Clear Lake Apts., Inc. v. Clear Lake Utilities Co.

• Decision Date: 17 March 1976
• Docket Number: No. 1325,1325
• Citation: 537 S.W.2d 48
• Parties: CLEAR LAKE APARTMENTS, INC., Appellant and Cross-Appellee, v. CLEAR LAKE UTILITIES CO. et al., Appellees and Cross-Appellant. (14th Dist.)
• Court: Texas Court of Appeals

Page 48

537 S.W.2d 48

CLEAR LAKE APARTMENTS, INC., Appellant and Cross-Appellee, v. CLEAR LAKE UTILITIES CO. et al., Appellees and Cross-Appellant.

No. 1325.

Court of Civil Appeals of Texas,

Houston (14th Dist.).

March 17, 1976.

Rehearing Granted in Part and Denied in Part April 14, 1976.

Second Rehearing Denied May 5, 1976.

Eugene J. Pitman, DeLange, Hudspeth, Pitman & Katz, Houston, for appellant and cross-appellee.

Louis B. Paine, Jr., Hayden Burns, Butler, Binion, Rice, Cook & Knapp, Jerry L. Bryan, Houston, for appellee and cross-appellant Clear Lake Utilities Co.

Charles A. Easterling, City Atty., Houston, for appellee.

Raybourne Thompson, Jr., W. Allyn Hoaglund, Vinson, Elkins, Searls, Connally & Smith, Houston, for appellee Clear Lake City Water Authority.

CIRE, Justice.

Clear Lake Utilities Company (Utilities) sought a declaratory judgment to determine the status and validity of two contracts-one between Utilities and North Clear Lake Development Corporation (NCL), the predecessor in title of property now owned by Clear Lake Apartments, Inc. (Apartments), and one between Utilities and Clear Lake City Water Authority (Authority).

The Contract Between Utilities & NCL

The contract between Utilities and NCL, dated November 21, 1967, provides that Utilities 'shall have and is hereby granted the exclusive right to furnish water and sewer service' to approximately eight acres of land and to 'all owners and occupants of any part thereof for and during the entire term of this contract.' As to its duration, the contract states, 'the term of this agreement shall continue in effect and be irrevocable for the maximum period of time during which it may lawfully do so.' The property involved is now owned by Apartments. By a letter dated March 18, 1975, Apartments informed Utilities that it intended to terminate the contract made between Utilities and NCL, and to contract with the City of Pasadena for water and sewer service to the land owned by Apartments; whereupon Utilities instituted this suit.

Utilities contends that its contract with NCL constitutes a covenant running with the land, and as such is binding on NCL's successor in title, Apartments. The contract provides that it

shall be binding upon and shall inure to the benefit of Company and Landowner and the respective heirs, legal representatives, successors and assigns of each of them, and shall constitute covenants running with Said Land and with Company's water and sewer disposal system and properties. . . .

Apartments answered that: 1) the contract is invalid because it creates a constitutionally prohibited monopoly; 2) the contract does not constitute a covenant running with the land; 3) Apartments is entitled to protection as a purchaser from a bona fide purchaser without notice of the contract. The trial court found that the contract between NCL and Utilities was a covenant running with the land; that it was intended to remain in effect for a reasonable time; and that a reasonable time was to be five years from the date of judgment. Both Utilities and Apartments have appealed.

We hold that the November 21, 1967 contract between Utilities and NCL is not binding, as to its exclusive service provisions, on Apartments.

The contract between Utilities and NCL does not meet the requirements necessary to make it a covenant running with the land enforceable at law so as to bind NCL's successors in title. Such a covenant must be made between parties who are in privity of estate at the time the covenant is made, and must be contained in a grant of the land or in a grant of some property interest in the land. Restatement of Property § 534 (1944); Panhandle & S.F. Ry. v. Wiggins, 161 S.W.2d 501 (Tex.Civ.App.--Amarillo 1942, writ ref'd); See Parks v. Hines, 68 S.W.2d 364, 367 (Tex.Civ.App.-El Aff'd, 128 Tex. 289, 96 S.W.2d 970 (1936); 20 Am.Jur.2d Covenants, Conditions and Restrictions §§ 33, 34 (1965); 21 C.J.S. Covenants §§ 58, 59 (1940). See also Clements v. Taylor, 184 S.W.2d 485, 487--88 (Tex.Civ.App.-Eastland 1944, no writ). Texas courts have held that irrigation contracts which create an easement in the property of the landowner, or in the real property (such as canals or levies) of the water supplier, transfer a sufficient interest in the land to create the necessary privity of estate. Beckham v. Ward County Irrigation District No. 1, 278 S.W. 316, 318 (Tex.Civ.App.-El Paso 1925, writ ref'd); Chapman v. American Rio Grande Land & Irrigation Co., 271 S.W 392, 394 (Tex.Civ.App.-San Antonio 1925, writ ref'd); Ball v. Rio Grande Canal Co., 256 S.W. 678, 682 (Tex.Civ.App.-San Antonio 1923, writ ref'd). But the contract between Utilities and NCL did not create any privity of estate: it was not part of any transaction conveying the land involved, or any easement in it, between the parties. To the contrary, the contract specifically states that Utilities 'agrees to construct and maintain reasonably adequate operative water and sewage trunklines and/or laterals to serve Said Land in existing easements adjoining Said Land.' The contract further provides that '(c)onstruction, installation, maintenance and operation of service lines on Said Land connecting to Company's water and sewer trunklines or laterals adjacent thereto shall be at the cost and expense of Landowner'.

