MORROW, Circuit Judge
(after stating the facts as above). The first question io be determined in this case is whether the complainant is entitled to an enforcement of the covenant contained in the agreement between the Mexican Company and the defendant, dated March 15, 1901, the assignment of which by the Mexican Company to the complainant purports to have been ratified in the supplemental agreement between the complainant and the defendant, dated December 24, 1901. Under this covenant and assignment complainant claims the exclusive right to sell at its own price the entire unissued shares of the capital stock of .the defendant corporation and appropriate the proceeds of such sale to complainant’s own use and benefit. Incidental to this question is the further question whether the complainant is entitled to the enforcement of a covenant in the supplemental agreement that the capital stock of the defendant corporation shall be issued only upon the orders of the complainant. Stated in another way, the question is whether the complainant, at the time of the so-called “Heber contract,” was the owner of the unissued stock of the defendant corporation. If it was not the owner of such shares of stock, the waiver and surrender of stock as provided in the contract is immaterial. If, on the other hand, it was the owner of the stock, and it had a substantial value in its hands, it will be necessary to determine whether the Heber contract was the authorized act of the corporation. Pertinent to this inquiry is the question: What does the unissued stock of the defendant corporation represent?
The defendant corporation was formed for the purpose of enabling settlers upon certain designated public lands to become stockholders in the corporation, and through the agency of the corporation to secure [10]*10for such lands, upon equal terms and at cost, the water required for irrigation, domestic, and other purposes from a corporation known-in these proceedings as the “Mexican Company.” The shares of stocl-c represented the specific quantity of water the stockholders would be' entitled to receive. The defendant corporation was therefore in effect-a mutual company. In Wiel on Water Rights in the Western States, § 1266, such companies are referred to as “private service companies,” and are described as follows:
“Mutual companies are usually such that shares of stock represent rights to specific quantities of water, and the stockholder’s right to a supply rests upon his stock, and not upon his status as a member of 'the publicj the company being formed to supply water to its stockholders only.”
The general character of these corporations is to serve and promote the individual rights of the stockholders upon equal terms in securing water for the irrigation and cultivation of their land. The shares of stock in such company represent the water rights secured by the company when such rights have attached, and holders of stock in the company who are settlers upon the land hold the stock as representing the water right as appurtenant to the land upon which the water is to-be used.
The complainant is a public service corporation, and as such an agent of the state in the administration of a public use. Crescent Canal Co. v. Montgomery, 143 Cal. 248, 252, 76 Pac. 1032, 65 L. R. A. 940. It was incorporated on the 23d of April, 1896, for the purpose of appropriating and diverting substantially all the water of the Colorado river at a point in California near the international boundary line between Mexico and the United States. The complainant’s object in appropriating this water was to divert it through canals and ditches and deliver it to a Mexican Company organized by and acting for and on behalf of the complainant, and known as the “Mexican Company,” the water to be used by the latter company for the irrigation of certain lands below the international boundary line in Mexico, and through this corporation to deliver water across the boundary line in Imperial Valley to the mutual water companies, among others, the defendant, for distribution to the lands of the stockholders of such companies.
The lands in Imperial Valley did not belong to the complainant: They were originally unoccupied desert lands belonging to the government of the United States, except such school lands in each township as belonged to the state, and except a few alternate sections in the northern part of Imperial Valley within the grant of the Southern Pacific Company.
It is conceded that the various corporations organized by the complainant and designated in this case as the “Mexican Company,” and the several water corporations incorporated by it, were but instruments employed by the complainant to carry out the purpose of its organization, which was to collect from the settlers for the service of delivering the water a water rate of 50 cents per annum for each acre of land supplied by water. The right of the complainant through the Mexican Company to collect for the service of delivering the water a charge of 50 cents per annum for each acre of land supplied by water is called [11]*11a “water rate,” and is not in controversy in this case. This charge is presumed to be reasonable and just for the service rendered and the aggregate of these charges a sufficient return for the capital invested by the complainant in the proj ect. The question is: Had the complainant the authority, as a public service corporation, by and through the instrumentalities of the corporations formed for that purpose, the right, to appropriate the stock of the defendant company, and by that means compel settlers to pay a further or additional sum fixed arbitrarily by the complainant as and for a water right?
