Source: https://supreme.justia.com/cases/federal/us/315/610/
Timestamp: 2019-04-23 02:46:00+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 315 › Puerto Rico v. Russell & Co.
In aid of the operation of an irrigation district on a stream in Puerto Rico, the insular Commissioner of the Interior made contracts with a company owning rights to divert water from the stream for the irrigation of lands not embraced in the district, whereby, in consideration of a suspension of the company's water rights in certain particulars, the insular Government undertook to deliver to it at its intakes specified quantities of water regularly, as the fair equivalent of the rights suspended.
Held, that the Commissioner had statutory authority to make the contracts and that a later statute which sought to recoup part of the cost of maintaining and operating the district system by imposing annual assessments, erroneously called "taxes," on the company's lands, impaired the obligation of the contracts in violation of the insular Organic Act. P. 315 U. S. 616.
Certiorari, 314 U.S. 589, to review a judgment which, reversing a judgment of the Supreme Court of Puerto Rico, 56 P.R.Dec. 343, reinstated a judgment of the insular District Court dismissing the complaint in an action brought by Puerto Rico to recover sums claimed as taxes. For earlier phases, see 21 F.2d 1012; 60 F.2d 10; 288 U. S. 288 U.S. 476.
The respondent's predecessor in title, Fortuna Estates, as owner or lessee of lands adjacent to the Jacaguas River, enjoyed under Spanish law, and respondent, as successor, still enjoys, rights appurtenant to the lands to draw from the river 12,612.1 acre feet of water per year for irrigation.
Puerto Rico adopted a law in 1908 [Footnote 2] which authorized an irrigation system, as part of which a dam was to be erected in Jacaguas River above Fortuna's intakes. Fortuna's lands were not within or a part of the irrigation district. Although the operation of the system would interfere with Fortuna's water rights, they were not condemned, as the statute permitted, nor were they voluntarily surrendered.
This Act empowered the Commissioner of the Interior to make agreements with holders of such rights fixing the amount and the time, place, and conditions of delivery, of water to be received as the equivalent of the rights suspended.
In the exercise of this authority, the Commissioner executed contracts with Fortuna which called for the suspension of its rights appurtenant to two large tracts during the life of the contracts and assured delivery of a specified amount of water at Fortuna's intakes as the fair equivalent of the rights suspended.
Each contract enumerated the rights to take water appurtenant to a described tract of land which would be impaired or interrupted by the operation of the irrigation system; recited that the amount of water taken by Fortuna under its rights varied throughout the year, due to differences in rainfall, so that it was impossible to determine in advance the amount of water to which it would be entitled in any given period, and that Porto Rico was willing to deliver from the Jacaguas River the water to which Fortuna was entitled, but, in order to make the operation of the system more certain, desired to agree upon a fixed and regular amount which should be received by Fortuna as the fair equivalent in value for irrigation purposes of the water it would ordinarily take and use under its existing rights.
The contract then stated the agreement of the parties as to the quantities of water which, delivered in equal daily instalments, were to be considered such fair equivalents, and the petitioner covenanted to deliver these quantities to Fortuna. It was also agreed that Fortuna might exercise its preexisting rights for ten days in each year to prevent their loss by nonuser.
the system. Sales were also made of surplus waters, and the proceeds used for maintenance.
"An Act Fixing a Tax on Certain Lands using water from the Southern Coast Public Irrigation System, on which lands no Tax Whatever was Levied under the Public Irrigation Law, and for Other Purposes. [Footnote 5]"
This is the statute enforcement of which is asserted to impair the obligation of the contracts. By this act, a special tax is imposed on all lands supplied which, under existing law, contribute nothing to the expense of the maintenance of the system. The Treasurer of Puerto Rico is directed to compute the tax by finding the aggregate acreage receiving water from the system including lands, like those of respondent, outside the district but receiving the equivalents of their preexisting rights under contracts. He is to assess a pro rata share of the total expense against the lands of respondent and others similarly circumstanced. The Act, as is admitted, was aimed only at those who, like respondent, had contracted for the receipt of water in lieu of that to which they were of right entitled and whose lands were not a part of the irrigation district.
After remand, the case was tried in the insular district court, and the complaint was dismissed on the merits on the ground that Act No. 49 of 1921 was an invalid impairment of the obligation of the 1914 contracts. The Supreme Court of Puerto Rico reversed and rendered judgment for the petitioner. [Footnote 9] The Circuit Court of Appeals, in turn, reversed and reinstated the judgment of the insular district court. [Footnote 10] We granted certiorari as the case presents an important question arising under the Insular Organic Act. 314 U.S. 589. We hold that the judgment of the Circuit Court of Appeals was right.
their proportionate share of the expense of the construction and operation of the system. [Footnote 12] By Section 13, owners of lands having water rights, whose source of supply would be destroyed or impaired by the construction or operation of the system, who had not surrendered or relinquished their rights, were declared entitled to receive from the irrigation system an amount of water which would be the reasonable equivalent in value of the right or concession so destroyed or impaired. The Commissioner was authorized to negotiate contracts to this end with such owners.
the maximum amount which, if the water were available, it was entitled to receive.
