East Mill Creek Water Co. v. Salt Lake City , 108 Utah 315 ( 1945 )

I agree in the holding (1) that the previous judgment of the district court is not a bar to the question raised here; (2) that the quantity of water to be delivered is limited to 288,000 gallons daily during the summer months and 144,000 gallons daily during the winter months both before and after the free period; (3) the holding regarding irrigation water. I must dissent from the holding that under the contract the city assumed the obligation to deliver culinary water direct to the stockholders after the first twenty years.

The place where the water was to be delivered by the city was of vital importance to all concerned. The contract clearly provides for delivery of culinary water to the company in the company water mains during the initial period of the contract; that is, during the first twenty years or until the area served came within the city limits. If the area served were taken into the city limits, the inhabitants of the area would automatically obtain all the rights accorded to city inhabitants. No contract provision would be needed to insure this. If the place and method of delivery were to be changed at the end of twenty years, one would naturally expect to find an express provision to that effect. The agreement to deliver into the mains during the first twenty years is express. It is not likely that the parties would have reached an agreement to change the place and manner of delivery of the water and then leave that agreement to implication.

The contract sets out in detail such matters as the place of delivery of the Mill Creek water by the company to the city; provides that the company should pay the entire cost of the proposed water main system, that the work in constructing the mains should be done under the city's direction (this because it was contemplated that the area would be taken into the city limits and the city desired to have the mains meet city specifications), that the company would secure all necessary franchises and rights-of-way for the said water system; provides that the city should construct and maintain perpetually at the point of delivery of irrigation water suitable measuring devices for measuring the delivery of water, that the city should install the system of water mains, that the construction should be at the expense of the company, that the city should maintain the water mains perpetually, etc. In view of the detailed provisions relative to the above matters, is it likely that the parties, had they reached an agreement that the city would deliver water directly to the stockholders, maintain the distribution system, absorb the loss of water between the point of delivery in the company mains and the house of the stockholders, would yet leave all the details of such agreement to implication? The problem of delivery of water by the city directly to the stockholders would be one of the most complex problems raised by the whole contract. It is not likely that the parties reaching an agreement to that effect would not more specifically cover such supposed agreement by express provisions in the contract.

It should be noted that even during the first twenty-year period there were certain stockholders who were required to pay for the water at regular city rates. In this regard Article II, paragraph 4, provides:

"It is understood that the said culinary water to be furnished free is to be so furnished to stockholders owning at least one-half acre of water right; and that those stockholders owning less than that amount shall pay the regular city prices."

Stockholders owning less than one-half acre of water right were never to get the water free. They were always to pay at the regular city rates, yet the city expressly during the first twenty years delivered water only into the company mains. After the free period (twenty years) for stockholders owning more than one-half acre of water right, all stockholders were to start paying regular city rates.

Mr. Justice WADE places considerable emphasis on the provisions of Art. II, para. 4 of the contract. It provides first that the city is to deliver certain specified quantities of water "in the water main system for the use of the company and its stockholders." Such water was to be furnished "free of expense to the company." If the company or its stockholders desired water in excess of the quantities specified the city agreed, if it had surplus water, to furnish the surplus water at regular city water rates. The paragraph then provided:

"said culinary water herein specified to be furnished free shall be so furnished only during the time that the territory served shall remain without the city limits and in no event for a longer period than twenty years from date hereof, after which time saidwater shall be furnished at the rates and under the conditionsprovided for the use of water by the inhabitants of the city." (Italics added.)

Mr. Justice WADE puts emphasis on the italicized portion of the above quotation to support the holding that the city was obligated to deliver water directly to the stockholders. This because of the provision that the water shall be furnished under the "conditions" provided for use of water by the inhabitants of the city. I would not read this provision as imposing new or additional obligations upon the city. Rather it appears as a limitation on the obligations placed on the city by the first portion of the paragraph. The paragraph as a whole simply states that the city must furnish specified quantities of water to the company in the company water mains free of all expense to the city. The quoted portion of the paragraph then comes as a limitation. The city no longer (after the twenty years) need furnish any water free. The company is to pay the same rates for water as the inhabitants of the city pay. The use of the water by the stockholders of the company is subject to the same burdens (conditions) as the use of water by the inhabitants of the city. Whatever limitations (conditions) the city could and did legally impose upon the use of water by the inhabitants of the city could be placed on the use of the specified quantity of water which the city agreed to furnish to the company.

