North Side Canal Co. v. Idaho Farms Co.

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] This action grows out of the vicissitudes of a so-called "Carey Act" project organized and developed under the correlated federal¹ and state² statutes. For those interested an extended history of the project, adverted to and delineated at length by the respective parties herein, may be found in the cases cited in the appended footnote,³ but the point involved herein does not depend upon or require a detailed reference thereto.

Therefore, going immediately to the ultimate question, these facts are alone pertinent and controlling.

Respondent, by various transactions unimportant herein, is the successor in interest of the original construction company and its bondholders, and appellant is the operating company organized in the first instance by the construction company for the purpose of transferring ownership of the system to the entrymen. Respondent, between January 23, 1915, and April 17, 1928, acquired, by purchase at foreclosure sale,⁴ bidding the full amount due and unpaid, or for like full amount then due, by deed in lieu of foreclosure, the land and appurtenant Carey Act water rights of certain individual entrymen who failed to pay in full to the construction company or its successors the contract purchase price of their water rights. The land was evidently (and we take as a promise herein) patented prior thereto by the United States to the state and in turn by the state to the individual entrymen. (Secs. 41-1719 and 41-1722, I. C. A.) We are concerned, therefore, only with entries now completed by patent to the land and sale thereof, with appurtenant water rights, to respondent, not with cancelation or withdrawal from entry. (Sec. 41-1723, I. C. A.) Thus any application of Idaho Irr. Co.v. Dill, 25 Idaho 711, 139 P. 714, is entirely eliminated.

Subsequently to respondent's so acquiring the respective parcels of land and appurtenant water rights, appellant operating company levied assessments thereon for maintenance and operation of the canal system during the years succeeding 1928. Respondent resists the enforcement thereof since 1931, claiming it has a reserved or underlying, prior, superior and paramount lien under section 41-1726, I. C. A., for its construction costs, that the contracts between the construction company and the state,⁵ and between the construction company and entryman,⁶ made the water stock held by the construction company nonassessable for maintenance costs,⁷ and that such lien exists concurrently with its ownership of the land and water rights to the same extent and with like effect as though its predecessor construction company had never issued or sold the water rights in the first place, and therefore such assessments may not be enforced; evidently, however, respondent concedes if it uses the water it must, and has in fact paid therefor when using water, but insists it may at its discretion or pleasure not use water and contends it has not done so, in large part, because the particular parcels of land foreclosed are of poor quality or incapable of successful irrigation or cropping.

Appellant takes the position that respondent now owns and holds the land and appurtenant water rights the same as any other purchaser at foreclosure proceedings. Respondent frankly takes the stand that it is in a different position than any other purchaser at such foreclosure proceedings, basing such contention on the claimed continuation of its lien under section 41-1726, I. C. A., until it is paid in money in full for the original contract cost of construction and that it owns and holds the land and appurtenant water rights not in complete satisfaction of its contract construction costs but as a kind of trustee merely for resale.

Appellant sued to foreclose its lien, seeking to quiet its title as against respondent, and respondent asserted its lien to be prior, asking that appellant take nothing. The decree entered provided that the lands and water be sold at foreclosure and respondent's claims be first satisfied and then appellant's, no doubt to be thus consistent with respondent's contention it has a lien.

Respondent urges that this entire matter has been conclusively settled in its favor by Portneuf-Marsh ValleyCanal Co. v. Brown, 274 U.S. 630, 47 Sup. Ct. 692,71 L. ed. 1243, and by Idaho Farms Co. v. North Side Canal Co., 24 Fed. Supp. 189, by the court's holding therein that the construction company's lien is superior to that of the operating company.

This begs the question because it is not which lien is superior but whether respondent having acquired the land and water rights at foreclosure sale (or by voluntary deed in lieu thereof), thereby becoming owner, nevertheless still has a lien, in other words, may an ordinary construction corporation have a lien on its own property?

The situation in the Portneuf-Marsh case, supra, differs factually from that herein in that therein only the stock in the operating company was involved, not the land and water rights as such purchased by the construction company's successors and their liability for enforceable maintenance assessments. "By stipulation the decree of foreclosure was limited to the stock in the operating company acquired by (the operating company on foreclosure of its lien for failure of the entryman to pay maintenance assessments)." (274 U.S. 630, 635,47 Sup. Ct. 692, 693, 71 L. ed. 1243, 1264.)

