1. On appeal from a decree dismissing a bill because of refusal
to bring in additional parties, the merits are not open, but only
the question whether such parties were necessary. P.
266 U. S.
159.
2. Parties are necessary who have such an interest in the matter
in controversy that it cannot be determined without affecting that
interest or leaving the interests of those who are before the court
in a situation that might be embarrassing or inconsistent with
equity.
Id.
Page 266 U. S. 153
3. After a state had agreed with the Secretary of the Interior
for the reclamation of certain public lands under the Carey Act, a
company contracted with it to construct works and supply water to
irrigate those and other lands and to sell to each settler a
perpetual right to a stated quantity of water for each acre of his
tract, with a proportionate interest in the works and water
appropriation at a stated price per acre, no water rights to be
sold in excess of the capacity of the works or available water
supply, all to be of equal priority, and the company to have a lien
on each water right to secure payment of the price. Afterwards, the
company made contracts, all alike in tenor, with many individual
settlers, each reciting that it was made in virtue of, and to be
governed by, the contract between the company and the state, each
granting the settler water rights and proportionate interests in
the works, etc., in terms accordant with those provided by that
contract, with a right to pay the price in installments during a
period of years, and entitling the company to a lien on the
settler's water right and land to secure payment. Thereafter, a
controversy arising as to the sufficiency of the available water
supply to reclaim the acreage for which water right contracts were
outstanding, and the settlers for this reason defaulting in
payments, the trustee for the company's bondholders sued to
foreclose the lien on the land and water rights of two of them
only, setting up the controversy and claiming, in disregard of the
express stipulations, that the total amount of lien intended by the
Carey Act must be determined by distributing the total actual
outlay for the irrigation works, with reasonable interest, over all
of the reclaimed lands, on an acreage basis.
Held, that
the suit could not be maintained in the absence of the other
contract-holders (settlers) as parties. P. 159.
4. Under the Carey Act, where the water supply is adequate for
part only of the acreage for which water right contracts are
outstanding, some of the contracts must be eliminated before any of
the lands can be deemed reclaimed or be adjudged subject to a lien
for the cost of water rights. P.
266 U. S.
160.
273 F. 1 affirmed.
Appeal from a decree of the circuit court of appeals affirming a
decree of the district court which dismissed a bill for want of
necessary parties
Page 266 U. S. 154
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
This suit is an incident of the partial failure of an irrigation
project in the State of Idaho, called the Salmon River project,
which was undertaken in accordance with the Carey Act, c. 301,
§ 4, 28 Stat. 422, c. 420, 29 Stat. 434, and c. 853, § 3,
31 Stat. 1188, and the legislation of the state accepting the
conditions of that act and providing for their performance, §
2996
et seq., Idaho Comp.Stat. 1919. A statement of the
situation leading to the suit will be helpful in understanding its
nature and purpose.
The project comprehended (a) the donation by the United States
to the state of 127,000 acres of arid public lands; (b) the
reclamation of the lands through an agency of the state by means of
extensive irrigation works drawing a supply of water from the
Salmon River, and the disposal of the lands, with suitable water
rights, to settlers in tracts of not more than 160 acres to any one
person. Other lands lying among the 127,000 acres were included in
the project, making a total of 150,000 acres.
In 1907, George F. Sprague and others, who had devised the
project, submitted to the state land board a proposal to construct
the necessary irrigation works and to provide the requisite supply
of water. In the proposal, they represented that, if it was
accepted, they would organize a corporation with capital sufficient
to complete the works and to put the same in operation, so as to
reach and reclaim all of the 150,000 acres, that the water supply
intended to be utilized was ample for the purpose, and
Page 266 U. S. 155
that water rights would be sold to settlers at $40 per acre. The
representation respecting the water supply was set forth with much
detail in an accompanying statement by their consulting
engineer.
The board, after referring the proposal to the state engineer
and receiving from him a favorable report, provisionally accepted
the proposal and forwarded it to the Secretary of the Interior with
a request that the 127,000 acres of public lands be segregated from
other public lands and that a contract be made between the United
States and the state binding the United States to donate, grant,
and patent the lands to the state, if and when the latter caused
them to be reclaimed.
The segregation was made, and on April 10, 1908, the United
States and the state entered into such a contract. It provided,
among other things, that the United States should patent to the
state, or to its assigns, any particular tract or tracts whenever
an ample supply of water to reclaim the same was actually furnished
in a substantial ditch or canal; that all persons acquiring rights
to such lands from the state prior to the issue of patent by the
United States should take and hold the same subject to the
requirements of the Carey Act and the terms of the contract; that
full compliance therewith should be a condition to obtaining a
right to a patent from the United States, and that the work of
reclamation should be completed within 10 years.
