Marin Water & Power Co. v. Town of Sausalito

Plaintiff sued for the sum of $8,447.76 balance due for water furnished defendant under a contract for use in defendant’s municipal water system. Defendant demurred generally; the demurrer was sustained without leave to amend, and from the judgment entered in accordance with said ruling the plaintiff prosecutes this appeal.

The essential facts appearing from the pleading are as follows: Plaintiff is a Californian corporation with power, among other things, to supply water to the incorporated towns in Marin County and to the inhabitants thereof, for domestic and other purposes and to carry on a general water business. Defendant is a municipal corporation of the sixth class. In 1908 the town of Sausalito incurred a bonded indebtedness of

“First party, in consideration of the foregoing agreements to be performed by second party, hereby agrees that it will, during the first year of the term hereof, pay for not less than one hundred and fifty thousand (150,000) gallons of water per day, and after said first year, for not less than two hundred thousand (200,000) gallons per day for every year during the life of this agreement.”

Time of payment and method of calculating amounts due are the next subjects treated, and the “first party,” the town of Sausalito, agrees to create by ordinance a fund to be called the “Water Supply Fund” and (to quote further) “first party agrees that it will fix and establish water rates to be paid by its customers in said municipality, which shall be sufficent to pay for all water supplied to it by second party, and will cause to be collected and paid into said fund all said water rates, and it agrees that said fund shall be subject to the payment to second party of amounts to become due to° second party hereunder, and should said fund in any month be insufficient to meet the payments then due second party hereunder, first party will at once cause to be transferred to said fund, from the general fund of first party, an amount sufficient to supply such deficiency.” This is followed by a provision that nothing in the agreement shall be deemed as incurring any indebtedness by the party of the first part in violation of section 18 of article XI of the constitution of California. The second party is granted permission to use the streets of Sausalito for its water mains for the purpose of supplying water to points outside of and beyond said town. The first party further agrees that whenever it shall cease to take its entire water supply and that of its inhabitants from the second party (except when said second 'party is unable to furnish said supply) the second party shall then be granted a franchise to occupy the streets of Sausalito for the purpose of supplying said town and its inhabitants with water for domestic and all other purposes. The term of the

At the time of entering into the contract plaintiff owned a water system, the most southerly point of which was at Corte Madera, six miles from Sausalito. Immediately upon the execution of the contract plaintiff proceeded diligently to construct its pipes from Corte Madera to the town limits of Sausalito, at a cost of more than one hundred and eleven thousand dollars. Prior to August 1, 1909, defendant installed a water system within its corporate limits and since said date defendant has been continuously taking water from plaintiff, using part of said water for its own municipal needs and selling the remaining part to its inhabitants and to others at rates established by said municipal corporation. During the year ending July 31, 1911, defendant took from plaintiff under contract something in excess of forty-two millions of gallons, an average of less than two hundred thousand gallons a day. Plaintiff does not know what amount of money was in defendant’s water fund on September 1, 1911; but for water furnished during that year plaintiff has received $13,452.24. It asserts that the amount due under paragraph VII of the agreement was $21,900.00 and prays judgment for the balance of $8,447.76 alleged to be due.

The order of the superior court sustaining the demurrer is based upon a written opinion by the learned judge' of that court and we will first discuss the point upon which that opinion rests, which is, in brief, that the contract being for the supply of water for a period greater than one year is void by reason of the limitations expressed in section 1 of article XIV of the constitution of California as that article existed at the time the contract was made. Appellant’s position is that the provisions of that section of the constitution were never intended to apply and do not apply to a contract for the supply of water to a municipality in gross for use and sale by it through its own water system, but if intended to apply to. such a transaction they are void by reason of conflict with the constitution of the United States.

