Navajo Development Co., Inc. v. Sanderson

• Decision Date: 20 December 1982
• Docket Number: No. 28344,28344
• Citation: 655 P.2d 1374
• Parties: NAVAJO DEVELOPMENT CO., INC., a Colorado corporation, and Lelia Jane Collins, as Personal Representative of the Estate of Seaborn P. Collins, Deceased, Plaintiffs-Appellants, v. Lauren SANDERSON, Defendant-Appellee.
• Court: Colorado Supreme Court

Page 1374

655 P.2d 1374

NAVAJO DEVELOPMENT CO., INC., a Colorado corporation, and Lelia Jane Collins, as Personal Representative of the Estate of Seaborn P. Collins Deceased, Plaintiffs-Appellants, v. Lauren SANDERSON, Defendant-Appellee.

No. 28344.

Supreme Court of Colorado En Banc.

Dec. 20, 1982.

Moses, Wittemyer, Harrison & Woodruff, P.C., Raphael J. Moses, Boulder, for plaintiffs-appellants.

Frank J. Anesi, Durango, for defendant-appellee.

ERICKSON, Justice.

This is an appeal from a summary judgment by the district court in an action for breach of warranty. Navajo Development Co. (Navajo) asserts that it is entitled to injunctive relief pending the outcome of various federal reserved water rights adjudications which may affect its title to water rights and that the district court erred by reaching the merits of this case before the federal adjudications were completed. For the reasons set forth in this opinion, we affirm the issuance of a summary judgment.

I.

On May 27, 1972, appellee, Lauren Sanderson, sold Navajo water rights for water from a tributary of Williams Creek in Hinsdale County, Colorado. The water rights entitled Navajo to divert 10 cubic feet per second (cfs.) of water with a priority date of September 9, 1937 (priority no. 310) and to convey the water via the Transmountain Williams Creek Squaw Pass Diversion Works from west of the Continental Divide to the Rio Grande River for use in Rio Grande County, east of the Continental Divide. Navajo planned to use the water for domestic purposes in various proposed real estate developments.

To pay for the water rights, Navajo executed a promissory note for $75,000 which was secured by certain land contracts placed in escrow and a real estate mortgage. The water rights were conveyed by warranty deed which included the usual covenants of title and also special covenants assuring that the water right had not been abandoned or diminished in any manner.

In November of 1972, the United States brought suit in federal district court to adjudicate its rights to water in various streams in Colorado, including streams tributary to Williams Creek. Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). The United States claimed sufficient quantities of water to carry out the purposes for which federal reservations of land had been established and to provide for the present and future water needs of certain Indian tribes located on federal lands within Williams Creek's drainage basin. The United States claimed priority dates for these water rights beginning on March 2, 1868.

Navajo asserted that the federal claims would disrupt the water rights it had purchased and demanded, pursuant to section 38-30-122, C.R.S.1973 (1982 Repl.Vol. 16A), ¹ that Sanderson defend the title to the water rights in the federal proceedings. Navajo's position was that Sanderson, as warrantor, had an obligation to defend title to the water rights against attack by persons alleging paramount title or risk being in breach of warranty. When Sanderson disclaimed any responsibility under the covenants of title, Navajo sought and was granted a preliminary injunction restraining Sanderson from foreclosing on the mortgage or proceeding on the promissory note until the federal proceedings were resolved. Navajo continued to make payments on the note into the registry of the district court. On March 29, 1976, the federal district court's dismissal of the federal claims was upheld by the United States Supreme Court in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).

Before Navajo's breach of warranty suit could go to trial, the United States refiled essentially the same claims in the District Court in and for Water Division No. 7. Navajo again demanded that Sanderson defend against title claims made in the federal suit. Sanderson refused to defend title, claiming that he was not liable for breach of covenant, and sought a summary judgment against Navajo. On September 19 1977, the district court granted the motion for summary judgment and Navajo appealed.

II.

The law of prior appropriation in Colorado is well-settled. The first person to divert unappropriated water and to apply it to a beneficial use has a water right superior to subsequent appropriators from the same water resource. Colo.Const. art. XVI, § 6; Coffin v. Left Hand Ditch Co., 6 Colo. 443 (1882); Yunker v. Nichols, 1 Colo. 551 (1872). Once a water right has been adjudicated, section 37-92-306, C.R.S.1973, it is given a legally vested priority date which entitles the owner to a certain amount of water subject only to the rights of senior appropriators and the amount of water which is available for appropriation.

A validly adjudicated water right gives its holder a special type of property right. The value of the property right is that it allows a priority to the use of a certain amount of water at a place somewhere in the hierarchy of users who also have rights to water from a common source such as a lake or river. See Nichols v. McIntosh, 19 Colo. 22, 34 P. 278 (1893). There has been some confusion, however, over the nature of the property right to water.

