New La Junta & Lamar Canal Co. v. Kreybill

• Decision Date: 11 November 1901
• Citation: 67 P. 1026,17 Colo.App. 26
• Parties: NEW LA JUNTA & LAMAR CANAL CO. et al. v. KREYBILL et al. [1]
• Court: Colorado Court of Appeals

67 P. 1026

17 Colo.App. 26

NEW LA JUNTA & LAMAR CANAL CO. et al. v. KREYBILL et al. ^[1]

Court of Appeals of Colorado

November 11, 1901

Error to district court, Prowers county.

Suit by Frank Kreybill and others against the New La Junta & Lamar Canal Company and others to remove the lien of a trust deed. From a decree in favor of plaintiffs, defendants bring error. Affirmed.

Charles J. Hughes, Jr., for plaintiffs in error.

Charles E. Gast and Rogers & Shafroth, for defendants in error.

GUNTER J.

The Arkansas River Land, Reservoir & Canal Company, a corporation, owned and operated until April 4, 1891, what is known in evidence as the "La Junta and Lamar Canal." This canal (length, 113 miles) is situate in the counties of Otero, Bent, and Prowers. The Prince and King reservoirs are a part of the system, the Prince reservoir being simply a wide place in the ditch. Some use has been made of this reservoir for irrigation; none of the King reservoir. As early as 1890 water was turned into the King reservoir. It cannot, however, be utilized in its present condition for purposes of irrigation. Such was its condition at the time of the institution of the Hess suit mentioned infra, and at the time of the institution of the present action. Its utility depends on future development. This system was sold under judicial process April 4, 1891 sheriff's deed being executed January 6, 1892. By mesne conveyances the system passed to the La Junta & Lamar Canal Company January 19, 1892. Prior to November, 1891, by contracts and deeds, water rights had been sold from the canal amounting to 977.4 cubic feet of water per second of time. At the November term, 1891, of the district court of Prowers county, a decree was entered restraining T.C. Henry and the Arkansas River Land, Reservoir & Canal Company from selling further water rights. This was upon the basis that the capacity of the canal having been oversold, further sales therefrom were in violation of the water contracts and deeds. The new company (the La Junta & Lamar Canal Company) thereafter sold 73 additional water rights, calling for the delivery of 73 cubic feet of water per second of time. April 18, 1893, John Hess, in his own behalf and in behalf of all other owners of water rights in the canal, instituted suit in the district court of Prowers county against the La Junta &amp Lamar Canal Company to restrain the further sale of water rights by this company; contending, as in the suit against its predecessor company, that the capacity of the canal had been oversold; also asking the appointment of a receiver, and for a specific performance of the water contracts and water deeds theretofore issued. On that date an injunction order was issued restraining the further sale of water rights, and on June 17, 1893, a receiver for the canal was appointed to operate it pending litigation. December 21, 1893, on final hearing, the decree enjoining a further sale of water rights was made perpetual, a specific performance of the water contracts and deeds decreed, and a receiver appointed pending appeal. The rights of the parties in the Hess suit were, and in the present action are, determined by the water contracts and deeds heretofore mentioned. These instruments provided that when the capacity of the canal should have been sold, and two-thirds of the water rights so sold should have been paid, the title to said canal should pass to the owners and holders of contracts for water rights in accordance with the prescribed plan; further, that when this plan had been carried out the obligations of the company in respect to said ditch, and keeping the same in repair, or supplying water through the same, or any other ditch, canal, or reservoir connected therewith, should cease; further, that the canal, when delivered to the water-right owners under the above plan, should be free of any debts against the same. The Hess case was tried to the court. In the decree appears, inter alia: "And the court, being now fully advised in the premises, doth find that the capacity of the defendant's canal has been oversold, and that the plaintiff and the other holders of water deeds to be satisfied from the said canal and its reservoirs are entitled to a specific performance of the contract contained in their said deeds, and that they are equitably entitled to own and manage the said property. It is therefore ordered, adjudged, and decreed that the defendant company, by its proper officers, execute and deliver a proper deed of conveyance of the said canal and its reservoirs, together with its property rights, priorities, and franchises held in connection therewith, to such new corporation as the plaintiff and other holders of water rights in the said canal may organize for the purpose of operating and managing the said property; and, in default of the defendant company so doing, let the clerk of this court execute such conveyance."