Utilities claims that even if the contract of November 21, 1967 does not constitute a covenant enforceable at law against NCL's successors in title, it may be enforced in equity by virtue of the fact that Apartments had notice of its provisions at the time the property was conveyed to Apartments. The contract was recorded in the Harris County Deed Records on November 27, 1967; the property was conveyed by NCL to Pan, Inc. on December 29, 1967, and by Pan, Inc. to Apartment's predecessor on December 20, 1968.

It is true, as Utilities contends, that a purchaser must take notice of all recorded instruments within his chain of title and Affecting his title. We think the recording of the November 21, 1967 contract gave Apartments constructive notice of its contends. This is not sufficient, however, to create an equitable interest in the in favor of Utilities and enforceable against Apartments to the extent that Apartments may be required to continue the exclusive franchise granted by NCL.

A promise enforceable in equity and thus creating an equitable interest in the land of the promissor (which here would be NCL) must be a promise respecting the use of the land of the promissor. Restatement of Property § 539 (1944); See Clements v. Taylor, 184 S.W.2d 485, 487 (Tex.Civ.App.--Eastland 1944, no writ). NCL's promise to grant an exclusive franchise to Utilities neither created any easement in NCL's property nor obligated NCL to use its property in any particular manner. There are numerous Texas cases in which subsequent grantees have been required, in equity, to perform promises made by their predecessors in title with respect to the use of or title to their property. Typical are the 'restrictive covenant' or 'negative easement' cases in which adjoining landowners make reciprocal promises respecting the use of their land. Such promises include those pertaining to such portions of the estate as water or mineral rights, as well as promises such as liens, which grant an equitable interest in the title itself. We have neither found, nor been cited, any case in which a promissor's successor in title has been required to perform a promise which did not operate to create in the promisee an equitable right to have the land of the promissor put to a particular use.

In its brief Utilities states that '(i)t is clear from the terms of the . . . contract that Utilities required, as a prerequisite for its construction of the water and sewer system, assurances that those to whom water and sewer services were furnished would continue to use them.' Such a promise by NCL could only be construed and enforced as a purely personal covenant that NCL would procure such assurances from subsequent grantees. E.g., Combs v. United Irrigation Co., 110 S.W.2d 1157, 1159 (Tex.Civ.App.-Dallas 1937, writ dism'd). It may not reasonably be interpreted to have placed a restriction on the use of the property.

The facts of the transaction reveal a further reason why Utilities may not claim equitable enforcement of the exclusive franchise granted in the November 21, 1967 contract. The record shows that Lester Tatum, president of Utilities, owned approximately 100 acres of property, of which that now owned by Apartments is a portion. Tatum sold various tracts out of this original 100 acres to corporations, including NCL, of which he was also the president. As president of all these corporations, Tatum executed contracts with Utilities, which contracts were substantially identical to that between Utilities and NCL. Tatum's attempt, by contracting between his various corporations, to create a monopoly for Utilities may not be enforced in equitable proceedings.

Utilities argues that NCL has created 'an exclusive right or privilege is granted only upon the property or premises of the grantor.' Airport Coach Service, Inc. v. City of Fort Worth, 518 S.W.2d 566, 572 (Tex.Civ.App.-Tyler 1974, writ ref'd n.r.e.). While this rule may have been applicable while the property was still owned by NCL, the right of NCL to make such a promise concerning the property ended when NCL conveyed the property. NCL could not by this contract reserve, grant or maintain any monopolistic powers over the sewer and water service beyond the period of its ownership. Riley v. Davidson, 196 S.W.2d 557, 560 (Tex.Civ.App.-Galveston 1946, writ ref'd n.r.e.).

The Contract Between Utilities and Authority

Utilities' contract with Authority, dated July 11, 1966, provides in part that Utilities is to have 'the exclusive right, as between the parties hereto, to furnish water and sanitary sewer service to parties within' a tract of land containing approximately 100...