Commonwealth Trust Co. v. Smith

WOLVERTON, District Judge. The single question presented by the appeal is whether the contract holders or the persons claiming .water rights or interests in the lands comprised by the project or irrigation system are indispensable parties to the suit, so that the court is unable to proceed in their absence without injuriously affecting them in their rights and privileges. If this is merely a proceeding for the foreclosure of a mortgage lien, and nothing more, then it may confidently be premised that the other contract holders within the project should not be required to be brought in, because they are neither necessary nor indispensable parties, nor is it competent in the ordinary bill of foreclosure to litigate the title of parties claiming adversely to the mortgagor. Dial v. Reynolds, 96 U. S. 340, 24 L. Ed. 644; Peters v. Bowman, 98 U. S. 56, 25 L. Ed. 91. — 6 — [1] Indispensable parties are defined as— “persons who not only have an interest in the controversy, but an interest of such a nature that a final decree cannot be made without either affecting that interest or leaving the controversy in such a condition that its final termination may be wholly' inconsistent with equity and good conscience.” Shields v. Barrow, 17 How. 129, 139, 15 L. Ed. 158. So it is said in Williams v. Bankhead, 19 Wall. 563, 571, 22 L. Ed. 184: “Where a person will he directly affected by a decree, he is an indispensable party, unless the parties are too numerous to be brought before the court, when the case is subject to a special rule.” A bill to rescind affords an apt example of the kind. All parties to the contract sought to be annulled must needs be indispensable parties. [2] The right of the construction company, or its successor, the applicant here, to foreclose its liens, is controverted on the ground that the company has not performed its part of the contract with the settlers whereby its liens were acquired; in other words, that its right to enfor.ce the lien depends upon certain conditions to be performed upon its part, which are conditions precedent to any right of action against the settler to compel him to perform. It is stipulated between the parties in the settlers’ contract for the purchase of shares or interests in the irrigation system that the agreement is made in accordance with the provisions of the.contract between the state of Idaho and the company, which, together with the laws of the state of Idaho under which the agreement is made, shall be regarded as defining the rights of the respective parties, and shall regulate the provisions of the shares of stock to be issued to the purchaser by the operating company. This renders it essential, in order to arrive at the correlative obligations of the parties, to read the settlers’ contract in connection with the contract between the construction company and the state, and the state laws relative to the subject, and not only this, but in connection with the statutes of Congress rendering such a project possible. Twin Falls Salmon River Land & W. Co. v. Caldwell, 242 Fed. 177, 190, 155 C. C. A. 17. Under the contract between the state and the construction company, the company agrees to build the irrigation works and to' sell shares or water rights as provided to the person or persons filing upon the lands;’ also to the owners of other lands not described which are susceptible of irrigation from the system, the shares or water rights to .be sold on terms provided, and the management and control of the canal system to be transferred to the purchasers of such shares or water rights. The construction company represents that it is the owner of 1,500 cubic feet per second of the waters of Salmon river, and agrees that the dam to be constructed shall provide a reservoir for impounding 180,000 acre feet of water, and that it will construct the canal and lateral system of sufficient capacity to deliver water to the users at the rate — 7 — of one-liundredth of a second foot per acre for each acre of land to be irrigated. The construction company further agrees that, to the extent of the irrigation works and to the extent of the water rights to which it is entitled, as rapidly as lands are opened for entry and settlement, it will sell or contract to sell water rights or shares for land to be filed upon by qualified entrymen or purchasers, without preference or partiality other than that based upon priority of application; it being understood, however, that priority of application or priority of entry or settlement shall not give any priority 'of right to the use of water flowing through the canal against subsequent purchasers, but shall entitle the purchaser to a proportionate interest only therein — the water rights having been taken for the benefit of the entire tract, of land to be irrigated by the system. After further agreement on the part of the construction company to sell or cause to be sold a water right or share in the canal for each and every acre filed upon or purchased from the state or acquired from the United States, it is stipulated that each of said shares or water rights shall represent a carrying capacity in the canal sufficient to deliver water at the rate of one-hundredth of a cubic foot of water per acre per second^ — each share to represent a proportionate interest in the canal or irrigation works, together with all rights and franchises