In re: Proceedings to Establish Validity of $7,332,000 Principal Amount Refunding Corporate Bonds, Bond Issue Number One, of Salt River Project Agricultural Improvement and Power District, B. F. REICHENBERGER, E. A. MARSHALL and THE BANK OF DOUGLAS, Appellants,
SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT and POWER DISTRICT, Appellee
APPEAL from a judgment of the Superior Court of the County of Maricopa. W. C. Truman, Judge. Judgment reversed.
Messrs. Snell, Strouss & Wilmer, for Appellants.
Messrs. Darnell & Robertson, for Appellee.
[61 Ariz. 466] ROSS, J.
This is a suit by the Salt River Project Agricultural Improvement and Power District to have determined the validity of a proposed refunding bond issue, and it is brought in pursuance of Section 75-745, Arizona Code Annotated 1939. The petitioner is an agricultural improvement district. In 1937 the electors of said district authorized it to issue its bonds for the purpose of financing or refinancing obligations of the Salt River Valley Water Users Association.
The first bond issue under such authorization, designated as Bond Issue Number One, was for $9,969,000 and was a first lien on the real property of the district. The second issue, dated June, 1940, was for $1,000,000, and the third issue, dated October, 1940, was for $2,500,000.
The board of directors of the district at a meeting on March 27, 1944, authorized the district to issue its refunding bonds in the amount of $7,332,000. These refunding bonds were not authorized by a vote of the electors of the district, as were the bonds issued for the purpose of financing or refinancing the obligations of the Water Users Association. Under their terms the refunding bonds were to have and retain the same priority of lien as the bonds refunded. That is, the refunding bonds were to be a first lien on the district's property on a parity with the bonds of Bond Issue Number One not refunded and prior to the lien of Bond Issues Numbers Two and Three.
The proposition is to exchange these refunding bonds for series A and B bonds of Bond Issue Number One. Series A and B bonds bears interest at 4 1/4% per annum and are callable January 1 and July [61 Ariz. 467] 1, 1948. Bonds of Bond Issue Number One becoming callable after 1948 are not to be refunded. The refunding bonds will bear interest at 3% per annum. The district, however, as a part of the exchange of bonds contracts to pay to these bondholders the full amount at their present interest rate to the 1948 maturity date. The refunding bonds become callable in 1964. Bond Issue Number
One, as also refunding bonds, are guaranteed by the Water Users Association.
Appellant Reichenberger, a property owner in the district, appellant Marshall, the owner of one of the bonds of Bond Issue Number One not to be refunded, and appellant The Bank of Douglas, the owner of a bond of Bond Issue Number Two and Bond Issue Number Three, contest the validity of the refunding bonds on the grounds, (1) that the district is without power or authority to issue refunding bonds, (2) the refunding bonds could not be issued without a vote of the electors, and (3) that the refunding bonds are invalid because they are made a lien on the property of the district, on a parity with the bonds of Bond Issue Number One not refunded, and superior to the lien of Bond Issues Numbers Two and Three, in contravention of Section 75-728, Arizona Code Annotated 1939.
Judgment was entered establishing the validity of the bonds, and it is from this judgment the appeal is taken.
We will consider the grounds upon which appellants contest the validity of the refunding bonds in the order stated above. In Sections 75-701 to 75-748, Arizona Code Annotated 1939 is found the authority for the organization, operation and financing of irrigation projects for the reclamation of agricultural lands of the state. Among the powers available to owners of irrigable lands, if they will organize an [61 Ariz. 468] agricultural district, is the power to finance and refinance their obligations, or any debts incurred in the installation or equipment of their irrigation plant. Section 75-701, supra. After such district is organized and a board of directors elected and qualified, the power is vested in the directors to manage the business affairs of the district. Such powers are named in Sections 75-714 and 75-725, supra.
Under Section 75-714, the board of directors is empowered "to enter into,... all such contracts...;... to reduce the cost of irrigation, drainage and power to the owners of the lands in said district by the sale of surplus water or power produced, owned or controlled by the district, and the construction, maintenance, extension, replacement, financing and refinancing of the works useful for said purpose; or to finance or refinance as its own obligation all or any part of the debt heretofore incurred or hereafter proposed to be incurred by any public or private agency in the construction, maintenance, improvement or replacement of the structures and equipment necessary or useful for the accomplishment of any of the above purposes; either by the issue and sale of its bonds or ...