The Insular Supreme Court held that the exaction is not precluded by the contracts, and works no impairment of their obligation. It held the exaction is a tax; that the rights which the respondent owned prior to the construction of the irrigation system were taxable, and that the privileges it enjoys under the contract are equally so; that the contract contains no covenant not to tax these rights or privileges, and, if it did, it would be beyond the power of the Commissioner. We cannot agree.
"The special taxes or assessments here in question, if and when collected, will simply accrue to the special fund for the current operation and maintenance of the irrigation district, and thus serve only to lower the assessments upon other lands now taxed for such operation and maintenance. The insular Treasury can derive no direct benefit."
And, in oral argument, counsel for petitioner frankly conceded that the money to be raised is not taxes in any way, but merely an assessment against the respondent's land for the cost of delivering the water. If Puerto Rico had essayed to tax respondent's lands or its water rights by a general law, quite distinct questions would arise which we need not discuss.
People of Puerto Rico are free to charge to respondent the cost of delivering the water, and further that, if the contracts, by their terms, precluded the imposition upon the respondent of this cost, they are beyond the power of the Commissioner.
"to enter into agreements with such owner or owners as to the amount of water and the time, place, and conditions of delivery thereof which shall be delivered to the lands to which the said water rights or concessions are appurtenant as the fair equivalent in value thereof. . . ."
We think it evident from this language that the Commissioner was not limited to agreeing to allot to the land owner a certain amount of water, but was empowered to stipulate that, at certain times, he would cause to be delivered at specified places the water which respondent was to receive as the equivalent of that which it had formerly been entitled to take at its intakes along the river. That the Commissioner so construed his authority is plain from the terms of the contracts.
"delivered uniformly through the year subject to the terms and conditions specified in this agreement, . . . are the fair equivalent in value of the water which the said Fortuna Estates takes under and pursuant to the concessions and water rights claimed by it, and The, People of Porto Rico will, subject to the conditions and limitations hereinafter specified and at the times, places, and subject to the conditions of delivery hereinafter provided for, make delivery"
Porto Rico will deliver the said water as follows." One agreement covenants that the water deliverable for some of the tracts shall be at the intakes provided by the owner, and that water deliverable to another tract shall in part be deliverable at such an intake and in part at a pumping station on the bank of the river. The right is reserved, upon notice by The People of Porto Rico, to change the place of delivery of certain of the water. It is further provided that, if delivery at the points designated is temporarily interrupted, Porto Rico will deliver an equivalent amount of water at some other point. It is agreed that the presence of water in the river bed at the opening of the described intakes sufficient to permit the owner to take the quantities specified in the agreement shall be deemed a delivery within the meaning of the contract. A clause provides that, should the owner desire to take water for certain of the tracts at places other than the present intakes, Porto Rico will deliver the water at such other places, but that "all extra expenses occasioned by such delivery shall be borne by" the owner.
delivered to it in lieu of that which it formerly had the right to take. This fact is emphasized by the provision that, if it desires delivery at other places than those specified in the contracts, it shall bear the expense entailed by the change.
The deficit in the maintenance cost of the system was met for some time by the sale of surplus water. The contract gives the respondent the right to a portion of such surplus water over and above the specified amounts to be delivered by the petitioner. The respondent sued to enjoin the petitioner from selling the surplus water to which it claimed to be entitled. The suit resulted in an injunction. The Government being thus deprived of the revenue theretofore used towards the maintenance of the system adopted the Act of 1921 with the evident purpose of recouping a portion of that expense from the respondent and others with whom it had made contracts in 1914 for the delivery of the stipulated amount of water to them without charge therefor. The history of the legislation shows that the proposed exaction was not a general tax, but was an effort to collect from persons whose land was not in the irrigation system a portion of the expense of maintaining that system, whereas the contracts exempted them from contributing to such cost as a condition of receiving the stipulated amount of water from the system. This was a clear violation of the obligation of the contracts.
"No law impairing the obligation of contracts shall be enacted." 48 U.S.C. § 737.
Act of September 18, 1908, Laws of Porto Rico, 1909, p. 152.
Act of August 8, 1913, Laws of Porto Rico, 1914, p. 54, § 13.
Porto Rico v. Russell & Co., 268 F. 723.
Act 49 of 1921, Laws of Porto Rico, 1921, p. 366.
The preceding litigation and the necessity for bringing action for the tax, rather than proceeding summarily will be found in Gallardo v. Havemeyer, 21 F.2d 1012, and the Act of Congress of April 23, 1928, 45 Stat. 447.
Puerto Rico v. Russell & Co., 288 U. S. 476.
