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be exercised except by the authority of or in the manner prescribed by law."

The case of San Diego Land & Town Company v. City of National City (C. C.) 74 Fed. 79, presented the question, among others, whether that company had the legal right to demand and receive a sum of money in addition to the annual rates it was authorized to charge, as a condition upon which it would furnish water appropriated by it under similar provisions of the Constitution and laws of the state of California, to the persons for whose use the appropriation was made. The thing for which that company demanded a sum of money in addition to the annual rates it was by law authorized to charge it designated as a "water right," and it was there said:

"It does not change the essence of the thing for which the complainant demands a sum of money to call it a 'water right,' or to say, as it does, that the charge is imposed for the purpose of reimbursing complainant in part for the outlay to which it has been subjected. It is demanding a sum of money for doing what the Constitution and laws of California authorized it to appropriate water within its limits, conferred upon it the great power of eminent domain, and the franchise to distribute and sell the water so appropriated, not only to those needing it for purposes of irrigation, but also to the cities and towns, and their inhabitants, within its flow, for which it was given the right to charge rates to bc established by law, and nothing else. No authority can anywhere be found for any charge for the so-called water right. The state permitted the water in question to be appropriated for distribution and sale for purposes of irrigation, and for domestic and other beneficial uses; conferring upon the appropriator the great powers mentioned, and compensating it for its outlay by the fixed annual rates. The complainant was not obliged to avail itself of the offer of the state, but, choosing, as it did, to accept the benefits conferred by the Constitution and laws of California, it accepted them, charged with the corresponding burden. Appropriating, as it did, the water in question for distribution and sale, it thereupon became, according to the express declaration of the Constitution, charged with a public use. Whenever,' said the Supreme Court of California in McCrary v. Beaudry, 67 Cal. 120, 121, 7 Pac. 265, 'water is appropriated for distribution and sale, the public has a right to use it; that is, each member of the community, by paying the rate fixed for supplying it, has a right to use a reasonable quantity of it in a reasonable manner. Water appropriated for distribution and sale is ipso facto devoted to a public use, which is inconsistent with the right of the person so appropriating it to exercise the same control over it that he might have exercised if he had never so appropriated it.'"

The same views were expressed and amplified in the subsequent case of Lanning v. Osborne (C. C.) 76 Fed. 319, and, in effect, find strong support in the very recent decision of the Supreme Court of the United States in the case of The County of Stanislaus, in the State of California, et al., Appellants, v. The San Joaquin & Kings River Canal & Irrigation Company, 192 U. S. 201, 24 Sup. Ct. 241, 48 L. Ed. 406, which involved, among other things, the question whether a water company incorporated under an act of the Legislature of the state of California enacted in 1862 (St. 1862, p. 540, c. 417), and providing that "every company organized as aforesaid shall have power, and the same is hereby granted * to establish, collect, and receive rates, water rents, or tolls which shall be subject to regulation by the board of supervisors of the county or counties in which the work is situated, but which shall not be reduced by the board of supervisors so low as to yield to the stockholders less than one and one half per cent. per month

* *

upon the capital actually invested" (section 3, p. 541), constituted a contract between the state and the water company, which was protected by the Constitution of the United States. After citing various cases, the Supreme Court said:

"It is true that the cases cited involved questions of alleged contracts for exemption from taxation, in regard to which it has been said that no presumption exists in favor of a contract by a state to exempt lands from taxation, and that every reasonable doubt should be resolved against it. Statutes of California providing that the use of all water appropriated for sale, rental, or distribution should be a public use, and subject to public regulation and control, are valid. San Diego, etc., Co. v. National City, 174 U. S. 739 [19 Sup. Ct. 804, 43 L. Ed. 1154]. And companies formed for the purpose of furnishing water for irrigation purposes have been held, in that state, to be public municipal corporations, and the use of the water for the purposes mentioned a public use. See cases cited in Fallbrook Irrigation District v. Bradley, 164 U. S. 111, 139 [17 Sup. Ct. 56, 41 L. Ed. 369]. To regulate or establish rates for which water will be supplied is, in its nature, the execution of one of the powers of the state, and the right of the state so to do should not be regarded as parted with any sooner than the right of taxation should be so regarded, and the language of the alleged contract should in both cases be equally plain. Owensboro v. Owensboro Waterworks Company, 191 U. S. 358 [24 Sup. Ct. 82, 48 L. Ed. 217]. In our judgment, the language of the act of 1862 did not amount to a contract that the rates for the use of water should never be lowcred below the amount provided for in that act."

