Central Oregon Irr. Co. v. Public Service Commission

JOHNS, J. In the inception of the transactions out of which this litigation arose, the lands belonged to the public domain, and the title was in the United States government. Claiming that the lands were subject to reclamation under the terms and provisions of the Carey Act, the state filed its application with the Secretary of the Interior to have 140,000 acres set aside and reclaimed through irrigation, and the government made the order. This was followed by an act of the legislature of this state authorizing the making of the necessary contracts. Based upon such proceedings, the State Land Board entered into the different contracts with the company and its predecessors in interest, in and by which they undertook and agreed to construct, operate, and maintain an irrigating system, and through the means of canals, flumes, and ditches, to furnish and provide the amount of water necessary to irrigate and reclaim a' large portion of the entire tract of 140,000 acres which was set aside and withdrawn under the Carey Act, in consideration of which the contract provided that the company should have what is known as a — 455 — reclamation lien upon the lands embraced within its respective contracts, and that in addition thereto and as a part thereof, it should have and charge what is known as a “maintenance fee.” In the first instance this was an annual charge of eighty cents per acre. Thereafter it was fixed at one dollar per acre. After obtaining such contracts from the state, the company proceeded to construct the irrigation system and divert the waters of the Deschutes River to and upon the lands described in its contracts. In this situation it went out among what is known as the “settlers” and procured contracts with them in and by which each “settler” made application to the State of Oregon to purchase and acquire title to a specific portion of the land, which in no event was more than 160 acres to any one person, and as a part of such application each “settler” promised and agreed with the company to pay it a stipulated reclamation fee of about fifty dollars per acre for each acre of irrigable land, and in addition thereto and as a part thereof to pay the company the stipulated “maintenance fee” of either eighty cents or one dollar per acre as the contract provided. The contracts between the state and the. companies provide that the company shall have a lien upon the lands for the full amount of both the reclamation fee and the “maintenance fee” and such provisions are carried into and made a part of the contracts between the company and the “settlers” and no “settler” can acquire title from the state to his particular land without first having paid the full amount of both of such fees which are charges upon his land. Although the Carey Act provides for payment of the reclamation lien as one of the conditions upon which — 456 — title to land may be acquired, nothing whatever is said in the act about a lien or the payment of a lien for a “maintenance fee,” yet under the “settlers’ ” contracts, provision is made for the' payment of a “maintenance fee” and a lien is given to insure its collection. It is contended by the company that it is a public utility, that the use of the water by the “settlers” is a public use, and that their contracts come under the terms and provisions of “The Public Utilities Act” (§§ 6030-6108, Or. L.), and that the commission not only has the power, but that it is its duty to hear and determine what is a reasonable “maintenance fee” which the company should charge and receive for the use of water distributed to the “settlers,” and that the “maintenance fee” provided for in the contracts is not a reasonable or just compensation, and that the amount of such fee should be increased so as to provide the company a fair return on its investment. The defendants contend that it is not a matter within the jurisdiction of the Public Service Commission, that the use of such waters is not a public use, and that the increase of the “maintenance fee” would impair the obligation of a contract. The “settler” must be a citizen of the United States over twenty-one years of age, and in no event can a contract be made for more than 160 acres. In the event of a previous contract to obtain land under the Carey Act in another project, the “settler” is then limited to the amount of land which would remain out of a i;otal of 160 acres. In the instant case, it is confined to a specified portion of the land which was set aside and withdrawn for this particular project, and a “settler’s” contract could not be made to ac — 457 — quire title to a portion of any other or different land. At the time the application to purchase is made, the “settler” is required to pay a certain percentage in cash and to execute promissory notes for the amount of the deferred payments, with interest from date. Provision is made in the notes in the event of suit or action, for the payment of reasonable attorneys’ fees. The amount of the reclamation fee and the annual “maintenance fee” is made a charge and lien upon the land, and the agreement to pay the amount of such charges are covenants running with the land, and title cannot be acquired without the payment of such charges and liens. Such contracts