San Diego Water Co. v. San Diego Flume Co.

McFarland, J.

This action was brought by plaintiff to enjoin the defendant from shutting off or preventing the flow of water into certain mains and pipes of plaintiff. The court granted a nonsuit, and entered judgment for defendant; from which judgment, and from an order denying a motion for a new trial, plaintiff appeals.

Each of the parties is a corporation organized under the general laws of the state for the purpose of distributing, selling, and furnishing water to consumers in the county and city of San Diego. The contracts and the relations of the parties out of which this litigation came are somewhat complicated. The main facts are as follows: In September, 1890, the respondent (the flume "company) was the owner of a supply of water, which it brought from a long distance by means of ditches, flumes, and pipes to the boundary of the city of San Diego—or, as counsel put it “to the gates of the city”; but it had no pipes or other means within said city by which it could distribute water to the inhabitants thereof. The appellant (the water company) owned a system or plant of pipes by which it could distribute water through the greater part of the city which it had been using to partially supply the city with water pumped from sources in the immediate vicinity. The respondent was negotiating with the city to sell or lease water to the latter, and an election had been called for the 14th of October, at which the electors of the city were to vote on the proposition of issuing bonds for that purpose. The respondent was endeavoring to carry the election in favor of the bonds, and the appellant was opposing that proposition. In the latter part of September the appellant and respondent agreed upon the proposition to unite their interests, and a memorandum of such agreement was made in writing, but was not fully executed. After that the respondent ceased advocating the proposition of issuing the bonds. On November 6, 1890, the appellant and respondent executed a written agreement which consisted of two parts, called in the pleadings exhibit A and exhibit B—these two instruments being intended as one agreement. By exhibit A the respondent appointed the appellant “ its sole agent for the exclusive sale of water within the corporate limits of the city of San Diego, California”; the appointment to continue during the continuance of the other part of the contract called exhibit B. It was provided, however, that all sales made by the appellant should be subject to the approval of the respondent, and that no sales should be made without the consent of the latter. Exhibit B is quite a long contract, and its principal features are these: The parties appoint one Babcock and one Sefton, the former being president of the appellant and the latter of respondent, as trustees, to whom they in terms “assign and give the absolute control of their respective properties, as far as the same may be confined to the corporate limits of the city of San Diego.” Said trustees were to hold in trust and “operate and control said respective properties for the benefit and use of the respective parties of the first and second part in the manner as herein mentioned.”

It was stated that the parties were “to combine their joint endeavor for the advancement of their respective interests under this trust, subject to the conditions as hereinafter mentioned.” It was further provided that . appellant should furnish “its entire plant and any extension of the same for the free use and occupation as the said trustees may determine for the uses and purposes of this contract.” The respondent agreed “to deliver at a point in their flume or pipe line where the same does now or may hereafter intersect the present or future limits of the city of San Diego, a water supply of a good quality for domestic purposes sufficient for the uses of the city of San Diego.” It was further agreed that, after deducting the operating expenses of the plants within the city, the proceeds of the sales of water should be divided between the parties in the proportion of sixty-five one-hundredths to the appellant, and thirty-five one-hundredths to the respondent; and it was provided that “ operating expenses” should include necessary extensions of said plants; but it was also further provided that the said trustees should determine what were necessary and proper operating expenses. It was further provided that “this contract shall extend and be binding upon the parties hereto, their successors and assigns, for the term of twenty years, beginning on the sixth day of November, 1890.” There were other provisions in the said exhibit B which we do not deem necessary to be here mentioned. The parties commenced operating under this agreement of November 9th, and continued to so operate until about the 1st of June, 1891. ,

