United States v. Southern Pacific Co. Appeal from the Circuit Court of Appeals for the Ninth Circuit. Decided November 17, 1919. Reversed. (251 U. S. 1.) Opinion by Mr. Justice Van Devanter.

"The original list (of selected lands) was presented November 14, 1903, but it encountered obstacles which led to the presentation of a substituted list governing the same lands on September 6, 1904.

"The lands were in the Elk Hills in Kern County, Calif.; were rough, semiarid, and unfit for cultivation; were devoid of timber, springs, or running water, and had but little value for grazing. Oil had been discovered in that region as early as 1899 and this had been followed by development and production on an extensive scale. In 1903 and 1904 there were many producing wells about 25 miles to the east and many within a much shorter distance to the west and south, some within 3 or 4 miles.

"The lands in suit were surveyed in 1901 and the approved plat was filed in the local land office in May, 1903. The field notes denominated the lands as mineral and described them as in a mineral district within which many successful oil wells have been developed.'

"The observable geological and other physical conditions at the time of the patent proceedings, as shown by the evidence, were as follows: The area called the Elk Hills was about 6 miles wide and 15 long and constituted an anticlinal fold or elongated dome-an occurrence favorable to the accumulation and retention of oil. The lands in suit were about its center. From 5 to 10 miles to the west was the Temblor Range, the main uplift of that region. Along the east flank of that uplift for a distance of 30 miles was a series of outcrops of exposures of Monterey (diatomaceous) shales, the source of oil in California, and porous sandstone in which oil generally finds its ultimate reservoir. These strata were of exceptional thickness and it was apparent that oil in considerable quantity had been seeping or wasting from the sandstone. The dip of the strata was toward the Elk Hills and there were no indications of any faulting of thinning in that direction. Between the outcrop and the Elk Hills upward of 200 wells had found the oil-bearing strata and were being profitably operated, several of the wells being on a direct line toward the lands in suit and within 3 or 4 miles of them. In and beyond the Elk Hills were oil seepages and other surface indications of the existence of oil in the underlying strata, one of the seepages being near the lands in suit. Two wells had been sunk in the Elk Hills but obviously had not gone to an adequate depth and were not productive, although some oil was reached by one.

"Geologists and men of wide experience and success in oil mining-all of whom had examined that territory and some of whom had been familiar with it for years were called as witnesses by the Government and gave it as their opinion, having regard to the known conditions in 1903 and 1904 as just outlined, that the lands were valuable for oil, in that an ordinarily prudent man, understanding the hazards and rewards of oil mining and desiring to engage therein for profit, would be justified in purchasing the lands for such mining and making the expenditures incident to their development, and in that a competent geologist or expert in oil mining, if employed to advise in the matter, would have ample warrant for advising the purchase and expenditure. "Other geologists and oil operators called by the company, gave it as their opinion that the lands were not, under the conditions stated, valuable for oil; but as respects the testimony of some it is apparent that they were indisposed to regard any lands as within that category until they were demonstrated to be certainly such by wells actually drilled thereon and producing oil in paying quantities after a considerable period of pumping. This is a mistaken test, in that it takes no account of geological conditions, adjacent discoveries, and other external conditions upon which prudent and experienced men in the oilmining regions are shown to be accustomed to act and make large expenditures. And the testimony of some of these witnesses is weakened by the fact that their prior acts in respect of these lands, or others in that vicinity similarly situated, were not in accord with the opinions which they expressed.

"After considering all the evidence, we think it is adequately shown that the lands were known to be valuable for oil when the patent was sought and obtained, and by this we mean that the known conditions at that time were

such as reasonably to engender the belief that the lands contained oil of such quality and in such quantity as would render its extraction profitable and justify expenditures to that end. (See Diamond Coal Co. v. United States, 233 U. S. 236.)

"We conclude that the application of prior decisions to the case made by the evidence entitled the Government to the relief sought, as was held by the district court. Decree of circuit court of appeals reversed. Decree of district court affirmed."

THE BRIEFS OF MR. SUTRO, ATTORNEY FOR THE STANDARD OIL COMPANY OF CALIFORNIA, IN THE MATTER OF SECTION 36, ELK HILLS NAVAL PETROLEUM RESERVE No. 1, CALIFORNIA, REFERRED TO BY SENATOR WALSH (SEE P. 30), ARE AS FOLLOWS:

Before the honorable the Secretary of the Interior. In the matter of section 36, township 32 south, 23 east, Mount Diablo base and meridian (California)

This is the argument in support of the request that the Secretary of the Interior decide that in view of the previous action of the department and of its regulations in force in January 1903, the title to said section is vested in the State of California or its grantees.

