Ancrum v. Water Co.

April 9, 1909. The opinion of the Court was delivered by The defendant, Camden Water, Light and Ice Company, appeals from an order of the Circuit Court overruling a demurrer to the complaint. The question to be decided is, whether the complaint states facts sufficient to constitute a cause of action. These are the material allegations: The defendant owns and operates waterworks in the city of Camden, under a contract of date 21st May, 1903, entered into by the city council and the defendant with proper legal sanctions, which conferred upon the defendant the exclusive franchise for seventeen years to furnish to the city of Camden, water for the extinguishment of fire and other municipal purposes, and to the inhabitants of the city, water for private purposes. On 27th June, 1907, a four story building of the plaintiff was destroyed by a fire, which would have been extinguished, without great damage, by the fire department of the city, but for the fact that on account of the negligence of the defendant, the water mains and hydrants, through which the defendant had contracted to supply water for the extinguishment of fires, furnished no appreciable water pressure. The plaintiff had insurance for $3,000, but her net loss from the fire was $12,000, and for this sum she demands judgment against the water company.

The important inquiry whether the defendant is liable to a private citizen under such a state of facts depends, as we shall endeavor to show, on the terms of the contract which is attached to the complaint as a part thereof. Hence it is necessary to set out in full such portions as bear on the issue. The general undertaking of the defendants as set out in Section 1 is, "to lay, maintain and operate a system of water pipes in, over, across and along the streets, alleys and public places of and within said city of Camden for the distribution of water for municipal, domestic, business and personal uses, and likewise for the same period, to build, lay, place and operate and maintain all necessary hydrants, service pipes, stop and valve boxes, and other appliances usually employed in the operation of a municipal waterworks system." The details of the defendant's obligations are contained in these sections:

3. "That it will use the Johnson Springs, so-called, near said city, as its source of supply, and that it will furnish from said source and from such other sources as may be hereafter agreed upon, to the party of the first part and its successors, and to the inhabitants of the said city of Camden, an abundant and sufficient supply of pure, wholesome and portable water for domestic, business, personal and municipal purposes, and for the extinguishing of fires for and during the full term of this contract.

4. "That it will cause to be constructed as a part of said water system, a Jewell Gravity Filter of five hundred thousand (500,000) gallons daily capacity and will cause all water introduced into the pipes and distributing system of and within said city to be carefully filtered through said filtering apparatus; and further, and in connection with said filter, will construct a pumping reservoir with brick walls and metal roof, and of sufficient size to provide a constant supply of water to the pumps, together with a pumping station to be supplied with duplicate engines, so arranged that either or both engines may be employed at the same time as occasion may require, and said engines and pumps to be of sufficient capacity to furnish an ample supply of water for the purpose hereinbefore indicated at all times during the term of this franchise. And said plant shall be constructed according to the plans and specifications hereto attached and made a part of this contract.

* * * * * * * * * * 7. " * * * * *; that all pipe, hydrants and connections shall be of standard weight; that there shall be furnished by said party of the second part to the party of the first part, a certificate of manufacturers of said pipe and appliances, showing that the same have been tested at a hydrostatic pressure of 250 pounds to the square inch; that in addition to the twenty-five (25) fire hydrants now set and connected with the pipe system in said city of Camden, the party of the second part shall set ten (10) other fire hydrants of modern type with double delivery, and so arranged as to connect with hose couplings of two and one-half (2 1-2) inches in diameter. * * * * * * * * * 9. "That the fire hydrants above referred to shall be kept at all times in good repair and ready for immediate service, and so that when an alarm is given and fire pressure is called for, said hydrants shall furnish efficient streams for extinguishing fires in all portions of said city."

These provisions are found in the contract to secure to the city of Camden, as a party to the contract, compliance by the water company with its obligations:

10. "That the hydrants shall be in the charge of the chief of the fire department, and shall be subject to inspection by him, and in case of any hydrant being found out of repair, he shall, in writing, notify the mayor of said city and the superintendent of the waterworks plant; and if the same is not carefully repaired in one week after giving such notice in writing, said city shall have the right to deduct from the hydrant rent all hereinafter agreed to be paid, the sum of ten dollars ($10) per month until said hydrant is put in working order.

20. "The party of the first part, and all users of water under this franchise, shall have the right to inspect the source of supply and all machinery and other appliances employed by the party of the second part in connection with the filteration, storage, pumping and distribution of water at all times during ordinary business hours, such inspection to be made in good faith and not for the purpose of harassing or annoying the party of the second part or in anywise interfering with the performance by it of its public duties under this franchise.

