Idaho Farms Co. v. North Side Canal Co.

• Decision Date: 24 May 1938
• Docket Number: No. 1997.,1997.
• Citation: Idaho Farms Co. v. North Side Canal Co., 24 F.Supp. 189 (D. Idaho 1938)
• Parties: IDAHO FARMS CO. v. NORTH SIDE CANAL CO., Limited.
• Court: U.S. District Court — District of Idaho

24 F. Supp. 189

IDAHO FARMS CO. v. NORTH SIDE CANAL CO., Limited.

No. 1997.

District Court, D. Idaho, S. D.

May 24, 1938.

Edwin Snow, of Boise, Idaho, and A. F. James, of Gooding, Idaho, for plaintiff.

Richards & Haga, of Boise, Idaho, Wayne A. Barclay, of Jerome, Idaho, and Frank L. Stephan and J. H. Blandford, both of Twin Falls, Idaho, for defendant.

CAVANAH, District Judge.

The nature of the suit is one brought by the plaintiff, a Delaware Corporation, against the defendant an Idaho Corporation, to quiet title to certain lands and water rights acquired in the enforcement of Carey Act contracts.

The history of the acquisition of the lands and water rights as described by the pleadings and the evidence appears to be that many years ago the plaintiff then known as Twin Falls North Side Land and Water Company, organized under the law of Delaware entered into certain contracts with the State of Idaho under the provisions of an Act of Congress known as the Carey Act, 43 U.S.C.A. § 641 et seq., and the laws of Idaho applicable, whereby it agreed to construct certain irrigation works for the irrigation of some 200,000 acres of land now situated in the counties of Jerome, Gooding and Elmore, Idaho, which were then segregated to the State under the Carey Act, and agreed to sell to the settlers upon the lands water rights or shares in the system so to be constructed. The plan and method of procedure for the contruction of the system and for selling water contracts and for its completion and operation was that a corporation be formed known as the North Side Canal Company, which is the defendant, with a capital stock of 200,000 shares delivered to the Twin Falls North Side Land and Water Company in consideration of the building by it of the system and which was delivered to it for sale to the settlers under the system. The original purchaser of the water right for a specific tract of land to be reclaimed did enter into a water contract with the Construction Company in which the company sold to the landowner one share of its capital stock as a water right for each acre of land to be irrigated. Between the years 1907 and 1920, the Construction Company completed the irrigation project and contracted for sale to the landowners of approximately 170,000 shares of water rights, and in 1921 transferred the ownership and operation of the system to the defendant who is now operating the same as the owner.

About November 1, 1907, for the purpose of securing funds with which to construct the system, the Construction Company executed to the American Trust and Savings Bank, as trustee, its deed of trust by which it mortgaged to the trustee all its interest in the system, water rights, franchises and water contracts, then or thereafter to be entered into, and all moneys due or to become due to secure an authorized issue of $5,000,000 of bonds. Thereafter the Continental and Commercial Trust and Savings Bank, by merger and change of corporate name, succeeded to all the rights and obligations of the American Trust and Savings Bank as trustee under the mortgage, and assigned contracts. In December 1927, the Continental and Commercial Trust and Savings Bank, merged and consolidated with the Continental and Commercial National Bank, under the name of the Continental National Savings Bank and Trust Company and thereafter continued to be successor trustee for the bondholders. In the year 1913, and while the system was uncompleted, and before water had been fully available for the irrigation of all the lands, the Construction Company became insolvent and failed. The individuals then owning the outstanding bonds appointed a bondholder's protective committee who advanced on behalf of the bondholders additional sums of money which was used in the subsequent completion of the system. The committee acting in conjunction with the trustee of the bondholders, took over the management of the Construction Company and all of its property and business, and operated the same until in 1921, when the project was conveyed to the defendant. Subsequent to the execution of the deed of trust the Construction Company deposited as pledged to the trustee for the holders of the bonds all contracts for the sale of water rights or shares in the system which to the extent of the amounts unpaid constituted a lien upon the lands and shares of stock. Upon the default being made of certain water right contracts it was necessary for the trustee to proceed and foreclose the liens, and by reason thereof certain real property situated in Gooding, Elmore and Jerome Counties, together with the share of stock were purchased under the water contracts. In 1913, when the Twin Falls North Side Canal and Water Company became insolvent, its stockholders owned and were operating a subsidiary corporation known as the Twin Falls North Side Investment Company, whose capital stock was owned by the Construction Company. At that time the lien of the outstanding bonds was in an amount greater than the value of its assets, and under those circumstances the stockholders of the Construction Company turned over to the Bondholders Committee a majority of the capital stock of the Construction Company and of the Investment Company. Just prior to December 11, 1936, the then trustee for the bondholders, conveyed to the Construction Company all the water right contracts and lands which was part of a plan and method by which all of the assets secured by the deed of trust were to be and were transferred to the bondholders. After that was done the trustee released of record the deed of trust. The Investment Company then became merged into the Construction Company who constituted the surviving corporation which name was changed to the Idaho Farms Company and a new stock issue of the par value of $45 each was issued pro rata among the bondholders in exchange for their bonds. By reason of the transfer from the trustee to the Construction Company and the merger, the plaintiff became the owner and in the possession of all the property listed in "Exhibit B" attached to the complaint.