Water rights have been characterized as a freehold, Gutheil Park Inv. Co. v. Montclair, 32 Colo. 420, 76 P. 1050 (1904); Grand Valley Irrigation Co. v. Lesher, 28 Colo. 273, 65 P. 44 (1901), see also Comstock v. Olney Springs Drainage Dist., 97 Colo. 416, 50 P.2d 531 (1935); Davis v. Randall, 44 Colo. 488, 99 P. 322 (1908); Monte Vista Canal Co. v. Centennial Irrigating Ditch Co., 22 Colo.App. 364, 123 P. 831 (1912); as an interest in real estate, West End Irrigation Co. v. Garvey, 117 Colo. 109, 184 P.2d 476 (1947); Talcott v. Mastin, 20 Colo.App. 488, 79 P. 973 (1905); as a property right lacking the dignity of an estate in fee, Knapp v. Colorado River Water Conservation Dist., 131 Colo. 42, 279 P.2d 420 (1955); as personal property, Brighton Ditch Co. v. Englewood, 124 Colo. 366, 237 P.2d 116 (1951); and, perhaps most accurately, as a "usufructuary" right, Coffin v. Left Hand Ditch Co., supra; see also Wheeler v. Northern Colo. Irrigation Co., 10 Colo. 582, 17 P. 487 (1887); Monte Vista Canal Co. v. Centennial Irrigating Ditch Co., supra.

A usufructuary right gives its holder the right to use and enjoy the property of another without impairing its substance. G. Thompson, The Modern Law of Real Property § 1015 (J. Grimes ed. 1980). In other words, water may be applied beneficially by the holder of a water right without destroying the resource; the water molecules are not altered by the use of the water. Unused or waste water will be discharged back into the river system or otherwise recycled and therefore available for use by other appropriators. See Wheeler v. Northern Colo. Irrigation Co., supra. ² The uncertain nature of the property right in water is evidence that its primary value is in its relative priority and the right to use the resource and not in the continuous tangible possession of the resource. See section 37-92-103(12), C.R.S.1973; Nichols v. McIntosh, supra. Sterling Irrigation Co. v. Denver, 19 Colo. 595, 36 P. 787 (1894).

Whatever the exact nature of the property interest, water rights may be bought and sold without regard to the real property over which the water flows. Sherwood Irrigation Co. v. Vandewark, 138 Colo. 261, 331 P.2d 810 (1958); Fort Lyon Canal Co. v. Rocky Ford Canal Co., 79 Colo. 511, 246 P. 781 (1926); Seven Lakes Reservoir Co. v. New Loveland and Greeley Irrigation & Land Co., 40 Colo. 382, 93 P. 485 (1907); Fuller v. Swan River Placer Mining Co., 12 Colo. 12, 19 P. 836 (1888). Thus, water can be conveyed and the quality of the title may be warranted much like with real property. Ackerman v. Walsenburg, 171 Colo. 304, 467 P.2d 267 (1970); Eriksen v. Whitescarver, 57 Colo. 409, 142 P. 413 (1914); Seyfried v. Knoblauch, 44 Colo. 86, 96 P. 993 (1908); Bailey v. Murphy, 19 Colo.App. 310, 74 P. 798 (1903). The conveyance of a water right requires that the same formalities be observed as in the conveyance of real estate. Section 38-30-102, C.R.S.1973 (1982 Repl.Vol. 16A). But as we have emphasized, to view a water right as a fixed, tangible amount of water is to misunderstand the doctrine of prior appropriation.

"Property rights in water consist not alone in the amount of the appropriation, but, also, in the priority of the appropriation. It often happens that the chief value of an appropriation consists in its priority over other appropriations from the same natural stream. Hence, to deprive a person of his priority is to deprive him of a most valuable property right.... A priority of right ot the use of water being property, is protected by our constitution so that no person can be deprived of it without 'due process of law.' Const.Colo., Art. 2, § 25."

Nichols v. McIntosh, 43 Colo. at 27, 34 P. at 280 (emphasis in original). Any warranties of title or other covenants attached to the conveyance of a water right must be in harmony with these underlying realities of the nature of a water right in Colorado.

III.

Navajo argues that the water right which it purchased from Sanderson is impaired by the existence of federal reserved water rights. It claims that the impairment will potentially diminish the amount of water available for appropriation under water right no. 310 and place a senior appropriator ahead of Navajo on the ladder of priorities. Navajo also argues that it is entitled to injunctive relief to prevent the statute of limitations from running on its warranty claims against Sanderson.

According to Navajo, federal reserved rights are a special hazard to adjudicated and vested water rights. Federal reserved rights, it argues, exist outside and independent of the state appropriation scheme and therefore are a menace to validly conveyed water claims. See supra note 1. See also Seyfried v....