therein, based upon the number of shares finally sold in said canal; said shares or interests to be sold to persons filing upon the lands at a price not exceeding ipdO per share, to be paid in installments as specifically set forth. It is stipulated that in no case shall water rights or shares be dedicated to any lands before mentioned or sold beyond the carrying-capacity of the canal or in excess of the appropriation of water therefor. It is further stipulated that the sale of water rights to the purchasers shall be a dedication of the water to the lands to which the same is to be applied. This recital comprehends sufficiently for the present inquiry the material stipulations on the part of the construction company. Under the act of Congress of June 11, 1896 (29 Stat 434), a slate is authorized to create a lien or liens upon lands granted under the Carey Act to the state, which liens, when created, are declared to be valid on and against the legal subdivisions oí land reclaimed for the actual cost and necessary expenses of reclamation and reasonable interest thereon from the date of reclamation until disposed of to actual settlers. The state of Idaho has provided by law that any company furnishing water for any tract of land shall have a first and prior lien on the water right and land upon which the water is used for all deferred payments for-said water right, the lien to remain effective until the last deferred payment for the water right is paid and satisfied according to the terms of the contract. Section 3019, St. Idaho 1919. By the contract with the settler, the purchaser agrees that, upon default in payment of installments, interest, etc., the company may declare the entire purchase price for the water due, and may proceed to collect the same and to enforce any lien it may have upon the water — 8 — rights or the land. He also covenants to set over by way of mortgage to the company, to secure the payment of the amounts due or to become due on the purchase price for the water right, any and all interest and all rights which he now has or which may hereafter accrue to him under his contract with the state for the purchase of the lands to which the water rights are dedicated, and, for further assurance, to execute a mortgage to the company to secure the performance by him of the provisions of the contract. The contract sets forth specifically the payments made and.to be made, the time of payment, and the interest agreed upon. Provision is made by state law authorizing the owner or holder of these liens to foreclose the same on account of default in discharging any of the deferred payments. Section 3021, St. Idaho 1919. And it is further provided that, in the event the owner or holder or occupant of the premises upon which the water has been purchased or contracted for has not at the time of the filing of the claim of lien received title to the premises so occupied or held by him, the proceeding to foreclose shall relate only to the water or water rights. Section 3045. It is also provided, by section 3004, that, should it appear to the department of reclamation that the water supply of the construction company is inadequate to irrigate properly and sufficiently the lands so® proposed to be irrigated, or that water rights have been sold to the full carrying capacity of the ditch or canal, or in excess of the actual appropriation or of the supply of water made actually available, the department of reclamation shall have the right to enter an order forbidding the parties from" making any further or additional sales of water rights or of shares of stock in any company representing or evidencing water rights, etc. It appears from the bill of complaint that the construction company entered into settlers’ contracts covering approximately 73,000 shares, representing a supply of water to that number of acres under the project; that the state board thereafter, in the exercise of its supervisory control, canceled and annulled entries' of approximately 13,000 acres, and accordingly reduced the acreage entitled to water and the number of outstanding shares in the system to approximately 60,070.8, and declined to approve other contracts; that it later made an order that the water available should be made appurtenant to approximately 35,-000 net irrigable acres, and no more. By a stipulation of the parties to this suit, it appears that the general government has issued patents to the state for lands under the project covering 35,000 acres, and declines to issue patent for additional acreage. By reference to the opinion recently rendered by this court in the case of Twin Falls Salmon River Land & Water Co. et al. v. A. E. Caldwell et al., No. 3502, 272 Fed. 356, it will he seen that the learned trial' judge found as a conclusion of fact that the system would not in an average year furnish water to the farmers in excess of 56,500 acre feet on a fair estimate, and that this estimate, distributed on a basis of 2% acre feet per acre, would reduce the irrigable area to 24.