Citizens Suburban Co. v. Rosemont Development Co.

• Decision Date: 07 September 1966
• Citation: 53 Cal.Rptr. 551,244 Cal.App.2d 666
• Parties: CITIZENS SUBURBAN COMPANY, a corporation, Plaintiff and Respondent, v. ROSEMONT DEVELOPMENT CO., Inc., a corporation, Price & Reynolds, a partnership, and Richard C. Price, Defendants and Appellants, Sacramento County Water Agency, Intervenor-Respondent. Civ. 11108.
• Court: California Court of Appeals Court of Appeals

Page 551

53 Cal.Rptr. 551

244 Cal.App.2d 666

CITIZENS SUBURBAN COMPANY, a corporation, Plaintiff and Respondent, v. ROSEMONT DEVELOPMENT CO., Inc., a corporation, Price & Reynolds, a partnership, and Richard C. Price, Defendants and Appellants Sacramento County Water Agency, Intervenor-Respondent.

Civ. 11108.

District Court of Appeal, Third District California.

Sept. 7, 1966.

Hearing Denied Nov. 2, 1966.

Morris M. Grupp, San Francisco, for defendants-cross-complaints-appellants.

Orrick, Dahlquist, Herrington & Sutcliffe, San Francisco, by Christopher Jenks and Richard J. Lucas, for plaintiff-cross-defendant-respondent.

John B. Heinrich, County Counsel, Sacramento, for intervenor-respondent.

FRIEDMAN, Justice.

Plaintiff, a water company, seeks specific performance of a service agreement under which it claims the exclusive right to furnish water to the successive 'units' of a subdivision development. The subdividers appeal from an adverse judgment.

The Rosemont subdivision is situated in the unincorporated area of Sacramento County just south of Highway 50. Owner of the land was Wunderlich Development Company. Two individuals, A. J. Stern and Richard Price, undertook to develop a residential subdivision in the area. The entire Rosemont tract consisted of approximately 400 acres and the subdividers intended to develop it, unit by unit, to accommodate some 1600 dwellings, plus a shopping center and apartment house area. Stern and Price operated through a number of partnerships and corporations. In October 1954 one of their firms, United Land Developers, bought from the Wunderlich concern a portion of the tract consisting of 52 acres, later to be known as Rosemont Unit No. 1. When Unit 1 was ready for construction, Stern and Price undertook its development through a limited partnership called Rosemont Development Co. Two corporations were general partners in the firm, while nine corporations and two individuals were limited partners. Wunderlich and the Rosemont limited partnership entered into transactions resulting in subordination of Wunderlich's purchase money lien to construction loans of $500,000, which would permit the limited partnership to put up approximately 50 houses.

Another firm organized by Stern and Price was Rosemont Water Company. That firm had a county franchise to serve water in the area. It installed a water system to serve Rosemont Unit 1. Rosemont Water Company was denied a certificate of public convenience and necessity by the Public Utilities Commission. The subdividers then entered into negotiations with plaintiff Citizens Suburban Company. In the negotiations, Citizens Suburban was represented by its general manager, Thomas Underwood, and the subdividers were represented by Richard Price. On May i3, 1956, Citizens Suburban entered into a water service agreement with the Rosemont limited partnership to furnish water services within the subdivision. The territorial coverage of the water service agreement is in dispute and will be discussed at a later point. The water service facilities of the Rosemont Water Company serving Unit 1 were to be sold to Citizens Suburban at a specified price. Water service was to be extended to future units as requested by the subdivider. The agreement was to bind the parties' 'successors and assigns.' The obligations of Citizens Suburban were contingent upon its receiving a certificate of public convenience and necessity from the Public Utilities Commission. A 'closing date' for the sale of the existing water service facilities was to occur within 15 days after issuance of the Public Utilities Commission certificate. Price signed the agreement in his capacity as president of Sunnyvale Home Builders, Inc., one of the general partners of the limited partnership. As vice president of Rosemont Water Company, he signed a clause manifesting that firm's consent to the agreement.

Some weeks preceding execution of the May 23 water service agreement, controversies had developed between Stern and Price. The controversies were to culminate in the severance of their association. Although severance arrangements were under discussion at the time the May water service agreement was signed, Price did not disclose this aspect of the subdividers' affairs to Citizens Suburban. Dissolution of the association between Stern and Price was formally recognized on September 11, 1956, when Price executed documents resigning as an officer and relinquishing his interest in the subdividers' various corporations and partnerships. Wunderlich Development Company (headed by Martin Wunderlich) then took over the Stern-Price interests in the Rosemont tract development and assumed liability on the $500,000 bank construction loan. Martin Wunderlich asked Richard Price if he would manage the Rosemont subdivision for Wunderlich as a salaried employee. Price accepted the offer and on September 12 or 13 became Wunderlich's subdivision manager.

