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Supreme Court, January, 1915.

was stated: "It embraces over 80,000 acres in Logan County, Colorado." Under the heading, "Value of Land," it was stated: "The bonded debt per acre is about $25 — this issue of bonds." Under the heading, "Ownership of Land," it was stated: "The land is not owned by large companies or in large tracts. On the contrary, it is largely held by well-to-do people of Sterling and Denver, who own the land in tracts averaging 160 acres."

Warner stated to the plaintiffs that the North Sterling Irrigation District covered about 80,000 acres of valuable lands; that the irrigation works were completed, and the water would be turned on the following spring; that the bonded indebtedness represented about $25 an acre; that the taxes to meet the interest charges were to be collected by the county treasurer, the same as other taxes; compared it to a school tax in this state, and said there could be no chance of their getting out of it any more than they could get out of a school tax, that the land was owned by people in small parcels averaging about 160 acres, and that the bonds were a lien ahead of anything else; that there had never been a default in Colorado irrigation bonds, and that one of the defendants had made a personal inspection of it, and that as soon as the land had water it would be worth from $125 to $250 per acre.

It would appear that Mr. Warner's instructions and points as to the sale of these bonds were obtained from a Mr. Cunningham, connected with the defendants' office, and from statements contained in the printed circular. Warner further stated the taxes were in the hands of the county treasurer for the payment of the coupons to fall due the succeeding spring.

As matter of fact, the representations made as to the North Sterling District were false and untrue in these particulars. Instead of there being 80,000 acres of

Supreme Court, January, 1915.

[Vol. 88. land, there was only about 54,000 acres. Of this about 40,000 acres are what is called deeded land (the estimate varies), and the balance was what is called government land. By deeded land is meant land for which the holders had received conveyances of the title.

Then there were homestead entries where, under section 2289 of the Revised Statutes of the United States, applicants have entered upon a homestead of 160 acres, and which may ripen into title; but to accomplish this the homesteader must reside upon such lands and cultivate them for a period of five years.

In addition to these classes, are what are termed desert entries, where lands are acquired by application to the government for an amount of land not exceeding 320 acres, upon which a payment of twentyfive cents an acre must be made at the time of the application. Evidence must be produced also of an intention to reclaim the tract by irrigation, and the source of supply must be pointed out. Then, for a period of three years, the occupant must provide for reclamation: of such lands at the rate of at least one dollar per acre. Upon proof of compliance with these conditions, and an additional payment to the government, a patent will issue giving title, so that in neither of the latter cases does the occupant get title until there has been a full compliance with the provisions of the statute.

Instead of there being 80,000 acres in the North Sterling District, there were only about 54,000 acres, of which only about 40,000 acres were owned by occu pants, and the balance was not subject to any irriga tion tax so long as the title remained in the government.

The irrigation system was not, in fact, fully completed; the dam was not entirely finished, nor were the railroad bridges constructed, and the water, as a matter of fact, was not turned into the reservoir until

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Supreme Court, January, 1915.

March, 1912. The system was not completed in other districts, although the work was nearly completed. Instead of the bonded indebtedness being about twenty-five dollars per acre, on the basis of an acreage of say 44,000 acres, it was nearly fifty dollars an acre. Instead of the land being owned in small parcels, it appeared that fifty people, at the outside, owned the land in the district, outside of that owned by the government, averaging about 880 acres apiece. The county treasurer had not, in fact, received by way of taxes money to meet the interest charges on the bonds as stated, but the company constructing the irrigation system had paid the money to pay the coupons.

As to the Greeley-Poudre District Irrigation bonds, it was stated in the printed circulars: "The GreeleyPoudre Irrigation District adds 125,000 acres to this magnificent empire. The new district embraces 125,000 acres adjacent to the old irrigated Greeley District."

Warner represented to the plaintiffs that the irrigation system of the Greeley-Poudre was completed, and the water would be turned on in the following spring (1911), and the interest there was to be collected and paid by the county treasurer, the same as in the North Sterling District; that the tax had been levied and collected to pay the coupons in June and December, 1911. He stated the work was substantially or practically done; that there was a tunnel going through a mountain where they were going to get an absolutely sure water supply.

As matter of fact, the evidence shows that instead of the district having 125,000 acres it contains about 77,000 acres of deeded land; that instead of the irrigation system being nearly completed only about sixty per cent of the work had been done. It never has been finished, and no water has ever been turned

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[Vol. 88.

on. The district never has completed title to its source of supply. The project involved tapping the Laramie river in the state of Wyoming for water; but, before the district was in condition to take water from the Laramie river, the state of Wyoming brought an action in the United States Supreme Court to restrain the diversion of the waters of the stream. The action is still pending. If it is decided adversely to the state of Colorado, the entire project will fail. In the meantime, the prosecution of the work on the system is suspended, the interest coupons have been defaulted, and the bonds are of very little value. The same is true of the irrigation bonds of the North Sterling District.

Sufficient has been stated to show that material misrepresentations were made as to the bonds of both these irrigation districts. They induced the purchase of the bonds in question by the plaintiffs who relied on the truth of the statements made.

These actions seek the rescission of the two sales, and a return of the bonds exchanged, and, in case such bonds cannot be returned, for a judgment for their value.

The representations made by the defendants, the evidence tends to show, were largely induced by reports made their firm by residents of the state of Colorado on various features of the two projects, and upon which the defendants doubtless relied in drafting their circulars inviting purchase of the bonds. Mr. Warner, the defendants' agent, through whom the sales were negotiated, was called as a witness for the plaintiffs, and testified to the making of the statements alleged, substantially as claimed by the plaintiffs; and in this connection testified that at the time they were made he honestly believed them to be true, and they were made with no intent of defrauding the plaintiffs.

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Supreme Court, January, 1915.

The court has no occasion to question his testimony in that respect. The defendants' concern, for all that appears, is and was a reputable business house, and it is quite probable that in issuing the circulars it relied on information obtained from others. Nevertheless, the circulars and statements made were false and untrue in the particulars stated.

It is contended on the part of the defendants that they acted in good faith, and invested millions of dollars of their own money in the securities, a portion of which was sold to the plaintiffs, and that, in order to recover, the plaintiffs must show not only the falsity of the representations, but knowledge on the part of the defendants of their falsity, and that there is lacking in this case the latter element.

These actions are in equity to rescind the contracts of sale, and we are of the opinion differ materially from ordinary common law actions for fraud and deceit. It may well be that in an action at law for fraud and deceit, accompanied with the right of arrest and a body execution, in order to entitle the plaintiffs to the benefit of such remedies, they should satisfy the court of "scienter" on the part of the defendants. Where, however, the action is one in equity simply to rescind contracts induced by false representations, we can discover no good reason why the rule invoked by the defendants should be applied. If we may assume that the defendants in this case were innocent of any fraudulent intent, and acted in good faith in negotiating the bonds sold, relying on the truth of the representations made, nevertheless, after their falsity became known, it would be a species of fraud on their part to retain the fruits of the transactions. To permit such transactions to stand would, in our opinion, be a denial of plain ordinary justice.

If these views of the law are not already fully