Certainly, if an express provision in the charter of a company to the effect that the rates to be charged by it should never be reduced by the municipal body below a stated amount is void for the reason that it is an interference with the power of the state to regulate or establish rates for which such water shall be supplied, a fortiori such state power cannot be interfered with by any contract between such company and a private person, and a fortiori they also are void for precisely the same


The court below, upon the evidence introduced, fixed the value of the property at the time of the service in question at $250,000, and the cost of maintenance of the plant for the year 1901 at $20,000. Some of the claims of the appellant bearing upon the value of the plant and the cost of maintenance are undoubtedly extravagant, and some of them are very indefinite and uncertain. If it be conceded that the amounts fixed by the court below in respect to these matters are too low, yet a large increase in both the value of the property and in the cost of the maintenance of the plant may be allowed, and still sufficient compensation be derivable under the order of the board of commissioners in question to answer the constitutional requirement, for the amount derivable from the 2,750 acres, at the established rate, is to be accounted for and counted, as above held. The rule by which the courts must be governed in such cases was stated by the Supreme Court in San Diego Land & Town Company v. City of National City, 174 U. S. 753, 19 Sup. Ct. 810, 43 L. Ed. 1154, in these words:

"That it was competent for the state of California to declare that the use of all water appropriated for sale, rental, or distribution should be a public use, and subject to public regulation and control, and that it could confer upon the proper municipal corporation power to fix the rates of compensation to be collected for the use of water supplied to any city, county, or town, or to the inhabitants thereof, is not disputed, and is not, as we think, to be doubted. It is equally clear that this power could not be exercised arbitrarily, and with

out reference to what was just and reasonable as between the public and those who appropriated water and supplied it for general use, for the state cannot, by any of its agences, legislative, executive, or judicial, withhold from the owners of private property just compensation for its own use.

That would

be a deprivation of property without due process of law. Chicago, B. & Q. R. Co. v. City of Chicago, 166 U. S. 226, 17 Sup. Ct. 581, 41 L. Ed. 979; Smyth v. Ames, 169 U. S. 466, 524, 18 Sup. Ct. 418, 42 L. Ed. 819. But it should also be remembered that the judiciary ought not to interfere with the collection of rates established under legislative sanction unless they are so plainly and palpably unreasonable as to make their enforcement equivalent to the taking of property for public use without such compensation as, under all the circumstances, is just both to the owner and to the public; that is, judicial interference should never occur unless the case presents, clearly and beyond all doubt, such a flagrant attack upon the rights of property under the guise of regulations as to compel the court to say that the rates prescribed will necessarily have the effect to deny just compensation for private property taken for the public use."

Moreover, it appears from the testimony of the manager of the appellant company, in answer to a question by its counsel as to why the property had not in the past been made to pay "fixed maintenance charges, interest upon its bonded indebtedness, and a reasonable interest upon the additional investment necessitated in the construction of the property," that:

"The main cause of the delay is the fact that the country has not settled up as fast as they expected. They have always expected that the amount of land put under irrigation would increase more rapidly, and so put it in shape that it would pay. Another point was the strong disposition on the part of the consumers against any increase of rate, manifested at different times; and the owners of the canal were averse to increasing the rate, in hopes that the amount of land under irrigation would increase, or the company [country] settle up faster."

"If a plant is built," said the Supreme Court in San Diego Land & Town Company v Jasper, 189 U. S. 439, 446, 23 Sup. Ct. 571, 47 L. Ed. 892, "for a larger area than it finds itself able to supply, or, apart from that, if it does not as yet have the customers contemplated, neither justice nor the Constitution requires that, say, two-thirds of the contem plated number should pay a full return."

The judgment is affirmed.


In re McINTIRE et al.

(Circuit Court of Appeals, Ninth Circuit. May 2, 1904.)

No. 1,008.


A partnership agreement provided that the incoming partner should pay $2,500 in cash, and execute to the other partner, who had an established business, notes for the remainder of the purchase price of a half interest in the business, to be determined by an inventory thereafter to be taken. The original partner took sole charge of the financial and accounting part of the business. The inventory was not taken, and the notes were not executed, but the parties continued to do business as partners on an equal

basis. The original partner represented to the incoming partner that his indebtedness only amounted to about $10,000, when in fact it exceeded $30,000; and shortly thereafter he borrowed $10,000 from defendant bank, which he represented to his partner was for the firm's benefit, but which he in fact paid on his personal indebtedness to complainant bank, and thereafter, without his partner's knowledge, executed two notes to complainant in renewal of other notes, a part of his personal indebtedness. Held, that the incoming partner did not agree to assume any part of the indebtedness of the old firm, and that the notes so renewed were not chargeable against the new firm's assets in bankruptcy.


Where a bank had knowledge of facts putting it on inquiry as to whether a member of a firm largely indebted to the bank was authorized to execute notes in the firm name to secure such pre-existing indebtedness, the bank was not entitled to prove such notes as against the firm's assets, in the absence of such authority, notwithstanding the partner executing the notes had implied power, as a member of an ordinary trading firm, to execute notes in the name of the firm.

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Where an incoming partner had no knowledge until a very short time before bankruptcy proceedings against the firm were instituted that his partner had executed firm notes to secure the partner's pre-existing indebtedness to a bank, and the books of the firm, if examined by such partner, would not have disclosed the execution of such notes, such incoming partner did not ratify their execution, so as to justify their allowance as a claim against the firm's assets.

Appeal from the District Court of the United States for the District of Montana.