* * * * * * * * * 25. "And it is further expressly stipulated and agreed that, in the event that the party of the second part, its successors or assigns, shall wilfully fail, neglect or refuse to well and truly carry out and perform all and singular the duties, agreements and covenants hereby imposed, that then and in such event this franchise and contract and all the rights and privileges granted thereby by said first party to the second party shall cease and determine and be thereafter held and deemed to be null and void, anything herein to the contrary notwithstanding: Provided, however, That temporary failure to furnish water and service under this contract due to breakage or other casualty, shall not be deemed to be failure or refusal on the part of the second party hereunder."

In Black v. Columbia, 19 S.C. 424, a municipal corporation owning its own waterworks was held not to be liable to an inhabitant of the city, whose property was destroyed by fire, when it would have been saved but for the neglect of the city to provide suitable engines or fire apparatus or to provide and keep in repair public cisterns. Since that case was decided municipal corporations have, in this State by statute, been made liable for injuries to persons or property, received "through a defect in any street, causeway, bridge or public way or by reason of defect or mismanagement of anything under the control of the corporation within the limits." Civil Code, section 2023. We are not now concerned with the liability of a city for a fire loss of one of its inhabitants, which would not have occurred but for the negligence of the city to provide an adequate supply of water to extinguish the fire. This liability would have to be passed upon as a preliminary question in this case, if the law imposed upon a city the duty of providing public waterworks. For it seems apparent where a public duty is required of a municipality, one who contracts with a city to perform for it the duty imposed on it by law incurs the same liabilities that the law imposed on the city itself. But the statute law of the State does not require municipal corporations to maintain waterworks; on the contrary, the statutes on the subject negative the idea of command or requirement, in that they in express terms merely authorize towns and cities to build and operate waterworks as municipal property. 22 Stat., 83, 23 Stat., 49. Hence, when the statute of 1902, 23 Stat., 1039, empowered cities and towns "to grant to private persons or corporations the exclusive franchise of furnishing light or water to said cities and towns and inhabitants thereof," without imposing any limitation on the power, except that the franchises to be valid should be approved by a vote of two-thirds of the board of aldermen, and the majority of the popular vote, and that the grant or the franchise should provide a maximum water rate, it left the municipality free as to the other terms and conditions of the franchise. Thus there was no obstacle to the city council providing in the contract and franchise with the water company any safeguards for the welfare of the city or of its inhabitants who were to use the water or whose property was to be protected from fire loss. For even if it be considered an illegal or unfair discrimination against other taxpayers, for the city to pay from the general municipal revenue for such indemnity for all whose property was subject to fire loss, such discrimination could not avail the water company. Equally free were the city and water company to agree on such sanctions and penalties as they saw fit for the enforcement of the obligations assumed by the water company. Further, the city, as a municipality, and any of its inhabitants, beneficiaries of the contract on the one side, and the water company on the other side, were entitled to such damages resulting to them from a breach of the contract as were fairly within the contemplation of the parties, either expressly provided by the language of the instrument or to be fairly implied from it.

These propositions are nothing more than the application of familiar principles of law to the contract under consideration. But inasmuch as some of the cases deny the right of the individual citizen to recover in a case like this, on the ground that there is not such privity of contract between the citizen and the water company as to enable him to bring an action on his own behalf, some further attention should be given to that point. We think it is true that the city does not make the contract as the agent of the individual citizen, and that no right of action could accrue to the citizen on the ground that the city as his agent makes the contract for him as its principal. That relation does not exist. The relation of agency implies a principal, controlling the action of an agent within the scope of the agency. The municipality is not subject to the control of an individual citizen or of a majority of its citizens, or even of the whole body of its citizens speaking unanimously, except insofar as such control is conferred by statute. A municipal corporation is defined to be "a legal institution formed by charter from sovereign power, erecting a populous community of prescribed area into a body politic and corporate with corporate name and continuous succession, and for the purpose and with the authority of subordinate self-government and improvement and local administration of affairs of State." 28 Cyc., 117. The inhabitants of a city have no inherent right to direct its affairs. All their rights are conferred on them by the law making power of the State. The General Assembly has made any contract for a municipal water supply invalid, unless confirmed by a vote of two-thirds of the qualified electors of the city, but that does not make the city the agent of a single elector or of the aggregate two-thirds of the electors. In short, the municipality is not in any legal sense the agent of its inhabitants either singly or collectively, but is a legal institution in the nature of a governmental agency, deriving its powers from the State. For these reasons, we are entirely unable to agree with those Courts which hold the water company liable in a case like this, on the ground that in contracting with the city it contracted with the individual citizen through the city as his agent.

