Hinchman v. City Water Co.

• Decision Date: 09 January 1943
• Parties: HINCHMAN et al. v. CITY WATER CO. et al.
• Court: Tennessee Supreme Court

167 S.W.2d 986

179 Tenn. 545

HINCHMAN et al. v. CITY WATER CO. et al.

Supreme Court of Tennessee.

January 9, 1943

Rehearing Denied Feb. 1, 1943.

Appeal from Chancery Court, Hamilton County; J. Lon Foust Chancellor.

Suit by Lydia S. Hinchman and others against the City Water Company of Chattanooga and the Mountain Spring Water Company to recover a balance allegedly due under a contract and for a declaration under the Declaratory Judgments Act, Code 1932, § 8835 et seq. as to the rights of the parties under the contract. The chancellor rendered a decree against the Mountain Spring Water Company for the amount allegedly due but absolved the City Water Company of Chattanooga from liability for such sum and construed the contract to impose a continuing obligation on the Mountain Spring Water Company but relieving the City Water Company of Chattanooga of any obligation under the contract, and the City Water Company of Chattanooga appealed to the Court of Appeals. The Court of Appeals modified the chancellor's decree and held the City Water Company of Chattanooga liable for the amount due under the contract, and declared that the City Water Company of Chattanooga was liable for further obligations of the contract, and the City Water Company of Chattanooga brings certiorari.

Affirmed in part.

Joseph Carson, Sheldon F. Potter, T. Pope Shepherd, and Jere Tipton, all of Chattanooga, for appellant.

Spurlock & Spears, of Chattanooga, for appellee.

GREEN Chief Justice.

This suit was brought by the complainants to recover a balance alleged to be due under a contract hereafter set out from defendants City Water Company of Chattanooga and Mountain Spring Water Company and also for a declaration as to the rights of the parties under said contract. The chancellor rendered a decree against Mountain Spring Water Company for the amount alleged to be due but absolved the City Water Company from liability for such sum. He further construed the contract to impose a continuing obligation on Mountain Spring Water Company but by his declaration relieved the City Water Company of any obligation thereunder.

Mountain Spring Water Company did not appeal but City Water Company took the case to the Court of Appeals. That court modified the decree below and held the latter company liable for the amount due under the contract and declared that company liable for the further obligations of the contract. This court granted City Water Company's petition for certiorari.

In 1886 and prior thereto Charles C. Anderson and Robert Cravens owned a tract of about eight and one-half acres on Lookout Mountain near the City of Chattanooga. Under this tract there was a large spring or stream of clear water. The location was considerably above the level of the City of Chattanooga and the owners conceived the idea of supplying water to that city. A corporation was brought out known as Mountain Spring Water Company and a franchise from the city secured for that company to lay pipes through the streets and sell water to the inhabitants.

In October, 1886, Anderson and Cravens entered into a contract with one W. W. Taylor granting him the use of their tract of land with the right to use the water referred to for a period of fifty years. This lease was on the same day assigned by Taylor to one Hinchman and Hinchman assigned his rights under the contract to Mountain Spring Water Company.

Material portions of the contract between Anderson and Cravens on the one hand and Taylor on the other hand and assigned and re-assigned as just above stated are substantially these:

The use of all the water flowing "through the cavern on Lookout Mountain, known as Cravens Cave *** together with about eight and one-third acres of land around the shaft sunk into said cave, and also the right of way for pipes from the cave to or near the South Tredegar Iron Works" was granted to Taylor. Continuing "for and in consideration of which the said W. W. Taylor, his heirs, executors and assigns, agree to pay for the use of said water the sum of Ten Dollars per day, payable at the end of each three months, after the pipes shall have been laid from the cavern to Fourth Street in the City of Chattanooga." Some other elements of consideration are set out, not material in this investigation, and it was provided that the $10 per day payments should be continued for two years, "and thereafter at the rate of Fifteen Dollars per day for the term of forty-eight years, at the end of which period the said Anderson shall have the right to purchase the said water works, pipes and franchise at their then appraised value." The contract contained an undertaking on the part of Anderson to further the interests of Mountain Spring Water Company in various ways and concluded, "And it is further understood that said Anderson shall place the charter in possession of said Taylor, or his assigns, and the franchise of the same including rights of way, for laying pipes to and from the town, without charge beyond said rental."