Knowing nothing of the limited partnership's imminent withdrawal as developer of the subdivision, Citizens Suburban in June 1956 applied to the Public Utilities Commission for a certificate of public convenience and necessity. In July Price appeared as Citizens Suburban's witness before the Public Utilities Commission but gave no indication that the Rosemont limited partnership was withdrawing from the development. Price's testimony before the Public Utilities Commission described himself as the subdivider. The certificate of public necessity and convenience having been granted, Citizens Suburban deposited somewhat over $50,000 to pay for the existing water facilities. A grant deed by which the limited partnership conveyed a well site and water service facilities to Citizens Suburban was executed on December 18, 1956, the 'closing date.' Again, Price signed in his capacity as president of Sunnyvale Home Builders, Inc., one of the general partners in the limited partnership. Actually, he was no longer connected with either of these firms. Although the evidence is in conflict, the trial court found that at the time of the closing arrangements Price led Citizens Suburban to believe that he was still representing Rosemont Development Co., the limited partnership.

At about the time of the closing agreement with Citizens Surburban or shortly thereafter, Wunderlich turned over development of the Rosemont tract to a partnership consisting of Price and Gordon Reynolds, Wunderlich's son-in-law. Price and Reynolds continued to develop Unit 1 and in 1958 commenced development of Unit 2. Units 3 and 4 followed. For each of these successive units, Price would request that Citizens Suburban send a 'willingness letter,' which he would forward to the State Division of Real Estate and the Federal Housing Authority, as demonstrating that a certificated public utility was willing to supply water to the particular unit. Service extension agreements were executed for each successive unit. These agreements were executed by Price on behalf of the firm of Price & Reynolds. Citizens Suburban thus knew in 1958 that it was no longer dealing with the Rosemont limited partnership. Price, however, was the person with whom the utility did business and the utility's representatives simply assumed that they were dealing with a successor entity in a continuing enterprise.

In March 1959, at Price's request, Citizens Suburban furnished 'willingness letters' for Units 5 and 6. In August 1959 Price and Theodore Chenault, new general manager for the utility company, had a falling out. Through attorneys, Price commenced arrangements to have Units 5 and 6 served by the Sacramento County Water Agency, a public entity. An election was held in which 102 voters within Unit 5 unanimously voted for the issuance of revenue bonds to finance the installation of water service facilities. Citizens Suburban submitted to Price a proposed line extension agreement for Unit 5. Chenault saw that a well was being drilled in the neighborhood of Units 5 and 6. He wrote Price inquiring as to the purpose of the well. Later Chenault learned that the well was intended to serve Unit 5. Price caused valves to be installed in Citizens Suburban's water lines, shutting off the water flow into Units 5 and 6 from the established portion of the utility's distribution system.

At about the time the controversy with Citizens Suburban broke out, the partnership of Price & Reynolds became incorporated as Rosemont Development Co., Inc., with each of the former partners owning 50 percent of the stock. During 1960 Reynolds sold his stock in the corporation to Martin Wunderlich, his father-in-law.

In July 1960 the utility company filed the present suit, the principal defendants being Rosemont Development Co., Inc., a corporation, Price & Reynolds, a partnership, and Richard Price, both individually and as a partner of Price & Reynolds. Later the Sacramento County Water Agency was granted leave to intervene. Following the trial, the court entered findings of fact. The court found that from the inception of the water service agreement until about October 10, 1959, plaintiff and the defendants Price, Price & Reynolds, and Rosemont Development Co., Inc., dealt with each other with the understanding that all were bound by the terms of the water service agreement; that in October 1959 these defendants commenced interfering with the system with which plaintiff intended to serve Units 5 and 6; that Units 5 and 6 are within the Rosemont tract as contemplated by the water service agreement; that Price had failed to advise plaintiff of the impending dissolution of the Stern and Price enterprises prior to execution of the water service agreement of May 23, 1956; that during the pendency of the utility company's application for a certificate from the Public Utilities Commission, Price withheld from plaintiff information relative to the impending dissolution of the Stern and Price enterprises; that at the December 18, 1956,...