Opinion ID: 2638546
Heading Depth: 2
Heading Rank: 1

Heading: interpretation of the 1952 agreement and 1952 amendment

Text: ¶ 17 The underlying purpose in construing or interpreting a contract is to ascertain the intentions of the parties to the contract. WebBank v. American Gen. Annuity Svc. Corp., 2002 UT 88, ¶ 17, 54 P.3d 1139. When interpreting a contract, we look to the writing itself to ascertain the parties' intentions, and we consider each contract provision ... in relation to all of the others, with a view toward giving effect to all and ignoring none. Id. at ¶ 18 (quoting Jones v. ERA Brokers Consol., 2000 UT 61, ¶ 12, 6 P.3d 1129). If the language within the four corners of the contract is unambiguous, the parties' intentions are determined from the plain meaning of the contractual language, and the contract may be interpreted as a matter of law. Id. at ¶ 19 (quoting Cent. Fla. Invests., Inc. v. Parkwest Assoc., 2002 UT 3, ¶ 12, 40 P.3d 599). In cases concerning the appropriation of water, our decisions favor insuring the highest possible development and of the most continuous beneficial use of all available water with as little waste as possible. Wayman v. Murray City, 23 Utah 2d 97, 458 P.2d 861, 863 (1969); see also Utah Code Ann. § 73-1-3 (1989) (Beneficial use shall be the basis, the measure and the limit of all rights to the use of water in this state). ¶ 18 The first and most critical issue we must address is whether the trial court was correct in ruling that Thayn breached the 1952 Agreement and Amendment when he began using his 600 cfs water right to drive his new hydroelectric power facility. In granting summary judgment for GRCC on this question, the trial court ruled that the 1952 agreements were unambiguous, certain, definite, and enforceable and limit the Defendant's diversion of water to 435 cfs for irrigation and for power generation to pump the water for irrigation. However, after reviewing both the agreements and the record in this case, we have reached the opposite conclusion. We find that the 1952 Agreement and the 1952 Amendment do not, and cannot, impose a fixed limitation on Thayn's right to put the full amount of his state-approved water right to beneficial use when such a limitation would prevent the water from being put to any use at all.
¶ 19 The 1952 Agreement purports to forever settle and put at rest [the parties'] differences and adopt[s] a permanent plan for the operation of [the] diverting works. To accomplish this goal, the 1952 Agreement fixes the parties' ownership of the diversion facilities and surrounding real property, establishes a scheme for joint maintenance of the diversion works, obligates Thayn to pay one-half the cost of mutual maintenance and upkeep of the dam, grants each party the right to enter the property of the other in connection with the reasonable use to be made by each party of the land [at issue], and establishes the priority of water rights for each party. As set forth earlier in this opinion, paragraph six of the Agreement states that before [Thayn] can or may use any water from said dam, diverting works or race way that [GRCC] shall have enough and sufficient water to supply its stockholders. The quantity of water to supply [GRCC's] stockholders ... is to be exclusively determined by [GRCC]. ¶ 20 The 1952 Amendment aims to settle the meaning of paragraph six. First, the Amendment reaffirms that GRCC has the priority of diversion and that GRCC is entitled to take whatever water is needed by its stockholders before Thayn is entitled to divert additional water. Second, GRCC maintains the right to decide how much water is needed. Third, while the Amendment states that GRCC can determine how much water is needed, the Amendment also states that GRCC only has a claim for the right to use 80 cfs of water. Fourth, the Amendment states that after GRCC's water right is satisfied, that Thayn then has the right to divert that amount of water for which he had filed a claim with the State Engineer; specifically, 35 cfs for irrigating crops, and 400 cfs to drive the mechanical pumps to move the water up to his fields. ¶ 21 The trial court interpreted the 1952 Amendment as fixing permanently the amounts of water the parties were entitled to use in connection with GRCC's diversion facilities. The trial court therefore granted summary judgment to GRCC on the breach of contract issue, holding that GRCC was entitled to 80 cfs and that Thayn's use of 600 cfs to produce hydroelectric power was a breach of the 1952 Amendment. For several reasons, we find the most sound construction of the agreements in this case is to interpret the water claims specified in the 1952 Amendment as merely descriptive of the parties' then-extant water rights, and not as determinative of their current rights. ¶ 22 As a preliminary matter, it is readily apparent, and the parties agree, that paragraph six of the original 1952 Agreement establishes only priorities of water rights and does not