Title Fight—Avoiding a Water Right Conveyancing TKO, 0315 COBJ, 2015, March, Pg. 41
| Author | Austin C. Hamre, J. |
Articles
Natural Resource and Environmental Law—Water Law
Title Fight—Avoiding a Water Right Conveyancing TKO
Austin C. Hamre, J.
Natural Resource and Environmental Law articles are sponsored by the CBA Environmental Law, Water Law, and Natural Resources and Energy Law Sections. The Sections publish articles of interest on local and international topics.
Coordinating Editors
Kevin Kinnear (Water), Boulder, Porzak Browning & Bushong LLP—(303) 443-6800, kkinnear@pbblaw.com; Melanie Granberg (Environmental), Denver, Gablehouse Granberg, LLC—(303) 572-0050, mgranberg@gcgllc.com; Joel Benson (Natural Resources and Energy), Denver, Davis Graham & Stubbs LLP—(303) 892-7470, joel.benson@dgslaw.com
This article examines apparently conflicting statutes and related case law bearing on how a practitioner determines title to water rights represented by shares in a mutual ditch company.
As a case study, imagine the following: A new client comes to see you for an initial consultation. She is really steamed. A bank she has never heard of sent her a letter saying if she does not pay $300,000, they are foreclosing on her water rights. She bought a farm, and associated water rights, eighteen months ago. Her attorney for the transaction (fortunately not you) told her there was nothing too concerning in the exceptions to the title commitment. She has since looked at the title policy, and indeed it does not show the encumbrance claimed by this bank. You tell her that is not very surprising (to you, at least), because title companies always except anything relating to water rights. As your conversation progresses, you learn that her water rights are shares in a mutual ditch company. Three years ago, the bank gave a loan to her predecessor in title and filed a notice of lien with the ditch company stating that the shares were pledged as collateral to secure the loan. The ditch company dutifully put the notice next to the stub of her predecessor's stock certificate in their stock book. However, her attorney never researched the ditch company stock books, and the ditch company never mentioned it when she closed on the farm and they issued her new stock certificate. Her predecessor has stopped making payments on the loan and the bank has lost what little patience it had. What can you tell your new client? Who has the superior claim—your client or the bank?
The starting point for analyzing this question is that in Colorado, water rights are a form of real property, and a statute specifically addresses conveying water rights. CRS § 38-30-102(2) states:
In the conveyance of water rights in all cases, except where the ownership of stock in ditch companies or other companies constitutes the ownership of a water right, the same formalities shall be observed and complied with as in the conveyance of real estate.
Where the exception does not apply the intent of the statute is clear, but what happens when the w ater rights are represented by stock in a ditch or reservoir company? One would expect that CRS §§ 7-42-101 et seq., the special purpose corporation statute that specifically addresses mutual ditch and reservoir companies, would address this issue. However, it does not, in any direct way. Section 7-42-104(4) provides that "shares of stock shall be deemed personal property and transferable as such in the manner provided by the [ditch company's] bylaws." If the water rights are represented by the shares, this seems a clear statement that the company's records regarding transfers of shares should be controlling. However, cases draw a distinction between the shares themselves and the water rights they represent.
The Jacobucci Opinion
The Jacobucci...
To continue reading
Request your trial