The state and the Twin Falls Salmon River Land & Water
Company, to which Sprague and his associates had transferred their
interests in the project, then entered into a contract by which
that company bound itself to construct and complete the irrigation
works within five years, to provide the requisite supply of water,
and to sell to each settler a perpetual water right of
one-hundredth of a cubic foot of water per second of time for each
acre in his tract -- the price of the water right to be not
more
Page 266 U. S. 156
than $40 an acre, and the water right to include a proportionate
interest in the irrigation works and in the water appropriation and
franchises pertaining to them. Other provisions in the contract
were to the effect that no water rights should be sold in excess of
the capacity of the works or of the available water supply; that
the company should have a lien on each water right to secure
payment of the purchase price, and that there should be no
preference or priority among the holders of water rights, but all
should be on the same plane, regardless of the order in which the
rights were purchased. In still other provisions, the state agreed
to dispose of the lands to settlers at 50 cents an acre, and not to
recognize any right in a settler unless and until he contracted
with the company for a water right sufficient for the irrigation of
the tract he was seeking. After completing the works and putting
them in operation, the company was to transfer their ownership and
control to a corporate agency of the settlers, who were to hold its
shares in the same proportion that they held the water rights. The
moneys accruing from the sale of water rights were to belong to the
construction company, and it was not to be otherwise compensated
for its outlay and efforts. The contracts by which the water rights
were sold to settlers were all of the same tenor. Besides declaring
that they were made in virtue of the contract between the state and
the company and that the rights of the parties were to be governed
thereby, these contracts showed that the settler was to have a
right to receive during each irrigation season one-hundredth of a
cubic foot of water per second of time for each acre in the tract
which he was seeking to acquire from the state, and also a
proportionate interest in the irrigation works, etc., such interest
to conform to the proportional relation between the number of acres
covered by his water right and the
Page 266 U. S. 157
total acreage covered by all water rights sold "in accordance
with" the contract between the company and the state. The price to
the settler was a definite sum calculated at the rate of $40 per
acre and payable in stated installments spread over a period of 11
years. To secure payment, the company was to have a lien on the
water right and the land, and, if it so requested, was to be given
a mortgage on the land when the settler received the legal title.
If default was made in the payment of any installment, the company
was to be at liberty to declare the entire amount then unpaid
immediately due and payable, and to proceed to collect the same and
to enforce such lien as it might have on the water right and
land.
The contracts between the United States and the state, between
the state and the company, and between the company and the several
settlers all expressly recognized the laws under which they were
made as parts of them.
After the irrigation works had been partly constructed and the
lands opened to entry and many water right contracts made, it was
found that the available water supply was not only short of what
was required to irrigate 150,000 acres, but short of what was
required to satisfy the water right contracts already made, which
aggregated 73,000 acres. In 1915, some of the settlers obtained, in
a suit against the company, an interlocutory decree declaring that
the outstanding water right contracts were in excess of the
available water supply and prohibiting the sale of further rights.
Caldwell v. Twin Falls Salmon River Land & Water Co.,
225 F. 584; 242 F. 177; 272 F. 356. In 1916, the state land board
dealt with the shortage by cancelling settler's entries amounting
to 13,000 acres and declining to allow further entries or to
approve further sales of water rights, thereby in effect requiring
that the water supply by applied to not exceeding 60,000 acres. In
1918, the board, on further consideration,
Page 266 U. S. 158
concluded that the available supply was not sufficient to
irrigate more than 35,000 acres, and made an order that it be
distributed over and made appurtenant to that number of irrigable
acres and no more, and that the outstanding contracts for water
rights in excess of that acreage be cancelled.
The shortage of water and the proceedings resulting therefrom
led to many controversies between the construction company and the
settlers, and to a general failure on the part of the latter to pay
the deferred installments of the purchase price for the water
rights. The settlers insisted, and some of them satisfied a court
to which they resorted, that the available water was not sufficient
to irrigate more than 25,000 acres.