By act of March 3, 1853, the sixteenth and thirty-sixth sections were granted to California for school purposes.

Sections 36 of 30-23 was identified by the survey, of which the official plat was approved in Washington on January 26, 1903. In 1904 there was a determination by the Commissioner of the General Land Office that the section was nonmineral.

By telegram of February 28, 1900, the commissioner ordered the register and receiver at Visalia to "suspend from disposition until further orders" township 30-23 with some forty others. The order was made in response to the petition of 800 miners who complained that mineral lands were being acquired by nonmineral entries. By order July 19, 1900, the suspension was "continued for a reasonable time pending inquiry as to the true character of the land which is now in progress." In subsequent correspondence of the commissioner it appears that the lands were suspended from disposition under the agricultural land laws on account of their alleged mineral (oil) character." (Letter of October 23, 1903, to E. C. Ryan; letters of February 11 and 20, 1904, to register and receiver Visalia.)

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March 22, 1904, E. C. Ryan upon order of the Secretary of the Interior made report based upon examinations theretofore made that the land in this township was nonmineral.

The suspension was terminated by an order of the commissioner, in his letter of April 5, 1904, to register and receiver, Visalia :

"As to the following tracts where no mineral has been discovered it is believed that no good reason exists for further suspension.

"Accordingly, the lands hereinafter described are hereby relieved from sus

"Make the propor notations upon the records of your office."

*

This restoration of the land to " disposition under the agricultural land laws is necessarily a determination of its nonmineral character. The order contains, moreover, the specific finding that "no mineral has been discovered " in township 30-23.

In 1902 the land was surveyed. The survey was approved in Washington January 26, 1903, thus identifying the land and vesting title in the U. S. v. Morrison, 240 U. S. 192)-or did it vest on May 16, 1903, when the plat was filed in the local land office (c. f. 37 L. D. 164, 165) unless the land actually contained valuable mineral and was well known at the date of the survey to contain such deposits?

"States acquired a vested right in school sections in place which are not otherwise appropriated and not known to be mineral at the time they are identified by the survey." (Wyoming v. U. S., Supreme Court of the United States decided at this term of the court.)

On January 24, 1908, the United States local land office certified to the State that there was no valid claim in that office against the State's title. This clear

ance while having no official status in the department (31 L. D. 212), has been referred to and relied upon to support the State's title to school land (Water Mining Co. v. Bugbey, 96 U. S. 165).

August, 1908, the predecessors in title of present owners applied to the State to purchase the section.

January 20, 1910, State patents issued to the purchasers.

January 14, 1914, the commissioner directed adverse proceedings to be filed as to this section. No process was served and the proceedings lay dormant until March 3, 1921. In the midst of the heated controversy between the oil men and the Navy Department it was not known even at the heairngs before Congress that this proceeding was pending. (See testimony of Commissioner Tallman himself that title to this section was not disputed.)

In 1916 this section and other patented lands in naval reserve No. 1 were tendered to the Navy. The tender was fully discussed in proceedings of the special joint conference of the Committee on Public Lands at hearings held on H. R. 406, December 18 and 23, 1916.

The offer was declined because the department did not believe the land to be oil land. Assistant Secretary Roosevelt on January 15, 1916, stated that there were 38,124 acres in naval reserve No. 1, "of which 2,470 has been proved, and as far as we know there is no further oil in reserve No. 1" (Hearings ib., p. 17); and Commanders Wright, Richardson, and Landis testified to the unsatisfactory character of the land as mineral, while E. D. Latham, the Navy geologist, said: "I do not think it is commercial oil at all." Mr. Latham was said by the Government representative to be the best informed oil expert in California. (Statement of E. J. Justice, Hearings, ib.; hearings before Senate Committee on Public Lands, February 9, 1916, H. R. 406, p. 240; see Lieut. Commander Landis, testimony, p. 227; Commander Richardson, p. 188.) This land condemned by these witnesses in 1916 is now said to have been well known oil land in 1903.

In 1919, 16 years after the survey, 15 years after determinataion that the land was nonmineral, 10 years after purchase from the State, the present · owners drilled the property and discovered oil. Immense investment has been made on it, and now, 7 years after these proceedings were instituted, of which no notice was taken by anyone, it is proposed that the Government shall assert that the State took no title to the land because it was well known to be mineral at the date of the survey. It is proposed to assert the mineral character of the land in 1903, not because of the discovery of mineral on the section (which was the test under repeated regulations and decisions of the department for determining the mineral character of a school section in place, see infra) but because under the rule of the Diamond Coal & Coke case the geological structure was such as to establish the character of the land as wellknown mineral land.

To support this position the Elk Hills case (U. S. v. Southern Pac. Co., 250 U. S.) is cited.