But the relationship of agency is not necessary to confer on the individual citizen the legal right to benefits provided for him by the city in its contract with a water company. The English rule is, that a third person cannot sue upon a promise made for his benefit where he is a stranger both to the promise and to the consideration. 71 Am. St., 176, note; 9 Cyc., 374. This rule has been adopted in a number of the States with the modification that such third person may sue if he has some legal or equitable interest in the contract. If the English doctrine or that doctrine modified as above indicated should be applied, even then an inhabitant of a city made the beneficiary, as one of a class, of a contract by the city with a water company, would fall within it; for such inhabitant, by his taxes, contributes to the consideration of the contract, and as an inhabitant, he has a vital interest in its performance. But the rule in this State and some of the other States is broad without the limitations of the English rule, either in its original or modified form. It is thus stated in Brown v. O'Brien, 1 Rich., 270: "Where one person makes a promise for the benefit of a third person, that person may maintain an action on such promise." Duncan v. Moon, Dudley, 232.

Having reached the conclusion that the city of Camden could contract with the defendant that it would be liable to its inhabitants, as individuals, for fire losses due to the defendant's neglect to keep an adequate water supply, and that the plaintiff could sue on such a contract, the pivotal question recurs whether the city of Camden did make a contract imposing that liability on the water company.

In the first place, it is to be observed that the presumption is, that parties contract for their own benefit, and not for that of others not parties to the contract. So a contract entered into by a city is presumed to be for the city's own benefit, as a municipality, that is, for the benefit of the municipal public as a whole and not for the benefit of its inhabitants as individuals. Hence, in order for the plaintiff to have the benefit of the contract, it is not sufficient for her to show that the defendant contracted with the city to have an adequate supply of water to extinguish fires, but she must show further that it was intended that she should be the direct beneficiary of this provision to the extent that the defendant should indemnify her for fire losses due to its negligence. There will hardly be difference of opinion that there are many public municipal purposes to be attained, by a contract of this sort, leaving out of view the citizen as an individual. The general municipal purpose of a water supply is to promote the prosperity of the city. This it does by lessening the risk of destruction of property by fire, by lowering the rate of insurance, increasing the general sense of security and, therefore, the general happiness, diminishing the risk of numbers of persons being thrown out of employment, and generally in giving steadiness and confidence to the life and enterprises of the city. These are the inducements to the city for entering into the contract, and it is for these municipal purposes that it pays for the maintenance of waterworks for fire protection. For the attainment of these municipal ends, the city has the right to pay out public funds. It may well be doubted whether it has the right to apply public funds to the larger compensation which a water company of necessity must charge for the enormous peril of having to pay for all private property lost by its negligence. Such expenditure of municipal funds raised by taxation of all property would be an unjust discrimination in favor of those whose property is exposed to fire loss, and against those whose property is not subject to that peril. There is at least a strong presumption against a municipality undertaking to pay for such indemnity from the public revenue. True, the water company would be liable only for losses due to its negligence. But negligence would be chargeable to the company for its inspector of machinery to overlook a defect which he ought to have observed in time to remedy it, for a pumper to fail in his duty, for an employee carelessly to break a main so that the water would be wasted, for the company not to have adequate machinery; in brief, for it to fail in the opinion of a jury to be diligent in any of the almost innumerable details incident to the conduct of such a business. In addition to this, if it is considered, as is held in some jurisdictions, that the action for loss in cases like this is an action of tort, then for their fire losses the insurance companies would be subrogated to the rights of the owner of the property and entitled to recover from the water company. Mobile Ins. Co. v. Columbia, R.R. Co., 41 S.C. 408, 19 S.E., 858; 44 Am. St., 721, note; Aetna Insurance Co. v. C. W.C. Ry.Co., 76 S.C. 101, 56 S.E., 788; Am. B. Co. v. Nationaletc. Bank, 99 Am. St. R., 504, note. That a water company assuming such liabilities would have to demand very large compensation to have any profit or even to save itself from bankruptcy is most obvious. When it is asserted that a city has undertaken to pay for such indemnity to its individual inhabitants and that the water company has assumed it, the contract relied on ought to show clearly that such payment by the city and indemnity by the water company were intended.

The contract now under consideration contains no direct undertaking to respond to the individual inhabitant for fire losses; the stipulation that it shall keep a sufficient water supply for the protection of public and private property is naturally to be referred to the purpose of the city to promote the general municipal welfare in the manner we have pointed out, rather than to indemnify individual property owners from fire loss; the compensation to be paid is fifty dollars each for seventeen hydrants — a sum on its face utterly inadequate to meet the expenses of furnishing the water and to afford compensation for the enormous risk the plaintiff insists was assumed. These considerations seem to show plainly that the parties did not contemplate by their contract the assumption of liability by the water company for the plaintiff's fire losses, arising from its neglect to furnish an adequate water pressure.