fix quantity. Thus, while that initial agreement claims to forever settle and put at rest the parties' differences and adopt a permanent plan for the operation of the diversion works, such sweeping language cannot itself be construed as the basis for establishing specific quantitative limits on the parties' water rights for the simple reason that no quantities are mentioned in the document. The 1952 Amendment serves to settle the meaning of the parties' intention with respect to paragraph six, but what it settles is a question of the scope of GRCC's priority of diversion, not the upper limits of Thayn's future diversion rights. ¶ 23 We believe that the 1952 Amendment simply repaired a glaring omission in the 1952 Agreement, one that seriously jeopardized the access that Wilson, Thayn's predecessor-in-interest, had to his water. Paragraph six of the 1952 Agreement explicitly states that GRCC can take as much water as it deems sufficient, and can unilaterally determine the amounts of water it needs before Wilson can get any water at all. We need not resort to parol evidence to conclude that the purpose of the 1952 Amendment was simply to fix the amount of water GRCC was claiming for its use in order to prevent GRCC, or its successors, from using the broad language of the original 1952 Agreement to claim it was putting to beneficial use all of the water in the racewaythus denying Thayn access to his water. See Peirce v. Peirce, 2000 UT 7, ¶ 19, 994 P.2d 193 (noting that we construe contracts so as not to grant one of the parties an absolute and arbitrary right to terminate a contract. (citations omitted)). Absent a fixed upper limit on the amount of GRCC's claim, Wilson had no guarantee that he could get any water into his pumps and up to his canal and his crops. Such a result would have rendered the 1952 Agreement, pursuant to which Wilson deeded significant amounts of real estate to GRCC in exchange for the pumphouse parcel, of no value to him. See id. (noting that we interpret the terms of a contract in light of the reasonable expectations of the parties, looking to the agreement as a whole and to the circumstances, nature, and purpose of the contract); see also Big Cottonwood Lower Canal Co. v. Cook, 73 Utah 383, 274 P. 454 (1929) (construing contract to hold that a landowner was not entitled to take all of the water he wanted so as to entitle grantee only to waste or surplus water permitted to flow off the land). ¶ 24 We find no similar rationale in the 1952 Amendment for permanently fixing Thayn's right at 435 cfs and barring him from making beneficial use of his 635 cfs water right to generate hydroelectric power. [W]here there is doubt about the interpretation of a contract, a fair and equitable result will be preferred over a harsh and unreasonable one. And an interpretation that will produce an inequitable result will be adopted only where the contract expressly and unequivocally so provides that there is no other reasonable interpretation to be given it. Peirce, 2000 UT 7 at ¶ 19, 994 P.2d 193. The recitation of Wilson's water claim in the 1952 Amendment as that set forth in its water filing with the State Engineer not to exceed 400 cfs for mechanical power and 35 cfs for irrigation merely describes the maximum amount of water for which Wilson had theretofore sought state approval, but it does not create a fixed water right. The mere filing of an application does not give the applicant a right to use the water; whatever right or interest exists at that point is inchoate. Little v. Greene & Weed Invs., 839 P.2d 791, 794 (Utah 1992). The Amendment simply contemplates that Wilson could use the full amount for which he had sought state approval, or such lesser amount as may be approved by the State Engineer. Importantly, the only explicit limitation on the amount Wilson was entitled to divert was to be determined by the State Engineer, not by GRCC. Nothing in the plain language of the Amendment or in the record suggests that GRCC had bargained for the right to limit Wilson's diversion rights or the use to which he put his water. ¶ 25 The clause in the 1952 Amendment that follows the description of Wilson's water filing explains the reference to the 435 cfs. That clause states that Wilson's water right must be satisfied through diversions at said dam and diverting works before any other or additional diversions are made by GRCC. Thayn's right must be satisfied before GRCC can begin to divert water beyond the amount it claims to need, that is, 80 cfs. This language ostensibly preserves GRCC's ability to make additional diversions beyond those amounts contained in its diligence claim. However, any such additional appropriations would be in excess of the amount the State Engineer has entitled GRCC to use. [3] It is clear that private parties cannot create rights to water simply by contracting to do so, although they may dispose of rights properly acquired by that means. Therefore, this clause cannot be read to impose an