Respondent argues this makes no difference as the court broadly considered the relative lien priorities, but while therein the construction company had acquired some of the land and water rights prior to the levying of the operating company assessments and the point involved therein may have been suggested to the court, there is no discussion of it in the opinion and the most that can be said for the holding therefore is that the court took as a premise, without ratiodecidendi that the construction company had a lien and then proceeds to hold its lien superior to that of the operating company.

Idaho Farms Co. v. North Side Canal Co., supra, on issues identical with those herein and the underlying facts fully and clearly set forth, while discussing the question herein at length, evidently proceeded on the theory the conclusions of the United States Supreme Court in the Portneuf-Marsh case was binding on it, stating:

"Under those circumstances it was contended by the operating company that the foreclosure proceedings and quitclaim deeds operated to extinguish the Carey Act construction company's lien for construction charges, and that thereafter the property thus acquired and held became subject to maintenance liens precisely as any other land and water right of the project. The issues presented and decided and the status of the respective parties are identical in every respect, and that being the case the Supreme Court having decided that after as well as before the foreclosure of the settlers' water contracts, a Carey Act construction company and its bondholders hold the repossessed property exempt from assessment liens of the operating company precisely as it did before the unsuccessful sale to the settlers, it is decisive of the present case, unless the plaintiff is estopped by its conduct from maintaining the position which it now takes and have waived its rights to invoke the principle recognized by the Supreme Court exempting its property from maintenance and operating charges."

But this disposition imputed to the supreme court does not at all appear in the supreme court opinion.

The question then, so far as the Portneuf-Marsh case is concerned, was not juristically determined therein.

Respondent's error in urging reliance on the Portneuf-Marsh case is, as aptly stated by it, that of seeking to wrench from its context language employed by a court in the decision of a specific question (therein priority of a lien, not whether the construction company had a lien concurrently with ownership) and urging such language in the solution of a wholly different question, quoting:

"Each case must be construed with reference to the circumstances of that case, and the questions actually under consideration, and limited to those points of law raised by the record, considered by the court, and necessary to the determination of the case. (Black's Law of Judicial Precedents, sec. 11; Bashore v. Adolf, 41 Idaho 84, 238 P. 534, 41 A.L.R. 932.)" (Stark v. McLaughlin, 45 Idaho 112, 261 P. 244.)

It may be contended that it was "necessary to the determination of the Portneuf-Marsh case that the construction company had a lien" but the court assumed that, without discussion or judicial determination as to how the construction company could have a lien on its own property in the absence of any statute to that effect.

"Questions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are not to be considered as having been so decided as to constitute precedents." (Webster v. Fall, 266 U.S. 507, 45 Sup. Ct. 148,69 L. ed. 411.)

The brief of amici curiae refers to specific portions of the transcript of the Portneuf-Marsh case in the appeal to the United States Circuit Court of Appeals (5 Fed. (2d) 895), asserting that in a large part the acquisition by the construction company's successors therein of the lands and water appurtenant thereto was after the assertion of lien by the operating company. Respondent by reference to other parts of the same transcript, insists rather to the contrary and also that more than a majority of the land and appurtenant water rights had been acquired at foreclosure or by deed in lieu thereof by the construction company prior to the levy of the operating company's assessments.

Appellant also urges that only water stock in the operating company foreclosed by the operating company was involved. We place our conclusion that that case is not in point on the fact that regardless of whether the question of the continuing existence of the construction company's lien on lands foreclosed by it was or was not placed before the court, the opinion shows that the court nowhere discussed or decided the question, as against appellant's contention herein, that the construction company had, after the operating company's liens had been asserted against the lands, a continuing lien. The court therein merely considered the relative priorities of the two liens, that of the construction company and the operating company.

Respondent asserts to construe section 41-1726, I. C. A., contrary to its theory would render such statute unconstitutional in that the operating company's right to assess for maintenance and operation was granted by the legislature after section 41-1726, I. C. A., supra, and thus would result impairment of the obligation of respondent's contract for full reimbursement for its construction costs.

There is no impairment because the operating company's assessments or lien therefor or its enforcement in no way affects the lien of the construction company or its statutory enforcement or satisfaction; they only affect the construction company's property after it acquires title by foreclosure or otherwise, when it holds as any other owner. All that the construction company was ever entitled to in default of the payment of its costs was to have the land and water of the defaulting entrymen sold, and it could recover only what was bid in and paid at the sale (not exceeding the balance due), or the property, if it itself bid in the property. (Secs. 41-1728 to 41-1735, I. C. A.; Rogers v. Thomas, 38 Idaho 802,226 P. 165.)

