City of Beaufort v. Beaufort-Jasper County Water and Sewer Authority

• Decision Date: 06 November 1996
• Docket Number: No. 24562,BEAUFORT-JASPER,24562
• Citation: 480 S.E.2d 728,325 S.C. 174
• Parties: CITY OF BEAUFORT, a South Carolina Municipal Corporation; and Town of Port Royal, a South Carolina Municipal Corporation, Appellants, v.COUNTY WATER AND SEWER AUTHORITY, Respondent. . Heard
• Court: South Carolina Supreme Court

Page 728

480 S.E.2d 728

325 S.C. 174

CITY OF BEAUFORT, a South Carolina Municipal Corporation and Town of Port Royal, a South Carolina Municipal Corporation, Appellants, v. BEAUFORT-JASPER COUNTY WATER AND SEWER AUTHORITY, Respondent.

No. 24562.

Supreme Court of South Carolina.

Heard Nov. 6, 1996.

Decided Jan. 27, 1997.

William B. Harvey, III, of Harvey & Battey, Beaufort, and Roy D. Bates, Columbia, for Appellant City of Beaufort.

Joab M. Dowling, Jr. of Dowling Law Firm, P.A., Beaufort, for Appellant Town of Port Royal.

Manton M. Grier and Steve A. Matthews, both of Sinkler & Boyd, Columbia; Raymond H. Williams, of Dukes, Williams, Infinger & Meeks, Beaufort, all for Respondent.

TOAL, Justice:

Appellants City of Beaufort and Town of Port Royal (collectively "Municipalities") appeal the order of the trial court finding invalid certain provisions in contracts between Municipalities and Respondent Beaufort-Jasper County Water and Sewer Authority ("Authority"). We affirm.

FACTUAL/PROCEDURAL BACKGROUND

Authority is a special purpose district created by Act No. 784 of 1954 ("Act 784") for the purpose of providing water service in all areas of Beaufort County except the City of Beaufort and the Town of Port Royal. ¹ Municipalities are located in northern Beaufort County. Each municipality operates its own water system.

Prior to April 1963, Authority became interested in installing water lines to serve certain Marine Corps facilities located at Parris Island and Beaufort. However, Authority lacked the funds to install the necessary water lines. In order to finance the construction, Authority entered into contracts with Beaufort and Port Royal whereby Municipalities agreed to purchase from Authority all their water for corporate purposes and for their own residents and customers. These contracts gave Authority the necessary funds for installation of the water lines to serve the Marine Corps. Authority's contract with Beaufort has twice been amended, most recently in 1976. Authority's contract with Port Royal was amended in 1966.

All relevant versions of the two contracts contain the following provision (the "Contested Clauses"):

The Authority shall not sell water to be used by persons, private corporations or other municipalities ... in Beaufort County, without the consent of Beaufort and the Town of Port Royal ... unless said City and/or Town refuse or neglect to render such service to such persons, private corporations or other municipalities within a reasonable time after the same has been demanded.

The Contested Clauses constituted consideration for Municipalities' agreement to purchase their water from Authority. In other words, Municipalities and Authority benefited from the contracts executed in 1963, ² and for years Authority complied with the Contested Clauses.

Recently, however, Authority completed a transmission line to provide water to southern Beaufort County and to parts of Jasper County. Apparently, Authority intended to sell water in these areas without giving Municipalities the right of first refusal as required by the Contested Clauses. In 1995, Municipalities brought an action to enjoin Authority from selling water without complying with the procedures outlined in the Contested Clauses. Authority answered Municipalities' Complaint and, shortly thereafter, moved for summary judgment on the ground that the Contested Clauses were invalid because ultra vires.

The trial court granted Authority's motion for summary judgment, finding the Contested Clauses invalid because they (1) contradict Authority's enabling legislation, (2) constitute an unlawful delegation of a governmental function, and (3) constitute an unlawful attempt to grant franchises to Municipalities. Municipalities appeal the trial court's order.

