### No. 80-465 IN THE SUPREME COURT OF THE STATE OF MONTANA

MANUEL CASTILLO, JR., and DEBORAH J. CASTILLO, and GARRY A. COTANT, SHARYL COTANT, Plaintiffs and Appellants,

VS. 

### DELBERT B. KUNNEMANN, Defendant and Respondent.

Appeal from: District Court of the Sixth Judicial District, In and for the County of Park Honorable Jack D. Shanstrom,Judgepresiding. Counsel of Record: For Appellants: Berg, Coil, Stokes & 

### Tollefsen, Eozernan, Montana Ben E. Berg, Jr. argued, Bozeman,Montana For Respondent: Loble and Pauly,Helena, Montana Lester Loble I1 

### argued, Helena, Montana Wellcome and Frost, Bozeman,Montana A1 Frost argued, Bozeman,Montana Swandal, Douglass & 

### Swandal, Livingston,Montana For Amicus Curiae: Donald D. MacIntyre, D.N.R., Helena,Montana

Submitted: November 30, 

### 1981 Decided: 

### Hht

### 3 f4$2 

# NAP,3

# -1982 File 

# .Mr. JusticeFrank B. Morrison, Jr., delivered the Opinion of the Court.

Appellants, Manuel and Deborah Castillo and Garry and Sharyl Cotant, appeal from an order of the Sixth Judicial DistrictCourt, Park County, entered on October 8, 1980. The order denied appellants' request for an injunction preventing respondent, Delbert Kunnemann from diverting certainwater. On September 29, 1981, this Court issued an opinion reversing the DistrictCourt, holding in favor of appellants Castillo and Cotant. A petition for rehearing

was duly filed. Wereverse our original position and, with modification, affirm the DistrictCourt. In 1976, Delbert Kunnemann owned a 1,275-acre ranch located inthe Shields Valley, Park County, Montana. Kunnemann owned two water rights on the Shields River from which he drew water toirrigate his ranch. Kunnemann's water rights stemmed from an appropriation of 240 miner's inches made by

a Thirza Grannis on June 

### 1, 1880, and from an appropriation of 450 miner's inches made by a John McNiven on August 14, 1893. Two main ditches, named after the respective original water rights appropriators, Grannis and McNiven, 

### were used to transport thewater from the Shields River toKunnemann's property. On December 30, 1976, Kunnemann sold a 230-acre parcel of his ranch toJake Franks. The warranty deed conveying thisparcel toFranks contained the following water right grant: "Together with 230 miner's inches of the waters of the Shields River appropriated by John McNiven and bearing appropriation date of the 14thday of August, 1893, and related ditch rights."Jack Franks subdivided the 230-acre parcel into twelve smaller tracts of land. The Castillos purchased a 20-acre tract from Franks on March 4, 1977. The contract for deed between Franks and Castillos did not contain a specific water right grant but rather the following general grant: "Together with the tenements, hereditaments and appurtenances thereunto belonging." The Cotants purchased a 9.114-acre tract from Franks on November 8, 1979. The warranty deed given by Franks to the Cotants contained this language: "Together with alland singular the tenements, hereditaments, appurtenances, water rights and water ditches, if any, thereunto belonging." The following diagram depicts the location of the property retained by Delbert Kunnemann, the Franks subdivision, the Castillo and Cotant properties, and the Grannis and McNiven ditches: (SeeDrawing on Next Page)

### Kunnemann PropertyNo interconnecting lateralditches exist between the ~c~iven ditchand the Castillo and Cotant properties. When Jake Franks sold the subdivision tractsbetween the McNiven ditch and the Castillo and Cotant properties, he did not

reserve any easements through which lateral ditches could be built totransport water from the McNiven ditch to the Castillo and Cotant properties. During the 1977 and 1978 irrigating seasons, Kunnemann allowed Castillototake water from the Grannis ditch to irrigatehay crops. In 1980, Kunnemann blocked the Grannis ditch north of the Castilloproperty, thus diverting allof the water flowing inthe Grannis ditch onto Kunnemannls land.As a result of Kunnemannlsdiversion of the Grannis ditch, Castillos and Cotants filed a complaint on July 

