East River Bottom Water Co. v. Boyce

MOFFAT, Chief Justice. The East River Bottom Water Company, plaintiff and appellant, and the State Bank of Provo, are corporations organized and existing under the laws of the state of Utah. The East River Bottom Water Company issued to one Cordner certificate No. 7, representing seven shares of stock in the East River Bottom Water Company. Cordner endorsed said certificate ,to one Stewart. Stewart endorsed said certificate to one Peter Boyce. Without the surrender of said certificate No. 7, the secretary of said water company issued to Peter Boyce certificate No. 56, representing seven shares of stock in the water company in lieu of certificate No. 7. Later said certificate No-. 7 was presented and surrendered to the secretary of the water company and certificate No. 68 was issued in its place. This constituted a duplicate issue of seven shares. Later certificate No. 96 was issued upon presentation and surrender of certificates No. 56 and 68. Certificate No. 96 purported to represent fourteen shares of stock of the water company. The State Bank of Provo made a loan to George L. Boyce, who pledged certificate No. 96 as security. The bank accepted the certificate as representing fourteen shares of stock as it purported to do on its face. The water company prays that seven shares held by the bank be declared void and surrendered for cancellation. The articles of agreement of the water company set forth the object, powers and purposes of the water company and they are very limited. The object, as shown by articles IV and XIV, is “the controlling, managing and distribution” of certain waters of Provo, river awarded to the incorporators *151 •as residents of River Bottom by decree of the District Court. The water company was formed because “there has been difficulty and annoyance experienced by the parties hereto in exercising their right to the use of water by reason of there being no suitable and enforceable regulations.” No actual cash subscription for the capital stock other than amount necessary “to pay the actual expenses” of the ■corporation was required. The signing of the articles of agreement and the payment of the amount required “shall constitute a transfer of all its rights and privileges of the parties to the control, management and distribution of the water of the corporation, and will entitle the said parties to receive stock certificates for the amount of their interest in the corporation.” The corporation was a loose sort of a mutual agreement for the unified management and distribution of the water to the owners. The limited and restrictive words for the purpose of “control, management and distribution” is not a conveyance separating a water right appurtenant to land from the land and does not vest the title or right of use in the corporation within the provisions of Revised Statutes of Utah 1933, Section 100-1-10 and Section 100-1-11. The company has power or authority only to manage, control and distribute the water. The water right was never severed from the land and is still appurtenant thereto. An examination of the articles of agreement to determine what a stock certificate represented would, either for investment or loan purposes, disclose what the certificate actually represented. There is no power of assessment in the original article. The annual expenses were to be submitted to the stockholders and when the proportion of each one was determined he was not to be permitted to use water until his pro rata share of the expenses were paid. The only legal basis upon which stock could be issued in the company was by signing the articles of incorporation .and agreeing to the method of distribution and control and *152 presumptively upon a, showing that such person was the owner of a water right in the Provo river as shown by the decree referred to in the articles of incorporation. The stock certificates constitute a declaration of the proportion of the water to be distributed to the persons to whom they were originally issued upon which regulations for distribution were based. There is no provision for treasury stock, and while there are two classes of water rights referred to, there is no provision for classes of stock to correspond to the classes of water rights. The duplicate issue of seven shares was and is void. Judgment is reversed and the cause remanded to the trial court to take such proceedings as will be in harmony herewith. Appellant to recover costs. LARSON, J., and LESTER A. WADE, District Judge, concur.