must he made with the company, and are subject to the approval of the State Land Board, and no valid or binding contract can he made without such approval. By the terms of his contract, the “settler” agrees .to pay a certain stipulated amount with accrued interest as one of the conditions upon which he receives his deed and acquires title. The “maintenance fee” is a lien, and is made one of the fixed charges which enters into and is a part of the consideration for the purchase price. To raise or to lower the amount of that fee would he to increase or decrease the agreed purchase price of the land. When analyzed, the “settlers’ ” contracts are nothing more than an agreement to buy and sell certain described real estate, with an appurtenant water right attached to and running with each tract of land, and the contract expressly provides that the water shall he used upon the specific land described in the contract and that it cannot be used upon any other or different land. 1. The land is the subject matter of the contract. It is that which is bought and sold. Upon the com — 458 — pletion. of Ms contract, the purchaser obtains title to the land itself. He does not contract for, and never does acquire, title to the water. In that particular, his. agreement is confined and limited to the use of the water upon the specific land described in his contract, and the right to such use is appurtenant to and runs with the land. In other words, the right of the “settler” to the use of the water is contingent upon Ms contract to purchase and acquire title to the land, without which he would never have any right to the use of the water, and the annual “maintenance fee” is one of the considerations which enters into and is a part of the agreed purchase price of the land. To change the “maintenance fee” by either the raising or the lowering of it would increase or decrease the agreed purchase price of the land, and would impair the obligation of a contract to buy and sell real estate with an appurtenant water right. 2. The remaining question is the jurisdiction of the commission. Section 5777, Oregon Laws, provides that: “The use of the water of the lakes and running-streams of the State of Oregon, for general rental, sale or distribution, for purposes of irrigation, and supplying water for household and domestic consumption, and watering livestock upon dry lands of the state, is a public use, and the right to collect rates or compensation for such use of said water is a franchise. A use shall be deemed general within the purview of this act when the water appropriated shall be supplied to all persons whose lands lie adjacent to or within reach of the line of the ditch or canal or flume in which said water is conveyed, without discrimination other than priority of contract, upon payment of charges therefor, as long as there may be water to supply. ’ ’ — 459 — Section 5788 enacts: “This act may at any time be amended by the legislative assembly, and Commissioners' for the management of water rights and the nse of water may be appointed and rates for the use of- water may be fixed by the legislative assembly, or by such commissioners; but rates shall not be fixed lower than will allow the net profits of any ditch or canal or flume or system thereof to equal the prevailing legal rate of interest on the amount of money actually paid in and employed in the construction and operation of said ditch or canal or flume or system thereof.” Laws of 1901, pages 378, 381, Section 4, provides: “The State Land Board shall by said contract fix the amount due the person, company of persons, association or incorporated company for the reclamation of said land, and the annual charge for the maintenance of the irrigation system.” Section 6030, Oregon Laws, says: “The term ‘public utility,’ as used herein, shall mean and embrace all corporations, companies, individuals, associations of individuals, their lessees, trustees or receivers (appointed by any court whatsoever), that now or hereafter may own, operate, manage or control, any plant or equipment or part of a plant or equipment in this state for the conveyance of telegraph or telephone messages, with or without wires, or for the transportation of persons or property by street railroad as common carriers, or for the production, transmission, delivery or furnishing of heat, light, water or power, and any and all whether either directly or indirectly to or for the public, and whether said plant or equipment or part thereof is wholly within any town or city, or not. No plant owned or operated by a municipality shall be deemed a public utility under or for the purposes of this act.” — 460 — Under the above sections and its articles of incorporation, the company contends that it is a public utility and that the use of the water by the “settlers” under their respective contracts, is a public use and that the State Land Board has fixed the amount of “the annual charge for the maintenance of the irrigation system,” that the state has the right to change the contract with the company and increase the “maintenance fee,” and that the commission is acting for and represents the state and that it not only has the power, but that it is its duty to increase, the amount of the “maintenance fee,” so that the receipts