There is another strong reason for this conclusion. When parties themselves stipulate in the contract what shall be the consequences of a breach of the agreement, such stipulation, if reasonable, is controlling and excludes other consequences. 8 Am. Eng. Enc., 636; Allen v. Brazier, 2 Bail., 293;Covington v. Ex's of Lide, 1 Bay, 158; Worrel v. McClenaghan, 5 Strob., 115; Williams v. Vance, 9 S.C. 344;Terry v. Southern Ry. Co., 81 S.C. 279. In this case the parties agreed by the contract that the consequences to the water company for a neglect to perform any of the duties undertaken by it should be a forfeiture of its franchise, except "That temporary failure to furnish water and service under this contract due to breakage or other casualty, shall not be deemed to be failure or refusal on the part of the second party hereunder." For the temporary failure to keep the hydrants in repair, the forfeiture of ten dollars a month for each hydrant was provided. Thus the contract fixed and limited the consequences of defendant's breach, and the Court cannot add to the contract by imposing other and additional consequences.

Authorities holding the plaintiff entitled to recover in a case such as is stated in the complaint, lay much stress on the fact that the defendant is a public service corporation. While this is true, it is obvious the water company's status as a public service corporation rests on the contract, and liability for damage cannot be imposed on it beyond that contemplated by the contract. Hughes v. Tel. Co., 72 S.C. 516,32 S.E., 107; Poteet v. Tel. Co., 74 S.C. 491,55 S.E., 113. Even a common carrier of goods is not liable beyond that. When a carrier accepts goods for transportation, it contracts to be liable for the value of the goods, but it is not liable for anything else, unless such additional liability is within the purview of the contract of carriage.McKerall v. R.R. Co., 76 S.C. 342, 56 S.E., 965; Strange v. Ry. Co., 77 S.C. 182, 57 S.E., 724; and cases cited. And the carrier may limit the amount for which it will be liable by special contract to that effect. Johnstone v. Ry. Co.,39 S.C. 56, 175 S.E., 512; Frasier v. Ry. Co., 73 S.C. 140,52 S.E., 964.

We conclude that the obligations and liabilities of the parties are limited by the contract, and that the defendant did not contract to pay the losses of all the citizens of the city of Camden by fires which would have been extinguished if it had not neglected to comply with its contract.

The cases in other jurisdictions are irreconcilable. But the conclusion we have reached is in accord with the great weight of authority. A number of Courts of last resort, including the Supreme Court of the United States, hold, contrary to our conclusion, that in a case of this kind the water company is liable. We cite only one case from each State. Trust Co. v. Fisher, 200 U.S. 59, 50 L.Ed., 367;Gorrell v. Greensboro Water Sup. Co. (N.C.), 70 Am. St. R., 598; Mugge v. Tampa Waterworks Co. (Fla.), 6 L.R.A. (N.S.), 1171; Coy v. Indianapolis G. Co. (Ind.), 36 L.R.A., 535; Lexington Hyd. c. Co. v. Oots (Ky.),84 S.W., 774.

But the great majority of the Courts hold in such case, there is no liability. Bush v. Artesian c. W. Co. (Id.), 95 Am. St., 161; Fowler v. Athens City W.W. Co., (Ga.), 20 Am. St., 313; Fitch v. Seymour (Ind.), 47 Am. St., 258; Becker v. Keokuk Waterworks (Ia.), 18 Am. St., 377; Mott v. Cherrydale W. c. Co. (Kan.), 30 Am. St., 267; House v. Houston W. Co. (Tex.), 28 L.R.A., 532;Allen Currey v. Shreveport W.W. Co. (La.), 104 Am. St. R., 525; overruling Planters Oil Mill v. Monroe W.W.c. Co. (La.), 27 So., 684; Boston Safe Deposit T. Co. v. Salem W. Co. (Mass.), 94 Fed., 238; Wilkinson v. Lightc. Co. (Miss), 28 So., 877; Howsmon v. Trenton W. Co. (Mo.), 41 Am. St. R., 654; Eaton v. Fairburg W.W. Co. (Neb.), 40 Am. St. R., 510; Ferris v. Carson W. Co. (Nev.), 40 Am. Rep., 485; Montgomery v. MontgomeryW.W. Co., 79 Ala., 233; Nickerson v. Bridgeport Hyd. Co. (Conn.), 33 Am. Rep., 1; Wainwright v. Queens CountyW. Co., 28 N.Y. Sup., 987; Blunk v. Dennison c. Co. (Ohio), 73 N.E., 210; Beck v. Kitanning W. Co. (Pa.),11 Atl., 300; Foster v. Lookout Mt. W. Co. (Tenn.), 3 Lea, 42; Britton v. Green Bay c. W.W. Co. (Wis.), 29 Am. St. R., 856; Ukiah v. Ukiah W. Co. (Cal.), 100 Am. St. R., 107.

The judgment of this Court is, that the judgment of the Circuit Court be reversed.