-214 acres, instead of 35,000, as found by the state board upon the ad — 9 — vice of the Commissioner of the General Land Office, and accordingly entered a decree which recites in effect, among other things, that the rate of 2% acre feet per acre per season, the amount that is and will continue to be required for the reasonably successful production of crops, is less than one-hundredth of a second foot perdiere flowing continuously during the irrigating season, and, as a deduction from still other recitals, that the system can be relied upon to furnish 40 per cent., and no more, of the water which the defendant company by its outstanding contracts agrees to sell and deliver, namely, 140,396 acre feet per season. So here it will be seen that, by the order of the state board, there •has been a constant and continuous reduction of the irrigable area that can be supplied with water from the project in quantity sufficient to meet the demands of practicable husbandry; and it may be remarked that the plaintiff by its complaint seems not to challenge specifically the power of the state board to make such delimitations from time to time, governed by the water supply which the company is able to make available for irrigation purposes under the project. In addition, the findings of the learned trial judge indicate that the water supply available is adequate to irrigate properly but 24,214 acres. It is obvious that many persons- — that is, contract holders — are and will necessarily be affected by the inadequacy of the water supply considered in relation to the amount that it was at first supposed could be made available. They are affected in several ways. Some will and can get no water at all, as their holdings are entirely outside of the reduced delimitations. Others, and a major portion of them, perhaps all, will be required to take and accept fewer acre feet per acre of water than they have contracted for, and some are bound to be affected in ways not now apparent by the readjustment of the water supply to the delimited area. Then there is the contention of the plaintiff that all the water users who will finally be entitled to water must be required to pay, not $40 per share for each share or interest in the system, but $60 and a greater sum according as the acreage subject to irrigation from the system is reduced by delimitations made, or that will of necessity be required to be made, to meet the inadequacy of the supply of water available for irrigation purposes. It is the very theory and purpose of the bill of complaint, as becomes apparent from a reading of it, to enforce the alleged lien for the larger amount, so as to require the diminished area to bear the burden of the entire cost of construction. It is obvious, therefore, that in a comprehensive, equitable, and fair readjustment of the matters pertaining to the unfortunate situation, all the contract holders will be affected in a greater or less degree, and that the rights of each shareholder are more or less dependent upon the rights of every other shareholder. This manifestly and necessarily will affect in greater or less degree the extent and dignity of the rights and holdings of a very great number, if not all, of the contract holders of shares under the project. So it would appear that a final decree cannot be made or entered in the case at bar without affecting materially perhaps all the contract holders — 10 — in the project, or at least without leaving the controversy in such condition that its final determination may be wholly inconsistent with equity and good conscience. The suit, considered in respect to the correlative rights involved, is not one for foreclosure merely, but by nature resembles more nearly one for specific performance, the termination of which will perforce of its very consequences affect in some measure all the contract holders by reason of the inability of the construction company fully to perform on its part. This result has been practically reached by the decision of this court in Twin Falls Salmon River Rand & Water Co. et al. v. Caldwell, supra. True it is that the state statute has made provision whereby the construction company is entitled to foreclose its liens, but it does not comprehend a situation such as is presented in the present controversy. It' is also true that the case of Twin Falls Oakley Rand & Water Co. v. Martens et al. (No. 3478) 271 Fed. 428, recently decided by this court, was one for the foreclosure of like liens. The question here presented was not there suggested, but an expression of the court in the opinion rendered indicates by clear enunciation one difficulty attending the litigation. Referring to unpatented lands included in the scheme, the court says: ■< “Many entrymen upon those lands have improved them, and, at least until after full opportunity is afforded such entrymen for hearing, we are not ready to say that, where they have complied with the law, they are to be put in a position where all the water must go to patented lands, and that their lands may be rendered useless and their claim of vested rights ignored.” [3] It is settled that the lien of the construction company can only extend to the acreage for which it furnishes an adequate quantity of water. Twin Falls Salmon River Land & Water Co. v. Davis et al. (C. C. A.) 267 Fed. 382. Considering the confusion and complexity of the situation and the interdependent relations of the shareholders, and the difficulty of rendering the fair and exact justice that equity and good conscience rightfully demand, we are of the opinion that the learned trial judge properly directed that all shareholders be made parties to the proceeding. The requirement not having been complied with, there was no error in dismissing the bill. Affirmed.