### 14, 1980. They sought toenjoin Kunnemann from interfering with the flow of water inthe Grannis ditch. The District Court entered a restraining order on July 22, 1980, preventing Kunnemann from diverting the Grannis ditch water. A show cause hearing on the complaint was set forAugust 5, 1980. On August 5, 1980, the plaintiffs, Castillos and Cotants, and the defendant, Kunnemann, appeared with counsel and presented testimony. Following hearing, the District Court issued findings of fact and conclusions of law on September 9, 1980. The District Court found that the Castillos, Cotants and their predecessor ininterest, Jake Franks, never had possession of the Grannis ditchor Grannis water rights. The court found thatJack Franks could not convey the ~rannisditch orwater rights as appurtenant to the Castillo or Cotant property because such rights had never been legally attached as appurtenant. The court further found that section 85-2-403, MCA, imposes no duty on the seller of real property and appurtenant water rights to filea notice of such sale or transferwith the Department of Natural Resources. Based on these findings the DistrictCourt dissolved the restraining order granted pending the order to show cause and denied the plaintiffs' motion for an injunction. On September 18, 1980, Castillos and Cotants filed a motion to amend pursuant toRule 59(g)

## , M.R.Civ.P. On October 8, 1980, the DistrictCourt entered an order denying themotion. Castillos and Cotants appeal from this order. Dispositive issues inthis case are: 1. When Kunnemann deeded toFranks and expressly granted theMcNiven rights, did Kunnemann impliedly reserve the Grannis rights? 2. If Kunnemann effectively reserved the Grannis rights and severed them from the land towhich they had been appurtenant, did existing law require him toobtain approval of the Department of Natural Resources pursuant tothe provisions of theMontana Surface and Groundwater Act, sections 85-2-101, et seq., MCA? 3. What effect does failuretoapply tothe Department of Natural Resources forpermission to sever have upon a conveyance? Plaintiffs introduced a decree entered by the Sixth Judicial District Court incivilcase no. 2717, Henwood v. Hobson, which adjudicatedwater rights of Thirza Grannis on the Shields River. This decree determined that the appropriation of 240 miner's inches made by Thirza Grannis on June 

### 1,1880, was appurtenant to the following land: "The South half of SectionNine, alsoallof Section Seventeen, Township One South, Range Ten East." The tractof land which Castillo purchased from the Franks' subdivision 

### lies inthe south half of this particular sectionnine. Additionally, Kunnemann testified that the land which Castillo ultimately purchased had traditionally been irrigated by water from the Grannis ditch. This testimony was confirmed by Dan Dinsdale, son of the predecessor ininterestof Delbert Kunnemann, and by Albert Palmer, a hired hand who had irrigated theproperty. Both men stated that only water from the Grannis ditchhad been used toirrigatethe land which Castillo subsequently purchased. InLensing v. Day and Hansen SecurityCo. (1923), 67 Mont. 382, 384, 215 P. 999, 1000, this Court stated that

# ".

. . a water right acquired by appropriation, and used for a beneficial and necessary purpose inconnection with a given tractof land, is an appurtenance. 

# . ." Section 70-17- 101(11),MCA, establishes thatditches arean easement which may attach to land. Section 70-15-105, MCA, provides that a 

# ".

. . thing is deemed tobe incidental or appurtenant to land when 

### it 

### isby rightused with the land for 

### itsbenefit



## . 

# .

# ." It is clear thatboth by decree and beneficial use, the Grannis water - and ditchrights

### were appurtenant to Castillo's land. However, evidence concerning whether the Grannis water and ditch rights 

### were appurtenant tothe Cotant property is not soclear. No decree was admitted which declared such rights appurtenant tothe Cotant property. Kunnemann did testify thathe used the Grannis ditch and Grannis water to irrigate the lands south of the Castilloproperty. Cotantspurchased a 9.114-acre tract of land which borders the Castilloproperty immediately on the south. An aerialphoto of the area showed that the Grannis ditch runs directly through the Cotant property. Due to the proximity of the Cotant property tothat owned by Castillos, the evidence supports a finding that the Cotant property would have been irrigated atthe same 

### timethe Castilloproperty was irrigated. We find the Grannis rights tobe appurtenant toboth tracts. Kunnemann conveyed the McNiven water right together with related ditchrights. We hold that related ditch rights refer tothe "McNiven ditch." Since Kunnemann held two water and ditch rights, namely the Grannis rights and the McNiven rights, the question becomes whether conveyance of theMcNiven rights impliedly reserved the Grannis rights. We

now hold that such an implied reservation was effectuated by the conveyance inquestion. Section 28-3-702, MCA, provides as follows: "All things that inlaw or usage areconsidered as incidental toa contract or asnecessary tocarry it into effect areimplied therefrom unless some of them areexpresslymentioned therein, inwhich case allother things of the 

