San Bernardino Val. Water Development Co. v. San Bernardino Val. Municipal Water Dist.

• Decision Date: 02 August 1965
• Citation: 236 Cal.App.2d 238,45 Cal.Rptr. 793
• Court: California Court of Appeals Court of Appeals
• Parties: SAN BERNARDINO VALLEY WATER DEVELOPMENT COMPANY, Plaintiff and Appellant, v. SAN BERNARDINO VALLEY MUNICIPAL WATER DISTRICT et al., Defendant and Respondent. Civ. 27575.

Page 793

45 Cal.Rptr. 793

236 Cal.App.2d 238

SAN BERNARDINO VALLEY WATER DEVELOPMENT COMPANY, Plaintiff and Appellant, v. SAN BERNARDINO VALLEY MUNICIPAL WATER DISTRICT et al., Defendant and Respondent.

Civ. 27575.

District Court of Appeal, second District, Division 3, California.

Aug. 2, 1965.

Rehearing Denied Aug. 30, 1965.

Hearing Denied Sept. 29, 1965.

Kaplan, Livingston, Goodwin & Berkowitz, Bayard F. Berman, Sol Rosenthal and Morris E. Cohn, Beverly Hills, for appellant.

Alexander R. Tobin, Ontario, and Robert J. Webb, San Bernardino, for respondent.

ASHBURN, Justice. ^*

Plaintiff San Bernardino Valley Water Development Company ¹ is assignee of Stephan Riess, who on July 1, 1959, made a written contract with defendant San Bernardino Valley Municipal Water District ² to locate and drill for it wells producing 'potable water suitable for human consumption, from sources in hard-rock water-bearing channels and other sources from which water is not now obtained or utilized.' The drilling of the wells was to be done solely at the expense of the Development Company. It did partially complete two wells known as Blu-Cut Nos. 1 and 2, also completed a well designated as Yucaipa No. 1, expending reasonably in the drilling of said wells the sum of $187,292.94 out of pocket expenses, as the court affirmatively found. When the Yucaipa well was offered to the District as completed and for the purpose of flow testing by defendant, it delayed action and finally refused to accept the well or pay for it. So plaintiff sued, the District defended upon the ground, among others, that the water was not from a source specified in the contract, not 'new' water. The trial court rendered judgment for defendant but, while denying plaintiff any compensation for work done by it, permanently enjoined the District from 'drilling, developing, pumping or otherwise exploiting or using any of the wells drilled or partially drilled by plaintiff at Yucaipa and/or Blu-Cut.'

We have concluded that the judgment must be reversed because of refusal of the court to make certain findings requested by plaintiff. Unfortunately this requires a somewhat elaborate exposition of the matter.

Succinctly stated the gist of our reasoning is that paragraph 9(e) of the contract requires Riess to satisfy the District that the water produced by him is not derived from the Santa Ana River watershed and that proof of that fact 'may be furnished by determination of the static head of the newly discovered water source or by H-3 isotope test or by chemical analysis.' The well designated as Yucaipa No. 1 having been completed, plaintiff undertook to furnish proofs required by the language just quoted. This is the type of satisfaction contract under which performance is tested by the question whether a reasonable man would be satisfied with the same; any dissatisfaction must be real and must be made known to the promisor promptly and the grounds stated so that curable defects in the performance may be remedied. In this instance the District pursued delaying tactics, asserting erroneously and arbitrarily that plaintiff had not given it any written notice of completion of the well as required by the contract and had denied access thereto for the purpose of making a flow test under the terms of the contract. Plaintiff having sued and relied upon performance of paragraph 9(e), defendant injected the issue of whether as a matter of scientific fact the water of the well drilled by plaintiff had its source outside the Santa Ana River watershed regardless of what plaintiff's proofs under section 9(e) might show; the parties joined in canvassing this issue in extenso, but plaintiff did not waive its issue of compliance with the terms of paragraph 9(e). The court decided the case upon the issue of what was the source of the well's water as a question of scientific fact and refused to make findings upon the meaning and effect of paragraph 9(e) and the sufficiency of plaintiff's compliance with it, which findings were specially requested pursuant to sections 632 and 634, Code of Civil Procedure. These refusals amounted to a denial of a trial upon the controlling issue of the case and hence worked prejudicial error.