The lands included in complainant’s irrigation project, including the lands at the point of diversion of the water of the Colorado river for that purpose, were originally and at the time the project was formed almost entirely public lands of the United States. We are therefore dealing with the question of a right based primarily upon section 9 of the Act of July 26, 1866, c. 262, 14 Stat. 251, 253, incorporated into the Revised Statutes as section 2339 (U. S. Comp. St. 1901, p. 1437). That section provides as follows:
“Whenever, by priority of possession, rights to the nse of water for mining, agricultural, manufacturing, or other purposes, have vested and accrued, and the same are recognized and acknowledged by the local customs, laws, and the decisions of courts, the possessors and owners of such vested rights shall be maintained and protected, in the same; and the right of way for the construction of ditches and canals for the purposes herein specified is acknowledged and confirmed: hut whenever any person, in the construction of any ditch or canal, injures or damages the possession of any settler on the public domain, the party committing such injury or damage shall be liable to. the party injured for such injury or damage.”
Under the Act of March 3, 1877, entitled “An act to provide for the sale of desert lands in certain states and territories,” including California (c. 107, 19 Stat. 377), there is a limitation to water rights acquired by appropriation for irrigation and reclamation of desert lands, as follows:
“And such rights shall not exceed the amount of water actually appropriated and necessarily used for the purpose of irrigation and reclamation.”
This limitation is equally applicable to the use of water on all public lands for the purpose of irrigation. Atchinson v. Peterson, 20 Wall. 514, 22 L. Ed. 414; Basey v. Gallagher, 20 Wall. 682, 22 L. Ed. 452; Williams v. Altnow, 51 Or. 275, 302, 95 Pac. 200, 97 Pac. 539; Hough v. Porter, 51 Or. 318, 382, 399, 95 Pac. 732, 98 Pac. 1083, 102 Pac. 728.
[1] Under the act of 1866, the possessory water rights there protected are only such as have vested and accrued and are recognized and acknowledged by the local customs, laws, and decisions of the courts. The law of California upon this subject is found in the Constitution of the stafe, and in provisions of the Civil Code relating to water rights.
The first clause of article 14, § 1, of the Constitution of the state, provides that:
“The nse of all water now appropriated, or that may hereafter he appropriated for sale, rental, or distribution, is hereby declared to be a public use [12]*12and subject to the regulation and control of the state in the manner to be prescribed by law.”
Section 1410 of the Civil Code of California (prior to the amendment of April 8, 1911) provided as follows:
“The right to the use of running water flowing in a river or stream or down a canyon or ravine may be acquired by appropriation.”
Section 1411 provides that:
“The appropriation must be for some useful or beneficial purpose, and when the appropriator or his successor in interest ceases to use it for such a purpose, the right ceases.”
Section 1415 provides the method by which the water of a flowing stream may be appropriated. A person desiring to appropriate water must post a notice, in writing, in a conspicuous place at the point of intended diversion, stating therein: That he claims the water there flowing to the extent of (giving the number) inches, measured under a four-inch pressure; the purpose for which he claims it; the place of intended use; the means by which he intends to divert it; and the size of the flume, ditch, pipe, or aqueduct in which he intends to divert it. It is provided further that a copy of the notice must, within 10 days after it is posted, be recorded in the office of the recorder of the county in which it is posted.
Section 1416 requires diligence in the appropriation of water, and provides that:
“Within sixty days after the notice is posted the claimant must commence the excavation or construction of the works in which he intends to divert ' the water or the survey road or trail-building necessarily incident thereto, and must prosecute the work diligently and uninterruptedly to completion.”
Section 1417 provides that “by completion” is meant conducting the water to the place of intended use.'