It further appears that by the terms of the State Contract, dated August 21, 1907, the Construction Company was authorized to sell water rights for $35 per share, and by the terms of the State Contract dated January 2, 1909, it was authorized to sell water rights for $45 per share. Since the acquisition of the properties by the plaintiff and its respective grantors, they have paid out sums of money for taxes. The bondholders have been reimbursed to the extent of fifty-five per cent. of the actual principal sum advanced. From time to time the defendant has levied assessments for maintenance and operating expenses upon the lands and water rights, but we are only concerned in that respect for the years 1935 to 1937 inclusive, which have not been paid. Prior to 1931 the plaintiff paid the annual maintenance assessments levied upon its lands and water rights which the defendant asserts it is now estopped from denying the legality of the liens of the defendant for the years 1935 to 1937 inclusive as the costs covered by the liens were agreed to by Mr. Sheppard who then represented all of the respective grantor companies of the plaintiff, and by so doing the position of the defendant has been changed in having made expenditures and improvements which otherwise it would not have made.

About December 24, 1937, the defendant instituted an action in the State District Court against the plaintiff to foreclose its claim of lien for unpaid assessments levied upon the lands here involved for the years 1935 and 1936, and also on December 24, 1937, instituted a similar suit there for the year 1937 assessments. A number of similar actions were also instituted in the State District Court to foreclose claim of liens of the defendant upon the lands and water rights which the defendant asserts that the present suit should be stayed until the actions in the State Court are there determined. The present suit was filed November 24, 1937, prior to the actions filed in the State District Court involving the assessments for the years 1935 to 1937, inclusive, and subsequent to the other actions.

The present suit being one to quiet title to the lands and water rights of the plaintiff and not to foreclose claim of liens of the plaintiff, there are presented the following questions for solution:

(a) Can a suit to quiet title be maintained under the laws of Idaho where the plaintiff alleges that the defendant claims to have some interest in or claim of lien upon its lands and water rights which it asserts is subject and subordinate to its own claim and title thereto, and by reason of certain pretended assessments levied by the defendant upon its lands and water rights, the defendant claims a prior and paramount lien to the claim and title of the plaintiff?

The Idaho Statute relating to actions to quiet title, being Sec. 9-401, I.C.A., is broad and authorizes institution of an action to determine adverse claims of interest or liens to lands and water rights, and because the issue as to the priority of the claims of liens are involved would not defeat the right of the plaintiff to have removed from the public records, if tenable, its claim that the claim of lien of the defendant is subordinate to its claim and title in an action to quiet title.

That is the purpose of the statute to remove any adverse claim of whatever nature or cloud upon the title of the plaintiff. The present suit is not one in which there is involved the right or necessity to foreclose a lien of the plaintiff, but one questioning the validity of the claim of lien of the defendant which the plaintiff asserts is subordinate to and invalid as to its interest and title, and the validity and priority of the claims of the parties of any kind would properly be involved. The United States Courts have power and jurisdiction under the issues and facts to determine the relief prayed for....