It thus appears that Mr. Justice WADE reads the whole provision as though it gave the stockholders new and additional rights and imposed new and additional obligations on the part of the city. I read it as a limitation on the rights of the company and on the obligations of the city. If the area served became a part of the city, the inhabitants of that area needed no contract to insure to them rights equal to the rights of other city inhabitants. Those rights would come automatically when they became inhabitants situated within the city limits. If the contract provision relative to the delivery of water to the stockholders after they became city inhabitants is construed as an attempt to insure to them the rights of other city inhabitants, it is a useless provision. Such rights would not depend upon such a contract provision. However, from the city's standpoint there was good reason for including the provision. When the area came within the city limits the stockholders, in the absence of such provision, might well claim that the contract freed them from any obligation to pay for the water, as other city inhabitants were required to do, and also claim that they were freed from any conditions on the use of water which the city imposed on use of water by other city inhabitants. The contract provision anticipated such a claim and provided expressly that if the area came within the city limits, the water would be furnished only at city rates and under the conditions provided for the use of water by inhabitants of the city. It was not to guarantee that they would get water at the same prices and in the same manner as other city inhabitants — they had such right without any contract. Instead, it was to prevent the stockholders, if they became residents of the city, from claiming special privileges. They were, under the provision, to get the water only "at city rates and under the conditions provided for the use of water by inhabitants of the city." Read as a restriction there is thus a reason for the provision. The paragraph first imposed on the city the obligation to furnish a specified quantity of water to the company in the company water mains free of any costs to the company. The italicized portion of the paragraph came as a limitation on this general obligation. It provided first that the city would not deliver the water free if the area served came within the city limits; that the inhabitants of the area would have to pay city rates for the water and become subject to all conditions imposed on the use of water by city inhabitants. It further specified that the water would not in any event be furnished free for more than twenty years; that after twenty years the water would be furnished only at city rates under the conditions provided for the use of water by the inhabitants of the city.

I therefore think it is wrong to read this quoted portion of the paragraph as requiring the city to furnish the water directly to the homes of the stockholders. The phrase "under the conditions" did not mean "in the same manner as." The contract throughout reads as though it were a contract between the company and the city and not as though it were a contract for the benefit of the stockholders. The irrigation water undoubtedly covered the greater volume of water. The contract as to irrigation water specifically provides for delivery to the company. The point of delivery is at the heads of certain named ditches. The city agreed to construct and maintain perpetually suitable measuring devices at the point of delivery (the heads of the ditches) to measure the delivery of water. All of the above provisions clearly run directly between the city and the company.

Then follow provisions regarding the construction of a water main system. The city agrees to deliver culinary water into that system in certain specified quantities. The point of delivery is specifically in the water mains and to the company for at least so long as the area remains out of the city limits or for twenty years. The next provision relative to the conditions that are to exist after the twenty years does not repeat that the delivery will be to the company — it assumes it. Thus, to hold that this provision, specifying that the water be paid for at city rates and be "furnished under the conditions provided for the use of water by city inhabitants" after the area comes within the city limits or after twenty years, imposes upon the city the duty to deliver direct to the stockholders, seems contrary to the general scheme of the contract. It makes the contract which up to that point had been one solely with the company become at that point a contract for the benefit of third parties. The ordinary contract with a corporation is always incidentally for the benefit of the stockholders but not in the sense which the opinion of Mr. Justice WADE would hold this contract to be. His holding would make the contract, after twenty years, run directly to the stockholders who used culinary water. Delivery would not be to the company. The city would collect directly from each individual user, although, as subsequently noted, delivery would necessarily have to be in accordance with stock ownership. I do not think that the contract as written expresses that intent.

The company was organized so that the city could conveniently contract to procure the water rights of the various individual owners. After the company was formed the city contracted directly with it. None of the stockholders as such signed the contract. The distribution of the water which the city exchanged for the East Mill Creek water was, under the articles of incorporation, to be distributed according to stock ownership. The contract between the city and the company recognizes this. Even after the twenty-year period the amount of culinary water to be distributed to the company was limited to a specified quantity, 288,000 gallons daily during the summer months and 144,000 gallons daily during the winter months. One of the chief difficulties with the construction that the city agreed by the contract to deliver water directly to the various stockholders is the fact that delivery would necessarily have to be made in accordance with stock ownership. Mr. Justice WADE holds that the limitations on quantity of water to be delivered for culinary purposes were to apply both before and after the twenty-year period. This conclusion is inescapable. First, as noted by Mr. Justice WADE, the contract must by its language be so construed. Second, Article 11, Sec. 6 of the Utah Constitution, would prohibit the city from performing an agreement to deliver an unlimited quantity of water to inhabitants of an area without the city limit. Under Article 11, Sec. 6, a municipal corporation can exchange a water right for another right of equal value, but it cannot sell, either directly or indirectly, any water right or water source. A contract to deliver to non-residents at points without the city limits all the water which those individuals wanted would be violative of this Constitutional provision.