It was clearly the scope and purpose of these statutes not only to provide for the appropriation of the waters of flowing streams within the public domain for useful and beneficial purposes, but to fix the right to such water at the place of intended use. Fellows v. City of Los Angeles, 151 Cal. 52, 59, 90 Pac. 137; Wiel on Water Rights in . Western States, § 1265. This purpose has been concisely expressed with respect to the national irrigation system in the Act of June 17, 1902, c. 1093, 32 Stat. 388 (U. S. Comp. St. Supp. 1911, p. 662), providing for the irrigation and reclamation of lands in certain states and territories where it is provided, in section 8, that:
“The right to the use of water acquired under the provisions of this act •shall be appurtenant to the land irrigated, and beneficial use shall be the basis, the measure, and the limit of the right.”
[2] The parties who formed the project now under consideration for the irrigation of Imperial Valley and placed the project in charge of the complainant and its subsidiary corporations were evidently fully advised as to the true purpose and meaning of these statutes. This is apparent from the various contracts entered into between the com- . plainant and these subsidiary corporations whereby the real parties en[13]*13deavored by skillfully drawn covenants to secure in the name of the complainant corporation the value of the water rights that would be attached to the land to be irrigated.
The first of these contracts was the contract of December 28, 1900, between the complainant and the Mexican. Company, ^his contract contained, among other covenants, an agreement that the complainant would perpetually deliver to the Mexican Company a sufficient amount of water appropriated, owned and diverted or to be in the future appropriated, or diverted by the complainant from the Colorado river, to enable the Mexican Company to furnish water for the irrigation of lauds situated in Lower California, Republic of Mexico, and in the state of California, which were irrigable by gravity from the system of canals and irrigating system to be constructed by the complainant. In consideration of this covenant, the Mexican Company assigned and transferred to the complainant all right which the Mexican Company had in the stock of Imperial Water Company No. 1, and all right which it had to receive any of the moneys which would otherwise be due and payable to the Mexican Company from the sale of stock of that company. It was further agreed that the Mexican Company would make like assignments in the future of all rights which it might acquire under similar contracts made with other water companies for the sale of the stock of such companies, or the proceeds to be derived therefrom.
The second of these contracts was that of March 15, 1901, between the Mexican Company and the defendant corporation. In this contract the previous agreement between the complainant and the Mexican Company was recited, together with the further recital, and as an inducement to the covenants of the contract, that it was a corporation formed for the purpose of obtaining water from the Mexican Company, and supplying the same at cost to the stockholders only upon certain lands situated within certain exterior boundaries mentioned and described in its articles of incorporation.
It was thereupon agreed by the Mexican Company to deliver annually on demand to the defendant company four acre-feet of water for each share of stock which might have been issued and located upon lands situated within the boundaries of the lands to be supplied with water by the defendant. In consideration of this covenant, the defendant agreed that the Mexican Company should have the exclusive right to sell the entire shares of the capital stock of the defendant company, and the Mexican Company should receive for its sole use and benefit all moneys obtained by it from such sale of the stock of the defendant company; that the defendant would locate all stock sold by the Mexican Company upon the lands to be selected by the purchasers of such company or the order of the Mexican Company at the time of the sale. It was further provided that such stock should be located within the exterior boundaries of the lands to be irrigated by the defendant and described in its articles of incorporation.
In consideration of these agreements, the defendant agreed that it-would pay the Mexican Company 50 cents per annum for each share of its stock sold audiocated, and that the payment of such sum should [14]*14entitle the defendant to one acre-foot of water for each share of stock sold and located. It was further agreed that the defendant should have the right to purchase from the Mexican Company three additional acre-feet of water per year at the rate of 50 cents per acre-foot for each share of stock sold and located as provided in the contract:
The third contract is that between the complainant and defendant, dated December 24, 1901. In this contract there are a number of' covenants. Among others, the defendant agreed that it would issue any portion of its unissued capital stock at any time upon the order of the complainant, and that none of its unissued capital stock should be issued except upon such an order. It was further provided that no stock in the defendant corporation should be thereafter issued, sold, or disposed of except to persons who' owned or who had acquired some equitable interest in land lying in the territory designated in defendant’s articles of incorporation, and such to be irrigated by the waters to be furnished by the complainant. It was further provided that all such stock so to be issued, sold, or disposed of would at the time of its issue be located upon and be made appurtenant to specific lands lying within the prescribed boundaries then owned by, or an equitable interest in which was owned by, the party to whom the stock was issued,- and the lands upon which such stock was located should be described and designated in the certificate of stock issued to represent the same; one share of stock being apportioned to each acre of land.