therefrom would “equal the present legal rate of interest on the amount of money actually paid in and employed in the construction and operation of said ditch, canal, or flume, or system thereof.” If the plaintiff is a public utility and the use of the waters by the “settlers” is a public use and if the amount of the “maintenance fee” was only a question between the petitioner on one side and the State of Oregon or one of its legal subdivisions on the other, the contention of the company would have to be sustained. That is the legal force and effect of the decision of this court in Woodburn v. Public Service Commission, 82 Or. 114 (161 Pac. 391, Ann. Cas. 1917E, 996, L. R. A. 1917C, 98), where it is held that— “When the owner devotes his property to á use in which the public has an interest, he must submit to be' regulated and controlled by the public for the common good.” “The regulation of rates for the purpose of promoting the public health, comfort, safety and welfare is an exercise of the police power of the sovereign.” “When the state exercises its police power, it does not work any impairment of obligation of the con — 461 — tract; the possibility of the exercise of such power being an implied term of the contract.” This decision was followed in the case of Portland v. Public Service Commission, 89 Or. 325 (173 Pac. 1178), where it was held: “It is primarily the duty of the state in the interests of the public to see that all concerns that serve the public be content with and are entitled to receive reasonable compensation for their services.” “That the regulation of rates of the fares of a street railway is within the police power of the state ’ ’; and that the order of the Public Service Commission, changing the rate of fare specified in the franchise, is not void for impairment of the obligation of a contract “because of depriving the city and its inhabitants of property rights without due process of law,” and that the Public Service Commission as an agent of the state “could agree to a change in the franchise allowing the company an increased rate of fare.” This legal principle was later followed and approved by this court in the City of Hillsboro v. Public Service Commission, 97 Or. 320 (187 Pac. 617). Those decisions have become and are the settled law of this court. Prom an examination of the exhaustive notes in the Virginia Western Power Co. v. Commonwealth of Virginia, 125 Va. 496 (99 S. E. 723, 9 A. L. R. 1148), it will be found that such legal principles are sustained by the decided weight of authority. In the first case which was before it on the petition of the water users association, and over the vigorous protest of the petitioner here, the commission held that it had control of and authority over the moneys derived from the “maintenance fees” and from which ruling no appeal was taken and that decision became final. In the second case, based upon the petition of the company here, to raise the — 462 — “maintenance fee” and after an inspection of the premises and the taking of some testimony and upon the objection of the “settlers,” the Public Service Commission held that it did not have any jurisdiction over the subject matter, and for such reason made an order dismissing it, from which no appeal was ever taken, and that decision became final. Its last ruling is founded upon a decision of Judge Robert S. Bean of the United States District Court of Oregon, in De Pauw University v. Public Service Commission of Oregon, 247 Fed. 183, in which, among other things, the syllabus says: “A corporation, and its predecessor, engaged in the sale of irrigable land, which acquired a source of water supply and installed an irrigation system, entering into contracts with the purchasers to furnish water for irrigation, is not subject to regulation under the Oregon Public Utilities Act (Laws Or. 1911, p. 483), for Section 1, defining a ‘public utility’ as including corporations which shall own, operate, manage, and control any plant or equipment for the delivery or furnishing of water or power directly or indirectly to the public, does not extend the act to mere private corporations. ’ ’ Upon the facts therein stated, the opinion holds that “neither the Luse Company nor its predecessor in interest come within this definition for they were not engaged in furnishing or selling water to or for the public, but only to such parties as they might select,” and further says that— ‘ ‘ The distinction between a public service irrigation company and a private concern is so fully covered by the Supreme Court of California in Thayer v. California Development Co., 164 Cal. 117 (128 Pac. 21), and Del Mar Water, Light & Power Co. v. Eshleman, 167 Cal. 666 (140 Pac. 591, 948), that it would be useless for me to attempt to add anything thereto.” — 463 — The case of Thayer v. California Development Co., 164 Cal. 117 (128 Pac. 21), is exhaustive and well considered, and holds that: “Where an irrigation company which appropriated water from a river to irrigate a named county, organized subsidiary corporations for the purchase of the land in that territory, and transferred to them perpetual water rights for the irrigation of land owned by them, there was no dedication of the water right to public use; the essential feature of a public use being