Nelson v. McAllister Dist. Imp. Co.

• Decision Date: 01 December 1936
• Citation: 155 Or. 95,62 P.2d 950
• Parties: NELSON v. McALLISTER DISTRICT IMPROVEMENT CO. et al.
• Court: Oregon Supreme Court

62 P.2d 950

155 Or. 95

NELSON v. McALLISTER DISTRICT IMPROVEMENT CO. et al.

Supreme Court of Oregon

December 1, 1936

Department 2.

Appeal from Circuit Court, Deschutes County; T. E. J. Duffy, Judge.

Action by N. J. Nelson against the McAllister District Improvement Company and others. Decree was for the plaintiff against the named defendant only, and the plaintiff appeals.

Reversed and remanded, with directions.

BAILEY J., dissenting in part.

George H. Brewster, of Redmond (Cunning & Brewster of Redmond, on the brief), for appellant.

H. H DeArmond, of Bend (Upton & DeArmond, of Bend, on the brief), for respondents.

RAND Justice.

Plaintiff is the holder in due course of four bonds made payable to bearer for $1,000 each, which were issued on August 1, 1918, by the McAllister District Improvement Company, a corporation organized and existing under and pursuant to chapter 172, p. 256, Laws 1911, as amended by chapter 101, Laws 1917. The title to this act reads as follows: "To enable land owners to incorporate themselves for the purpose of irrigation or drainage, defining their corporate powers, regulating the manner of issuing bonds, making the debts of said corporation a lien on the land of said owners and fixing the organization and annual license fees of such corporation."

Under this act, any three or more owners of land desiring to improve their lands by irrigation or drainage may form a district improvement corporation for the irrigation or drainage of such lands and subject the same to a common lien for all the debts of the corporation incurred in the accomplishment of such purpose. The corporation so formed is expressly authorized to issue and sell bonds, and the holder or holders of such bonds, like all other creditors of the corporation, are given a lien upon all the lands included in the district for the amount due thereon. This lien, under the express terms of the statute, is not personal but runs with the land, and every person subsequently acquiring title to any part of said lands, under the express provisions of the act, takes the same subject to such lien.

In order to form such a corporation and to include his lands within the district, which is wholly voluntary upon the part of every landowner, the statute provides that every owner of the lands to be included within the district shall be one of the incorporators and that he shall make, subscribe, and acknowledge articles of incorporation in triplicate, stating his name and a description of the lands by legal subdivisions as near as possible, and the total number of acres to be included within the district, and that one copy of such articles shall be filed in the office of the secretary of state, one copy in the office of the county clerk of the county where the lands are situated, and the other copy retained by the corporation. The statute, section 10, as amended by Laws 1917, c. 101, p. 132, § 3, further provides that: "If at any time after the filing of said articles of incorporation, or any amendment thereof, the owners of all the land described in said articles of incorporation, or amendment thereto, shall desire to subject said land to the indebtedness incurred by said corporation, the owners of all such land described in the articles of incorporation, or amendment thereto, shall make, subscribe and acknowledge before some person authorized to take acknowledgment of deeds, a notice to whom it may concern, which notice shall contain a description of the land with the same particularity as is provided for in the articles of incorporation, that the land described in said articles of incorporation, or any amendment thereto, and described in the said notice, will be improved by irrigation or drainage or both, by said corporation, under the provisions of this Act, and that said land shall be subject to any indebtedness incurred by said corporation. Said notice shall be recorded in the office where deeds and other instruments affecting the title to real property are recorded, of the county or counties where the land is situated. From and after the recording of said notice all the debts and obligations of said corporation theretofore or thereafter created shall be a lien upon the land described in said notice prior to every lien attaching to said land subsequent to the date of the recording of said notice, except State, county and school taxes, whether such debt or obligation of said corporation be in existence at the time of the latter lien attaching or be created afterward, and such lien shall not be personal, but shall be an obligation upon the land and shall run with the land." The act further provides: "Every owner of land described in said articles of incorporation is a member of said corporation and said membership is lost or gained through the respective sale or purchase of any of said land as the case may be."

It will thus be seen that, under the express provisions of this act and upon a compliance with its terms, every person who made and subscribed to the articles of incorporation and the notice and every person who subsequently acquires title to said land are, by virtue of their ownership and by force of the statute, members of the corporation and entitled to share in common with all other owners of land situated within the district all the privileges of such membership and hold their land subject to the lien of every creditor of the corporation for all its debts and obligations then due and owing to such creditor, and that such lien or liens are prior to any lien subsequently attaching to any particular tract of land within the district except liens for state, county, and school taxes.

Before referring more particularly to the questions involved here, it should be borne in mind that corporations organized under this act are not to be confused with irrigation districts which are organized and exist in this state under a different law. The distinction between the two was pointed out by Mr. Justice Bean in Rathfon v. Payette-Oregon Slope Irr. Dist., 76 Or. 606, 149 P. 1044, and need not again be repeated other than to say that the inclusion of land within a district organized under this act can result only from the affirmative voluntary act of its owner, and not by the coercion of a majority vote as may happen in the case of an irrigation district, which distinction is of importance upon the question of estoppel of landowners under this act.

The facts involved here are as follows: The McAllister District Improvement Company was organized prior to August 1, 1918, by some seven landowners whose lands required irrigation and, upon the trial of this cause, it was stipulated that each of said then landowners joined in the incorporation of the McAllister District Improvement Company and in the execution of a notice to all whom it may concern that their lands, which were particularly described in said articles of incorporation and in said notice, should thereafter be subject to a lien for the debts and obligations of said corporation.

Without referring more particularly to said stipulation, it is only necessary to say that it was stipulated that all the requirements of the statute, in so far as the formation of the corporation and the execution and recording of said notice are concerned, were strictly complied with, and the lands of the answering defendants herein are those which were specified in the articles of incorporation and in the notice above referred to.

It was also stipulated that, after the formation of said corporation and the recording of said notice and on or just prior to August 1, 1918, the corporation borrowed from F. G. Atkinson the sum of $3,600 and applied the same in the construction of a corporate irrigation system for the irrigation of said lands and, under an agreement with him, issued and sold to him the four bonds above referred to in consideration of said sum of $3,600 on that day paid by him to the corporation. It was further stipulated that Atkinson later and before maturity of said bonds transferred and delivered them to the plaintiff and that plaintiff purchased them for value and without notice of any infirmity in said bonds and is a holder in due course; that there is now due and owing on said bonds the sum of $4,000 with interest thereon from November 1, 1932, at the rate of 6 per cent. per annum, less the sum of $105 paid on May 1, 1933.

So far as the record discloses, no other bonds were ever issued by the corporation and there are no other outstanding debts or obligations owing by the corporation.

To enforce his lien, plaintiff brought this suit, praying that the amount due under the bonds be adjudged and decreed to be a lien upon all the lands within the district. He joined as defendants in the suit all persons owning lands within the district and all persons having or claiming to have some right, title, or interest in such lands, and alleged in the complaint that plaintiff's lien was prior to all other liens upon any particular tract of land within the district. The cause was tried upon an agreed statement of facts. Most of the defendants were in default for want of an answer. Certain of them answered, setting up that the bonds were invalid because of the failure of the district to comply with a certain other provision of the statute to which we have not yet referred. The cause was tried on the facts stipulated, and a decree was entered awarding a judgment in favor of the plaintiff and against the defendant McAllister District Improvement Company for the amount due on the bonds, and dismissing the suit as to the remainder of the defendants. From this decree, the plaintiff has appealed.

One of the facts stipulated and which was claimed as a defense by all the answering defendants was that...