or in supplying the underground stratum, or such waters as are in excess of the quantity necessary for such purpose.' The present California Water Commission Act contains a certain provision not found in the irrigation statutes of any other western state. It deals with the question of the capitalization of the water right. Until very recently a great number believed that the water right in California and other states belonged to the land owner and not to the canal company. The Supreme Court of the United States, however, in San Joaquin and Kings River Canal and Irrigation Company v. Stanislaus County," has held to the contrary. Section 20 of the California Water Commission Act provides that the water right granted by the state Water Commission can never be capitalized for either rate fixing purposes or for purposes of sale to a political unit. As the best modern idea in granting franchises for any purpose is to fix them for an indeterminate period in such a way that they can not be capitalized, the other western states should follow the lead of California in this respect.

The new irrigation statutes, just like the original California statutes of 1872, so far as the fundamental principles of water law are concerned, are but declaratory of those laid down by the courts. Any one of much experience in business matters well remembers the time when the typewriting machine was first introduced, when the stenographer was first employed, when the various bookkeeping and auditing systems, now considered so necessary in our business life, were first developed. The modern irrigation statutes simply introduce a system comparable to such innovations aiming for business efficiency. Instead of allowing an appropriator to go ahead blindly, as under the old statutes, and trust to luck that he would not be engaged in litigation over the exercise of reasonable diligence or on account of deficient water supply, his work so far as the time element is concerned is placed under the central office from start to finish, and, in cases where it is certain no unappropriated water remains, he is not allowed to proceed. The very best comment which can be made upon this new legislation is that, no matter how bitterly contested it may have been when first proposed, no serious attempt to abolish it has ever been made in those states in which it has been adopted.

Although the title of this paper is "The Appropriation of Water," its contents largely deal with riparian rights. The justification of such treatment is due to the fact that the riparian doctrine

17 (1914), 233 U. S. 454, 58 L. Ed. 1041, 34 Sup. Ct. Rep. 652.

is legally the one great obstacle in the way of the best development of our water projects. The normal summer flow of practically all of our streams was long ago applied to beneficial use. To expand, storage reservoirs must be constructed, but in numerous cases the attitude of riparian owners makes such construction not feasible financially. As, except in the case of the few remaining Spanish grants, it is not practicable to construct projects for the irrigation of riparian lands exclusively, the riparian owner himself is injured by his fellow obstructionists.

The California Supreme Court in its treatment of the law of percolating waters has adopted a policy of true conservation. In Burr v. Maclay Rancho Company 18 it said:

"It is not the policy of the law to permit any of the available waters of the country to remain unused, or to allow one having the natural advantage of a situation which gives him a legal right to water to prevent another from using it, while he himself does not desire to do so. The established and settled law of riparian rights in running streams, which have become vested rights, may compel a different rule with regard to such waters in some instances, but these rules of law do not, of necessity, control rights in percolating waters."

To the man whose whole property and civic interest is in a riparian tract, the doctrine of riparian rights is necessarily an admirable one. To the riparian owner, who is using his water and is interested in other land, to the irrigation districts, to the mutual and commercial irrigation companies, to the government projects, to the cities which are looking for a water supply, in short to all who are part of the broader development, the doctrine of prior appropriation offers the way. It is, therefore, in the interest of all of these that we should try every way that other states have used and that we ourselves can suggest for casting off, so far as it is lawful, the burden of riparian rights.

San Francisco, California.

18 (1908), 154 Cal. 428, 436, 98 Pac. 260.

A. E. Chandler.

Some Observations on the California
Development Company Litigation.

A

LITIGATION which will be somewhat historic in the

southern end of the state at least, has recently been concluded by the decision of the Supreme Court in the case of Title Insurance & Trust Company v. California Development Company,1 decided October 9, 1915. This litigation was started for the purpose of foreclosing a deed of trust, securing an issue of bonds upon the water system of the California Development Company. This system supplies the great and fertile Imperial Valley with water from the Colorado River, being the only source of supply that district has. Owing to the wide public interest in the case as well as to the many novel and important legal questions which it has raised, the editors of the California Law Review have thought that some observations upon it might be interesting, and perhaps of some value to the profession.