upper limit on the amount of water Thayn is entitled to divert. So long as GRCC's prior right to divert the water it needs is satisfied (which can be no more than the amount approved by the State Engineer), [4] GRCC has no legal right to make any additional diversions thereafter and thus has no basis to complain about the amount or use of water that continues to flow past the head of its canal. See Cleary v. Daniels, 50 Utah 494, 167 P. 820, 823 (1917) (holding that prior appropriator cannot prevent use of surplus waters and cannot prevent another from using water while he cannot use it). To rule otherwise would permit GRCC to trump the appropriation of water for a beneficial use with the assertion, If I can't have it, neither can you. ¶ 26 GRCC has no interest in Thayn's water rights that would support a limitation on the amount of water Thayn is entitled to use. Once GRCC receives its water and its requested payments from Thayn for one-half of the cost of joint maintenance of the diversion facilities (and Thayn has paid for his own canal improvements), all of GRCC's rights in its facilities have been protected. Indeed, these provisions mark the boundaries of compensable injury in this case because Thayn's contractual obligations have nothing at all to do with either the use or quantity of his water rights. Rather, the 1952 Agreement and Amendment are plainly concerned with establishing a long-term plan that allocates canal maintenance responsibilities to assure each party's initial access to its water. Assuming Thayn meets all of his responsibilities under the Agreement relative to canal upkeep and repair, the actual amount of water he diverts is not GRCC's concern. Nor does GRCC have any right to complain if Thayn changes the use of his water from irrigation to stock watering, domestic uses, or power generation. Whatever interest GRCC has in Thayn's access to his water ends at the foot of the raceway. ¶ 27 GRCC argues that allowing Thayn to divert more water than described in the 1952 Agreement diminishes the value of its canal ownership, which lies in the ability to exclude other users from the use of its facilities. This argument runs contrary to Utah water law, which gives water users the right of eminent domain to share in the use of existing ditches and canals. Utah Code section 73-1-7 gives any person who wishes to convey water for a beneficial purpose the right to use or enlarge any existing canal or ditch, so long as the owner of the ditch is appropriately compensated for such use. Utah Code Ann. § 73-1-7 (1989). [5] GRCC argues that the existence of a private agreement renders the statute inapplicable because the statute only controls in the absence of a private agreement. See Gunnison-Fayette Canal Co. v. Roberts, 12 Utah 2d 153, 364 P.2d 103, 105 (1961); Peterson v. Sevier Valley Canal Co., 107 Utah 45, 151 P.2d 477, 479 (1944); West Union Canal Co. v. Thornley, 64 Utah 77, 228 P. 199, 200 (1924) These cases, however, only explain the effect of a private agreement on a canal owner's right to obtain compensation for maintenance or usage of a ditch or canal. Because a canal owner is entitled to compensation under either section 73-1-7 or a private contract, none of these cases undermine the proposition that the right to exclude others is not a benefit of canal ownership. [6] If ... the parties cannot agree on the price to be paid for the use, the ditch owner can close the ditch against the other party's water until he gets his price or such party enters the ditch under eminent domain. Peterson, 151 P.2d at 479. GRCC is entitled to compensation for the use of its diversion facilities, but it has no inherent right to keep Thayn or others from using those facilities.
¶ 28 The right to use water in Utah has been governed by statute since 1888. See Little, 839 P.2d at 794 (citing Compiled Laws of Utah 1888, vol. 2, ch. 2). Until 1903, water rights were established upon the filing of a diligence claim, a claim based on the historical appropriation of water toward a beneficial use. Id. In 1903, the legislature began to codify the application and certification procedures for the acquisition of water rights, and also declared for the first time that all natural waters of the state are public property. Id.; Utah Code Ann. § 73-1-1 (1989 & Supp.2002) (declaring all waters ... to be the property of the public). Public ownership is the basis upon which the state regulates the use of water for the benefit and well-being of the people. J.J.N.P. Co. v. State, 655 P.2d 1133, 1136 (Utah 1982). Our obligation is to ensure that water is put to the most beneficial use. [I]t is essential that putting water to the highest and best beneficial use should not only be encouraged, but carefully safeguarded. Fairfield Irrig. Co. v. White, 18 Utah 2d 93, 416 P.2d 641, 644 (Utah 1966). Both the statutory framework behind our water laws and the principle of beneficial use on which they are based are integral to the decision we reach today.
