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.
118 F.2d 225 affirmed.
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.
Page 315 U. S. 611
MR. JUSTICE ROBERTS delivered the opinion of the Court.
The question for decision is whether a statute of Puerto Rico
impairs the obligation of certain contracts in violation of the
Island's organic law. [
Footnote
1]
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.
By an amendatory law adopted in 1913, [
Footnote 3] it was provided:
"In the case of any land carrying a water right or concession of
which the source of supply is destroyed or impaired by the
construction or operation of the irrigation system, which shall not
have been relinquished or surrendered to the Porto Rico, such land
shall be entitled to receive from the irrigation system an amount
of water which is the reasonable equivalent in value of the said
water right
Page 315 U. S. 612
or concession."
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.
Under the Irrigation Law, lands in a district were subjected to
a uniform annual assessment per acre to discharge the cost of
construction, maintenance, and operation of
Page 315 U. S. 613
the system. Sales were also made of surplus waters, and the
proceeds used for maintenance.
Shortly after the contracts were made, a controversy arose
between petitioner and respondent with respect to Puerto Rico's
right to sell surplus waters. Litigation ensued which terminated in
a decree restraining the insular government from diverting certain
surplus waters to which the respondent was held to be entitled
under the contracts. The decision also upheld the validity of the
contracts. [
Footnote 4]
Thereupon, the legislature adopted, July 8, 1921,
"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.
Action was instituted by petitioner in an insular court for the
recovery of several years taxes so imposed. [
Footnote 6] The
Page 315 U. S. 614
cause was removed to the United States District Court, where a
motion to remand was denied and a judgment entered for the
respondent on the merits. The judgment was affirmed by the Circuit
Court of Appeals for the First Circuit, [
Footnote 7] but was reversed by this court for want of
diversity of citizenship on which jurisdiction of the federal
courts depended. [
Footnote
8]
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.
By the Act of 1908, [
Footnote
11] the people of Puerto Rico undertook the construction of a
public irrigation system. This necessitated the erection of a dam
for impounding and storage of part of the waters of the Jacaguas
River above the respondent's intakes, and the creation of an
irrigation district. The statute recognized the necessity of
providing a method for the acquisition of the rights of riparian
owners whose land lay below the dam. Section 12 authorized the
condemnation of existing water rights and the payment of their fair
value to the owners. By the amendatory Act of 1913, the owners of
lands which fell within the irrigation district court release their
preexisting rights, have them valued, and be paid the value by
credits against
Page 315 U. S. 615
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.
It is evident that it was thought that lands such as those of
the respondent could not be included within the proposed district.
It is idle to speculate concerning the reasons for this decision,
though it is clear that, in order to realize the Government's
purpose, it was deemed necessary to reach an accommodation
concerning preexisting valid water rights of land owners whose
lands could not or should not be included in the irrigation
district. In the case of such persons, the purpose was to
substitute a fair equivalent for the rights theretofore exercised.
Such an arrangement offered mutual advantages to Puerto Rico and to
the owners. Whereas Fortuna had, prior to the erection of the dam,
the right to take over 12,000 acre feet of water per year for
irrigation, appropriation of surplus waters, and certain torrential
waters, the supply was uneven and uncertain due to the irregularity
of rainfall. It was therefore an advantage to the respondent's
predecessor to surrender its maximum rights in consideration of an
agreement that there should be delivered to it, equally and evenly
throughout the year, something less than the maximum it was
entitled to take under preexisting conditions. On the other hand,
it was an advantage to the irrigation system that it should not be
obliged at any time to deplete its storage waters by furnishing the
respondent
Page 315 U. S. 616
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 assessment contemplated by Act No. 49 of 1921 is not a
general tax laid for the support of government upon a property
right or a franchise. This is expressly admitted by the petitioner
in brief and in oral argument. In the brief, it is said:
"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.
Treated as an assessment of part of the cost of maintenance of
the irrigation system, the petitioner insists that the exaction
does not violate the obligation of the 1914 contracts. It asserts
that the agreements were only that a given amount of water would be
released, or made available, or allotted to respondent and
therefore The
Page 315 U. S. 617
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.
Section 13 of the Act of 1913 authorizes 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.
Each contract describes the rights appurtenant to the lands in
question, acknowledges their validity, states the amounts of water
the respondent's predecessor is entitled to take, and, in
consideration of the mutual covenants of the parties, stipulates
"that the quantities of water specified" in the agreement,
"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"
of the amounts of water specified in the agreement. Each
contract further provides that "The People of
Page 315 U. S. 618
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.
The obligation of Porto Rico to deliver the named quantities is
recognized in many clauses of the contracts. As applied to the
petitioner, the word "deliver" appears ten times in each contract,
the word "delivery" nine times, and the word "deliverable" four
times in one of the documents. From the four corners of the
agreements, it is clear that, in consideration of the suspension of
the rights of Fortuna and its successor, the respondent, the
insular government agreed not merely to allot, but to deliver at
specified places, certain quantities of water. Prior to the
execution of the contracts, Fortuna was under no obligation to the
government to pay it any cost or expense for the bringing of the
water to its intakes. The contract clearly contemplates that it is
to be under none with respect to the water agreed to be
Page 315 U. S. 619
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.
The judgment is
Affirmed.
[
Footnote 1]
"No law impairing the obligation of contracts shall be enacted."