### same class areconsidered tobe excluded." Under the provisions of the above-quoted statute, the water right not specificallymentioned would be excluded. Furthermore, such an interpretation effectuates the intent of the parties. In Lensing v. Day and Hansen Security Co., supra, this court said atpp. 384-385: "In a conveyance of a water right or any other property, it is the intentionof the parties, so faras the same has been lawfully expressed, which must control the courts ina construction of the instrument by which the property is conveyed. The general rules of construction of legal documents apply to the instrument now under consideration. The fact that a water right is involved does not add toor in

### any way change those rules."~pplying 

### wellestablished rules of construction, and theprovisions of section 28-3-702, MCA, quoted above, 

### we

now hold thatrespondent Kunnemann effectively reserved his Grannis water right and the related Grannis ditch right. The next issue for resolution 

### iswhether the Montana Surface and Groundwater Act, sections 85-2-101, et seq., MCA, applies towater rights perfected prior to the effective date of theAct. Ditch rights areclearly not governed by the applicable statutes. The Act 

### is comprehensive legislation designed to

# ".

. .provide for the administration, control, and regulation of water rights and establish a system of centralized records of 

### - allwater rights." Section 85-2- 101 (2)

## , MCA, (emphasis added)

# . Under thisAct, an adjudicationprocess of allwater rights existing prior toJuly 1, 1973was instituted. Sections 85-2-211 through 85-2-243, MCA. Additionally, appropriations of water rights after July 1, 1973 could only be made through an application and permit procedure governed by the Department of Natural Resources and Conservation. Sections 85-2-301 through 85-2- 317, MCA. Prior to 1973, Montana case law consistently held that

a water right could be transferred and disposed of apart from the land towhich 

### it was appurtenant. However, such transfer could not adversely affect other vested rights. See Sherlock 

### v. Greaves (1938), 106Mont. 206, 76 P.2d 87; Lensing v. Day and Hansen Security Co., supra. The Surface and Groundwater Act made such transfer subject toreview as follows: 

### "(3) Without obtaining prior approval from the department, an appropriator may 

## -- not sever 

## -- allor

### =part 

## --- of an appropriation right

## ---- from the land towhich 

### -- it is appurten- ant, 

# .. . The department shall approve the -proposed change if 

### it determines that the proposed change willnot adversely affect the rights of other persons. If the department determines that the proposed change might adversely affect the rights of other persons, notice of the proposed change shall be given inaccordance with 85-2-307. If the department then determines that an objection filedby a person whose rightsmay be affected states 

### a valid objection tothe proposed change, the department shallhold a hearing thereon prior to

### its approval ordenialof the proposed change. Objections shall meet the requirements of 85-2-308 (2) and hearings shallbe held inaccordancewith 85-2-309." Section 85-2-403, MCA. (emphasis added.) Respondent contends that this provision was not intended togovern water rights perfected before the July 

### 1, 1973, effective date. However, section 85-2-403(3) does not contain specific language which precludes its application to water rights perfected prior toJuly 1, 1973. Other provisions contained in the Surface and Groundwater Act - do contain such preclusive language. For example, section 85-2-404, MCA, regarding abandonment of 

### water rights states: "(1) If an appropriator ceases touse a11 or a part of his appropriation right with the intentionof wholly orpartially abandoning theright or if he ceases using his appropriation right according to its 

### terms and conditions with the intention of not complying with those terms and conditions, the appropriation right shall, to that extent, be deemed considered abandoned and shall immediately expire. "(2) If an appropriator ceases touse all orpart of his appropriation right or ceases using his appropriation right according to its 

### terms and conditions for a period of 10 successiveyears and therewas water available for hisuse, there shall be 

### a prima faciepresumption that the appropriator has abandoned his right inwhole or for the part not used. "(3) This section 

## -- does not apply toexistingrights until 

## --- they have been determined inaccordance with part - 2 of 

### - - this chapter." (emphasis added.) It is clear that the legislatureprecluded application of the Surface and Groundwater Act statuteswhere it deemedsuch action necessary. Accordingly, it was the legislature's apparent intentnot topreclude application of section 85-2- 403(3), MCA, towater rights existing prior toJuly 

### 1, 1973, by virtue of the fact that language precluding such application

was not included inthe statute. On rehearing, Kunnemann contends that application of section 85-2-403(3), MCA, of the Surface and Groundwater Act to

### waterrights perfected before the Act would violate the Montana Constitution. Article IX, Section 3, provides: 

### "(1) Allexisting rights to the use of any waters for any useful orbeneficial purpose arehereby recognized and confirmed." The subjectprovision of the Act does not destroy the right touse water, thus violating the constitutional provision. Rather, theAct establishes a procedure for review. The Department of Natural Resources, under the Act, can only deny transfer if other vested rights would be injured. The law has not been changed. The Department has simply been given a review todetermine the same issue that could previously have been determined only by a DistrictCourt. In commenting upon the new provision, Montana's noted water law authority, Albert Stone said: "The 1973Water 