Appellant and appellee were creditors of the firm of McIntire & Middleton, bankrupts. In the proceedings in bankruptcy, appellant filed its claim upon overdrafts and notes against McIntire & Middleton amounting to $18,378.21, principal. The referee allowed the claim, including the interest thereon, in the sum of $19,012.21. The appellee herein then moved the referee to expunge and disallow the claim of appellant upon the ground that they were liabilities of the McIntire Mercantile Company incurred prior to the formation of the partnership of McIntire & Middleton, and had not been ratified. Upon this motion the referee in bankruptcy reduced the claim of appellant to the sum of $15,920.34. Appellee took an appeal to the District Court, and the decision of the referee was affirmed as to the claims allowed, except two notes-one for $2,500, and the other for $4,000-the allowance of which by the referee was reversed. From this order and judgment the appeal to this court is taken.

The facts in the record may be briefly stated as follows: For a number of years prior to July 1, 1900, H. W. McIntire was engaged in business at Miles City, Mont. He afterwards adopted and used the trade-name of McIntire Mercantile Company, and continued the use thereof, as its sole proprietor, and as the owner of its entire stock in trade, until the formation of the partnership between himself and Fred F. Middleton. The new firm of McIntire & Middleton commenced to do business about July 1, but the articles of partnership were not reduced to writing and executed between the parties thereto until July 10, 1900. The agreement of partnership was produced at the hearing, and offered and received as evidence. From the terms thereof, it appears that the partnership was to continue for the term of five years; that the firm name was to be McIntire & Middleton, and they were to engage in the business of buying, selling, and dealing in all kinds of merchandise in Custer county, Mont., at wholesale and retail. Each of the partners was to bestow and give his full time, labor, skill, knowledge, and services to the business of the firm. At the time of the formation of this partnership the entire stock of goods, wares, and merchandise of the aforesaid McIntire Mercantile Company was the property of H. W. McIntire, its sole proprietor, and the same was to be taken over by the new firm of McIntire & Middleton. An inventory and valuation of this stock was to be made, and, when so made and ascertained, Middleton was to

acquire a half interest therein by the payment of $2,500 in cash, and executing to McIntire promissory notes for the remainder of the purchase price of said half interest. Middleton paid the $2,500 in cash, and the firm of McIntire & Middleton went into possession of the stock of merchandise. During the time McIntire was engaged in business, he became and was heavily involved in debt. Most of his indebtedness was held against him by the First National Bank of Miles City. Its form was promissory notes executed either in his individual name, or in the name of the McIntire Mercantile Company. About $20,000 of this indebtedness was in existence at the time of the formation of the firm of McIntire & Middleton. In the division of the work to be done by the partners in the firm, McIntire undertook to keep the books, and took sole charge and assumed control of the financial and accounting part of the business, and Middleton gave his attention to the management of the sale department.

The court below, in its opinion, said: "As to the notes for $2,500 and $4,000, respectively, which are claimed to be firm liabilities of McIntire & Middleton, and which have been allowed by the referee as claims against the estate of said bankrupts, it appears from the evidence that both of these notes are renewals of notes for the same amounts due to the First National Bank from the McIntire Mercantile Company. It is claimed that the firm of McIntire & Middleton assumed these liabilities of the McIntire Mercantile Company at the time of the formation of this firm. I fail to find sufficient evidence in the record to support this claim. No consideration appears to have passed from the First National Bank to McIntire & Middleton for such assumption. The fact that McIntire deposited the funds of McIntire & Middleton in said bank would not establish this. Certainly the act of assumption of the payment of these notes must be the act of all the partners. McIntire alone would have no authority, by virtue of his partnership relation with Middleton, to make such a contract."

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T. J. Porter and Davis, Kellogg & Severance, for appellant.

O. F. Goddard, for appellee.

Before GILBERT and ROSS, Circuit Judges, and HAWLEY, District Judge.

HAWLEY, District Judge (after making the foregoing statement). The questions involved in this case must be determined upon the conclusions which should be drawn from the testimony as to whether or not the partnership agreed to be entered into between McIntire and Middleton was ever consummated by them in accordance with their agreement. Were the two notes referred to in the opinion renewal notes of the McIntire Mercantile Company, and, if so, were they ever authorized or ratified by Middleton, so as to be valid notes against the partnership, if one existed? In short, did the court err in its findings as to the evidence? Did it err in reversing the decision of the referee concerning the two notes-one of $2,500, and the other of $4,000?

The contention of appellant is (1) that the business of the firm of McIntire & Middleton was the continuation, without interruption, of a going business hitherto carried on by H. W. McIntire under the name of the McIntire Mercantile Company; (2) that the mode of conducting the business of the firm clearly shows an intention on the part of both members of the firm to assume all of the indebtedness of the McIntire Mercantile Company, including that represented by the notes; (3) that the evidence, under the rule of law applicable to such cases, is sufficient to require a finding that the indebtedness of the McIntire Mercantile Company, including that represented by the notes in question, was assumed by the firm.

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