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Skinner v. Graham Canal Co.

Supreme Court of Arizona

February 8, 1954


Page 393

[77 Ariz. 6] Chester J. Peterson, Safford, Knapp, Boyle, Bilby & Thompson, Tucson, for appellant.

Anderson & Smith, Safford, Jennings, Strouss, Salmon & Trask, Phoenix, for appellees.

WINDES, Justice.

The appellee, Graham Canal Company, hereinafter designated Graham, is a corporation organized and owned by land owners for the carriage and distribution of water for irrigation theretofore appropriated by such owners from the Gila River. Prior to the year 1918 there were two canal companies, Oregon Canal Company, hereinafter designated Oregon, and Graham, with separate points of diversion and carrying facilities. The owners under Oregon were located downstream some four or five miles from owners under Graham. Due to Oregon's means of diversion being destroyed, in the year 1917 or 1918, some oral arrangement was made between these two companies and the land owners to use the point of diversion of Graham for the purpose of diverting water for both and utilizing their respective canals for transmission. The two companies thus operated as separate corporate entities until the year 1938 when a written contract was entered into between the companies on behalf of the land owners being served by them, reciting in substance that the two companies were operating what was known as the Graham-Oregon Canal; that operation under the dual management entailed difficulties; that a majority of the stockholders of each company had determined that a merger would [77 Ariz. 7] be advantageous. The contract then provides that in order to effect the desires of the stockholders, there should be such a merger, Graham to increase its stock and the Oregon owners to exchange their stock therein for new stock issued by Graham.

Page 394

This contract contained the following provision:

'That in seasons of the year when the water is on turns, the water will be issued to the land owners holding old Graham stock, or Graham stock issued prior to the date of this agreement, on the basis of six minutes per acre for a regular irrigation stream. That all water issued to the land owners owning new Graham stock, issued after the date of this agreement, will be issued said water on the basis of five minutes per acre for a regular irrigation stream. It is understood, however, that during the course of any given year, the lands being served by the new Graham stock shall be given the same amount of water per acre as is allotted to the lands having old Graham stock, provided that the old Graham stock shall not be required to make up any deficiency in the amount of water because of the length of the extension canal or its laterals.'

A dispute arose concerning the enforcement of the foregoing quoted provision of the contract. The appellant F. M. Skinner filed a complaint on behalf of himself and all stockholders of Graham who were such prior to the merger against Graham Canal Company, a corporation, Guy Anderson, J. David Lee, and Vance Marshall, as owners of stock in and land under the Oregon and as representatives of all stockholders similarly situated. It is thus a law suit between the owners heretofore served by Graham and those heretofore served by Oregon or their respective successors in interest.

The complaint sets forth the contract; alleges that the defendants refuse to recognize the validity thereof and abide by its terms; alleges the validity of the contract and asks that the court determine the validity thereof; asks that the defendants be required to specifically perform the same.

Defendants' answer asserts the invalidity of the contract in that it purported to deprive a portion of the owners of the right to use waters on an equal basis; alleges the same could be enforced on an equal basis as to all land owners and that defendants to the extent they are owners of valid water rights are entitled to have water delivered on such basis. The answer also alleges the existence of what is commonly called the 'Doan decree' rendered by the Territorial District Court in 1905 and what is known as the 'Sames decree' rendered by the United States District Court in 1935 and says the plaintiff is estopped to claim the right to discontinue the delivery of water to the defendants through the facilities of Graham. Defendants pray for judgment that plaintiff and defendants are all entitled to delivery of water upon equal terms and [77 Ariz. 8] in equal amounts according to the acreage owned by the respective individual parties.

After trial before the court sitting without a jury, it made findings of fact to the effect that the stock was exchanged by the holders thereof as provided in the agreement; that the amount of water delivered was determined according to the type of stock of the particular land owner; that under the agreement the amount received and the manner in which it is furnished bears no relation to the date of appropriation, and the system of distribution effects a transfer, alteration or change of vested water rights; that the system of distribution has not been consistently followed and has been a continuous source of disagreement; that from 1918 to 1938 the cost in connection with the improvement, maintenance and operation of the canal had been borne by both companies and there was no basis upon which the parties could be placed in status quo.

Based upon such findings the court concluded as law that there had been a de facto merger of the two companies; that the quoted provision of the contract was void; that it violated the Sames decree; that there was no legal or equitable basis for restoring the parties to status quo; that Graham was obligated to deliver water to the land owners on equal terms and conditions; and that transmission loss from the point of diversion to delivery must be borne by the land owner. Judgment followed declaring the quoted portion of the contract void; denying restoration of the parties to their status prior to the contract; requiring that Graham continue to carry water to all land owners upon equal terms and conditions;

Page 395

and stating that the legal priorities to the use of the water are not determined. From this judgment plaintiff appeals, and submits appropriate assignments of error to support a consideration of the matters considered herein.

From a reading of the record it appears quite clear that beginning about 1917 and until 1938 when the written contract was entered into, these two groups of land owners had an oral arrangement to take all water from the Graham diversion point. At that time the right to the water and manner of distribution thereof was based on stock ownership. During this entire time there was no one uniform period that each was to use the water. For several years they divided the stream and later ran the entire stream to the respective groups six days each and allowed one day for transmission, to the end that each group would gat an equal division. After years transpired and apparently as a result of dissatisfaction with the method of division and delivery and after much negotiation between the representatives of the respective land owners, the written contract was born. It also appears from the testimony of the witness Jesse A. Udall, the attorney who drew the contract in question, that in 1938 they attempted to base the right to water on an acreage basis.

[77 Ariz. 9] From the findings of fact, conclusions of law and judgment, it is apparent that the trial court viewed the contract as requiring a distribution of water on a stock rather than acreage basis; that it effected a transfer or change of vested water rights; that it violated the terms of the Sames decree; that the contract was not binding on the individual owners for the reason that the companies could not legally transfer or divest their water rights; and that all parties were entitled to delivery upon equal terms and conditions. We ...

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