Imperial Water Co. No. 5 v. Holabird

• Decision Date: 06 May 1912
• Docket Number: 2,001.
• Citation: Imperial Water Co. No. 5 v. Holabird, 197 F. 4 (9th Cir. 1912)
• Parties: IMPERIAL WATER CO. NO. 5 v. HOLABIRD et al. [1]
• Court: U.S. Court of Appeals — Ninth Circuit

197 F. 4

IMPERIAL WATER CO. NO. 5 v. HOLABIRD et al. ^[1]

No. 2,001.

United States Court of Appeals, Ninth Circuit.

May 6, 1912

The California Development Company, the complainant in this action, is a corporation organized and incorporated under the laws of the state of New Jersey on the 23d day of April 1896, with a capital stock of $1,250,000, divided into 12,500 shares of $100 each. The general purpose of the corporation was to appropriate and divert a large part of the flow of the Colorado river at or near a point on the right or westerly bank of the river in the state of California, known as Hanlon's Heading, and to conduct the water so diverted through a canal in a southwesterly course into Mexican Territory, and thence, for a distance of more than 50 miles by artificial and natural channels, in a circuitous course northwesterly across the boundary line and back into the United States to a large tract of unoccupied public land in the county of San Diego (later the county of Imperial) in the state of California, and known as Imperial Valley. The canal in the Republic of Mexico was placed in the name of a Mexican corporation organized on May 15, 1898, as La Sociedad de Yrrigacion y Terrenos de la Baja California, and referred to in these proceedings as the 'Mexican Company.'

The capital stock of the Mexican Company was $62,500, divided into 625 shares of the par value of $100. All of the stock of the Mexican Company was owned by the complainant, and it is conceded that the Mexican Company was but a means employed by the complainant to carry out the purposes of its organization which were to manage the affairs of complainant's canal in Mexican territory and deliver water at the international boundary line to corporations formed in California by the complainant to receive such water.

It is stipulated by the parties to this action that at various dates commencing as early as December 2, 1893, down to at least as late as December 2, 1908, the California Development Company and its various predecessors in interest posted and caused to be duly recorded, in the recorder's office of the proper county, notice of the appropriation in the statutory form of 10,000 cubic feet per second of the waters of the Colorado river for the irrigation of lands in the county of San Diego, later the county of Imperial, in the state of California, and of lands in Lower California Republic of Mexico, and for other purposes.

In further execution of the project of the complainant to control the appropriation and diversion of the waters of the Colorado river for the irrigation of the lands in Imperial Valley and to create convenient agencies for the distribution and sale of such waters, the complainant caused to be incorporated under the laws of the state of California a number of corporations to take and receive water for irrigation, domestic, and other purposes from the 'Mexican Company,' and distribute the same among the stockholders of the corporations for use only on lands owned by them within certain designated boundaries described in the articles of incorporation. These corporations were all designated Imperial Water Companies, and as originally projected were numbered 1 to 12, but the companies were not all brought into active corporate existence. No. 2 was merged with No. 4, and, as far as can be ascertained from the present records, Nos. 3, 9, 10, and 11 never became active.

The complainant mapped out for these corporations districts of territory of the public lands in Imperial Valley as units for irrigation, each one of which was to be occupied by the settlers who were to be stockholders in one of the companies. The first one of the companies to be organized was Imperial Water Company No. 1, incorporated March 23, 1900, with a capital stock of $1,000,000, divided into 100,000 shares of $10 each. The territory assigned to the stockholders of this company embraced an area of about 100,000 acres--corresponding to the number of shares of the capital stock of the company. Each share of the stock represented the right of the stockholder to receive water from the 'Mexican Company' for one acre of land owned by him which, under a contract with that company, was fixed at four acre-feet per annum for each share of stock, for which the stockholder was required to pay the Mexican Company a water rate of 50 cents per annum per acre-foot.