These contracts were far short of transferring to the complainant the water rights represented by the unissued shares of the defendant’s capital stock. When these contracts were made, the directors of the defendant corporation were the mere agents of the complainant for the formation of the corporation. The lands described in the articles of incorporation were' at that time unoccupied public lands of the United States or school lands of the state, and there was no irrigation system in actual existence for the district. In the agreement between the complainant and the defendant dated December 24, 1901, it is expressly recited that no. system of canals or distributing systems has. been constructed for the delivery of water to the present stockholders of the defendant company. The work did not come within the requirements of sections 1416 and 1417 of the Civil Code, and no rights had attached. The whole project, so far as these lands were concerned, was a scheme devised by the parties behind, the project to appropriate to themselves the value of the water rights to all the irrigable land in Imperial Valley.'
The defendant corporation was a mutual company formed to secure water for the settlers in the district, and, when the stage was reached that it issued stock -to settlers upon lands within its district, these shares represented the water rights attached to the lands upon which the settlers had located. The shares of unissued stock which are the subject, of the present controversy represented merely the prospective water rights upon lands of the settlers who should thereafter become stockholders in the. company. While the stock was unissued, it was manifestly held in trust by the defendant corporation for the mutual. [15]*15benefit of those who were, and those who should become, stockholders. In our opinion the defendant corporation, holding its unissued stock in trust for actual settlers who should become stockholders of the company, had no authority to make a contract with the complainant whereby it transferred to the complainant, without consideration, the right to squeeze out of the stock all there was of value in it before delivering it to the settler.
There is a covenant contained in the supplemental agreement between the complainant and the defendant to be noticed in this connection. It is provided that no stock in the defendant company should be issued or sold in the future, except upon there being paid into the treasury of the defendant at the time of such issue $1 in money for each share of stock so issued or sold. It is sufficient to say, with respect to this covenant, that it was not the consideration for the covenant granting to the complainant the exclusive right to sell the entire unissued shares of the capital stock of the defendant company, which at that time the complainant had fixed at $20 per share, and the sales of which were to be for complainant’s sole use and benefit. This leaves us to find the consideration in the so-called water right which the complainant claims to have acquired by the delivery through the Mexican Company of the water required to irrigate the lands to be settled upon by the stockholders of the defendant corporation.
Is this a consideration that the law will recognize?
We think not. In this case the land to be irrigated was not occupied, and the water right did not attach. When that time should arrive, the water right would attach to the land by operation of law, and not by virtue of the contract entered into between the complainant and the defendant. The complainant would have no water right to convey. There was therefore no consideration for the contract. We are fully advised as to the fact that voluntary contracts for the purchase of water rights from canal companies, whose works had been completed and were in operation, have been sustained by the courts in this state; but such cases must be carefully considered in the light of the facts of the particular case. The law of water rights applicable to the conditions prevailing in the Western States is being rapidly developed by legislation, by the courts, and by text-writers; but it has not progressed far enough to furnish finger posts for all the byways of water litigation, unless we constantly hear in mind certain well-established general principles, among others, that it is the purpose of the law in regulating water rights in the Western States to avoid monopolies. As said by the Süpreme Court of California in Merrill v. Southside Irrigation Co., 112 Cal. 426, 433, 44 Pac. 720, 722:
“The evident intent of the framers of our Constitution was to strike a blow at the monopolies which had grown up out of the sale, rental, and distribution of water, and by declaring such a use a public use to bring it within the control of the local authorities in municipalities where the burdens of the system were most onerous.”