"Under our irrigation law as it existed at the time of the organization of this district and the assessments referred to were made, if the land of the plaintiff was properly included in said irrigation district, it was subject to assessment for benefits, provided it received any, whether the owner of said land owned a water right in connection therewith or not, for a person in an irrigation district may receive certain benefits regardless of whether the owner has a water right in connection therewith or not."
The reasons which permit the owner of a water right to be brought into an irrigation district are equally cogent here. For the impact of this assessment is not more rigorous than the assessment attendant on membership in an irrigation district. In fact, it is less, since respondent is being assessed only for a pro rata share of the cost of maintenance and operation of the system, not its construction.
and more continuous deliveries of the water. (3) The irrigation system has tapped new sources of water which feed the reservoir. No separation of that additional supply of water from the old supply is possible. As a result, respondent obtains additional advantages, especially in dry years. (4) By reason of the construction and operation of the irrigation system, the water is available at several different distribution points through canals, rather than at the river bed alone.
"is one of those matters of detail in arriving at the proper and fair amount and proportion of the tax that is to be levied on the land with regard to the benefits it has received, which is open to the discretion of the state legislature, and with which this Court ought to have nothing to do."
And see French v. Barber Asphalt Paving Co., 181 U. S. 324; Milheim v. Moffat Tunnel Improvement District, 262 U. S. 710, 262 U. S. 721; Roberts v. Richland Irrigation District, 289 U. S. 71; Chesebro v. Los Angeles County Flood Control District, 306 U. S. 459.
water which is the reasonable equivalent in value of the said water right or concession."
"to enter into agreements with such owner or owners as to the amount of water and the time, place and conditions of delivery thereof, which shall be delivered to the land to which the said water rights or concessions are appurtenant as the fair equivalent in value thereof."
Act No. 128, § 13, August 8, 1913, L.1914, pp. 54-84. The contracts, as well as the statute, speak of "delivery" of the water. But the Supreme Court of Puerto Rico interpreted the contracts as meaning that respondent "agreed to receive [italics supplied] from the irrigation system a certain quantity of water in exchange" for its water rights. I do not think that that construction is unwarranted.
"the presence of water in the river bed . . . in quantities sufficient to permit the taking at the said intakes of the amounts of water specified shall be deemed to be deliveries."
undertaking was to make the specified quantities of water available so that they would be received at those intakes. To enforce the present tax is not to renege on that undertaking. The fact that respondent was to bear "all extra expenses" in case water was delivered at intakes other than the designated ones seems to me hardly more than a provision that respondent was to bear the cost in case the irrigation system had to be partially relocated to meet its requirements. In any event, it does no more than raise a doubt as to the correct interpretation of the contract -- a doubt which, as subsequently pointed out, should not be resolved against the power of Puerto Rico to impose this tax.
"in order to facilitate and make more certain the operation of the said dam and the irrigation system of which it is a part, desires to determine and agree upon an amount of water which, delivered regularly, may, under all attending circumstances, be considered to be fair equivalent in value for irrigation purposes of the amount of water which the Fortuna Estates would under ordinary circumstances take and use under the said water rights and concessions."
result in a windfall to respondent. The latter certainly would transpire if the dam gave respondent an amount of water which it had not been able to obtain on its own without the irrigation system. Thus, the specification in the contracts of the "fair equivalent" of the amount of water which respondent ordinarily would obtain under its water rights was nothing more than a determination of the then worth of the water rights in terms of acre feet of water. Under that view, the contracts did not raise the water rights to a higher constitutional dignity than they previously enjoyed.
"be clearly proved. It will not be inferred from facts which do not lead irresistibly and necessarily to the existence of the contract. The facts proved must show either a contract expressed in terms or else it must be implied from facts which leave no room for doubt that such was the intention of the parties and that a valid consideration existed for the contract. If there be any doubt on these matters, the contract has not been proven, and the exemption does not exist. "
That rule should be applied to this situation. It is clear that respondent is one of the beneficiaries of the irrigation system, even though the additional amount of water which the erection of the dam enabled it to obtain be disregarded. The meaning of the word "delivery" as used in the contracts is, at best, ambiguous. Hence, we should strictly adhere to the presumption against exemption from taxation. To resolve all ambiguities in the contracts in respondent's favor and against Puerto Rico is to forsake a canon of construction which has long obtained.
In conclusion, Puerto Rico has not treated respondent the same as landowners who have no water rights. The latter have to pay for the construction of the irrigation system, as well as for its maintenance and operation. Respondent, on the other hand, is merely required to contribute towards the cost of maintenance and operation of the system. On these facts, that favored treatment is sufficient respect for the integrity of respondent's property rights. To free it from all burden is to give it a windfall. Only under the compulsion of plain and unambiguous language should we permit a beneficiary of such a project to escape his fair share of the costs. There is no such compulsion here. Hence, we should refuse to let the contract clause of Puerto Rico's organic law produce an inequitable, unfair, and harsh result.
MR. JUSTICE BLACK, MR. JUSTICE MURPHY, and MR. JUSTICE BYRNES join in this dissent.

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