### -- UseAct, R.C.M., section 89- 892, continues the policy of the repealed section 89-803, only adding that any change must have the approval of the Department of Natural Resources and Conservation. So the case law developed under the prior code section should remain applicable to the new 

### section." SelectedAspects of Montana Water Law, p. 40. We see nothing unconstitutional about applying the mandated procedure torights perfected prior to the effective dateof theAct. Therefore, we hold that the owner of a water right existing prior toJuly 

### 1, 1973, must seek the approval of the Department of Natural Resources and Conservationbefore severing thatright from land towhich it is appurtenant. The result of our determination involving the firsttwo issues 

### is, that ownership of the Grannis water right and ditch rightwas reserved by respondent Kunnemann. However, thewater right has remained appurtenant tothe land conveyed by Kunnemann toFranks and so the right reserved 

### is qualified. Kunnemann must apply tothe Department of Natural Resources forpermission to sever from the land conveyed, thewater rightwhich Kunnemann owns. The same rationale applies to theMcNiven water right. The conveyance passed title, but the right touse 

### willbe delayed until appropriate approval 

### is granted by the Department of Natural Resources. The result of this opinion is tohold that: (1)the Montana Surface and Groundwater Act, except where it indicates

a contrary intent, applies towater rights perfected prior to the effectivedate of theAct, and 

### (2) failureto comply with the terms of the Act does not render a conveyance or reservation void, but suspends ability touse the right until the statutorilymandated permission 

### is granted by the Department of Natural Resources. Judgment infavor of Kunn d.

WeConcur:Justices John C. Sheehy and Fred J. Weber dissenting in part:

We agree with the resolution of the first issue by the majority, that Kunnemann impliedly reserved his Grannis water right and conveyed no right toFranks or his successors totake irrigationwater onto the deeded lands through the Grannis ditch as 

### it runs through the nondeeded property retained by Kunnemann. We disagreewith the conclusion of the majority that approval of the Department of Natural Resources 

### is necessary to effectuate the transfer by Kunnemann toFranks or that any right toKunnemann 

### touse the remaining water 

### is "severed" and must have Department of Natural Resources approval. A review of basic Montana 

### water lawis useful todemonstrateour position. We begin with a reminder that a water right and a ditch right are separate entities, capable of separate ownership. Kunnemann can own a ditch rightwithout a

# mw-ky water right, or a water rightwithout a ditch right. BWS~~Fv. Missoula Irr. District (1931), 90 Mont. 344, P.2d

; Connolly v. Harrel (1936), 102 Mont. 295, 57 P.2d 781; McDonnell v. Huffine (1931), 44 Mont. 411, 120P.2d 792. In this case, Kunnemann sold toFranks that part of the Grannis ditch thatwas part and parcel of the decided property. He reserved tohimself the Grannis water rightwhich provided water tothat portion of the Grannis ditch. Hehad a perfect legal right todo so, since Kunnemann can own a water right without a ditch right. Before the deed toFranks, Kunnemann, of course, owned allof the real property involved here. He owned a water right to 240 miner's inches inthe Grannis ditch and 450 miner's inches intheMcNiven ditch. The ditches on hislands 

### werepart and parcel of his ownership. The ditches



### were not "appurtenant" because they were part of the real 

### estate that Kunnemann owned. This was explained 

### in Smith v. Denniff (1900), 24 Mont. 21, 23, 24, P.

as follows: "2. Section 1078 of the Civil Code defines an 'appurtenance' as follows: 'A thing 

### is deemed tobe incidental orappurtenant to land when 

### it 

### isby right used with the land for 

### itsbenefit, as inthe case of a way, or

### water course, or of a passage for light, airor heat from or across the land of another.' A 'water course from or across the land of another' is an easement, and by reference to section 1250 of the Civil Code 

### it 

### isplain that inthe contemplation of the Code an appurtenance to land 

### is inany and every case an easement. For example: A. owns a parcel of land, to irrigate which he has lawfully appropriated and by right 