That decision is not applicable here

1. Because it dealt with railroad indemnity selections and not with a school land grant. (The difference is emphasized in Wyoming v. U. S., decided at this term of the Supreme Court, copy filed herewith.)

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2. The Elk Hills decision turned chiefly on the fact that the officers of the railroad company were not acting in good faith but were attempting to obtain the patent by representing that the lands were not mineral when they believed the fact was otherwise." (The only cases cited by the court as supporting the conclusion were fraud cases--see end of opinion.)

3. Under the long standing rule of the department in force when the survey was approved, the sole test of the mineral character of a school section in place was the actual discovery of mineral in the section.

4. Because the nonmineral character of the land had been determined by the department in 1904.

It is claimed that the Elk Hills decision controls this situation because in it the Supreme Court decided that the indemnity lands selected by the railroad were known mineral lands, so believed by the railroad officials at the date of the selection and its approval. We believe the decision is no more controlling here than was the decision of Judge Bledsoe in the other Southern Pacific case, in which he decided that at the date of the Southern Pacific patent for sections 31 (adjoining this section on the east), 29, and 33, township 30 south, range 24 east, to wit, in 1902, these were nonmineral. From that decision the Government did not even appeal, for the obvious reason that without fraud

there was no case, although the time for appeal had not elapsed when the Elk Hills case was decided. Why should the issue be tried anew if the Government's case was not worth an appeal from an adverse decision of a trial court, and this at a time when the Navy was in bitter controversy with the oil men?

School sections in place stand in a special class. There are no proceedings to determine their mineral character. No application is filed by anyone. No representations are made. No proceedings are instituted. The department has power to determine the character of the land. If it finds it to be nonmineral and the survey is complete, that fixes the State's title as of the date of approval of the survey. The State's only muniments of title are the granting act and the determination of the department as to the character of the land.

Such a determination was had here. It is said that the report on which it was based was superficial. The State of California and its bona fide grantees are not responsible for that. The State of California could not look behind the order of the department restoring the land to entry as nonmineral. The department's general finding may not avail a homestead entryman, or a desert entryman, or an applicant for railroad patent, or a lieu land selection. In each of these cases the applicant selector or entryman is required to prove the nonmineral character of the land. A general determination by the department may aid him, but it is not necessarily conclusive. But the case is different where a school section in place is involved. There the only proceeding is a determination, ex parte or otherwise, by the Interior Department, to fix the character of the land. That is why this case differs from the Elk Hills case, the scrippers' case, etc., and it should also be noted that in railroad grants the railroad's belief and representations are of the essence of the matter.

In school-land grants clear knowledge of mineral character is essential to mineral classification.

"Belief" is not "knowledge." (Sullivan v. Iron Silver Co., 143 U. S. 431.) Adjacent discovery and geological conditions are not discovery of mineral on the land. (Miller v. Chrisman, 140 Cal. 442, 197 U. S. 137.)

The reason for the distinction is obvious. In any application for land, whether by homestead entryman, a desert entryman, a railroad indemnity selector, hearings are held and proof taken at which all evidences of mineral character may be received and a decision reached. But it would be intolerable to contemplate that a State's title to a school section in place should be left forever uncertain so long as geologists or scientific men could be found to testify that at the date of the survey in their opinion the land gave indication of being mineral in character. The rule that the mineral must be found in place is not only a rule of property, but a rule of necessity in the case of school-land selections if titles to such sections are to be ever settled.

Is it conceivable that after this classification of the land as nonmineral the State in 1904 would have been permitted to surrender this as a mineral section upon proof of the nearest discovery of mineral 10 or more miles west and an equal distance south? Obviously not.

In every case of disposal of public lands the determination of questions of fact is for the Secretary of the Interior and the Commissioner of the General Land Office. Where patents, or their equivalents, are issued such patents are conclusive on questions of fact, in the absence of fraud or mistake, and rulings to this effect are supported by reference to the general authority of the department as well as to the provisions of the particular statute authorizing the grant. (Burke v. Southern Pacific, 234 U. S. 669, and cases therein cited.) And in cases where no patent is issued the rule is the same-that a determination by the Land Department of facts essential to the grant is conclusive. In Shaw v. Kellogg, 170 U. S. 312, the grant was of "vacant land, not mineral." "No patent was issued; the approved survey taking the place of one under the statute." "The commissioner took the position that under the peculiar terms of the granting statute the approval of the survey operated as a determination that the land was of the class and character designated in the act; that the title had passed from the Government." This theory was sustained, the court observing, "There is no magic in the word 'patent,' or in the instrument which the word defines." (See the approval of Shaw v. Kellogg in Burke v. Southern Pacific, 234 U. S. 669, 702-704, from which the foregoing quotations are taken.) The rule of the department in January, 1903, was fixed that a school section in place was to be deemed mineral or not according to whether mineral had been discovered on it or not. The regulations permitted the State to surrender the land only upon proof of mineral discovery. The decisions were equally clear.