The pertinent portion of article XIV, section 1, as it existed when the contract was made, is as follows: “The use of all water now appropriated, or that may hereafter be appropriated, for sale, rental, or distribution, is hereby declared

Respondent cites authorities to the effect that a board of supervisors or other governing body of a municipality may fix rates for water supplied to such city, city and county, or town, but the cases involved facts differing greatly from those presented by this record. For example, it was held in Spring

The case of Freeport Water Co. v. Freeport City, 180 U. S. 592 , [ 45 L. Ed. 679 , 21 Sup. Ct. Rep. 493 ], was one involving a contract whereby a city granted to a water company the exclusive right to supply the city with water for thirty years. Such contracts were permitted by the law of Illinois, but cities were given power to authorize a corporation to construct waterworks and to maintain them “at such rates as may be fixed by ordinance and for a period not exceeding the thirty years.” A bare majority of the supreme court of the United States held that the interpretation given to the statute by the supreme court of Illinois must prevail because the words “fixed by ordinance” might as well mean “fixed by ordinance from time to time,” as the state court decided, or'“fixed by ordinance for the whole period of thirty years.” But in that ease it was expressly held that a city may be invested with power to bind itself by an irrevocable contract not to regulate water rates, citing in support of that view several cases, among them being Los Angeles v. Los Angeles City Water Co., 177 U. S. 558 , [ 44 L. Ed. 886 , 20 Sup. Ct. Rep. 736 ]. But we need not review in detail all of the authorities brought to our attention by respondent. No case has been presented

Section 862, subdivision 3 of the Municipal Corporation Act, [Stats. 1883-, p. 269], gives to trustees of cities of the sixth class power “to contract for supplying the city with water for municipal purposes.” Appellant insists that under that grant of power the city had the right to enter into this agreement. That the supplying of water to its inhabitants is a municipal purpose there can be no doubt (City of South Pasadena v. Pasadena Land & Water Co., 152 Cal. 593 , [ 93 Pac. 490 ]), and it is the general rule that when a municipal corporation possesses authority to enter into contracts for the supply of water for its own use and for the use of its inhabitants the terms arid duration of the agreements rest within the sound discretion of the municipal authorities and such contracts may only be overthrown by courts in cases of fraud, abuse, or excess of authority, or inequity in the terms of the agreements. (Dillon on Municipal Corporations (5th ed.), sec. 1307.) We are of the opinion that this contract is not, upon its face, vulnerable to any of the above enumerated objections.

Respondent insists, however, that the town has paid more than was due under the contract because the number of gallons of water admittedly furnished during the year would be worth, at thirty cents per thousand gallons, less than the amount admittedly paid to plaintiff. In support of this contention it is said that paragraphs VI and VII of the agreement are inconsistent and that this inconsistency must be resolved in favor of the town. One of these paragraphs provides that the second party shall receive a maximum rate of thirty cents per thouand gallons when the total amount of water furnished shall not exceed an average of two hundred thousand gallons per day. The seventh paragraph, previously quoted herein, binds the town to pay for not less than one hundred and fifty thousand gallons the first year and not less than two hundred thousand gallons for every other year during the life of the agreement. We fail to see any incon

Respondent also attacks the agreement on the ground that the town had no power to promise to pay the plaintiff sixty dollars per day for “trying to furnish water.” This position is taken in view of the language of the third paragraph in which the water company promises to “use due diligence to maintain its pipes” in good condition; to employ its “best endeavors” to cause an adequate supply of pure water to flow through its conduits; and in case of deficiency to prorate the supply between Sausalito and its other customers. This same contention is made in several forms in respondent’s brief, but wherever made is without merit. It is said that all the company needed to do to entitle it to he paid for two hundred thousand gallons a day was to build a pipe-line and then use its “best endeavors” to make enough water flow through it. The paragraph in question is nor reasonably subject to such construction. It is the usual provision whereby a public service corporation protects itself from liability for failure to furnish its commodity because of strikes, accidents, and the like, against which it cannot reasonably provide. Where a party to a contract is excused from absolute performance because of an emergency, the contract is not thereby void for lack of mutuality. (Semon, Backe & Co. v. Coppes, Zook & Mutschler Co., 35 Ind. App 351 , [ 111 Am. St. Rep. 171 , 74 N. E. 43 ].) In Klosterman v. United Electric Light and Power Co., 101 Md. 29 , 33, [ 60

One of the cases upon which respondent lays great stress as bearing upon the alleged unfairness of the contract is Flynn v. Little Falls Electric & Water Co., 74 Minn. ,183, [ 77 N. W.