On the thirteenth day of April, 1891, the appellant entered into a written contract with Bryant Howard and several other persons, called exhibit 1, by which the appellant in its own name leased to said Howard and others for the term of twenty years from and after the first day of June, 1891, all their water plant within said city, including all pipes, pipe lines, etc., and also sold and conveyed to said Howard and others three million gallons of water “from what is now known as the San Diego flume,” for each and every twenty-four hours during said period of twenty years. (The said “water from what is now known as the San Diego flume” meant the said water supply of respondent, as above referred to.) By said contract Howard and others agreed to pay to appellant during said period the sum of nine thousand one hundred and sixty-five dollars and sixty-five cents per month; and the appellant agreed to accept in payment thereof the obligation of the city of San Diego to pay and satisfy the same. It was further agreed that after the construction of a certain railroad, afterwards in said contract mentioned, Howard and others should have the right to assign the whole lease to the city of San Diego, and that the appellant would look solely to said city for the carrying out of the agreement on the part of Howard and others; It was then stipulated that the lease was made upon the condition that the appellant should cause a railroad to be constructed and operated from the city of San Diego, California, to San Quintín in the republic of Mexico, or to Fort Yuma, California, or its immediate vicinity, although it was also stated that “this provision shall not be construed as obligating the party of the first part to construct said road,” it being sufficient under the contract if the road should be built by some railroad company. It was further agreed that should any extensions of the pipe lines or plant of appellant in said city be necessary, Howard and others, or their assigns or sub-lessees, should have have the option to put in such extensions; or they could require appellant to make such extensions, in which case the appellant should be allowed for the amount expended in such extensions the sum of six per cent per annum interest. It was also stipulated that “for the deterioration of the extensions of the pipe lines” Howard and others should pay to appellant three per cent per annum on the cost of such extensions; also that Howard and others should have a right to terminate the lease in case any of the conditions,, stipulations, or agreements therein mentioned should not be complied with by appellant. The contract also had a general provision that Howard and others might sublease to the city of San Diego.

The contract last above referred to was made with the express understanding between the parties that Howard and Company were to súblease to the city of San Diego, or to make a contract with said city by which Howard and Company were to transfer to the city all the rights which they obtained under said contract with appellant. And in pursuance of said understanding, five days afterwards, to wit: on April 18, 1891, said Howard and others and said city did enter into a contract called exhibit 2. This contract referred to the said contract of April 13th, and provided that “this agreement is made upon the express condition that in case the contract above referred to shall be terminated under any of the conditions, stipulations, or agreements in said contract contained, then and in that case this contract shall at once cease and determine.” This contract was substantially the same as the one made between appellant and Howard and others. By it Howard and others leased and sublet to the city for the period of twenty years from and after June 1, 1891, all the said plant or system of water-pipes owned by appellant in said city, and three million gallons of water every twenty-four hours from the San Diego flume, and provided that the city should pay appellant for the same as rental nine thousand one hundred and sixty-five dollars and sixty-five cents per month, which amounted to about one hundred and ten thousand dollars a year. It provided, also, for the six per cent and three per cent mentioned in said former contract, and provided further that if the city desired more than three million gallons per day, plaintiff should furnish the desired amount at the rate of five per cent per thousand gallons. It also provided that the city should determine the amount of extensions to be made to said system of pipes. There were other provisions which we do not deem it necessary to here notice.

There was some evidence tending to show that some of the directors and stockholders of the respondent had knowledge that the contráct between Howard and others and appellant was to be made, and also that Howard and others were to make the said contract with the city, and did not object thereto, but rather encouraged the thing. There is no evidence, however, tending to show that the board of directors of the respondent at any of its meetings ever approved either of said contracts, or. authorized any of its officers to take auy action with respect to them. On .the other hand, after the execution of said contract with the cit$, appellant requested the directors of the respondent to approve said contract, which the latter refused to do; and ofa the 18th of July, 1891, the directors of respondent passed a resolution which, after reciting the various contracts, expressly repudiated the contracts made by appellant to Howard and others, and the contract between Howard and others and the city. And between the 1st of June, 1891, and the date of said resolution the respondent did not receive any money from the appellant. After that respondent continued to furnish water as before until the 2d of May, 1892, claiming, however, to be acting under the original contract of November 6, 1890; but there were continuous difficulties, disagreements, and troubles between the appellant and the respondent, and on the said May 2, 1892, respondent disconnected its water with the mains of the appellant, and refused to furnish any more. Whereupon appellant brought this action to enjoin the respondent from thus shutting off the flow of water into the mains and pipes of appellant.