In the hearings before the Senate the Committee on Public Lands, sixtyfourth section, on H. R. 406, it was suggested by Senator Clark and admitted by the Government counsel (Mr. Mills) in the Southern Pacific case that the rule which I now submit was the holding for many years (p. 264). The rule was first changed September 5, 1905, in a circular issued by Secretary Hitchcock October 26, 1905, in which he said that the former rule that mineral exposed in place would have to be shown before land could be classed as mineral in character would be abrogated. (34 L. D. 194.) That such had been the rule particularly in classifying sections 16 and 36 in place amply appears. Thus in the regulations of the department May 27, 1891 (24 L. D. 548), and March 6, 1903 (32 L. D. 39), it is said in rule 1 that the presumption is that title was passed to the State upon survey.

"RULE 2. The State will not be permitted to make selection in lieu of land within a school section alleged to be mineral in character and for that reason excepted from its grant, whether returned by the surveyor general as mineral or otherwise, in the absence of satisfactory proof that the bare land was known to be chiefly valuable for mineral at the date when the State 'right thereto would have attached if at all.' The proof must show the kind of mineral discovered upon the land and the extent thereof when and by whom the discoveries were made, etc. If in any case the proof does not clearly show that the bare land was known to contain valuable mineral deposits and to be chiefly valuable on account of such deposits at the date the State's right would have attached thereto a selection in lieu thereof will not be permitted."

The rulings of the department prior to 1905 are exemplified in the following decisions: Cases-Dughi v. Harkins, 2 L. D. 721; Commissioners v. Alexander, 2 L. D. 126; Abraham v. Miner, 9 L. D. 408; Warren v. State of Colo., 14 L. D. 634; Quoting Davis v. Newbold, 139 U. S. 507; Diffeback v. Hawke, 116 U. S. 392, and many others.

To establish the universal character of a school section there must be the equivalent of discovery. (State of California, 33 L. D. 356-358.)

"It has been repeatedly held by this department that the proof of the mineral character of land must be specific and based upon the actual production of mineral; that it is not enough to show that neighboring or adjoining lands are mineral in character, and that the lands in controversy may hereafter develop minerals to such an extent as to show its mineral character; but it must be shown as a present fact that the lands are mineral, and this must appear from actual production of mineral and not from a theory that the lands may hereafter produce it. (Hooper v. Ferguson, 2 L. D. 712; Dughi v. Harkins, ibid. 721; Roberts v. Jepson, 4 L. D. 60; Cleghorn v. Bird, ibid. 478; Lientz et al. v. Victor et al., 17 Cal. 272; Alford v. Barnum et al., 45 Cal. 482.)

"The State's title vests, if at all, at the date of the 'completion of the survey' (Cooper v. Roberts, 18 How. 173; Virginia Lode, 7 L. D. 459); and, if the land, although in reality mineral, was not then known to be mineral, the subsequent discovery of its mineral character would not divest the title which had already passed. (State of California v. Poley and Thomas, 4 C. L. O. 18; Virginia Lode, 7 L. D. 459; J. Dartt, 5 C. D. O. 176; Town site of Silver Cliff v. Colorado, 6 C. L. O. 152; State of Colorado, 6 L. D. 412; Mining Co. v. Consolidated Mining Co., 102 U. S. 175.)

"In the case of the State of California v. Poley and Thomas, supra, this question is considered at some length by Secretary Schurz, and it is held, first, that under the grant by the act of March 5, 1853 (10 Stat. 244), of sections 16 and 36 to California for school purposes, the title to said sections vests in the State upon survey thereof, if their mineral character was unknown at that date; and, second, that having so vested, it is not subject to be devested by the subsequent discovery of the mineral character of the land.

"As to said first proposition, Secretary Schurz says, 'In compliance with the established doctrine of the courts, it must, I think, be held that the title vested in the State at the date of survey, when the land was not known to be mineral, or was not treated as such by the Government.'" (Abraham L. Miner, 9 L. D.

408.)

"The fact that this land lies in what is known as the Colorado coal fields, which includes about 2,500 square miles, in which there is probably not more than 100 square miles of land valuable for coal, and the further fact that there are valuable coal deposits in the vicinity of these lands do not prove these lands to be coal lands within the meaning of the law. The grant to Colorado of the sixteenth and thirty-sixth sections includes all kinds of lands except mineral lands, so that upon principle all lands embraced in said sections except

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