From a careful review of the whole matter, I do not feel justified in disturbing your conclusions.

But a small portion of this tract is actually occupied by townsite settlers, and they do not appear to have been encouraged in going upon the land by Fossett.

It would seem that this is a case clearly under the second proviso to section 22 of the act of Congress, approved May 2, 1890 (supra), which provides:

That in case any lands in said Territory of Oklahoma, which may be occupied and filed upon as a homestead, under the provisions of the law applicable to said Territory, by a person who is entitled to perfect his title thereto under such laws, are required for townsite purposes, it shall be lawful for such person to apply to the Secretary of the Interior to purchase the lands embraced in said homestead or any part thereof for town-site purposes. He shall file with the application a plat of such proposed townsite, and if such plat shall be approved by the Secretary of the Interior, he shall issue a patent to such person for land embraced in said townsite, upon the payment of the sum of ten dollars per acre for all the lands embraced in such town-site, except the lands to be donated and maintained for public purposes as provided in this section. And the sums so received by the Secretary of the Interior shall be paid over to the proper authorities of the municipalities when organized, to be used by them for school purposes only.

In the case of Orlando Townsite v. Hysell et al. (13 L. D., 99), it was held that the commutation of an entry under section 21, act of May 2, 1890, can not be allowed where it is apparent that the land covered hereby is intended for townsite purposes and not for agricultural use. Under section 22, of said act, a homestead entryman may purchase for townsite purposes such legal subdivisions of his entry as may be required therefor, and perfect title to the remainder under the homestead laws on showing due compliance therewith.

The rejection of Fossett's proof was therefore proper, and he will be required to proceed as above indicated.

The Kingfisher townsite application for the tract covered by Fossett's entry will therefore stand rejected.

This disposes of all questions between the parties, except the matter of the apportionment of costs.

This is not a contest where any one is claiming a preference right of entry under the act of May 14, 1880, and rule 55 of practice, provides: "In other contested cases each party must pay the costs of taking testimony upon his own direct and cross examination."

This was the rule followed in the case of Milum v. Johnson (supra), to which you refer, and is, I think, applicable to the present case. Your decision is therefore, with the above modification, affirmed. 14561-VOL 14-2

RAILROAD LANDS-SECTION 4, ACT OF MARCH 8, 1887.

DRAKE ET AL. v. BUTTON.

One who has contracted to sell land purchased from a railroad company, to which title subsequently fails, is a proper party to perfect title under section 4, act of March 3, 1887, in order that he may comply with the terms of the contract. The right of a purchaser from a railroad company to perfect title under said section, is not defeated by the fact that said purchaser is the president of the company, and trustee for the bond owners who hold a mortgage on the lands of the company, where there is no evidence of bad faith or advantage on the part of said purchaser as against the company or said bond owners.

The right of a purchaser from a railroad company to perfect title under said section is intended to cover cases where the lands were unearned under the grant, and erroneously patented or certified.

Secretary Noble to the Commissioner of the General Land Office, January

2, 1892.

I have considered the case of E. F. Drake and E. W. Sargent v. A. G. Button, on appeal by Drake from your decision of July 1, 1889, holding that his purchase was void, as made from the Sioux City and St. Paul Railroad Company, of lots No. 1 and 4 and E. of SE., SE. of NE., Sec. 34, T. 93 N., R. 48 W., Des Moines, Iowa, Land District. The record in the case may be stated briefly as follows: These lands are a part of the lands which were patented to the State of Iowa June 17, 1873 under the act of May 12, 1864 for the Sioux City and St. Paul Railroad Company. They were held by the State, in trust for the company, until 1887, when they were, upon the adjustment of the grant in accordance with the decision of the United States supreme court, reconveyed to the government by the governor of Iowa. They were, on September 12, 1887, restored to the public domain and opened to entry by direction of the Secretary of the Interior (6 L. D., 47).

On March 5, 1888, Button made homestead entry for lot 1 and SE. of NE. of Sec. 31, being part of said tracts.