This decree was reviewed in Canal Co. v. Hess, 6 Colo.App. 497, 42 P. 50, and was modified merely as to the manner of transferring the canal and reservoirs. In all other particulars it was affirmed. An examination of the abstract and briefs in the case is convincing that this court held therein that the Prince and King reservoirs passed with the system to water-right holders, as the capacity of the canal had been oversold. In its opinion the court said: "The naked question in this case is whether the grantees are entitled to be treated as the owners of the property, and have a right to insist on the formation of a new company according to the scheme outlined in their deed, and to delivery of stock according to the terms of their contract. We conclude this time has arrived." In obedience to the remittitur in this case the district court of Prowers, in June, 1896, entered an amended decree in which appears, inter alia, the following: "The court doth find that at the time of the institution of this suit the capacity of the defendant's canal to furnish water had been, and now is, oversold, and that the plaintiff and the other holders of water deeds to be satisfied from the said canal and its reservoirs are entitled to a specific performance of the contract contained in their said deeds, and that they are equitably entitled to own and manage the said canal and reservoirs, together with all the property rights, priorities, and franchises held in connection therewith."

To effectuate this amended decree, and to provide for a conveyance in pursuance thereof of the canal and reservoirs, a corporation was formed June 3, 1896 entitled the New La Junta & Lamar Canal Company. Among its five incorporators and directors were, and continued to be until the date of the institution of the present suit, George E. Ross-Lewin, cashier of defendant bank; Keely, assistant cashier; and Patterson, receiver of the Colorado Securities Company. The La Junta & Lamar Canal and adjunct reservoirs were conveyed to the new company, and the receiver, in pursuance of an order of court, delivered over the canal to the new company. June 15, 1893, after notice had been given by plaintiff in the Hess suit, supra, that on June 17, 1893, an application would be made for the appointment of a receiver for the canal pending litigation, the La Junta & Lamar Canal Company, by its board of directors, passed the following resolution: "Whereas, the La Junta & Lamar Canal Company is justly indebted to the Colorado Securities Company in the sum of $28,769.17 for moneys advanced by the said the Colorado Securities Company to this company, and paid out for its use, and the said the Colorado Securities Company having requested this company to better secure the payment of the same: Therefore, be it resolved that the vice president be authorized to execute a note to said the Colorado Securities Company for said sum, payable in thirty days from date, and that the vice president and the secretary be authorized to execute a trust deed upon all of the company's reservoirs and canal to secure the same." A note and trust deed were executed pursuant to such resolution. After maturity of the note, it was transferred to the First National Bank of Denver, one of plaintiffs in error. The present suit was instituted December 21, 1896, to remove the lien of this trust deed as to the canal and reservoirs constituting the La Junta & Lamar Canal system. Trial was had to the court, and decree rendered July 2, 1897, in which appears, inter alia: "That prior to the 4th day of April, 1891, the said La Junta & Lamar Canal, together with its laterals, reservoir sites, known as the King and Prince reservoirs, and other property, was in control of and operated by the Arkansas River Land, Reservoir & Canal Company, subject to the water deeds and contracts then issued, to be satisfied therefrom, each right representing 1.44 cubic feet of water per second of time, flowing under a weir; that on or about the said 4th day of April, 1891, said property was sold under judicial process for the purpose of satisfying a certain indebtedness of the said the Arkansas River Land, Reservoir & Canal Company, and by certain mesne conveyances became and was vested in the La Junta & Lamar Canal Company; and that thereafter the said La Junta & Lamar Canal Company sold additional water rights therefrom. And the court further finds that at the time of the sale of said property, on or about April 4, 1891, said company, the Arkansas River Land, Reservoir & Canal Company, had sold and had outstanding and in force a number of water rights evidenced by water contracts and water deeds more than equal to the estimated full capacity of said ditch to furnish water, and that, at the time of the execution of the note and mortgage set forth in the complaint of the La Junta & Lamar Canal Company, the...