Clear Lake City Water Authority v. Clear Lake Utilities Co.
| Decision Date | 13 April 1977 |
| Docket Number | No. B-6071,B-6071 |
| Parties | CLEAR LAKE CITY WATER AUTHORITY, Petitioner, v. CLEAR LAKE UTILITIES COMPANY et al., Respondents. |
| Court | Texas Supreme Court |
Vinson, Elkins, Searls, Connally & Smith, Raybourne Thompson, Jr. and W. Allyn Hoaglund, Houston, for petitioner.
Butler, Binion, Rice, Cook & Knapp, Louis B. Paine, Jr. and R. Hayden Burns, Jerry L. Bryan, Delange, Hudson, Pitman & Katz, Eugene J. Pitman, Houston, Charles A. Easterling, Pasadena, for respondents.
Clear Lake Utilities Company (Utilities) initiated this litigation. Utilities sought a declaratory judgment that its contract with Clear Lake Water Authority (Authority) remains a valid and binding contract to give Utilities an exclusive right to provide water and sewer service to all landowners within a certain 100 acre tract. Utilities also sought a declaratory judgment that the property owned by Clear Lake Apartments, Inc. (Apartments), and within the 100 acre tract, could obtain water and sewer service only from Utilities by virtue of a contract between Utilities and the predecessor in title to that property, North Clear Lake Development Corporation (NCL). Authority then sought a declaratory judgment that its contract with Utilities is no longer in effect, either because it was void from the beginning or was legally terminated. Apartments contended that it is not bound by the contract between NCL and Utilities. Utilities also sought damages from Authority and the City of Pasadena (Pasadena) for conspiracy and wrongful interference with the contract between Utilities and Authority. The trial court declared both contracts to be valid and binding on Authority and Utilities and Apartments for a period of five years from the date of its judgment. Utilities was denied any recovery of damages. The Court of Civil Appeals affirmed the denial of damages, but otherwise reversed the trial court judgment. As to the controversy between Utilities and Apartments, the Court of Civil Appeals held that Apartments is not bound by the exclusive service provision in the contract between Utilities and NCL. The controversy between Utilities and Authority was sent back to the trial court with instructions that it could not proceed to render a declaratory judgment without the joinder as parties of all the landowners in the 100 acre tract who have contracts with Utilities making them dependent upon Utilities for water and sewer service. 537 S.W.2d 48. We agree with the Court of Civil Appeals except that we decide the controversy between Utilities and Authority without the joinder of the other landowners.
In the early 1960's Lester Tatum, the owner of a 100 acre tract of land on the north shore of Clear Lake near Pasadena, sold portions of this tract to a number of corporations he had formed for the purpose of promoting the residential development of the land. NCL was one of these corporations; it purchased the eight acres which was later resold to Apartments. In 1963 Tatum and others formed Utilities, a private utility company, to provide water and sewer service to the 100 acre tract which was not at the time within the boundaries of any municipality or water district. Utilities obtained the necessary permits for the operation of a private utility and undertook construction of a system capable of providing water and treating sewage.
At the urging of the Water Pollution Control Board, which was advocating regionalized sewer systems as an alternative to the proliferation of smaller less efficient systems, Utilities entered into negotiations for water and sewer service with Authority, a conservation and reclamation district created pursuant to statute. By an agreement dated July 11, 1966, Authority promised to furnish Utilities with water and sewage treatment service for the 100 acre tract. In return Utilities agreed to construct and maintain, at no expense to Authority, a water and sewer pipeline system capable of serving the tract and to pay Authority for the water and sewer service at a rate one and one-half times that charged by Authority to its customers located within Authority's boundaries. This contract provided that Utilities "shall have the exclusive right, as between the parties hereto, to furnish water and sanitary sewer service to parties within said tract." The contract was silent as to its duration. Utilities abandoned its plan to build a sewage disposal plant, abandoned portions of the sewage lines which had been constructed pursuant to its initial plan of development, and relinquished its water well and sewage disposal permits. Authority has from the time of this contract to the present provided Utilities water and sewer service for the 100 acre tract.