Upon the foregoing facts counsel discussed a number of important questions, which, under our view, need not be here determined; but in Order to fully present the case, we will notice a few of such questions. Respondent contends, among other things, that the original agreement of November 6, 1890, was void, because it was against public policy, in that its purpose was to prevent the city from acquiring its own water supply, and to obtain a monopoly of the business of furnishing water to the city for twenty years; because it undertook to take away from the directors of respondent all power over its business for twenty years, and to vest such power in two persons, one of whom was not even a member of the corporation respondent; because it undertook to form a partnership between the two corporations, and to consolidate said two corporations, which is not authorized, except in cases of railroad and mining corporations; and because the said contract was in other respects ultra vires in the broadest sense. Bespondent also contends that the contract beween appellant and Howard and others was void in many respects, and particularly because it was made in contemplation of the city of San Diego taking the place of Howard and others; and that the contract between Howard and Company and the city was void for many reasons, and particularly because under the constitution of the state it was the duty of the city to fix the rates of water furnished by appellant annually; and that the city had no right by one act to fix the rate of water for twenty years; also because the city council could not grant a subsidy. All these propositions are contested by appellant.

Some of the foregoing propositions are of very great importance, and their unnecessary determination here might furnish precedents which would foreclose or embarrass the rights of future litigants without a hearing. We will not therefore determine those questions, because we think that the judgment should be affirmed for another reason.

Assuming that the contract of November 6, 1890,, is a valid one, still we think that the rights of the respondent must be determined upon that contract alone. That contract did not give to the appellant the right to make the contract with Howard and others; and certainly the contract between Howard and others and the city of San Diego is one which cannot bind respondent in any way. And the two last-named .contracts are essentially different from the one of November, 1890. And one essential difference, which is important and substantial so far as the rights of respondent are concerned, is that the latter contract gives to the city of San Diego the right to determine what extensions should be made to appellant’s system of pipes—what the operating expenses shall be; while the contract of November, 1890, vests that power entirely in the two trustees named therein. And the result of the said provision of the later contracts was one of the principal causes of difference between the two parties. Moreover, the six per cent and three per cent items in the later contracts were essentially different from anything contained in the contract of 1890. And as the appellant insisted upon its rights under the said contract with the city, the respondent had the right to stop furnishing its water, and appellant has no legal remedy by injunction to compel respondent to continue its supply of water, as provided for in the contract of November, 1890. And we do not think that the evidence shows any valid ratification of said later contracts by respondents.

Appellant contends that even if it be not entitled to an injunction a nonsuit should not have been granted, but that the court should have gone on and taken an accounting between the parties. The prayer of the complaint, in addition to asking an injunction, prays also for judgment against the respondent for ten thousand dollars damages, and also “thatthe rights of plaintiff and the defendant as to the division of the money realized from the amount received from the city under said sublease be ascertained and determined.” But, certainly, appellant showed no case for damages against the respondent, and as the complaint proceeds upon the theory of the validity of the sublease to the city, we do not think that plaintiff is entitled to any accounting based upon the contract with the city. If it be true, as contended by appellant, that some of the members of the corporation respondent encouraged the contracts with Howard and others and with the city, appellant may have some cause to complain of a want of fair dealing; but when corporate bodies are contracting with each other they should keep in remembrance the old saying of Lord Coke, that corporations have no souls.

The judgment and order denying a new trial are affirmed.

Harrison, J., Paterson, J., and Fitzgerald, J., concurred.