Chapters on the History of the Southern Pacific

by Stuart Daggett

The first question was as to whether or not oil was a mineral. The plaintiff said that it was a mineral, the defendant said that it was not. If oil was a mineral, then the railroad could not obtain title under the land-grant laws to land which was known to contain oil at the time the patent was applied for. If oil was not a mineral, there was no limitation. Now matters of definition always cause trouble. The word “mineral” is sometimes associated with metallic ores, a notion which would not include a resultant from the decomposition of organic matter such as California petroleum. Indeed, the Secretary of the Interior once held that the word “mineral” embraced only the more precious metals, such as gold, silver, cinnabar, etc., although on rehearing this view was rejected. Common usage includes more than the metallic ores, and the courts have considered as mineral such articles as clay, coal, and marble, and even deposits such as guano.[601] When the matter was presented to it, the United States Supreme Court followed common usage and held that petroleum was a mineral.[602]

The second point had to do with the effect of a patent. It was shown that the Southern Pacific had received patents as early as 1892 to lands which ultimately proved to contain petroleum, and there was dispute as to whether this subsequent discovery invalidated title to property once patented. On this point, fortunately, the law was clear. Quoting the Supreme Court:

The settled course of decision ... has been that the character of land is a question for the Land Department, the same as the qualifications of the applicant and his performance of the acts upon which the right to receive the title depends, and ... [that] when a patent issues it is to be taken upon a collateral attack, as affording conclusive evidence of the non-mineral character of the land and of the regularity of the acts and proceedings resulting in its issue, and upon a direct attack, as affording such presumptive evidence as to require plain and convincing proof to overcome it.

The Supreme Court therefore held that the Southern Pacific was secure in its possession of lands to which it held patent, unless fraud could be shown, and this irrespective of any saving clause in the patent itself, and without regard to the nature of the investigation by which the Land Office had originally satisfied itself as to the character of the land.[603]

Elk Hills Suit

The effect of the rulings of the Supreme Court in the test case of Burke v. Southern Pacific was not only to cause the dismissal of the pending suit, but to make it evident that the government must show fraud on the part of the railroad company before the company’s title could be disturbed. The holding of the court that oil lands were mineral lands was, however, an important victory for the government. It was under these circumstances that the federal government instituted a fresh series of suits. Of these, one suit called in question the title of the Southern Pacific to some 6,109 acres of land in the Elk Hills region of southern California, held under a patent issued December 12, 1904. The other suits attacked the legality of the railroad’s possession of substantially all its remaining oil lands, obtained at various dates from 1892 to 1902. The value of the lands involved in the second proceedings was estimated by the government as in excess of $421,000,000. Counsel alleged that the company’s land agents, Messrs. Eberlein and Madden, had accompanied the lists, which they had submitted to the government for patenting, with affidavits stating that the lands were not mineral lands, although both agents knew at the time the patents were applied for that the lands in question contained oil. This charge, if substantiated, amounted to a showing of fraud. In both cases the government sought to show that the presence of oil upon the lands sought was a matter of common knowledge, and that there was reason to believe that the company was fully cognizant of the facts.

Most of the sensational testimony taken in the oil land cases appeared in the so-called Elk Hills case. Mr. Eberlein here figured as the land agent for the Southern Pacific. Omitting again all relatively unimportant detail, it appeared that Mr. Eberlein had filed an affidavit with the Land Office in November, 1903, in which he swore to two pertinent facts: first, that he had caused the lands for which the railroad applied to be carefully examined by the agents and employees of the company as to their mineral or agricultural character; and second, that to the best of his knowledge and belief, none of the lands returned in the list were mineral lands. These statements had been repeated in September, 1904, when a substitute list was filed.

In the face of these sworn assertions, the United States Supreme Court later found that Mr. Eberlein had not examined the lands in question, nor had he caused them to be examined by others. Indeed, Eberlein had even objected to the examination of the lands. He had protested verbally to Judge Cornish, vice-president of the Southern Pacific Company against examination, and to Mr. Markham, its general manager, and in 1908 he had summed up his repeated objections by writing to the assistant land agent of the company as follows:

The examination of our S. P. lands not yet patented by our oil experts must be stopped as information that they may obtain or give as to mineral character prior to patent will forever prevent our getting title.... Mr. Dumble (the company’s geologist) and his men should not be furnished by us with any data whatever except as to patented lands. For reasons above given such information will be embarrassing to them and us and may make them witnesses against this company in mineral contests hereafter.[604]