Following the execution of the July 11, 1966 agreement with Authority, Utilities entered into water and sewer service contracts with the various landowners of the 100 acres. Typical of these contracts was the one between Utilities and NCL executed on November 21, 1967 in which Utilities agreed to construct water and sewer lines adjacent to, and capable of providing service to, the eight acre tract; in return NCL agreed to contribute $23,000 toward the costs of the contemplated construction, and granted Utilities the exclusive right to furnish water and sewer service to the land. The contract provided: "The term of this agreement shall continue in effect and be irrevocable for the maximum period of time which it may lawfully do so" and will "be binding upon and shall inure to the benefit of . . . successors and assigns . . . and shall constitute a covenant running with said land . . . ." The agreement was expressly made subject to all applicable provisions of the July 11, 1966 agreement between Utilities and Authority. The contract was recorded in the Harris County Deed Records shortly after it was executed. An apartment project was erected upon the land in 1968; through mesne conveyances the eight acres is now owned by Apartments.
The eight acre tract originally owned by NCL and now owned by Apartments is within an area annexed by Pasadena in August of 1970. In 1975 Apartments notified Utilities of its intention to terminate service from Utilities and to obtain water and sewer service from Pasadena. Utilities then instituted this suit in which it seeks a declaration that the exclusive service provision in its contract with NCL is binding on Apartments either as a covenant running with the land or as an equitable servitude. The Court of Civil Appeals held that Apartments is not bound by the provision under either theory; in this Court Utilities presses only its contention that the provision is enforceable in equity.
Utilities attempts to invoke the doctrine of equitable obligation or servitude, whereby a landowner's promise binds a subsequent purchaser or possessor who acquires the land with notice of the promise. Restatement of Property § 539 (1944); Williams, Restrictions On The Use of Land: Equitable Servitudes, 28 Tex.L.Rev. 194 (1949). This attempt must fail for that doctrine has application only to promises respecting the use of land. Montgomery v. Creager, 22 S.W.2d 463, 466 (Tex.Civ.App.1929, no writ); Restatement of Property, Nature of Promises Respecting the Use of Land, Introductory Note p. 3150 (1944). NCL's grant of an exclusive franchise cannot be so classified. Enforcement of the exclusive service provision would not have restricted NCL in the use of its real property; whatever the use of the land, NCL's right under the contract to take or refuse water would have remained unimpaired. At most NCL's promise limited NCL's freedom to contract with other suppliers of water and sewer service. Such a limitation affects the use of land only collaterally and will not create an equitable servitude upon the land. We hold, therefore, that Apartments is not bound by the promise of NCL to deal exclusively with Utilities.
The Court of Civil Appeals did not find it necessary to determine the validity and status of the contract between Authority and Utilities, because it agreed with Utilities that the absence of indispensable parties deprived the trial court of jurisdiction to render judgment. This holding was premised on the belief that all of the landowners in the 100 acre tract, having contracts with Utilities expressly made subject to the Utilities-Authority contract, were indispensable parties under § 11 of the Uniform Declaratory Judgments Act. Art. 2524-1, Vernon's Ann.Civ.Stat. Utilities failed to preserve error in this regard by properly challenging by plea in abatement, or other proper pleading, the absence of the landowners or by attempting itself to bring them into the suit. See 1 McDonald, Texas Civil Practice § 3.33 (1965).
Section 11 of the Uniform Declaratory Judgments Act reads in part:
When declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceedings.
We are in agreement with the Court of Civil Appeals that joinder under § 11 of persons "who have or claim any interest which would be affected by the declaration" is mandatory. This is the clear import of the language, the construction supported by the great weight of authority, and the apparent intent of the drafters. See Crickmer v. King, 507 S.W.2d 314 (Tex.Civ.App.1974, no writ); Annot., 71 A.L.R.2d 723, 730-733 (1960); Borchard, The Uniform Act on Declaratory Judgments, 34 Harv.L.Rev. 697, 709 (1921).
We do not, however, agree with the holding of the Court of Civil Appeals (supported by Crickmer v. King, supra ) that noncompliance with § 11 uniformly constitutes a jurisdictional defect. Nor do we agree that Rule 39, Tex.R.Civ.P. 1 fashions permissive joinder rules inconsistent with the mandatory...
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