OCR Interpretation


Imperial press and farmer. (Imperial, San Diego County, Cal.) 1901-1903, March 15, 1902, Image 2

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Persistent link: https://chroniclingamerica.loc.gov/lccn/sn92070142/1902-03-15/ed-1/seq-2/

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LEGAL OPINION.
On the Contract Between the Cali
fornia Development Co., the Mex
ican Corporation and Im
perial Water Company,
No. 1.
Following opinion of H. H. F. Varlel
ihOWl the validity of the contract under
which Imperial Water Company No. 1 holds
It: water right for the benefit of its stock
holders:
To the Hoard of Directors of the Imixrial
Water Company. No. I. L«>s Angeles,
Cal
Ceiitlemeii I have examined with care
the agreement prepared by your Mr. J. W.
Swanwick. for execution between (he Mexi
can Compftny, as the first party, your com
pany, as the second party, and the Cali
fornia Development Company, as the third
party, as the same has been revised from
time to time, as t ho result of much dis
cussion, and as the final result of an ex
tended conference and discussion had with
your board on yesterday, when the same
was finally approved and its execution con
cluded upon.
I have examined it especially with a
view to determining:
in) Its validity, generally. under the
laws ami decisions of the State of Califor
nia ami of the I'uitod States.
(I)) Its validity, as far as the rights and
Interests of your stockholders are con
cerned.
(0) Its validity as respects the rights
of your corporation, in view of the preced
ing contract between your company and the
Mexican Company, of date of April 6, 1000.
(d) As to whether the waters and water
rights affected by this contract coming to
your company would. While under your
control, or In that of either of the other
parties to tills agreement, be subject to any
public use, Whereby the Board of Super
visors would have any power to llx rates.
to) Whether the circumstance that a ma
jority of your hoard are also members (but
Comprise a minority), of the Hoard of Di
reciors of the California Development
Company, tends to invalidate this agree
ment.
(ft Whether certain special clauses in
corporated In this agreement are invalid or
beyond your powers, and what are the lia
bilities Bowing from them.
1 have to report to you. and give it to you
as my opinion, after such careful examin
ation as lias been within my power:
First That tlic agreement is well and
clearly drawn, that it appears to be sup
ported by lawful and adequate considera
tions, and that it is created for lawful pur
poses; and that within the laws and deci
sions of this State and of the United States,
it is a valid agreement.
Se.ond 1 am informed that >our Stock
holders, at a recent stockholders' meeting,
and by more than a two thirds vote of all
the stock issued, to wit. by practically a
unanimous vote, approved the plan of such
agreement, in a general way. If this be
true, that approval would undoubtedly va
lidate this agreement as against all your
stockholders, and thereby preclude any of
them from setting It aside upon :inv
ground.
Even if it did not. 1 am inclined to think
thai your general powers, in view of the
purposes of your corporation, would tend
to support the vaiidit> o( this agreement,
made as it appears to be. for the BUbstSJO
tial and best Interests of your corporation
and stockholders,
Under the original agreement of April 6,
1900, wiiii the Mexican company, the latter
was t<> furnish the water at the interna
tional line, and your company was under
Obligations at its own expense, to build the
main canal and the distributing system
and to in- tin- owner of the power prlvi
and other Incidental rights in the
main canal
Under the new arrangement, your com
IMI'HKIAL PRESS
pany waives its equity and right in and to
certain contemplated profits to lie derived
from the sales of certain of your stock,
which is estimated at |100,000 (provided
SOCh sales of stock should all be madei.
and also surrenders the right of navigation
of, and the power rights in. the canal.
In consideration of this, the California
Development Company builds the main
(anal, and builds all the laterals for your
company, sufficient to deliver water to each
160-acre tract, thereby relieving your com-
pany and its stockholders of the heavy
burden of construction of the main canal
and laterals and the future maintenance of
the main canal.
It is true that your stockholders are to
pay the pending assessment levied by your
company, and that the proceeds of such
assessment are to he paid over to the
third party for immediate use in building
the main canal and the laterals, but such
payment of your stockholders amounts to
merely an advancement by them, as under
this agreement such payment by each
stockholder will all come back to him.
Const it ut ing as it does a part of the con
sideration for this agreement, I do not
think there is any legal objection to the
condition whereby this assessment is en
forced and its proceeds applied, as stated
in t ho agreement.
Third — The agreement is, to my mind,
valid so far as it wipes out the prior
agreement of April 6, 1900, by reason of
numerous clauses that are inserted in the
present agreement for the benefit of your
corporation and its stockholders, which
were left open and uncertain under such
prior agreement. Indeed, the general plan
outlined by the present agreement is more
consistent with the ultimate success of the
whole enterprise, and in the handling of
your corporation, than as matters stood
prior to its making.
The two parent corporations, the Cali
fornia Development Company and its other
self, the Mexican Company, will furnish
and deliver the water; the California De
velopment Company will own the main
canal within the State of California, and it