". . . . Any lien created for the original cost of construction, together with interest thereon, is subject to foreclosure and sale by a procedure somewhat analogous to the general procedure for the foreclosure of mortgages, as provided for in section 1629 supra, . . . .

. . . . . . . . . . . . . .

"It is apparent that the legislature intended to fully protect the construction company to the extent that it be reimbursed for the moneys expended in the construction of the works, together with reasonable profit on the investment. To this end it provided the statutory liens heretofore defined and a complete, exclusive statutory procedure for the foreclosure of these liens." (Adams v. Twin Falls-Oakley Land Water Co.,29 Idaho 357, 373, 374, 161 P. 322.)

All the argument pro and con as to merger or non-merger applies only to subordinate liens, to cut off which the superior lien will not merge in the title of the purchaser at foreclosure sale. The liens of the operating company herein asserted came into play only after the respondent company, as successor of the construction company, had acquired title by foreclosure proceedings (or deeds in lieu thereof) and the legal and equitable titles have merged. (Northwestern PacificHypotheekbank v. Nord, 56 Idaho 86, 50 P.2d 4.)

By deed or foreclosure sale respondent acquired something it never had before, and which it did not create or convey in the first place, namely, the land. Under the Carey Act the construction company builds and constructs an irrigation system and sells water rights thereon; the land is sold by the state, and while the construction company has a lien thereafter on both land and water it does not own them until foreclosure for default of the entrymen, and then forecloses on both, not just on the water.

"Any person, company or association, furnishing water for any tract of land, shall have a first and prior lien on said water right and land upon which said water is used, . . . ." (Italics ours.) (Sec. 41-1726, I. C. A.)

Respondent calls attention to the fact that section 41-1726. I. C. A., does not limit the lien to time of foreclosure, but gives one until payment. Payment, however, in case of default is, under sections 41-1728 to 41-1735, I. C. A., inclusive, accomplished completely by foreclosure or deed in lieu thereof. Contrary to its contention respondent is a voluntary purchaser at foreclosure as much as anyone forced to buy its security to effect payment of the obligation, and is charged with having as much knowledge of the value or worthlessness of the land as the entrymen. The debt is in rem only, since no deficiency may be docketed against the entryman.

To conclude the legislature thought or considered that in all foreclosure cases the land and water would bring enough to pay the lien in full, would be to overlook entirely the history of irrigation in the arid states, both before and after 1895, and the statute does not hint at repeated recapturing and resales or extending the lien beyond foreclosure.

In the first instance the construction company did not have to undertake the project and was as capable as the entrymen of determining whether the land and water would be of sufficient value to afford adequate security and insure, if foreclosure became necessary, the return to the construction company the cost of construction, which undoubtedly included prospective or hoped for profit. The construction company is not sacrosanct and under the statute is given a superior lien but no more, and has no reason to claim as a purchaser greater rights than any other lien holder compelled by force of circumstances to take the property, security for the lien. It is nothing but a construction company, and the statutes nowhere put it in any other class favored or otherwise than any other body corporate.

"It is clear from the provisions of said Carey Act and the amendments thereto, and the statutes of the state applicable to said act, that companies like the defendant are treated by the state as, and are in effect nothing but construction companies engaged in constructing irrigation works under contract with the state, and their remuneration is limited by the provisions of the Carey Act and the provisions of sec. 1629, Rev. Codes, to the actual cost of construction and the necessary expense of reclamation and reasonable interest thereon.

"It has been the custom of the state land board at the time a contract is entered into to fix a sum which shall represent such actual cost of construction and this practice has been upheld by this court in the case of Idaho Irr. Co. v. Pew,26 Idaho 272, 141 P. 1099. It is apparent that the law does not intend that profit shall accrue to the construction company, and it is clear that the construction company is not the owner of the works constructed by it nor of the water right connected therewith, for under the provisions of said sec. 1629, the construction company is given a first and prior lien on the water right and land upon which the said water is used for all deferred payments for such water right, and under no reasonable construction of such law can it be held that the construction company is the owner of either the water right or the system, but is only given the right to sell them for the purpose of reimbursing it for the cost of construction.

"The only means of remunerating the construction company is by the sale of the water rights. The state land board fixes the price per acre to be charged for such water rights by dividing the cost of reclaiming the land by the number of acres to be reclaimed, and when all of the water rights connected with such system have been disposed of, the construction company has, at least in theory, been reimbursed for its outlay; provided that purchasers of such water rights pay the purchase price for them. The water rights unsold cannot be considered in the ordinary sense as assets of the construction company, since water rights remaining unsold represent rather a liability of the construction company which can only be met by the sale of the water rights as provided by law." (Idaho Irr. Co., Ltd., v.Lincoln County, 28 Idaho 98, 106, 107, 152 P. 1058; State v.Twin Falls etc. Water Co., 30 Idaho 41, 166 P. 220.) The construction company is expressly empowered to purchase at foreclosure sale. (Sec. 41-1734, I. C. A.)