But a few years ago the so-called Colorado Desert was a vast desolate waste. Today the same country, world-famous as the Imperial Valley, is made up of wonderfully fertile and productive fields, which produce enough food products to supply a principality, and almost enough cotton to clothe one, and in the future, with intensive cultivation, will undoubtedly produce many times as much of good as it now does. It seems one of the ironies of fate that the company which brought water to this district and made possible this wonderful transformation should itself have fallen by the way-side and become so involved in financial difficulties that its extrication was hopeless and necessitated foreclosure proceedings. Yet such is the case. This state and this nation owe a large debt to the men who founded this enterprise and gave it their time, money and labor. Especially is this true of C. R. Rockwood, the engineer, who for years struggled to secure the financial backing necessary to undertake the project,

1 (Oct. 9, 1915), 50 Cal. Dec. 381, 152 Pac. 542.

and who through succeeding years brought it to fruition, only to lose practically everything in the financial difficulties in which the company became involved. However, he has now been made Chief Engineer of the Imperial Irrigation District, which, it seems likely, will in the near future own and operate this great system for the benefit of the people of Imperial Valley.

One of the matters which has greatly complicated the litigation is the fact that by far the largest portion of the water system lies in the Republic of Mexico. The intake where the water of the Colorado River is diverted into the system is at a point known as Hanlon's Heading, in California, only a short distance north of the boundary line, but it was impossible to convey the water from the river to Imperial Valley proper in American soil on account of a range of sand hills lying between the valley and the river but which did not extend into Mexico. For this reason the system as constructed runs only a very short distance in American territory, and for practically fifty-seven miles is in Mexican soil. The system thus begins in American soil at the intake, runs for nearly its entire distance in Mexican territory, and returns to American soil in the Imperial Valley proper. The founders of the project found it was impossible under Mexican laws for an American corporation to own the land in Mexico through which the main canal had to run. They were obliged, therefore, to organize a corporation under the laws of Mexico, which has been generally known as "The Mexican Company," which held title to that portion of the system lying in Mexico. This corporation was organized with twelve thousand five hundred shares of stock, the same number as the California Development Company. Twelve thousand shares were held directly by the Development Company, the other five hundred being issued to two of the stockholders and promoters of that company. In order to raise money to build the system, a deed of trust was executed in 1900 by the California Development Company whereby all of the properties in California were deeded to the Title Insurance & Trust Company, as trustee, and the twelve thousand shares of the capital stock of the Mexican Company were pledged to the trustee. The deed of trust also contains provisions which the courts have held clearly evidenced the intention that all the property of the Mexican Company should be made security for the bonds. Two years later and in further pursuance of said intention, the Mexican Company executed and delivered to said trustee, in California, a

mortgage on its property in Mexico, but for certain reasons not important here, neither the deed of trust nor mortgage were ever recorded in Mexico. There was at that time, and still is, in force in Mexico a statute providing in substance that no mortgage of land shall have "any legal effect except from the day and hour that it is recorded."

In 1904 there came a break in the banks of the Colorado River by means of which the flow of that great river was diverted into the Imperial Valley. The Salton Sea was formed, and it appeared likely that the entire valley would be made a great inland sea. The break was finally stopped through money loaned to the Development Company by the Southern Pacific Company. As a result of the break the Development Company became hopelessly involved in financial difficulties, and the Southern Pacific Company came into actual control both of the California Development Company and the Mexican Company through having its officers and employees made members of the board of directors of these companies. Thereafter the Southern Pacific Company brought suit in the courts of Mexico against the Mexican Company and secured judgments for large amounts. It then organized another corporation under the Mexican laws which we will term the New Mexican Company, all of whose stock it held. The properties of the Mexican Company were then sold at execution sale under the judgments rendered by the Mexican court, and were bought in by the New Mexican Company.

Without going into greater detail, suffice it to say that the interest on the bonds not having been paid, the Title Insurance & Trust Company, in November, 1909, upon demand of certain bondholders, commenced an action in the courts of California whereby it sought to foreclose the deed of trust and mortgage on the entire system. A receiver was immediately appointed for the properties of the California Development Company who has ever since operated them. In passing, it is only fair to state that under the administration of Mr. W. H. Holabird, of Los Angeles, who has acted as receiver, deliveries of water have been greatly increased, many old structures have been replaced by new and better ones, and the service given by the system in every way greatly improved, much to the benefit of the Imperial Valley. The administration has in every way been a gratifying contrast to the history of many American receiverships, and has demonstrated that the prevailing