will deliver the water to your company and
to the other distributing water companies,
at the heads of their several laterals.
By the incorporation of the clause where
by the California Development Company
guarantees the performance of all the obli
gations of the Mexican Company, and the
Mexican Company guaranties all the obli
gations of the California Development Com
pany, you and your stockholders are fully
protected from any possible evasion under
this contract through the circumstance
that one of them is a foreign corporation,
residing without this State, and having no
property in it.
You will he protected against the Mexi
can Company, because the California De
velopment Company has property within
this State. You will be protected against
the California Development Company, be
cause you will semi annually be bound to
pay certain sums of money to the Mexican
Company, which may be subjected by you
to your claim against the Mexican Com
panj under its guaranty.
I do not undertake to pass, as a whole,
upon the adequacy of the consideration re
ceived by your company, on the out- hand,
and conceded or granted by it on the other.
The value o\ the stock which you surren
der to the third party under this new
agreement. dependß altogether on the gen
eral success of the s. henio as a whole. If
the enterprise is very successful, the BtOCK
waived by > on will be o( full value, and the
t V i ill party will largely profit thereby, but
o i the other hand, your company will have
abundance of water, and the measure of
its success and that of your Btockholdl PS,
will depend only upon the possibilities of
the climate and soil, and the amount of en
ergj and labor put into the development of
their lands
if, however, the general enterprise is not
BUC< saful, the value of your sto k would
be uncertain, and the equity in the stock
proceeds released by you would lv not of
much value.
Upon the whole, the contract appears
sufficiently fair, so that it could not be set
BSide, as being unjust to your corporation
or to its stockholders, or on tlw ground
that it is not supported by a sufficient con
sideration.
Fourth — From my examination of the
statutes and decisions of the courts,
neither your company nor the other two
companies, so far as the waters affected
by this contract and which are to come to
and be distributed by your company, will
be subject to any public use.
See McFadden vs. Supervisors, 74 Cal., p.
671.
The general law of California approves
contracts between furnishers of water and
their users, and makes them valid.
See Statutes of 1897, p. 49.
The courts generally now incline strongly
to uphold such contracts.
San Diego Plume Co. vs. Souther, 104
Fed. Rep., p. 706.
Fresno Canal Co.. vs. Park, 62 Pac. Rep.,
p. 87.
as a result of these principles, the
Board of Supervisors of San Diego county
would not have any right to fix or change
any rates for the use or delivery of any
water furnished under the terms of this
contract.
Fifth— ln the light of all the facts pre
sented to me, and of the manifest fairness
of the entire transaction as disclosed by
this contract, and in view of the purposes
for which these corporations were all or
ganized, the circumstance that a majority
of the Board of Directors of the party of
the second part are also directors (but a
minority thereof) of the party of the third
part, is not of any special significance as
affecting the validity of this tripartite con
tract.
See Pauley vs. Pauley, 107 Cal.. p. 8, and
San Diego, Old Town and Pac. R. R. Co.
vs. Pac. Beach Co., 112 Cal., p. 53.
Sixth — The clause of guaranty by the
Mexican Company and by the California
Development Company, severally, whereby
each guarantees the performance to you
and your stockholders of the terms of this
contract, while apparently not embraced
within the scope of the original agreement
of April 6, 1900, and probably not within
the scope of your authority derived from
the stockholders meeting, is nevertheless
a proper provision to be required by you,
for the benefit and protection of your cor
poration and its stockholders, and its sug
gestion by you is much to be commended.
Seventh — The clause providing that the
California Development Company may,
when the cost of putting in any given later
als to irrigate any specific tract located by
any one or more stockholders, shall exceed
double the average cost of constructing
such laterals, refuse to put in such expen
sive lateral, and thereupon pay or tender
to such stockholder or stockholders, who
fail to get water, the value of their stock,
etc., is a contract which, in my opinion, is
not enforceable against such stockholder,
so far as to compel him without bis con
sent, to give up his stock and to accept
such money, for the reason that the stock
holders are not direct parties to this agree
ment : —
Bui notwithstanding that, if any such
contingency should arise, then any stock
holder affected by it could claim the hone
tit of the contract whore the lateral is not.
built; and upon tendering his stock to the
California Development Company, he would
be entitled to recover damages against the
California Development Company to the
extent of the moneys speeitied in this con
tract which the California Development
Company is hound to pay.
I think also that Buch stockholder, if he
chOße not to pursue the above course, would
probably have his remedy for damages
against the party who sold him his stock,
depending of course upon the terms of the
contract of sale to him.
In any event, however, such stockholders
would not in my opinion, have the right
to BU6 your Hoard or its members for
damages, by reason of your permitting the
above clause last mentioned, to be inserted

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