Such was the situation when this suit was brought. The plaintiff
is a trustee in a deed of trust given by the construction company
to secure payment of a large issue of its bonds, and under that
deed holds as collateral the company's rights under the contracts
with the settlers and all liens to which it may be entitled under
them and the legislation on which they are based. The defendants
are two settlers holding contracts for water rights on which the
deferred installments of the purchase price have not been paid. The
plaintiff has elected to declare the full amount remaining unpaid
due at once, and to enforce payment accordingly. By its bill, it
asserts a lien on the water rights and the lands for which they
were purchased, seeks a foreclosure of the lien, and asks a
judgment for any deficiency. Other features of the bill will be
noticed later on. In their answer, the defendants admit some of the
plaintiff's allegations, deny others, and assert a right to counter
relief.
On the defendants' motion, the district court ruled that the
other holders of water right contracts were necessary parties, and
ordered that the plaintiff bring them in. The plaintiff refused,
and the bill was dismissed. The circuit
Page 266 U. S. 159
court of appeals affirmed the decree, 273 F. 1, and the
plaintiff appealed to this Court under § 241 of the Judicial
Code.
In the briefs, there is much discussion of questions which might
arise if the case were here on the merits. But, as the bill was
dismissed because of the refusal to bring in additional parties,
the only question open here is whether the parties indicated were
necessary parties. Of course, they were if they had such an
interest in the matter in controversy that it could not be
determined without either affecting that interest or leaving the
interests of those who were before the court in a situation that
might be embarrassing and inconsistent with equity.
Shields v.
Barrow, 17 How. 130,
58 U. S.
139.
The plaintiff takes the position that the suit is simply one to
foreclose a distinct lien on particular water rights and lands, in
which the other holders of water right contracts have no interest,
and that a final decree determining the issues in the plaintiff's
favor and granting the relief sought can neither affect the other
holders of such contracts nor work any embarrassment or inequity to
the defendants. In our opinion, that position is not tenable. The
suit is much more than one for a simple foreclosure. The bill sets
forth the controversy respecting the water supply, and does so for
the purpose of having it determined. The controversy is not
peculiar to the contracts sued on, but reaches and affects all that
are outstanding. The contracts, while several in form, are
interdependent in substance and operation. All are effectively tied
together by the contract between the state and the company in
virtue of which they were made and by what they purport to do,
which is to entitle their holders to participate on equal terms in
the use of a common supply of water and to invest them with
proportionate interests in the works by which the water is
collected and conducted to the places of use. As was well said by
the district
Page 266 U. S. 160
judge:
"In a very substantial sense, all the settlers are parties to
one general contract, in the subject matter of which all are
interested, and by virtue of which all have rights so
interdependent, whether they be regarded as joint or several, that
the interest of one cannot be defined and adjudicated without
affecting the interests of all others."
Other considerations leading to the same result will be briefly
stated.
According to the Carey Act, a tract is not reclaimed until "an
ample supply of water is actually furnished" for its irrigation and
cultivation, and only when it is reclaimed can it be charged with a
lien for the cost of water rights. If, therefore, the supply of
water is not adequate for the reclamation of the acreage for which
water right contracts are outstanding, and yet is adequate for the
reclamation of a smaller acreage, as is asserted on one side, it is
evidence that some of the contracts must be eliminated before any
of the lands can be said to be reclaimed or be adjudged subject to
such a lien. Of course, an ascertainment or designation of the
contracts which must fall and those which are to stand cannot be
had in a suit to which their holders are not parties.
The same thing is true as respects the elimination of contracts
made in contravention of the provision in the contract between the
states and the company that water rights should not be sold in
excess of the available water supply.
The bill practically disregards the stipulations fixing the
price of water rights at $40 an acre, and proceeds on the theory
that the amount of the lien intended by the Carey Act is to be
determined by distributing the total actual outlay for irrigation
works, etc., with reasonable interest thereon, over all of the
reclaimed lands on an acreage basis. Applying that theory, the bill
alleges that, if the supply of water is found to be adequate
Page 266 U. S. 161
for 60,000 acres and no more, the amount due is to be computed
at $60 an acre, and if the supply is found to be adequate only for
a smaller acreage, a correspondingly higher rate is to be used in
the computation. This theory involves a determination of the total
outlay and of the total area reclaimed. In view of what is
comprehended in these questions, they should be determined once for
all. Every contract holder has an interest in them, and will be
affected by their determination, however made. It is of concern to
him not merely whether his tract is held to have been reclaimed and
to be chargeable with part of the general outlay, but also whether
and to what extent other lands are in the same situation. In this
and other respects, what is determined in respect of other holders
is of direct concern to him. In short, the interests of the
contract holders are so related that an effective and just
determination of the questions can only be had in a proceeding to
which all are parties.
What we have said requires that the decree be
Affirmed.