On December 7, 1887, E. F. Drake made an application for patent for the lands first herein described, under the 4th section of the act of Congress of March 3, 1887 (24 Stat., 556) supporting the same by affidavits tending to show his right thereto.

It appears that prior to the receipt of this application by your office, it was in receipt of letters from E. W. Sargent who claimed to be the owner of said land, and soon thereafter of a letter from L. Harrison, Esq., attorney for Buttou, claiming part of the land for his client by virtue of his homestead entry, and your office, on June 22, 1888, ordered a hearing to determine the rights of the respective parties.

A hearing was ordered accordingly, and all parties having been notified, appeared at the local office on September 27, 1888, and the testimony having been taken, the local officers disagreed in their conclusions of law and fact. The register found that Drake was a purchaser

in good faith, and Sargent had not purchased said lands of the company, while the receiver found that Drake was acting in the capacity of "president of the (railroad) company, and was a trustee in the matter," and that his purchase was void, and that he having agreed to sell the land to Sargent, that this agreement was also void.

On July 1, 1889, your office, upon consideration of the case, found that Drake was a director and president of the railroad company, and also trustee for the bond owners in the mortgage made to secure the bonds, and that as a matter of law, his purchase was void ab initio.

You found that his knowledge of the condition of the land, its legal status, etc., was such that he could not be a bona fide purchaser, upon whom the act of March 3, 1887 confers the right to a patent, and that if he were such, that he had sold to Sargent, and that Sargent was the proper party to the case, and that Drake had no right to a patent. From this ruling and decision, Drake appealed.

The testimony shows that this land in controversy was within the indemnity limits of the grant to said Sioux City Railroad Company. It was selected in lieu of land lost in place. The selection was approved by the register and receiver at Sioux City land office, and affirmed by the General Land Office, and on June 17, 1873, was patented to the State of Iowa by the President of the United States, for the benefit of the Sioux City and St. Paul Railroad Company.

The railroad company had an officer known as its "Land Commissioner" who was charged with the duties of selling its lands, selecting lieu lands and looking generally to the interest of the company in the matter of the lands granted to it. The company, it appears, bonded the road and its granted land to raise money to build the road, and all its lands were mortgaged to secure the bonds. Two persons were made trustees for the bond holders. By the terms of the mortgage, the lands held by the company were to be, by its commissioner, sold from time to time, and upon the sale of any tract, the purchase money was to be applied in payment of the bonds, and when so applied, the trustees were authorized to release the specified tract.

Elias F. Drake was a director and president of this corporation from 1871 to date of hearing herein. He and Alexander H. Rice were named as trustees for the bond owners and Edward Berreau was land commissioner of the company in 1875.

On October 25, 1875, Drake bought of the railroad company through said land commissioner, lots 1 and 4 and E. of SE. and SE. † of NE. of Sect. 31, T. 93 N., R. 48 W. 5 P. M., at and for the consideration of $1,400, and paid the purchase money which was applied on the bonds, and the lands were released from the mortgage. He took a memorandum of agreement from the company, acknowledging the receipt of the money and binding it to make a deed to him, his heirs or assigns, upon request, at the land office of the company. Afterward, the board of directors approved the sale and a warranty deed was executed and delivered to Drake.

On December 3, 1875, Drake made an agreement with E. W. Sargent, by which he obligated himself to convey to Sargent the said lands for $2,000, he to pay $200 of principal, and $126 interest in advance on the deferred payments, the remaining $1,800 to be paid in six annual payments of $300 each with seven per cent interest, payable December 3d of each year.

It was stipulated that Sargent should take immediate possession of the land, and he was to pay the taxes thereon, and have the use of it, and if he failed to make the payments, any improvements placed upon the land were to remain. The payments were to be made punctually and strictly according to the letter of the agreement, "the time of payment being of the essence of this contract," and upon full payment, Drake was to make a deed for the premises.

Afterward, to wit, February 14, 1879, Sargent having made no further payment, a modification of said contract was made in writing as a part of the agreement, by which it was stipulated that as the State of Iowa had not made a deed to the railroad company, grantor of Drake, the times of payment of the several installments should be suspended, and the debt should not draw interest until such time as the railroad company should receive a deed for the land, at which time the payments were to commence drawing interest and time should then begin to run on the contract.

