New York Trust Co. v. Farmers' Irr. Dist.

• Decision Date: 14 April 1922
• Docket Number: 5916.,5915
• Citation: 280 F. 785
• Parties: NEW YORK TRUST CO. et al. v. FARMERS' IRR. DIST. FARMERS' IRR. DIST. v. NEW YORK TRUST CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

280 F. 785

NEW YORK TRUST CO. et al. v. FARMERS' IRR. DIST.

FARMERS' IRR. DIST. v. NEW YORK TRUST CO. et al.

Nos. 5915, 5916.

United States Court of Appeals, Eighth Circuit.

April 14, 1922

[Copyrighted Material Omitted]

Some years prior to June 22, 1915, there existed a corporation organized and existing under the laws of the state of New Jersey, known as the Tri-State Land Company. This corporation had been engaged in the construction and completion of an irrigation project in the counties of Morrill and Scotts Bluff, Neb., which was to be supplied with water taken from the North Platte river through a gravity canal, the headgate of which was about one-half mile east of the Nebraska-Wyoming state boundary line on the north side of the North Platte river and of a total length of approximately 86 miles. Upon completion of the canal the operation thereof was placed in charge of the Farmers' Mutual Canal Company, a subsidiary corporation of the Tri-State Land Company. On or about January 23, 1913, said irrigation canal and its headgate, and all of the irrigation works and the appurtenances thereunto belonging, were transferred and conveyed by the Tri-State Land Company and the Farmers' Mutual Canal Company to the Farmers' Irrigation District, a Nebraska corporation, in consideration of bonds of said district of the aggregate par value of $2,703,000, bearing interest at 6 per centum per annum, payable semiannually, no part of the principal of which was to be paid during the first 10 years. Said bonds were deposited by the Tri-State Land Company with and turned over to the New York Trust Company as collateral security to secure the payment of certain bonds theretofore issued by said Tri-State Land Company in the principal sum of $1,691,000, of which bonds the said New York Trust Company was trustee.

For a long time prior to June, 1915, the Farmers' Irrigation District and the Tri-State Land Company had been insolvent and without pecuniary resources to meet their obligations and the irrigation project, which had been constructed as heretofore stated and transferred to the Farmers' Irrigation District, was in danger of becoming an absolute failure, with the consequent loss of all money that had been invested therein. A bondholders' committee, the Tri-State Land Company, and the Farmers' Irrigation District had been engaged continuously in trying to solve the problem of how to continue the operation of the irrigation system and the distribution of water for the benefit of the agricultural lands lying within the boundaries of the district. There had been efforts made and negotiations had with the reclamation officers of the United States, in charge of what is known as the North Platte irrigation project, which obtains its water for irrigation purposes from the Pathfinder reservoir, located on the North Platte river in the state of Wyoming. The Tri-State Land Company had entered into a contract with the United States by which the Land Company had obligated itself to pay $500,000 for the right to take water from the Pathfinder reservoir, there was a balance of $475,000 due on the contract, and the failure to make the stipulated payment had caused the United States to threaten a forfeiture of the right. The United States was desirous of having the Farmers' Irrigation District assume this contract and of acquiring the permanent carriage right of 250 second feet of water through the main canal of the Farmers' Irrigation District from the North Platte river to Red Willow creek for the irrigation of an additional unit to be included in the North Platte project of the United States. In this condition of affairs, the Tri-State Land Company bondholders' committee, by C. N. Wright, agent, and W. N. Ferguson, bondholder, made the following proposal to the Farmers' Irrigation District: 'To the Farmers' Irrigation District:

'Whereas, there is a prospect of the United States taking over and operating the Farmers' Irrigation District canal; and

'Whereas, there has been discussion between representatives of said district and the bondholders' committee of the Tri-State Land Company and W. N. Ferguson, who holds practically all of said bonds, as to the terms on which said bondholders and said W. H. Ferguson would be willing to modify the terms and conditions of payment of said bonds in the event of the United States taking over said district canal:

'Now, in order that the purpose and intention of said bondholders may be definitely understood, said bondholders' committee and W. H. Ferguson propose:

'First. To turn over to said district for cancellation $203,000 of said district bonds.