The trustee status of the construction company as claimed by respondent (if any) certainly does not exist after foreclosure (or receipt of deed in lieu thereof). (State v. Twin Falls etc.Water Co., supra; Idaho Irr. Co. v. Lincoln County, supra;Adams v. Twin Falls-Oakley L. W. Co., supra.) The construction company is not, as argued by respondent, in any true sense a "construction or selling agent of the state"; section 41-1712, I. C. A., expressly negatives such proposition:

"Nothing in this chapter shall be construed as authorizing the department to obligate the state to pay for any work constructed under any contract, or to hold the state in any way responsible to settlers for the failure of contractors to complete the work according to the terms of their contracts with the state."

Respondent asserts that the particular parcels of land are almost valueless and that no water has in fact been used on the bulk thereof by respondent. It as owner, must, however, pay maintenance assessments as other Carey Act segregation owners whether or not the water is used. (Aberdeen-Springfield CanalCo. v. Bashor, 36 Idaho 818, 214 P. 209.) The statute does not place the land and water back in its original status whereunder the construction company was not required to pay maintenance assessments on water stock not issued and land not sold.

Respondent further argues it may hold the land and water for resale only and may not sell at any increase over the original price. No such restrictions are placed by the statute (sec. 41-1735, I. C. A.) on what the purchaser at foreclosure may do with the property after he receives the sheriff's deed and the period of redemption has expired, and statutes compelling a construction company to sell its water within any time limit do not apply after purchase at foreclosure or by deed. (Adams v.Twin Falls-Oakley Land Water Company, supra; State v. TwinFalls etc. Water Co., supra; State v. Twin Falls L. W. Co.,37 Idaho 73, 217 P. 252; Boley v. Twin Falls Canal Co.,37 Idaho 318, 217 P. 258.)

Respondent broadly asserts the reason for the continued lien of the construction company after the foreclosure of the lien is that it may be paid in money, that capital would not have been attracted unless insured protection. That is, that if the land and water rights do not sell to other purchasers for enough to pay for the cost of construction the land may be repeatedly sold to itself ad infinitum. By its lien to be once satisfied it had as much protection as the entrymen.

In the first place and before the original sale of the land and water rights the construction company can be compelled bymandamus to sell the water rights, but when all the land available has been sold no further sales of water rights can be compelled (State v. Twin Falls Canal Co., 21 Idaho 410,121 P. 1039, L.R.A. 1916F, 236), and there is no decision which holds that after foreclosure the construction company can be compelled to sell the foreclosed land and water. Transfer of the place of use of the water would be governed by the same rules applicable to any other water user and the statutes place no restriction on the construction company not on any other user.

The construction company gave a trust deed November 1, 1907, on all its property, which would include the construction company's rights in the project as it was built, developed and completed, and it would also include the construction cost contracts to secure the bonds issued by it. Respondent is now the successor in interest to the construction company and the bondsmen. When the construction company, or its successors in interest purchased the respective parcels of land and appurtenant water at foreclosure such land and water rights were of course held by the construction company or its successors in interest for the benefit of the bondholders, or by respondent as successor of the bondholders' interest. But after such foreclosure sale the bondholders or the successors to the construction company, so far as subsequent maintenance charges are concerned, held in no different position than any other purchaser at foreclosure sale.

Many other cases dealing with various phases of the Carey Act statutes, federal and state, are referred to⁸ but none have a sufficiently direct bearing hereon to be enlightening, hence a discussion or analysis thereof would serve no good purpose.

Nothing in the statutes indicates in the slightest that respondent, after its purchase at foreclosure of its lien (or deeds acquired in lieu of foreclosure) retains its lien or occupies any different position than any other purchaser after sheriff's deed has issued.

The judgment of the trial court is accordingly reversed and the cause remanded with instructions to enter judgment of foreclosure for appellant against respondent on unpaid operation and maintenance assessments levied subsequent to 1931.

Ailshie, C.J., and Budge, Morgan and Holden, JJ., concur.