An onerous condition growing out of a monopoly and imposed by a public service corporation engaged in distributing water before such distribution could be made cannot, therefore, be considered a sufficient [16]*16consideration for the acquisition of a right guaranteed by law, even though the transaction is voluntary. But we do not look upon the contract in this case as a voluntary contract in the sense in which that term is used in the cases where such contracts have been upheld. It is-true that no one is compelled to settle upon the lands in Imperial Valley, but the right to settle upon such lands is free and open to all, and the complainant had no right as a public service corporation to establish a monopoly of all the water available for the irrigation of the lands in Imperial Valley in advance of settlement, and then, by means of a contract between itself and its agents, burden its public service in a manner not contemplated by law. Such a contract is not a voluntary contract on the part of those for whose benefit the water, has been dedicated by law.
It will not be necessary to review the cases where the question of water rights has been discussed. In this court its last expression is found in Boise City Irrigation & Land Co. v. Clark, 131 Fed. 415, 65 C. C. A. 399. That case arose in the state of Idaho, whose Constitution provides, substantially as does the Constitution of the state of California, that the use of the waters of the state appropriated for sale, rental, or distribution is a public use, and the right to collect compensation therefor a franchise, which cannot be exercised except by authority of and in the manner prescribed by law. Judge Ross,, speaking for titye court, and following his decision in San Diego Land & Town Co. v. City of National City (C. C.) 74 Fed. 79, and the case of Stanislaus County v. San Joaquin & King’s River C. & I. Co., 192 U. S. 201, 24 Sup. Ct. 241, 48 L. Ed. 406, held that an irrigation company appropriating water for sale under the statute had no authority to make private, contracts for so-called perpetual water rights, and that such contacts were void. It appears that there was an inequality in these contracts; but their invalidity was not based upon that ground,, but because, as in the San Diego Case, they were contrary to the terms of the public use provided by the Constitution and the laws of the. state. This- decision was rendered in May, 1904.
Our attention has been called to the case of Wilterding v. Green, 4,Idaho, 773, 45 Pac. 134, rendered by the Supreme Court of Idaho in May, 1906. It is suggested that this case seemed not to have been, called to the .attention of this court when the Boise City Case was submitted. The intimation is that, had the court been familiar with the Idaho case, the decision of this court in the Boise City Case would have been different.. We find nothing, however,.in the Idaho decision,, as now urged upon our attention, that makes us doubt the correctness of our former decision. Indeed, we are rather more firmly convinced that, we are right in that decision. The Idaho case in the Supreme Court of that state was this: The plaintiff was the owner of 40 acres of land'which could be irrigated from defendant’s canal or ditch and not by' any other means. The' land had not been theretofore irrigated. Defendant was a public service corporation, the owner and in charge of the' irrigation system carrying a surplus of water not sold, rented; or otherwise disposed of. Plaintiff applied to the defendant for Water-to'irrigate his land, and tendered with the application [17]*17the sum of $60, or $1.50 per acre, as compensation therefor. Defendant refused and demanded $10 per acre for a perpetual water right and $1 per annum for a water rate. Plaintiff brought action for mandamus. Defendant demurred to the complaint. The demurrer was overruled. Thereupon defendant answered, and plaintiff demurred to the answer, which was sustained. Defendant declining to answer further, judgment was entered in favor of the plaintiff. The Supreme Court held that the district court was authorized by the statute of the state to determine what, under all the circumstances, was a reasonable compensation, and what would be reasonable terms for the use of water furnished by the defendant; but the case presented to the court by the pleadings required the court to compel the defendant to furnisli him with water at $1.50 per acre arbitrarily, without giving the court the opportunity of determining, after due consideration of all the facts presented by proper evidence, whether said sum was a reasonable compensation or not. The judgment of the lower court was accordingly reversed, with instructions to sustain the,demurrer to the complaint, but with leave to amend so that the reasonableness of the rate could be determined by the court. The defendant’s demand that it be paid $10 per acre for a perpetual water right, and in addition $1 per annum for a water rate was not sustained, but, as will be seen presently, was expressly denied.