LAW/ANALYSIS

Although Appellant Municipalities present numerous issues for review, three issues are dispositive: (1) Whether Authority's enabling legislation permits it to grant Municipalities rights of first refusal as to the provision of water service in county areas outside the respective city/town limits of Beaufort and Port Royal; (2) Whether the Contested Clause represents an unlawful delegation of governmental power by Authority and thus is contrary to public policy; and (3) Whether the Contested Clause unlawfully grants a franchise to Municipalities. The trial court ruled against Municipalities on all of these issues. If the trial court ruled correctly as to any one of these issues, the trial court's order must be affirmed.

Municipalities argue that the trial court erred in holding the Contested Clauses constitute an unlawful delegation of governmental authority. We disagree.

When a municipal contract extends beyond the term of the governing members of the municipality entering into the contract, the subject matter of the contract will determine its validity:

The general rule is that, if the contract involves the exercise of the municipal corporation's business or proprietary powers, the contract may extend beyond the term of the contracting body and is binding on successor bodies if, at the time the contract was entered into, it was fair and reasonable and necessary or advantageous to the municipality. However, if the contract involves the legislative functions or governmental powers of the municipal corporation, the contract is not binding on successor boards or councils.

Piedmont Pub. Serv. Dist. v. Cowart, 319 S.C. 124, 459 S.E.2d 876 (Ct.App.1995) (citing Newman v. McCullough, 212 S.C. 17, 46 S.E.2d 252 (1948)), aff'd, --- S.C. ----, 478 S.E.2d 836 (1996). The contracts at issue here extended well beyond the terms of the members of the governing bodies that entered into the contracts. Therefore, the appropriate question in this case is whether the subject matter of the Contested Clauses involves a governmental or a proprietary function. ³

South Carolina's courts have repeatedly held that a municipality's provision of water service to residents and non-residents is a governmental function. See, e.g., F.W. Sossamon v. Greater Gaffney Metro. Utils., 236 S.C. 173, 113 S.E.2d 534 (1960); Looper v. City of Easley, 172 S.C. 11, 172 S.E. 705 (1934), overruled on other grounds by McCall v. Batson, 285 S.C. 243, 329 S.E.2d 741 (1985); Calcaterra v. City of Columbia, 315 S.C. 196, 432 S.E.2d 498 (Ct.App.1993); cf. G. Curtis Martin Invest. Trust v. Clay, 274 S.C. 608, 266 S.E.2d 82 (1980) (implying that the provision of sewer service constituted part of the police power--a governmental function--of quasi-municipal sewer district). Municipalities acknowledge these precedents, but assert that provision of water service should be regarded as a governmental function only for purposes of tort liability. We disagree.

There is no basis for finding an action is governmental for purposes of tort liability and proprietary for purposes of contractual validity. Rather, the distinction between governmental and proprietary functions should rest on the nature of the government act at issue rather than on the nature of a subsequent lawsuit. As the Court of Appeals observed in Cowart, it is often difficult to determine whether a particular function is governmental or proprietary. For purposes of determining the validity of a contract requiring or involving a particular action by a municipality, the test for whether the action is governmental or proprietary should be "whether the contract itself deprives a governing body, or its successor, of a discretion which public policy demands should be left unimpaired." Cowart, 319 S.C. at 133, 459 S.E.2d at 881. South Carolina courts have struck as invalid many different kinds of contracts binding successor governing bodies. See, e.g., Cowart, 319 S.C. at 136, 459 S.E.2d at 882 (employment contract of public officer); Sammons v. City of Beaufort, 225 S.C. 490, 83 S.E.2d 153 (1954) (invalidating covenant requiring town to maintain on-street parking facilities throughout life of certain municipal bonds, on ground that such a covenant deprives future boards of police power to adopt parking regulations necessary for the public safety and welfare); Newman v. McCullough, 212...