'Second. To reduce the interest rate on the remainder of said bonds from 6 per cent. semiannual to four per cent. per annum; and

'Third. To adopt the government plan of payment on the balance of said bonds, to wit, 2 per cent. of interest and principal of said bonds shall be paid for each of the first 4 years, 4 per cent. of said interest and principal shall be paid for the fifth and sixth years, and 6 per cent. of said interest and principal shall be paid each the next 14 years.

'This proposition is made upon the consideration and with the understanding that it is to further and facilitate the negotiations with the United States respecting latter taking over said district irrigation works, which negotiations are to be brought to a conclusion within 2 1/2 years from date of this instrument; it being understood that the other details, terms, and conditions for the taking over of said district irrigation works by the United States shall be worked out by a board consisting of Andrew Weiss, as advisory member, and S. K. Warrick and C. N. Wright, of Scotts Bluff, Neb., representing the bondholders, and John Mueller, of Bayard, Neb., and L. L. Raymond, of Scotts Bluff, Neb., representing the district. The vote of three of the four active members of said board shall be binding. If said board shall fail in its negotiations with the United States, it shall then formulate a revised schedule of time of payments of bond principal and interest, which revised schedule shall be placed in force and effect by the bondholders.

'It is also understood that the proposition herein contained is not a part consideration for the passage by the district of contract now pending between the Tri-State Land Company, Farmers' Irrigation District, and the United States, but is an entirely separate, distinct, and independent proposition.

'In the event that above board finds its duties and plans interfered with by lack of legal authority, then said board shall join in securing the requisite authority; it being understood, however, that lack of authority for district action shall not preclude the board from endeavoring to carry out its plans through individual contractual relations between the landowners and the bondholders; it being understood that there shall be no action of this board that will invalidate the existing lawful obligation of the district in the instance of the bonds remaining after the cancellation of the $203,000 as hereinabove provided.

'Dated this 22d day of June, 1915.

'Tri-State Land Company Bondholders' Committee,

'By C. N. Wright, Agent.

'W. N. Ferguson, Bondholder.'

In consideration of said proposal, the electors of the Farmers' Irrigation District, at an election duly held, voted in favor of the adoption and ratification of the carriage contract heretofore mentioned and the assumption by the Farmers' Irrigation District of the obligation of said $475,000 owing to the United States by the Tri-States Land Company. The committee appointed in the proposal met from time to time for the purpose of framing and perfecting a course of procedure by which the United States could enter into a contract to take over and operate the works and system of the Farmers' Irrigation District during the period in which said bonds were being paid and satisfied. These negotiations were carried on for a period of more than two years, and required repeated visits to Washington, D.C., for the purpose of making a complete presentation of the entire scheme to the Department of the Interior and the United States Reclamation Service. As a result of these negotiations the following contract was executed by and between the United States and the Farmers' Irrigation District:

'This agreement, made December 12, 1917, between the United States of America, acting in this behalf by the Secretary of the Interior, Reclamation Service, pursuant to the Act of June 17, 1902 (32 Stat. 388), and acts amendatory thereof and supplementary thereto, and the Farmers' Irrigation District, a corporation organized and existing under the laws of the state of Nebraska, hereinafter styled the District, its successors and assigns, witnesseth:

'Whereas, by contract dated August 10, 1915, with the United States, the District purchased the right to the delivery of water stored in Pathfinder reservoir of the North Platte project, agreeing to pay therefor the sum of $475,000 in annual installments as therein specified; and

'Whereas, by the terms of the aforesaid contract the United States acquired the permanent carriage right of 250 second feet of water through the District's main canal from North Platte river to Red Willow creek for the irrigation of an additional unit proposed to be included in the North Platte project of the United States; and

'Whereas, the United States in its necessary drainage of its North Platte project lands must carry the drainage through the District's lands, and can consequently effect a considerable saving and derive much benefit from the acquisition of the right for co-operative use of the District's drainage works, heretofore or hereafter constructed; and

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