¶ 29 The legislature created the office of the State Engineer to keep records of all established water rights and those to be acquired in the future, to supervise the distribution of the water, and to keep records of and regulate future appropriations and changes in the place of diversion, use and nature of the use. United States v. District Court, Utah, 121 Utah 1, 238 P.2d 1132, 1134 (1951); see also Utah Code Ann. § 73-2-1 (1989 & Supp.2002) (identifying responsibilities of the State Engineer). Due to the scarcity of water resources in our state, appropriation of water is tightly controlled and the State Engineer oversees each step in the application and appropriation process. No person has a right to appropriate or use water in this state without approval from the State Engineer. Utah Code Ann. § 73-3-1 (1989 & Supp.2002). When the appropriation of water rights is in dispute, the State Engineer can initiate a general adjudication of water rights by filing an action in district court to determine the various rights of water users. Id. § 73-4-1. After investigating the various claims, the State Engineer submits a proposed determination of the parties' rights to the district court for its consideration in ruling on the general adjudication. Id. § 73-4-11. ¶ 30 Of course, [t]he State Engineer is an executive, not a judicial officer, East Bench Irrig. Co. v. State, 5 Utah 2d 235, 300 P.2d 603, 606 (1956), and the State Engineer's decisions are not binding on the courts of this state. Id. The State Engineer acts in an administrative capacity and does not have authority to adjudicate the rights of water users. Whitmore v. Murray City, 107 Utah 445, 154 P.2d 748, 750 (1944). However, while the State Engineer's decisions are generally not binding on the courts, the State Engineer's decisions in a general adjudication or pursuant to a proposed determination are binding upon the parties unless and until a party files a timely objection to the proposed determination. Utah Code Ann. § 73-4-11 (1989 & Supp.2002); United States Fuel Co. v. Huntington-Cleveland Irrigation Co., 2003 UT 49, ¶ 15, 79 P.3d 945. ¶ 31 The State Engineer has determined, pursuant to a 1974 proposed determination of the general adjudication of all water rights in the lower Green River drainage, [7] that 60 cfs, rather than 80 cfs is sufficient to meet the needs of GRCC's stock holders during the irrigation season. [8] Therefore, we must resolve the tension between the amount of GRCC's actual need as determined by the State Engineer and the amount of its claim in the 1952 Amendment. [A] court must attempt to construe the contract so as to `harmonize and give effect to all of [its] provisions.' Dixon v. Pro Image, 1999 UT 89, ¶ 14, 987 P.2d 48 (quoting Nielsen v. O'Reilly, 848 P.2d 664, 665 (Utah 1993)). In interpreting these provisions, we must bear in mind that the State Engineer's role is to determine the actual needs of water users. Utah Code Ann. § 73-2-1 (1989 & Supp.2002). Moreover, we must also recognize that the State Engineer has special training in the operation and control of natural streams and irrigation and other artificial use and control of water and water rights and that he is especially qualified to understand the facts involved in these problems. East Bench Irrig. Co., 300 P.2d at 606. ¶ 32 In this case, the State Engineer's proposed determination is controlling over the parties' water rights descriptions in the 1952 Amendment because GRCC has never filed an objection to the proposed determination; it, therefore, cannot collaterally attack that determination in this lawsuit. See United States Fuel, 2003 UT 49 at ¶ 20, 79 P.3d 945. Indeed, the record shows that GRCC has long acquiesced in the State Engineer's proposed determination. Under section 73-4-11, timely objections to decisions of the State Engineer are to be made within ninety days of the issuance of the proposed determination. Utah Code Ann. § 73-4-11. While GRCC has recently asked the State Engineer to modify the proposed determination, this request was denied. In a letter directed to GRCC's counsel, the Attorney General, speaking on behalf of that office and the State Engineer, noted that 60 cfs was apparently not a problem [for GRCC] when the proposed determination was issued, ... and it is sufficient now for [GRCC'S] described beneficial uses. ¶ 33 Recognizing that the State Engineer's proposed determination is controlling as to the amount of water GRCC can properly claim in the 1952 Amendment amounts to persuasive evidence that the 1952 Amendment merely describes the parties' water rights. At this point in time, the State Engineer has determined that GRCC's water right is 60 cfs and Thayn's is 635 cfs. To construe the contract to reduce Thayn's right would be as illogical as to construe it to expand GRCC's, particularly since GRCC gets its water first and has no right to use any more. Given that limitation, if Thayn cannot use his water, it would be wasted. We will not interpret the contract to yield such inequitable results. See Peirce v. Peirce, 2000 UT 7, ¶ 19, 994 P.2d 193 (holding that absent express contractual language an equitable interpretation of a contract is preferred over an inequitable or unreasonable one). Thus, in light of the State Engineer's decision, we hold that the quantities mentioned in the 1952 Amendment do not set the upper limits of the parties' water rights because the amounts mentioned therein do not reflect the amounts of water that the parties currently need and can put to beneficial use, i.e., the amounts to which they are lawfully entitled by the decision of the State Engineer, to which no timely objection has been filed.