48 U.S.C. § 737.
[
Footnote 2]
Act of September 18, 1908, Laws of Porto Rico, 1909, p. 152.
[
Footnote 3]
Act of August 8, 1913, Laws of Porto Rico, 1914, p. 54, §
13.
[
Footnote 4]
Porto Rico v. Russell & Co., 268 F. 723.
[
Footnote 5]
Act 49 of 1921, Laws of Porto Rico, 1921, p. 366.
[
Footnote 6]
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.
[
Footnote 7]
60 F.2d 10.
[
Footnote 8]
Puerto Rico v. Russell & Co., 288 U.
S. 476.
[
Footnote 9]
56 P.R.Dec. 343.
[
Footnote 10]
118 F.2d 225.
[
Footnote 11]
Supra, Note 2
[
Footnote 12]
Supra, Note 3
MR. JUSTICE DOUGLAS, dissenting.
There was no provision whatsoever in the grant of these water
rights exempting them from any form of taxation. Hence, if no
contract had been made and the irrigation system had been
constructed and respondent's lands had been serviced in precisely
the same way as
Page 315 U. S. 620
was done here, I should think that there would be no doubt but
that the assessment would be valid. The Supreme Court of Puerto
Rico relied for the validity of the assessment on such cases as
Knowles v. New Sweden Irrigation District, 16 Idaho 217,
235, 101 P. 81, 87, and
Bleakley v. Priest Rapids Irrigation
District, 168 Wash. 267, 11 P.2d 597. Those cases hold that,
under certain circumstances, the owner of a water right may be
brought into an irrigation district and forced to pay an
assessment. As stated in the
Knowles case, 16 Idaho at
241, 101 P. at 89:
"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.
It was clear and undisputed that respondent obtained substantial
benefits from the irrigation system. (1) The quantity of water
received by respondent from the system is 19% larger than what
previously had been available from the earlier limited flow of the
river. (2) The storage reservoir impounds flood waters which would
be largely lost to respondent. The dam not only increases the
amount of water available, but makes possible regular
Page 315 U. S. 621
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.
In that posture of the case, we would be faced with a
determination by the legislature of Puerto Rico that respondent's
lands were benefited, and that respondent should pay an assessment.
It has long been held that such a "determination is conclusive upon
the owners and the courts."
Spencer v. Merchant,
125 U. S. 345,
125 U. S. 356.
And see Davidson v. New Orleans, 96 U. S.
97;
Walston v. Nevin, 128 U.
S. 578. As stated in
Fallbrook Irrigation District
v. Bradley, 164 U. S. 112,
164 U. S.
176-177, "the fact of the amount of benefits is not
susceptible of that accurate determination which appertains to a
demonstration in geometry;" the choice of methods employed
"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.
The existence of the contracts does not call for a different
result. The statute in question provided that owners of water
rights such as respondent
"shall be entitled to receive from the irrigation system an
amount of
Page 315 U. S. 622
water which is the reasonable equivalent in value of the said
water right or concession."
The Commissioner of the Interior was authorized
"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.
(1) The contracts themselves make plain that, as respects
certain intakes on the river,
"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."
That provision alone demonstrates that the Supreme Court of
Puerto Rico was justified in interpreting "delivery" in these
contracts differently than might be warranted in case of contracts
for the cartage of goods. "The word
deliver' has perhaps as
many different shades of meaning ascertained by judicial
interpretation as any other term known to the law." United
States v. McCready, 11 F. 225, 234. The problems of operation
of an irrigation system are unique in many respects. Manipulation
of the gates at the dam determines the flow of water through the
various channels. Puerto Rico's undertaking in each instance was to
"deliver" water at specified intakes provided by respondent. Those
intakes were in the river or in designated reservoirs provided by
respondent. It seems reasonable to conclude that Puerto
Rico's
Page 315 U. S. 623
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.
(2) It seems to me tolerably clear that such a construction of
the contracts comports with the purpose of the arrangement. The
contracts state that Puerto Rico,
"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."
The amount of water actually obtained by respondent before the
dam was erected apparently fell far below the amount to which it
was entitled under their water rights. The contracts were designed
to substitute for that latter theoretical figure one which would
represent a "fair equivalent in value for irrigation purposes" of
the amount of water which respondent would "under ordinary
circumstances take and use" under its water rights. From Puerto
Rico's point of view, such a determination was important so that
the demands on the dam could be reduced to known requirements, and
so that the erection of the dam would not
Page 315 U. S. 624
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.
(3) No express exemption from this form of taxation is to be
found in the contracts. If that exemption exists, it is implied.
But, even though it be assumed
arguendo that Puerto Rico's
representative had the authority constitutionally to bargain away
its taxing power, the exemption should not be inferred. Chief
Justice Marshall stated, in
Providence Bank v.
Billings, 4 Pet. 514,
29 U. S. 561,
that a relinquishment of a power to tax "is never to be assumed;"
"its abandonment ought not to be presumed in a case in which the
deliberate purpose of the state to abandon it does not appear." If
there are doubts, they must be resolved in favor of the government.
Wells v. Savannah, 181 U. S. 531;
Chicago Theological Seminary v. Illinois, 188 U.
S. 662;
Metropolitan Street Ry. Co. v. New
York, 199 U. S. 1,
199 U. S. 35-36.
As stated in
Wells v. Savannah, supra, pp.
181 U. S.
539-540, a contract of exemption from taxation must
"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. "
Page 315 U. S. 625
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.