ON PETITION FOR REHEARING. (December 2, 1939.)¹ Chap. 301, sec. 4, 28 Stat. 372, 422, 43 U.S.C.A. 641 et seq. (Aug. 18, 1894); amended by Act of June 11, 1896, chap. 420, sec. 1, 29 Stat. 413; Act of March 3, 1901, chap. 853, sec. 3, 31 Stat. 1188; Act of January 6, 1921, chap. 10, 41 Stat. 1085.

² Title 41 chapters 17 to 21, inclusive, Idaho Code Annotated.

³ Vinyard v. North Side Canal Co., 38 Idaho 73, 223 P. 1072;Vinyard v. North Side Canal Co., 47 Idaho 272, 274 P. 1069;Idaho Farms Co. v. North Side Canal Co., 24 Fed. Supp. 189;Bennett v. Twin Falls North Side Land Water Co., 27 Idaho 643,150 P. 336; Collins v. Twin Falls North Side Land WaterCo., 28 Idaho 1, 152 P. 200; Lincoln County v. Twin FallsNorth Side Land Water Co., 23 Idaho 433, 130 P. 788;McClung v. Twin Falls North Side Land Water Co.,33 Fed. (2d) 478; Reynolds v. North Side Canal Co., 36 Idaho 622,213 P. 344; Andrews v. North Side Canal Co., 52 Idaho 117,12 P.2d 263; North Side Canal Co. v. Twin Falls Canal Co., 12 Fed. (2d) 311.

⁴ Sections 41-1726 to 41-1735, L. C. A.

⁵ The State contract provided that the construction company was to hold the entire authorized capital stock of appellant for transfer to entrymen, and provided that: "said shares of stock, however, shall have no voting power and shall not have force and effect until they have been sold or contracted to be sold to purchasers of land under this irrigation system."

⁶ The contracts between the entrymen and construction company for purchase of shares of water stock in appellant company contained this provision:

"The purchaser hereby covenants and agrees that upon default in the payment of any of the payments above specified, or of the interest thereon, or any annual charge, toll or assessment, for the operation and maintenance of the irrigation system hereinbefore provided for, or upon his default in performing any of the conditions hereof, the Company may declare the entire amount of the unpaid purchase price for said water rights due, and may proceed either in law or equity to collect the same, with interest, and to enforce any lien which it may have upon the water rights hereby contracted, or upon the lands to which said water rights are dedicated or may at its option proceed to enforce any remedy given by the laws of Idaho to the Company against the purchaser.

"And the purchaser hereby further covenants that he will and by these presents does hereby grant, assign, transfer and set over by way of mortgage or pledge to the Company to secure the payments of the amounts due and to become due on the purchase price of the water right hereby contracted to be sold and to secure the full performance of all of his covenants and agreements herein contained, any and all interest, and all rights which he now has or which may hereafter accrue to him under his contract with the State of Idaho for the purchase of the lands to which the water rights hereby contracted for are dedicated together with any and all interest in the said water rights."

⁷ The by-laws of appellant operating company provided:

"Section 5. All the stock of this Corporation shall be issued to and held by the Twin Falls North Side Land Water Company (predecessor of respondent), its successors or assigns, in order to enable it to deliver shares of stock to purchasers of water rights, but said shares of stock shall have no voting power and shall not have force and effect and shall not be assessable for any purpose either for maintenance or otherwise, until they have been sold or contracted to be sold to entrymen or owners of land under the irrigation system, and all assessments, maintenance and other charges must be paid by the purchaser or owner of the stock and not by the Twin Falls North Side Land and Water Company, its successors or assigns."

⁸ Blaine County Canal Co. v. Hansen, 49 Idaho 649, 292 P. 240;Carlson-Lusk Hardware Co. v. Kammann, 39 Idaho 654, 229 P. 85;Federal Land Bank v. Bissonnette, 51 Idaho 219, 4 P.2d 364;Sanderson v. Salmon River Canal Co., 45 Idaho 244, 263 P. 32;Continental Commercial T. S. Bank v. Werner, 36 Idaho 601,215 P. 458; State v. Twin Falls Canal Co., 21 Idaho 410,121 P. 1039, L.R.A. 1916F, 1, 236; Idaho Irr. Co. v. LincolnCounty, 28 Idaho 98, 152 P. 1058; Columbia Trust Co. v.Eikelberger, 42 Idaho 90, 245 P. 78; State v. Twin FallsSalmon River Canal Co., 30 Idaho 41, 166 P. 220; Bennett v.Twin Falls etc. Co., 27 Idaho 643, 150 P. 336; Nelson v.Parker, 19 Idaho 727, 115 P. 788; Bashore v. Adolph, 41 Idaho 84,238 P. 534, 41 A.L.R. 932.