¶ 34 Water is a resource of inestimable value to our state and we have likened a drop of water [to] a drop of gold. Longley v. Leucadia Fin. Corp., 2000 UT 69, ¶ 15, 9 P.3d 762 (quoting Carbon Canal Co. v. Sanpete Water Users Ass'n, 19 Utah 2d 6, 425 P.2d 405, 407 (1967)). Thus, the guiding principle behind our water law statutes and the work of the State Engineer is that water must always be put to the most beneficial use. Because of the vital importance of water in this arid region both our statutory and decisional law have been fashioned in recognition of the desirability and of the necessity of insuring the highest possible development and of the most continuous beneficial use of all available water with as little waste as possible. Wayman v. Murray City Corp., 23 Utah 2d 97, 458 P.2d 861, 863 (1969). A water user's appropriations are limited to the amount that can be put to beneficial use. No one can acquire the right to use more water than is necessary, with reasonable efficiency, to satisfy his beneficial requirements. McNaughton v. Eaton, 121 Utah 394, 242 P.2d 570, 572 (1952). This is true regardless of the quantity [of water] that has been used for [past] purposes and the length of time it may have been used. Big Cottonwood Tanner Ditch Co., 164 P. at 859 (Utah 1916). ¶ 35 The principle of beneficial use supports the decision we reach today. Thayn enjoys a state-approved right to divert 600 cfs to generate hydroelectric power. We have concluded that the contract does not restrict Thayn to the use of only 435 cfs to pump irrigation water, and allowing him to use his water rights to generate hydroelectric power ensures that our water is put to the highest and best use. Indeed, our water statutes specifically list power development as a beneficial use for water resources. Utah Code Ann. § 73-3-8(1) (1989 & Supp. 2002). GRCC argues that the 1952 Amendment does not prevent Thayn from using his 600 cfs, only that he must find a means to divert his water other than by using GRCC's diversion works for any amounts above 435 cfs. However, the 1952 Agreement explicitly requires that Thayn's water must be diverted through GRCC's diversion facilities. [9] Thus, if Thayn did not use GRCC's facilities to divert his water, he would be in explicit breach of the 1952 Agreement. Similarly, Thayn could never put the whole of his 600 cfs toward power generation because GRCC's interpretation of the 1952 Amendment precludes any use other than pumping irrigation water, the use mentioned therein. We find that the 1952 Amendment does not impose such unreasonable restraints in outright conflict with the beneficial use doctrine. ¶ 36 GRCC's construction of the 1952 Amendment runs contrary to beneficial use principles and would result in tremendous waste: GRCC would be permitted to take much more water than it needs and is entitled to while preventing Thayn from using all of the water that he has a right to put to a beneficial use. In Cleary v. Daniels, 50 Utah 494, 167 P. 820, 823 (1917) we rejected such a result, ruling that the holder of a prior water right cannot prevent another from using the water during the period of time that he cannot use it, or make it available for use. While ... he retains his right to the water, ... he may not insist that the water be wasted merely because he has a prior right to use it. The existence of the 1952 Agreement and Amendment do not alter this conclusion. Those documents establish priorities of use and resolve issues of facility ownership and canal maintenance. They do not give GRCC the unilateral right to control the amount or use of Thayn's water. ¶ 37 So long as GRCC gets its water (either 20 cfs during the non-irrigation season, or 60 cfs during the irrigation season), we see no reason to prevent Thayn from putting to beneficial use the water that will nevertheless continue to flow down the raceway, without causing any harm to GRCC. Regardless of the parties' past contentions about the capacity of the raceway, the record reveals that the dam was diverting the same amount of water when Thayn began operating his hydroelectric facility as when Wilson signed the 1952 Agreement and there has always been enough water for both parties. The flow measurements taken by the parties reveal that, when properly maintained, the raceway has ample capacity to satisfy the needs of both water users. [10] Because we find that Thayn did not breach the contract, we need not address the other contractual issues Thayn also raises on appeal.