that it shall not be confined to privileged individuals, but open to the indefinite public, while in this case not every land owner could use water. “As Const., Art. XIV, Sec. 1, which has been in force for over thirty years, and which provides that the use of the water now appropriated for sale, rental, or distribution is a public use, has never been construed as declaring that water taken for the irrigation of a fixed tract is appropriated for the public use, and it has been expressly declared by statute that such water rights are appurtenant to the land, the mere appropriation of water for the purpose of sale to given individuals is not a dedication or appropriation to public use.” To the same effect is the decision of that court in Mound Water Company v. Southern California Edison Co. (Cal.), 194 Pac. 1014. Although under its articles of incorporation, it has other powers, the primary purpose of the company was the reclaiming by means of irrigation of certain arid lands in Oregon under the Carey Act. That was the real purpose for which the corporation was organized. It was for such reason that it made the contracts with the State of Oregon, founded upon which it entered into the numerous and different contracts with the “settlers.” The theory of the whole scheme was that the company would furnish the water to re — 464 — claim the land, and that by the nse of snch water and a compliance with their respective contracts, the “settlers” would acquire title to the specific portions of the land therein described, and that in consideration of furnishing the water the company was to have and receive the agreed reclamation fee and the annual “maintenance fee.” To obtain a contract, the “settler” must be a citizen of the United States, and the application is subject to the approval of the company and the State Land Board. Although it does embrace all of that class, yet the fact remains that the right of a contract to purchase and acquire title to land is confined and limited to a certain specified class of persons, and that it is not inherent in the “settlers” and does not exist as a matter of public right. “It is a well-established proposition that a water system of this character, so owned and controlled is not a public utility and that the water owned, held, and used in that manner is not dedicated to public use.” Mound Water Co. v. Southern California Edison Co. (Cal.), 194 Pac. 1014. As to its contracts made by the “settlers,” the company was not a public utility, and the use of the waters by them was not a public use. Under the stipulated facts it appears that the company is supplying water for irrigation and domestic use for about 5,000 acres of land which are outside of the lands within the Carey Act, that it is also furnishing a certain amount of water for use in the cities of Bandon and Redmond and to the town site of Deschutes, and that it has also furnished water for irrigation and domestic use to certain private persons who are not under the Carey Act. In Mound Water Co. v. Southern California Edison Co. (Cal.), 194 Pac. 1014, the opinion says: — 465 — “It lias been held that a water company may devote a part of its water supply to private use, or it may dedicate a portion of its water to a public use, and reserve the remainder, if any, for some private use, although it cannot after dedicating any part to public use, transform any of that part into a private use, without the consent of the proper public authority.” It may be true that as to all of such matters the company is a public utility, and is acting as such, and that the use of such waters is a public use, but as the opinion in the California case says that question was not before the court and it is not before this court, and upon that point we decline to express an opinion. Again the contract between the Deschutes Irrigation and Power Company and the state, executed on June 17, 1907, contemplates and provides that the land and appurtenant water rights may be turned over to the purchasers “free from any perpetual charge or lien for maintenance” and that the owner of each tract of land subject to certain reservations shall have his pro rata share in the whole irrigation system, “and shall hold his lands free of any maintenance charge. ’ ’ The “settler’s” contract recites that: “In the event that the company shall transfer the said irrigation system to a water users association to be formed pursuant to the provisions of said contract of June 17, 1907, shares of stock in said corporation shall be delivered by the company in lieu of the conveyance of water rights hereinbefore provided for.” Upon a compliance with the terms, the contracts clearly indicate that the “settler” has a right to become an owner in the whole irrigation system in proportion to the amount of his payments. — 466 — "We bold that in the making of its contracts with the “settlers” the company was not a public utility, and that the use of the waters by them under their contracts is not a public use and that the increase of the agreed “maintenance fee” would impair the obligation of contract. The demurrer is sustained and the petition for the writ is dismissed. Demurrer Sustained and Petition Dismissed. Rehearing Denied. Burnett, C. J., and Brown, J., took no part in the consideration of this case.