Nor is the contract void because it unreasonably binds Sausalito to make payments which may possibly be raised by taxes to be paid by a decreased population. Respondent cites in the discussion of the possible decrease of the population and the bearing of such a phenomenon upon the agreement before us, the case of Westminster Water Co. v. Mayor & Common Council of Westminster, 98 Md. 552 , [ 103 Am. St. Rep. 424 , 64 L. R. A. 630 , 56 Atl. 990 ]. The citation is not apt. The contract there considered was one for the introduction of a supply of water into the city to be used in part for the suppression of fires and the sprinkling of streets. It was held ultra vires because it sought to bind the city perpetually, and unreasonable because it would deprive the council of legislative rights.

Section 548 of the Civil Code is no bar to the purchase of water by a city under such a contract as this. That section was enacted in 1872, long before the adoption of section 19 of article XI of the constitution and so far as it makes a street franchise necessary was abrogated by that section which at the time this contract was made gave to any corporation the right to occupy the streets of a city for the purpose of supplying water to the inhabitants or to the city itself. If we regard that part of section 548 of the Civil Code prohibiting the granting of an “exclusive right” as still in force, this agreement does not violate it because the contract does contemplate the possibility of the town’s future purchase of water from sources other than those owned by plaintiff. Section 4412 of the Political Code, even if still in force, has reference to the supplying of water to public buildings and the term of

It is contended that the contract disables the city from acquiring a municipal water supply of its own, and Long v. City of Duluth, 49 Minn. 285 , [ 32 Am. St. Rep. 547 , 51 N. W. 913 ], is cited. That case held that Duluth could not grant a monopoly and exclude itself from establishing a municipal water plant. Here Sausalito has established a municipal water system and formed a monopoly for itself by excluding the plaintiff and all others from serving its inhabitants. But we see no reason why a city or town clothed with power to buy water for its own distributing system may not agree to purchase water up to a given quantity exclusively from one company. Such a contract would be enforced even if the city should conclude to procure a supply of its own in addition to its own works. The power to contract for a reasonable length of time implies the power to forego other means of procuring water for a like period. (Walla Walla v. Walla Walla Water Co., 172 U. S. 7 , [ 43 L. Ed. 341 , 19 Sup. Ct. Rep. 77 ].)

Does defendant’s promise to pay for not less than two hundred thousand gallons of water a day amount to a loan of the credit of the town contrary to the provisions of section 31 of article IV of the constitution 1 Our answer to this question is in the negative. It is contended that the promise to pay for two hundred thousand gallons of water per day was based upon the covenants of the company to do certain things, among them to build a pipe-line from Corte Madera, and that therefore the construction of the said pipe-line was accomplished upon the loaned credit of the municipality. But we cannot accept that view. The obligation of the company was to be ready to deliver two hundred thousand gallons of water per day. The building of the pipe-line without the delivery of the water, or the ability to deliver it, would have entitled the plaintiff to nothing at all. There is no parallel between this case and Higgins v. San Diego Water Co., 118 Cal. 524 , [ 45 Pac. 824 , 50 Pac. 670 ]. In that case the rental which the town agreed to pay was based in part, at least, upon the consideration of the company’s promise to build and operate a railroad outside of the city as the company’s private enterprise. Here the company had a water supply distant from Sausalito, and the city contracted in view of that cir

Alter v. Cincinnati, 56 Ohio St. 59 , [ 35 L. R. A. 737 , 46 N. E. 69 ], declared unconstitutional an act which sought to permit cities to own waterworks in partnership with private proprietors. That authority is not at all in point here, and contains nothing in conflict with the views here expressed.