Now, it is contended that because the Idaho court in its decision referred to the difference between the provisions of the Constitution of Colorado providing that the water of every natural stream is declared to be the “property of the public,” while that of Idaho provides that the use of appropriated waters is declared to be a “public use,” and the court had said that the doctrine of the Colorado court that the canal or ditch owner was a mere “common-carrier” could not be predicated upon the provisions of the Idaho Constitution, holding that the Idaho Constitution was dealing only with the use of water and not with the property rights of appropriators, the conclusion is drawn that the decision of this court in the Boise City Case is in conflict with the Idaho Case because this court held that certain so-called perpetual water rights growing out of private contract were contrary to the terms of the public use provided by the Constitution of the state. In our opinion there is no such conflict, and this opinion appears to be fully sustained by a paragraph in the opinion of the Supreme Court of Idaho applicable to the present case, as follows:
“It can hardly be presumed that any court would give recognition to a rule or policy on the part of the ditch or canal owners by which the company could assess against the consumers the cost of the construction of the canal, and, in addition thereto, an annual rental, such as is exacted in this ease.”
See, also, San Joaquin & King’s River C. & I. Co. v. The County of Stanislaus (C. C.) 191 Red. 875, where the authorities upon this question are reviewed.
In the late cases of Leavitt v. Lassen, 157 Cal. 82, 106 Pac. 404, 29 L. R. A. (N. S.) 213, and Lassen Irri. Co. v Long, 157 Cal. 94, 106 Pac. 409, the Supreme Court of the state of California denied the [18]*18validity of certain contracts wherein the owner of an irrigation system undertook to reserve from the sale of the system permanent preferential water rights to irrigate certain lands. Mr. Justice Henshaw, speaking for the Supreme Court in the first case, said:
“Treating Leavitt’s appropriation as being wholly and entirely for public use, be (the owner of the system) was but an instrumentality for the distribution of the waters which he gathered to such members of the public as might apply for them and pay to him the legal charge for the service that he rendered. As the agent of such a public use, he had no power whatsoever to reserve to himself for his private purposes any part of this water.”
In the second case, Mr. Justice Henshaw, again speaking for the court, said:
“Waiving all minor objections, had Purser (the purchaser of the irrigation system) the power so to burden his public trust with this perpetual private right? Purser, it is to be remembered, held all of these waters as an appropriator for sale, rental, and distribution under the Constitution of 1879. He was but the purveyor of this public use, the agent in the execution of this public trust. If, by any method, however devious, there can be carved out of this public trust such a private right, it must obviously result in the destruction of the public use itself.”
The language here used is peculiarly applicable to the transaction we are now considering. If the complainant in this case has devised a method whereby it can carve out of the public trust it is engaged in administering, and secure to itself upon its own arbitrary valuation the entire value of the water rights of the settlers in Imperial Valley, then 'the trust is at an end, and a monopoly of both land and water has been firmly established in that region.
We do not think a court of equity can lend its aid to the accomplishment of such a result. Pope Mfg. Co. v. Gormully, 144 U. S. 224, 236, 12 Sup. Ct. 632, 36 L. Ed. 414. It follows that, in our opinion, the covenant in the agreement between the Mexican Company and the defendant, dated March IS, 1901, and assigned to the complainant by the Mexican Company, and ratified in the agreement between' the complainant 'and defendant, dated December 24, 1901, purporting to grant to the complainant the exclusive right to sell the entire shares of the capital stock of defendant, and that the complainant should receive for its sole use and benefit the proceeds of such sale, is void for want of consideration and for lack of authority on the part of the defendant corporation to make such an agreement.
This conclusion obviates the necessity of considering whether the so-called Heber contract was authorized by the complainant corporation. The covenants in the agreements referred to being void, the complainant had no such interest in or control of the unissued stock of the defendant corporation that it could make its surrender or the right it represented the subject of waiver and contract.
The decree of the court below is, accordingly, reversed, with instructions to dissolve the injunctiofi and dismiss the bill of complaint.