There has been much contention about the lands granted by the act of May 12, 1864 (13 Stat., 72) and the Sioux City and St. Paul Railroad Company and the Chicago, Milwaukee and St. Paul Railroad Company had a suit in court, involving the title to the lands granted each by said act, which suit was finally decided by the United States supreme court in March, 1886 (117 U. S., 406). The roads of these two companies cross each other, and the litigation arose out of the respective claims of the companies to the lands within the overlapping limits of the grants.

Upon the rendition of the judgment of the court, the governor of Iowa reconveyed to the United States 43,647.63 acres of land, including the land in controversy, that had been erroneously patented to the State in trust for said Sioux City and St. Paul Railroad Company, and on July 26, 1887, Secretary Lamar, in a letter to Commissioner Sparks, discussed the matter at length, and it is unnecessary, at this time, to go into a history of the grant or the several phases of that case. It will suffice to say that by said letter it was directed that the land so reconveyed be thrown open to settlement and entry.

By the 4th section of the act of March 3, 1887 (24 Stat., 556) it was provided, inter alia,

That as to all lands except those mentioned in the foregoing section, which have been so erroneously certified or patented as aforesaid and which have been sold by the grantee company to citizens of the United States .... the person or persons so purchasing in good faith, his heirs or assigns, shall be entitled to the land so purchased, upon making proof of the fact of purchase at the proper land office, eto.

Drake claims that under this section of this statute, he is, upon the facts shown, entitled to a patent for the lands in controversy.

The contract between Drake and Sargent was, by agreement of the parties, suspended until Drake's title should be completed, and this application by Drake is evidently made for the purpose of placing him in a position to comply with the terms of that contract. Under these circumstances, I think Drake should be considered a proper party to perfect title under the provisions of said act.

You hold that as Drake was a director and president of the railroad company, he could not be a purchaser, because he was a trustee, the corporation being cestui que trust, and in support of this view, you quote from Perry on Trusts (par. 207, p. 249) as follows:

Contracts of trustees are of two classes. One class consists of contracts made by trustees with themselves or with a board of trustees or directors of which they are members. These contracts are void from the fact no man can contract with himself.... The other class of contracts is where a trustee contracts with the cestui que trust or a third person. (You say) It is clear, I think that he was of the class first mentioned and that his purchase was void ab initio.

It is very questionable whether Drake was of the first class.
The author adds to the matter quoted by your office, as follows:

These contracts are not void, as where a director makes a purchase of property from the corporation itself acting independent of the directors the contract is not void but the same rules apply that apply to other trustees purchasing of the cestui que trust. The burden is upon the trustee to vindicate the transaction from all suspicion.

In Angell and Ames on Corporations (10 Ed., Sect. 233), it is said:

By the common law and by the civil code, too, as a corporation aggregate may contract with persons who are not members so it may contract with persons who are members of it and the contract is not on this account invalid (Note 13 Mass., 406, 4 Blackf., 267-15 Vt., 522.)

And though the member of the corporation be also one of the trustees of the corporation it would seem that this would not incapacitate him from contracting with it, ... in a case where there is no evidence of such gross partiality in the contract as amounts to fraud (Note 19 Vt., 191–18 Vt., 409).

In Buell v. Buckingham (16 Iowa, 284, 85 Am., 516) three directors of a corporation, being a majority of the board, sold to one of their num ber (Buell) a mill belonging to the corporation. Certain creditors, upon judgments obtained against the corporation, levied upon the mill and sought by injunction to restrain the execution of the deed by the corporation to Buell.

The court said:

There is no showing of any actual fraud on the part of Elijah Buell, in his purchase of the property from the board of directors The rule is well settled, that a purchase of property by a trustee of his cestui que trust is not void in equity but only voidable at the election of the cestui que trust. A court will scrutinize such a transaction closely and will not only set it aside for fraud, but will do so upon a very slight showing of advantage, or bad faith.