It seems that after this contract was executed and assigned to Mountain Spring Water Company a question came up between Anderson and Taylor as to what would become of the franchise of Mountain Spring Company at the expiration of the contract. Anderson was under the impression that the franchise would revert to Cravens and Anderson. Taylor had a contrary view. It appears that Taylor proposed to compromise the matter by allowing Anderson and Cravens "to renew the lease" at a not less rate than was provided therein. This proposition was accepted and a supplementary contract was entered into by Anderson and Cravens on the one hand and Mountain Spring Water Company on the other, providing as follows: "In connection with the lease herewith attached, it is further agreed that the party of the first part (Anderson and Cravens), their heirs and assigns, have the right of renewing said lease, for terms of Fifty Years, at an appraisement rental of not less than Fifteen Dollars per day, in any event. The party of the first part having the right to renew said lease upon said terms, at the expiration of each Fifty Years. The terms of this lease are to be binding and effectual against the party of the second part (Mountain Spring Water Company), their heirs and assigns, including every purchaser & transferee, from him either at public or private sale."

Without going into details, it is sufficient to say that water mains were laid connecting the spring with pipes in the city and this water was used in the City of Chattanooga and in its suburbs until 1912. At the time of the events we have detailed another water company was operating in Chattanooga known as Lookout Mountain Water Company, using water from the Tennessee River. The name of this company was subsequently changed to City Water Company. An Eastern holding company acquired the stock of City Water Company and Mountain Spring Water Company both. For several years the corporate organization of Mountain Spring Water Company was kept up but many years ago this effort was abandoned and the $15 per diem stipulated in the original contract has been paid to those entitled thereto by the City Water Company. These payments continued until the expiration of the fifty-year term, although the water from the Cravens spring or cavern had not been used since 1912.

Just prior to the expiration of the fifty-year period the owners of the spring or cavern and the surrounding land were notified by the City Water Company that it would not renew the contract and no further payments would be made thereunder. There was a controversy as to whether the fifty-year term expired in October, 1936, or in December, 1936. The complainants insisted that the latter was the correct date and filed this bill to recover the payments for these two months which had not been paid and also "for a declaratory decree declaring and adjudging that said renewal of said lease agreement is valid, and that defendant City Water Company of Chattanooga and Mountain Spring Water Company are obligated to pay complainants *** rental at $15.00 per day for the renewal term of fifty years accordingly."

A number of defenses were interposed in the answer filed by the defendants and some proof was taken.

Many of the defenses interposed were rejected both by the chancellor and by the Court of Appeals as being without merit. The opinions of the two courts sufficiently discuss the defenses deemed unavailing and we need not go into them.

The chancellor relieved City Water Company of obligations under the contract because he thought there was no merger of Mountain Spring Water Company into the other company and that there was no such assignment of this contract by the one corporation to the other as could be recognized.

The Court of Appeals considered that there had been a de facto merger or absorption of Mountain Spring Water Company and its assets into City Water Company which rendered the latter company liable for the obligations of the former under the doctrine of Jennings, Neff & Co. v. Crystal Ice Co., 128 Tenn. 231, 159 S.W. 1088, 47 L.R.A.,N.S., 1058, and that line of authorities. This conclusion of the Court of Appeals is very vigorously assailed. We are not, however, required to test its propriety.

Apart from the fact that Mountain Spring Water Company has not functioned for more than thirty years, City Water Company has been in possession of all the properties of Mountain Spring Water Company and at regular intervals paid the $15 per diem to Anderson and Cravens and their representatives up to the time that the fifty years expired according to its computation.

All the authorities are to the effect that when a person other than a lessee is shown to be in possession of leased premises,...