Respondent assigns as a reason why its demurrer was properly sustained, the failure of the complaint to set forth the damage suffered by appellant which, according to respondent’s theory, should be measured by the terms of section 3311 of the Civil Code as the difference between the contract price and the value to the water company of the water which the town of Sausalito did not take. The contract with which we are here concerned, however, is not the usual agreement to accept and pay for personal property. It is, as we have

The omission from the complaint of an allegation that there was money enough for the payment of plaintiff’s claim in the “Water Supply Fund” or in the “General Fund” (to which plaintiff had promised to look for payment in case of deficiency in the former fund) was not a failure to state a cause of action. The condition of a particular fund would have nothing to do with the justness of a claim and the depletion of such a fund is never a defense to an action against a municipality. The averment of the amount of money in a fund from which a given claim must be paid is therefore not necessary. (Weaver v. San Francisco, 111 Cal. 327 ; [ 43 Pac. 972 ]; Higgins v. San Diego Water Co., 118 Cal. 528 , [ 45 Pac. 828 , 50 Pac. 670 ]; Doland v. Clark, 143 Cal. 179 , [ 76 Pac. 958 ].)

Respondent asserts that the town by going into the business of furnishing its inhabitants with water itself becomes subject to the provisions of article XIV, section 1 of the constitution, and that it violates that section of the constitution when it agrees to establish for a period of ten years rates which will produce a sum sufficient to pay for all water furnished by the water company. In People v. Stephens, 62 Cal. 237 , Mr. Justice Ross writing the opinion of the court, declared it too plain for argument that the rates or compensation required to be fixed by that section of the constitution did not mean the rates or compensation to be collected by the municipality itself for water which it should furnish. Feil v. City of Coeur D’Alene, 23 Idaho, 32 , 63, [ 43 L. R. A. (Ñ. S.) 1095 , 129 Pac. 643 ], was a case dealing with the bonds issued to pay for a municipal water system which was to be purchased. In the dissenting opinion of Mr. Justice Stewart is a statement that the city may annually regulate rates in spite of an or

Respondent cites authorities to support the proposition that furnishing water to a town for distribution through its municipal system is a dedication of the water to a public use. It cites authority to the effect that water may be condemned as for a public use even where the distribution is to be made in part through the instrumentality of corporations other than the one seeking the condemnation. Undoubtedly that is the doctrine of such cases as State v. Superior Court of King County, 52 Wash. 199 , [ 21 L. R A. (N. S.) 448 , 100 Pac. 317 ], the strongest authority on this point which is presented, but cases of eminent domain throw no light upon the main question in this case. While the water supplied by plaintiff to defendant is ultimately applied to public use, does the contract price therefor constitute the “rates” or the “compensation” subject to the “regulation” mentioned in section 1 of article XIV of the constitution? We have been compelled to answer that question in the negative.

The judgment is reversed.

Lorigan, J., and Henshaw, J., concurred.

I concur in the judgment, but I do not think it is necessary to consider all the questions discussed in the opinion of Justice Melvin. I base my concurrence upon the following propositions. I think it sufficiently appears that the Marin Water and Power Company was a public service corporation, engaged in selling water to the public. It does not follow, however, that all of the water it owned was actually applied to public use or ever had been so applied. The water which it agreed to sell and deliver to the town of Sausalito by the contract sued on, was water which had not been previously used, either by the said company or by the public. If it had appeared that some rate-fixing authority having power in that behalf had fixed rates to be charged by the Marin Water and Power Company for sales of water by it to public use, it may be that a contract between the company and a purchaser for the sale of water at a different rate would be, to that extent, inoperative. But in this

What the effect would be if a rate were fixed by competent authority for the government of said company in its supply to consumers, is a question not here involved. Nor does the question arise whether the town of Sausalito could, by ordinance, fix rates for the Marin Water and Power Company different from those fixed by this contract. It has not fixed such rates. It is not seriously disputed that the town may control the rates to be charged by it to its inhabitants for this water so long as it does not thereby prevent the enforcement of this contract. What would be the result if such rates were too small to enable it to pay the sums due the company is another question not here involved. The possibility that it may do this is no defense to an action for water already furnished, nor does it make the contract invalid as against public policy. In my opinion none of these questions need be decided in this case. The case, as presented, is the very simple and ordinary case of an action to recover a sum due upon a contract as the purchase price of property sold and delivered in pursuance thereof.

Sloss, J. concurred.