### is using, water. The ditch through which the water 

### is conveyed 

### is also owned by him, and 

### ispartly upon his land and partly upon the land of B. The water right 

### is an appurtenant toA.'s land, and thatpart of the ditchwhich 

### isupon B.'s land 

### is an easement of A. therein, and 

### is also appurtenant tothe land of A., but that part of the ditchwhich 

### is upon A.'s land 

### is not appurtenant thereto, but 

### ispart and parcel of the land itself." Hence, 

### it 

### is clear thattheportion of the Grannis ditch that 

### lies upon the lands sold toFranks 

### is not "appurtenant" tothat land, but 

### ispart and parcel of the land conveyed, Franks received no ditch right inthe Grannis ditch as an "appurtenance," because Franks got no right to convey irrigationwater over the remaining Kunnemann's land through theGrannis ditch on that land. A ditch right on the land of another 

### is an easement on the land of the other, and an easement cannot be created, granted ortransferred except by operation of law, by an instrument inwriting, by prescription or eminent domain. The effectof the deed from Kunnemann toFranks was toconvey toFranks 230 miner's inches of water inthe McNiven ditch, and the right totake 

### water tothe deeded lands through theMcNiven ditch over the remaining Kunnemannlands. By the deed, Franks received 230 miner's inches of McNiven water formerly owned by Kunnemann, and a NcNiven ditch right over the remaining Kunnemann lands as an appurtenance tothe lands purchased by Franks. Castillo and Cotant are successors toa part of the rights deeded by Kunnemann toFranks. They have no other claim upon Kunnemann, or upon his remaining 

### water or ditch rights. They cannot getwater through the Grannis ditchunless they acquire 

### (1)

### a water right which can be diverted 

### atthe Grannis diversion, and (2) an easement over Kunnemann's remaining lands to carry thewater through the Grannis ditch over Kunnemann's remaining lands tothe lands owned by Cotant and Castillo. A further result of the deed toFranks by Kunnemann is that Franks got that portion of the Grannis ditchwhich

was located upon the deeded lands, but no water right because the Grannis water rightwas reserved toKunnemann. When Castillo and Cotant claimed 

### waterthrough the Grannis ditch, they 

### were claiming

### water forwhich neither they nor their 

# mulac! predecessor Franks had a water right. See ?4e4%kq-13. Missoula Irr. District, supra, for a reverse of this situation. Castillo and Cotant have no 

### water right inthe Grannis ditch which 

### is appurtenant tothe lands they now own. Kunnemann owned "existing rights," that iswater and ditch rightswhich existed prior toJuly 1, 1973. Wedisagree that the owner of an existing rightmay not transfer a 

### water

or ditch right unless the Department of Natural Resources approves. In arriving atthe opposite conclusion, the majority rely upon a portion of section 85-2-403, MCA, which



### we again quote for the reader's convenience.

### " (1) The right to use water under a permit or certificateofwater right shall pass with a conveyance of the land or transfer by operation of law, unless specifically exempted therefrom. All transfers of interest and appropriation rights shallbe without loss of priority. "(2) The person receiving the appropriation interest shall filewith the Department notice of the transfer on a form prescribed by the Department. "(3) Without obtaining prior approval from the Department,an appropriator may not sever all or any part of an appropriation right 

# . 

# .."

We contend that the foregoing statute applies only to water rights received under a permit or a certificate of authority. Itwas not intended to apply to existing rights, especially since existing rights were confirmed by 1972 Montana Constitution,Art. IX, § 

### 3. 

### The anomaly of the majority relying on section 85-2-403,MCA is that themajority hold in this case directly opposite to the provisions of section 85-2-403(1). Under that subsection no implied reservations are recognized. If that subsection applied Kunnemann's rights to water from the Grannis ditch would have passed by the deed to Franks because they were not "specifically exempted therefrom.

### " We are buttressed in our contention that section 85-2-403 does not apply to existing rights because in the same part of the code, in section 85-2-401, MCA, it is provided that priority of appropriations for existing rights are to be determined by water courts. Prior to July 1, 1973, an owner of a water right could change the place of diversion, or place of use of his water right, except only to the extent he may injure others by 

### such change. Section 89-803,R.C.M. 

### 1947. These incidents of ownership of water rights were confirmed by 1972Montana

### Constitution,Art. IX, § 

### 3, 

### or the constitutional provision has no meaning. The majority takes away these incidents unless the Department of Natural Resources gives approval. Not only has themajority misconceived the intent of the constitutional provision and the statutes adopted thereafter,but they have placed in doubt the rights of hundreds of water users in this statewho have conveyed or received conveyances of existing rights since July 1, 1973. Such a result is not necessary here, especially since the process of adjudicating all water claims is now in full swing before thewater courts, when and where all rights to the use and ownership of water will be determined. Under our view of the law here, there is no conflict with the state constitution,and 

### we need not discuss such

an issue. We would affirm the DistrictCourt in toto, --