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Prina v. Union Canal & Irrigation Company

Supreme Court of Arizona

November 19, 1945

ZEFF C. PRINA, Appellant,

APPEAL from a judgment of the Superior Court of the County of Graham. C. C. Faires, Judge.

Judgment affirmed.

Mr. John W. Ross, for Appellant.

Mr. Guy Anderson, Messrs. Gust, Rosenfeld, Divelbess, Robinette & Coolidge, for Appellees.

Windes, Superior Judge. Stanford, C. J., and Morgan, J., concur. LaPrade, J., being disqualified, the Honorable Dudley W. Windes, Judge of Superior Court of Maricopa County, was called to sit in his stead.


Windes, Superior Judge.

[63 Ariz. 474] In the early year of 1891 the Union Canal and Irrigation Company was incorporated for the purpose of distributing irrigation water to the farmers in and around Safford, Arizona. It issued 1,000 shares of stock with a par value of $ 25. There is some confusion about the exact methods of the operation of this company, but in any event it did not deliver water to its users on an acreage basis, but rather on a corporate stock basis. Until about 1918 the plaintiff was getting his water through another ditch, the Sunflower. These facilities were destroyed by flood and he then began securing the delivery of water through the Union Canal, purchasing from time to time a few shares of stock. Eventually, in the year 1935 the question of the respective priorities of the water users came before the Federal

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District Court in Arizona and their individual rights and priorities were adjudicated. This adjudication rendered it necessary to make water deliveries according to such priorities rather than according to stock ownership in the company.

Presented with this situation, a meeting of the stockholders of the Union Canal and Irrigation Company was called for April 12, 1938, at which the plaintiff was present and participating. At this meeting it was suggested that in order for the water to be distributed on an acreage rather than a share basis the company [63 Ariz. 475] would be reincorporated for 8,000 shares of capital stock and would issue one share for each acre of land under the canal, and a motion was made and unanimously carried to this effect. It was determined that the old shares be surrendered and a new issue of equivalent value be made, each holder to receive 7.4 new for each one of the old. This plan would leave some of the stockholders with more stock and some with less than they needed on an acreage basis. At this meeting the following also transpired: Upon a motion seconded by the plaintiff herein it was proposed that the distribution of the water be changed from a share to an acreage basis and declared that it was the intention that all stockholders having excess stock have the same valued at approximately $ 260 per share under the old stock structure or $ 35 per share under the new stock structure. There was also presented by plaintiff and passed a motion authorizing directors to make an equitable agreement and adjustment with the Sunflower Canal Company. It is very apparent from the foregoing that the defendant company was required to revamp its method of water delivery and it was recognized in so doing that, because of the unequal ownership of stock under the new setup, justice demanded some adjustment be made between what is called the long and short stockholders.

The new corporation was organized in accordance with the above plan and its articles provided it should be a nonprofit corporation. A plan was devised for making the adjustment contemplated at the foregoing stockholders meeting and that plan was by this court declared illegal. Olsen v. Union Canal & Irrigation Co. et al., 58 Ariz. 306, 119 P.2d 569.

Following the Olsen decision the stockholders held another meeting and passed a resolution providing in effect that the board of directors place a fair value on the property of the company as of June 4, 1938; that [63 Ariz. 476] it issue 6% bonds or certificates of indebtedness to each stockholder for the proportionate part of the value of the property represented by the number of shares held, and that the outstanding shares be exchanged for new shares reciting they represent only a proportionate interest in the property of the corporation. Thereafter the board of directors met and by resolution declared that the value placed on the stock of the old company of $ 260 per share at the stockholders meeting of April 12, 1938, fairly represented the value of the physical properties of the company and proceeded to fix the value of such property on this basis. The board of directors then proceeded to carry out the plan by the issuance of certificates of indebtedness and the new stock. The plaintiff seeks an injunction which was by the trial court denied. The parties will herein be referred to as plaintiff and defendant.

Stripped of the many complications, an effort is being made by this company to require the various water users to make their proportionate investment in the property of the company committed to their service in proportion to the service rendered and acreage served. The canal system and all the properties rendering this service belong to the stockholders of the original company. Under the present situation it is required to make water deliveries to some appropriators, the plaintiff included, out of proportion to the stock owned or investment made. The unfairness of this situation was recognized at the reincorporation meeting of April 12, 1938, when the new method of service was authorized, and the plaintiff presented the motion authorizing the board of directors to make an equitable adjustment with the Sunflower Company. The Sunflower Company was the company which served the plaintiff before he began to avail himself of defendant's facilities.

It is apparent therefore that the plaintiff, being a participant in these matters, has committed [63 Ariz. 477] himself to the organization of a corporation designed to deliver water on an acreage basis and has committed himself to some scheme that would make some equitable adjustment between the long and the short stockholders. It ...

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