Eldredge v. Mill Ditch Co.

• Decision Date: 21 January 1919
• Parties: ELDREDGE v. MILL DITCH CO. ET AL.
• Court: Oregon Supreme Court

177 P. 939

90 Or. 590

ELDREDGE v. MILL DITCH CO. ET AL.

Supreme Court of Oregon

January 21, 1919

In Banc.

Appeal from Circuit Court, Malheur County; Dalton Biggs, Judge.

Suit by Henry Eldredge against the Mill Ditch Company and others. Decree for defendants, and plaintiff appeals. Reversed and remanded.

This is a suit in equity brought to enjoin and finally to set aside the execution sale of the water rights and ditch property of the Mill Ditch Company, a mutual corporation for the distribution of water; to have a receiver appointed to take charge of such ditch and water rights, and levy the necessary assessments to pay off the debts of the corporation.

The defendant Mill Ditch Company is a corporation organized for the purpose of diverting water from the Malheur river and distributing it through the ditches in question to the stockholders in proportion to the shares of stock held by each stockholder. The shares of stock provided by the articles of incorporation are 4,750 of the value of $10 per share, and supposed to represent the full capacity of the ditch, one miner's inch for each share of stock.

The plaintiff is alleged to be a stockholder in such corporation owning 400 shares of stock therein and entitled to such number of inches of water from said ditch, and has used the same upon his land for a number of years irrigating the same and he alleges he has no other means for the irrigation of his land.

The defendant United States National Bank had, at the beginning of this litigation, a judgment against the Mill Ditch Company for the sum of $1,480 with interest, attorney's fees etc. It had levied its execution upon the entire property which, nominally at least, belonged to the Mill Ditch Company, including its entire water and ditch rights, and was about to sell the same under said execution at the time of the commencement of this suit, after which the property was actually sold under the execution for the sum of $1,784.79. The complaint was then amended showing the completed sale and it is now sought to set aside the same. A demurrer to the complaint was sustained in the lower court, and the case comes here upon the demurrer and the allegations of the complaint alone.

Wm. E Lees, W. H. Brooke, and P.J. Gallagher, all of Ontario, for appellant.

George E. Davis and Bruce R. Kester, both of Vale, for respondents.

BENNETT, J. (after stating the facts as above).

It appears from the complaint that the defendant Hope is the owner of the majority of the stock of the Mill Ditch Company, and he is also a director of the defendant United States National Bank. There were allegations in the complaint regarding the conduct on the part of Hope to the effect that he had intentionally permitted the assessments of the Mill Ditch Company upon the stockholders to lapse by reason of his majority control, and thus to permit the company to become insolvent, so far at least as the present payment of its indebtedness is concerned. The allegations of the complaint strongly suggest a collusion between Hope and the bank; but there is no direct allegation of such collusion, and we can find no direct allegation of any improper conduct of the bank itself which might estop it from proceeding on its execution.

The case is presented, on behalf of both appellant and respondent, upon the sole question as to whether or not the water rights, ditches, etc., held by a mutual water serving company for the benefit of its stockholders, can be levied upon and sold to satisfy an execution against the corporation, and it will be considered upon that ground alone.

The question presented is a new and interesting one. Section 227, L. O. L., as amended, provides:

"All property, including franchises, or rights or interest therein, of the judgment debtor, shall be liable to an execution, except as in this section provided. The following property shall be exempt from execution, if selected and reserved by the judgment debtor or his agent at the time of the levy, or as soon thereafter before sale thereof as the same shall be known to him and not otherwise: * * *

"Subd. 6. All property of the state or any county, incorporated city, town, or village therein, or of any other public or municipal corporation of like character."

Just what is meant by "like character," and just how closely a public corporation must resemble a town or village, etc., in order to be within the provision, is not very clear. However, it seems to be well settled both generally and in this state that there are some rights and interests, in the nature of property, which, on account of their inherent nature, cannot be effectually reached by an execution at law, and which, on account of their involved character, and of the complications with the rights of third parties, and with public interests, will be protected in a court of equity from an execution at law.

First. Intangible and Uncertain Interests Which Involve the Rights of Third Parties.--Such an interest is the equitable title in land where the legal title is not in the debtor but in some third person. It seems well settled that such equitable interest is not subject to execution. Smith v. Ingles, 2 Or. 43; Bloomfield v. Humason, 11 Or. 229, 4 P. 332; Silver v. Lee, 38 Or. 508, 63 P. 882; Holmes v. Wolfard, 47 Or. 93, 81 P. 819.

In the latter case it is said by Mr. Justice Moore, delivering the opinion of the court:

"The rule thus established rests upon the assumption that an equitable interest in real property is an uncertain estate, which, if it could be sold on execution issued on a judgment rendered in a law action, would produce a sum grossly inadequate in proportion to its real value; for most persons, in purchasing real property, insist upon a certainty of the title thereto, and, where there is a doubt in this respect, usually decline to invest their money. If a compulsory sale of such interest upon execution were permissible, there would be little or no competition in bidding. Few people desire to purchase a lawsuit, and the judgment creditor would probably secure the equitable estate for a nominal sum."

On the other hand, we may safely assume that equity would not permit the levying of an execution upon a legal title held by a debtor as trustee for a third party, as in the case of an assignee for the benefit of creditors, or of an ordinary naked trust. A court of equity would look to the interest of the real beneficiaries and would not permit them to be uselessly embarrassed by the sale of the legal title held by the debtor.

Second. Interests Which Cannot be Transferred.--Examples of this are the franchise of corporations, rights to an office, etc. Where, although the debtor may be such a corporation or, if an individual, may have an interest in an office in the nature of property, yet because there is nobody who can take such interest, and they are not the subject of transfer from one to another, an execution would be utterly ineffectual.

Third. Property Which is so Involved with the Interest of the Public That it Cannot be Levied Upon and Sold Without Interfering with the Rights of Such Public.--Such are the interests of corporations like canals and railways, even when in some sense held by private corporations, and the interests held by a school district and other public and quasi public organizations.

The case of Gue v. Tide Water Canal Co., in the United States Supreme Court, 24 How. 257...