Court Opinion

ID: 6902872
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:56:46.832604+00
Date Added: 2024-06-11T16:06:14.019525
License: Public Domain

Opinion by
Me. Chief Justice Eakin.
Three questions are presented by this appeal: (1) Were the sales.of water to the directors void? (2) Was the sale of water to Boyer to be used on lands outside of the State of Oregon void? (3) Was the sale of water at the price and on the conditions named unreasonably low or Unfair to the plaintiffs and the defendant corporation ?
1. First, as to the sale of water by the board of directors to members of the board. Although a director is not absolutely prohibited from dealing with the corporation through the board* yet such dealing must be open, fair, and free from fraud or oppression, and must be in the interest of the company; but if made in good faith and secures to the individual no undue or unjust advantage, and the interest of the individual and the duty of the official work in unison for the welfare of the corporation, it is valid. This corporation was formed for the purpose of obtaining water for irrigation for the benefit, principally, of its promoters; and, if the officers were precluded from dealing with the corporation, its very purpose would be defeated. The statement of the case is a complete answer to the contention of appellants. The only question open to consideration is: Was there any advantage taken or sought by the directors, or did they deal with the corporation on the same terms offered to others, and was it fair and honest to the corporation? 2 Thompson, Corporations, Sections 1224, 1225, 1226; Cook, Corporations, Section 653. And that depends upon the reasonableness of the terms of sale.
*5812. Second, as to the sale of water to be used on land outside of the State. The provision in the articles of incorporation that the water is for use upon lands in Umatilla County cannot be taken advantage of by any one other than stockholders, and probably they have no ground for complaint where they are not prejudiced thereby. It is a limitation that may be waived. The sale to Boyer, who was a stockholder, of 115 inches, to be used on land in Washington, was to the advantage of the corporation, there being no stockholder demanding the water so sold, and plaintiffs’ objection to the sale to Boyer is made only as a means to avoid the whole proceeding of the board in providing for sales, and not as a wrong to the corporation or to plaintiffs, and we think is without merit.
3. The third question is more difficult, namely, Was the action of the board in offering to sell to themselves and other stockholders permanent water rights, upon the terms named, reasonable and fair to the corporation and to plaintiffs ? There is great conflict in the testimony between the witnesses for plaintiffs and those for defendants as to the value of the permanent water right; plaintiffs’ witnesses contending that it is worth $50 per acre, while the witnesses for defendant testify that $2 or $3 per acre is its full value, taken in connection with the $2 per acre annual maintenance charge and the assumed liability to repair washouts and to pay damages to persons injured by the washouts. The $2 per acre máintenance charge, if required each year, would be equal, at 6 per cent interest per annum, to a present cash investment of $33.33 per acre; and the other liabilities, although incapable of a cash valuation, might be considerable. The contract precludes the possibility of profit to the company, though it may be a possible- assurance to the stockholders of their water right without additional charge to them. The power or right of the *582directors to sell perpetual water rights is not disputed by plaintiffs.
It is alleged in the complaint that the defendant corporation appropriated 6,000 inches of water. In plaintiffs’ brief it is contended that the capacity of the ditch does not exceed 2,000 inches, and that there is not more than 2,000 inches of water in said streams available, except in periods of freshets, and there is some evidence to that effect, although no evidence is given of measurements of the capacity of the ditch or of the available water. At most, it appears that the ditch will not carry more than 3,000 or 4,000 inches of water, and there may not be more than that amount of surplus water available to it. The company has not paid any dividends; and if the water available to it, or the capacity of the ditch is only 2,000 inches, there is no possibility of profit to the company, in which case these sales would amount to a confiscation of plaintiffs’ interest in the company. These matters are not in controversy, except that they are important in considering the effect upon the possibility of profits to the company in case of a sale of perpetual water rights to the extent of 2,000 inches of water.
It is difficult to compare the value of the use of irrigation water from October 15th to the following May 15th only each year, with the value of water during the irrigation season proper, or to determine the actual value of the former. Benefit is derived from it, and fair results as to most ■ crops are obtained; but there is but little evidence in the case from which such values can be found other than the opinions of the parties in interest in the case. The $3 per acre for a perpetual right would certainly be a small price according to the benefit derived from it, even as compared with the expense of electric pumps or artesian water; but the $2 per acre per annum maintenance charge would increase the price manyfold, if that amount were definite and regular, but it is largely *583contingent. There is no evidence before us as to what the expense of maintenance has been in the past, or the items that enter into it. If the annual rental of $3.50 per acre, which Paine testifies the Burlingame ditch receives, which is three or four miles from the Hudson Bay ditch, on similar land and for a similar use, is taken as a basis, at 6 per cent interest a perpetual right would be worth $58 per acre.
Pumping plants are used quite generally in that country where wáter cannot be had otherwise; and the people using water from defendant company’s ditch often supplement it later in the season with pumps. Those that use electric pumps are at an expense of from $3 to $4 a year for power alone for 10 or 20 acre tracts, and the expense of installing the plant ranges from $500 to $1,000. This does not include the expense of establishing the electric line to the farm, which is also at the expense of the farmer. $3 a year would be interest at 6 per cent on an investment of $50 per acre, to which must be added the price of the plant. Of course due allowance must be made for the fact that the pump would furnish water during the dry season, but the evidence does not convince us that $8 an acre for a perpetual water right, plus the contingent maintenance charge not exceeding $2 an acre per year, is the market or reasonable value of a permanent water right; the $3 being equal to $.18 per acre per year. No effort was made by the defendant directors to ascertain the market value of or the highest price obtainable for the water from any source by competitive bidding or otherwise. The canvass made to ascertain the value was among the stockholders only, to whom it was desired to give a preference right to purchase; and they were allowed to fix the price, which was not a fair test of the market value.
The result of this deal is to eliminate the plaintiffs from any voice in the matter of prospective profits, and *584the obligation of the directors in dealing for the corporation with themselves was ignored, and the disposition of a large part of the corporation's holdings in this manner was not fair and free from oppression or for the interest of the corporation and all the stockholders; and the other defendants, being also stockholders and having knowledge of the facts are in but little better position than the directors.
We conclude that the resolutions of April 19, 1911, and the one of April 25,1911, should be held void and canceled.
The decree of the lower court is reversed, and the injunction allowed. Reversed.