferred its interests in said lands to any corporation or corporations, in which case the patents shall issue from the general land-office to such corporation or corporations upon the payment of the necessary expenses thereof: provided, that this shall not be construed to revive any land grant already expired, nor to create any new rights of any kind, except to provide for issuing patents to lands to which the state is already entitled."

On June 19, 1876, and October 30, 1882, patents were issued to the wagon-road company, under the act of 1874, the first one for 107,893 acres, and the second one for 440,856 acres, since which no patent has been issued for any portion of the grant.

On June 6, 1881, the secretary of the interior, in a communication addressed to the speaker of the house of representatives, estimated that the company is entitled, under the grant, to 1,346 sections of land, or 861,440 acres.

On March 2, 1889, congress passed an act making it the duty of the attorney general to cause a suit to be brought against all persons or corporations claiming an interest in the wagon-road grants made to the state of Oregon, including the one made by the act of 1866

"To determine the questions of the seasonable and proper completion of said roads, in accordance with the terms of the granting acts, either in whole or in part; the legal effect of the several certificates of the governors of the state of Oregon of the completion of said roads; and the right of resumption of such granted lands by the United States; and to obtain judgment, which the court is hereby authorized to render, declaring forfeited to the United States all of such lands as are coterminous with the part or parts of either of said wagon-roads, which were not constructed in accordance with the requirements of the granting acts; and setting aside patents which have issued for any such lands; saving and preserving the rights of all bona fide purchasers of either of said grants or any portion of said grants, for a valuable consideration, if any such there be. Said suit or suits shall be tried and adjudicated in like manner, and by the same principles and rules of jurisprudence, as other suits in equity are therein tried."

The act also provides, among other things, for the disposition of the lands, in case the same are declared forfeited by the final determination of said suit.

In pursuance of this act, this suit was commenced by the attorney general, on August 29, 1889, on behalf of the United States against the wagon-road company and others, to have the lands included in the said grant forfeited to the United States, and the patents issued therefor, as well as the certificates of the governors of Oregon, concerning the construction of the road, declared fraudulent and void, on the ground and for the reason, as alleged, that the road never was "constructed and maintained" as required by law, either in whole or in part, so as to be a public highway, over which the property, troops, or mail of the United States could be transported; that the proceeds of said lands were not applied to the construction of the road; that the certificates of the governors are false, and were obtained on the false and fraudulent repre

sentations of the wagon-road company, without examination on the part of said governors, and in one instance, that of September 8, 1870, with his knowledge that the same was false; all of which was known to the defendants at the time they acquired an interest in these lands.

The bill also shows that by sundry conveyances, commencing with that of the wagon-road company of August 19, 1871, to H. K. W. Clarke, and ending with that of Fred W. Clarke, the son of said H. K. W. Clarke, to Alexander Weill, of April 9, 1879, the title to said lands has become vested in the defendants Alexander Weill and David Cahn; and that T. Edgenton Hogg, and certain corporations of which he is an officer, made defendants in the bill, claim an interest in said lands.

The defendants Weill and Cahn, by leave of the court, have filed two pleas to the bill and their joint and several answers in support thereof. The first plea may be called an estoppel.

Briefly, it alleges that, after these defendants had acquired the title to the lands in question,.as stated in the bill, and in March, 1878, a complaint was received at the office of the secretary of the interior, to the effect that the road had not been constructed, as required by the act of July, 1866, in consequence of which the commissioner of the general land-office, with the approval of said secretary, appointed a special agent to examine the road and report thereon; that, in October, 1880, said agent reported that the road had not been constructed, as required by law; that said report, and the evidence accompanying the same, was laid before congress, and in the house of representatives was referred to the committee on military affairs, which committee, upon consideration of said report and evidence, and evidence contradictory thereof, made a report in February, 1881, recommending that no action of congress be had in the premises.

. In their report the committee say they

"Do not feel called upon to investigate the disputed question of fraud arising from the ex parte testimony submitted, or warranted in expressing an opinion in regard to the same, but believe that to be a matter within the province of the judicial and not the legislative department of the government."

And concludes as follows:

"(1) That the act of congress approved July 5, 1866, vested a present title to the land in question in the state of Oregon. (2) That, by the act of the legislature, and the acts of the governor of Oregon, the title to said land was vested in the Wallamet Valley & Cascade Mountain Wagon-Road Company. (3) That, by the deed of said company to Clarke, and the subsequent deeds from Clarke and others, the title of said land is now lawfully vested in the present claimant, Alexander Weill. (4) That said title cannot be forfeited or annulled or reinvested in the United States, excepting by a judicial proceeding, and that the same has become a vested right which congress cannot impair or take away."

That afterwards, on February 8, 1882, a communication from the secretary of the interior was laid before congress, containing further charges and alleged proofs that the road was not constructed as required by the act of July 5, 1866, and the matter was referred in the house of