Since the amount of water which the city could be obligated to deliver is limited to a specific amount, it must be divided among those entitled to receive it. No one stockholder could, as against the objections of any other stockholder, take more than his proportionate share. The delivery would of course be only to stockholders. This distribution of water according to stock ownership is an intercorporate administrative problem. I do not think that the city can be held to have assumed this problem of distribution by the terms of the instant contract.

The fact of the matter probably is that the parties all believed that the area served would become a part of the city before twenty years expired. When the area came within the city limits it was contemplated that the inhabitants would acquire all the rights of other city residents and take their obligations. The city did not assume the obligation to furnish this water free in perpetuity, but agreed that in twenty years it should furnish the water only at regular city rates. But I do not believe that the city ever undertook the obligation to assume the administrative problem or the expense of distribution of the water to the various stockholders.

The provision requiring the company to pay for water taken through fire hydrants placed on the system by the city does tend to support the position taken by Mr. Justice WADE. One naturally asks: Why would it be provided that the company would pay for the water taken from the fire hydrants if the parties all understood that the company would pay for all water delivered in the mains? The city answers that in case of fire, anyone, including the city, might take the water from the hydrants. Individuals who owned no stock in the company might also take water therefrom. The city takes the view that this provision, requiring the company to pay for the water, was put in to eliminate any dispute as to whether the company should pay for water so taken.

The strongest point against the city is the provision in which it is provided:

"All service connections from the water mains to the various houses are to be made at the expense of the owners together with the first cost and maintenance costs of meters whenever the latter are deemed necessary by the city at the expense of the owners."

Why would this contract specify that the owners of the houses should pay for the costs of installation of the service connections? If the city had only the duty to deliver water to the water mains, it would be purely an intercorporate matter who paid for the service connection. The city would not care whether the company paid it or made the individual owner pay it. The existence of the provision in the contract squints at the fact that the contract may have contemplated dealings between the city and the owners. The same can be said as to the installation of meters where the city deemed them to be necessary. If the company paid for all water as it came into the mains, the city would have no cause for wanting the right to have meters installed in the intakes of the various houses. Both of these things indicate that the city was to deliver directly to the water users. But part of the strength of any argument that can be made upon the basis of the above-quoted provision is lost by the fact that the provision was to be in effect both before and after the expiration of the free period. Since it applied both before and after, it weakens any argument that this provision evidences an intent to change the method of delivery of water after the twenty-year period. During the first twenty years there was clearly only an obligation to deliver into the mains. It was anticipated that the city would include this area before the twenty years elapsed. There was absolutely no need for these provisions during the first twenty years under any construction of the contract unless it was designed to cover situations which would arise if the area, during that time, came within the city limits. It is fairly clear from the whole contract that the city contemplated providing for the case where the area was included in the city limits. That the city wanted to make sure that the stockholders, after becoming city inhabitants, did not by virtue of this contract claim a favored position over other city inhabitants. Thus if the area came within the city limits the city by this provision made certain that if connections were made the owners, and not the city, as in the case with regular inhabitants, would pay for the connection.

The provisions upon which Mr. Justice WADE bases his holding that the city undertook by this contract the additional obligation to deliver water directly to the stockholders, were all, in my opinion, designed to limit the city's obligation. If the area came within the city limits, the city by these provisions could charge the stockholders at regular city rates, could impose the same conditions regarding the use of water on the stockholders of this company as it placed on all other inhabitants, and if it were necessary to install water meters at the homes of the various stockholders, the city could require the stockholder-owner to pay for the costs of this installation. When the whole scheme of the contract is considered it outweighs any argument based upon the provisions regarding payment of meters and connections by the owners. I do not believe that the city by this contract agreed to deliver water directly to the stockholders. I therefore dissent from the order reversing the judgment of the lower court.

McDONOUGH, J., concurs in the views expressed in the concurring-dissenting opinion of WOLFE, J.