The several companies were organized, one after another, by the complainant on the same general plan as Imperial Water Company No. 1, and embraced lands in assigned districts of different, but presumably of convenient, areas. The purpose of the complainant was to organize these water companies for assigned districts until all the irrigable public land in Imperial Valley should be assigned to a water company. The aggregate of the capital stock of Imperial Water Companies numbered 1, 4, 5, 6, 7, 8, and 12 amounted to $4,700,000, divided into 470,000 shares of $10 each, and representing 470,000 acres of land.

The defendant, the Imperial Water Company No. 5, was incorporated on February 21, 1901, with a capital stock of $1,000,000, divided into 100,000 shares of $10 each. The declared purpose of the corporation was to secure a supply of water for irrigation, domestic, and other purposes from the 'Mexican Company,' and to distribute the same at cost among its stockholders only for use upon the lands owned by them within the boundaries described in the articles of incorporation. The land assigned to this company by the complainant embraced 100,000 acres, and each share of stock, as in the other companies, represented an acre of irrigable land for which the Mexican Company, by an agreement with the defendant company dated March 15, 1901, agreed to supply the defendant company with four acre-feet of water per annum for each share of stock at the rate of 50 cents per annum per acre-foot. In consideration of this agreement on the part of the Mexican Company to deliver water for use on the lands represented by the stock of the defendant company, the latter agreed that the Mexican Company should have the exclusive right to sell the entire shares of its capital stock and receive for its sole use and benefit all the moneys obtained from such sale of stock.

But by an agreement, dated December 28, 1900, between the complainant and the Mexican Company, the former had agreed that it would build a system of canals for the diversion of water from the Colorado river, to keep such canals in repair, and deliver a sufficient amount of water for the irrigation of the lands situated in the Republic of Mexico and the United States which were irrigable by gravity by the system of canals to be constructed by the complainant. In consideration of this agreement, the Mexican Company assigned and transferred to the former all of the stock of Imperial Water Company No. 1 and all the right to receive any of the moneys which would otherwise be due and payable to the Mexican Company under its contract with the water company; and it was further agreed that the Mexican Company would make like assignments in the future of all rights which it might acquire under similar contracts with other water companies for the sale of stock of such companies, or the proceeds to be derived therefrom. Under this agreement, and a subsequent agreement between the complainant and defendant dated December 24, 1901, all of the stock of the defendant company passed to the complainant for sale, together with the proceeds of the sale of the stock of the defendant company, with a stipulation contained in the later agreement that no stock of the defendant company should be issued except upon the order of the complainant, and that no stock of the defendant company should be issued or sold in the future by the complainant except upon there being paid into the treasury of the defendant company, at the time of such issue, $1 for each share of stock so issued or sold; such sum of money to be used and to become a part of a fund for the construction of an extension of the canal system so as to furnish water for the land represented by the stock that might thereafter be issued.

The defendant had been organized as a corporation by agents of the complainant to whom one share of stock each had been given by the complainant. These incorporators had never at any time been landowners or settlers upon the public lands within the territory assigned to the defendant company, nor had there been at the time of such organization any settlements made within such territory, and no settlements had been made upon the land before the time the contract was made with the Mexican Company for the delivery of water to such land and the surrender of its capital stock. The land belonged to the government of the United States, except such school sections in each township as belonged to the state and except a few alternate sections in the northern part of Imperial Valley within the grant to the Southern Pacific Railroad. The land was in its original desert and arid condition, and so remained until occupied and reclaimed in part by settlers in accordance with the complainant's irrigation scheme. In carrying out this scheme, it was recited in the agreement between the complainant and the defendant, dated December 24, 1901, that, in order that an equitable division of the directory of the defendant company should be had, it was agreed that two members of the five members of the board of directors of the said company should resign, and that in their place should be elected two members chosen as directors by the then outstanding stock in said company. It was further agreed that the board of directors as thus composed, being three of the then existing directors named by the complainant and the two newly elected...