At and prior to the time of making the subject contract, the District and its inhabitants were sorely in need of additional water for domestic and agricultural uses, especially in the Yucaipa area. The District was restricted by the ruling in Orange County Water District v. City of Riverside, 173 Cal.App.2d 137, 343 P.2d 450 with respect to the amount it could take from the basins of the Santa Ana River watershed, and was diligently seeking an additional supply. Hearing of Mr. Riess and his successes in drilling and producing water from deep wells where others were unable to find it, the District, through Mr. Hugo W. Wilde, its general manager, wrote Mr. Riess expressing 'vital' interest in his manner of developing 'prime water' and in obtaining a proposition from him [Ex. DD]. This led to meetings and discussions which resulted in the July 1, 1959 contract, copy of which is attached to the amended complaint as Exhibit A.

Counsel for respondent argue that this contract was prepared by plaintiff's attorneys and hence any ambiguities are to be resolved against plaintiff. But the record shows the contrary for the contract, especially its paragraph 9(e) (concerning method of proof that any well brought in by Mr. Riess measured up to the contract standard) was the subject of numerous conferences and drafts. Mr. Wilde testified that 'there must have been probably 25 sets of contracts before an agreement was made'; 'Yes, there was long, many hours of discussion on that subject' [the problem of establishing that the water produced by Riess would not be derived from the Santa Ana River watershed]; 'I imagine they did [lead to paragraph 9(e)] because we rewrote and rewrote and tried to come up with something that would describe the purpose.' 'THE COURT: The question is what conversation, if any, did you have on the subject of Paragraph 9(e) of the contract. THE WITNESS Oh, we had many of them. That was rewritten many times.' '[T]his thing became months and months of a hassle.'

Mr. Riess' theory concerning production of 'new' water was explained repeatedly to Mr. Wilde and his board of directors. It is summarized in appellant's opening brief (p. 4) as follows: 'that there were long neglected sources of water to be found by drilling at carefully selected sites at high altitudes in hard rock formations and thereby intercepting deep-seated under-ground fissures or openings running along fault lines, i. e., fractures in the earth's crust.' Plaintiff's expert witness, Dr. George C. Kennedy, Professor of Research at University of California at Los Angeles, expressed the opinion that Riess' theory 'that migratory waters can be intercepted by drilling along fault planes' is obviously correct. He also said: 'I think it is enormously clever of Mr. Riess to have figured out that that is a good place, but he found it out the hard way. He has used rather amazing skill. He is an excellent field geologist. He is certainly not a theoretical field geologist * * *' Also: 'I examined three of his sites and all of them were located in a similar kind of geologic framework, either on a fault or at the intersection of fault systems.' He further remarked: 'I particularly enjoyed Mr. Angelillo's very astute definition of geology, which he says is the codification of opinion. I am sorry to say that geology is an extremely inexact science.'

Mr. Wilde believed in Riess and his theory and everybody else knew it was a theory, as witness letter of Mr. Gould (plaintiff's vice-president) to Wilde of June 17, 1959 (prior to execution of contract) explaining omission of the words 'primary or juvenile water' from the draft of the contract and saying: 'The reason for this is that we feel that the validity of the contract should not be made dependent on any representation by Mr. Riess as to a scientific theory the truth of which may not be proved for many years.' [Emphasis added.]

Wilde recommended the contract to the board in the face of imminence of litigation with watershed property owners and the further fact that 'everybody accused us of being crackpots for making such a deal, not the press, but everybody in general. We had a great deal of adverse publicity from newspapers and everything else that accused the District of being associated with a crackpot deal, * * * Q And among the people that accused the District of being a crackpot for entering into this contract with Riess with the local San Bernardino Press? A I think possibly they were. Most everything else in the area was giving us a pretty rough time. Q Including your constituents? A. That's right. * * * Q Well, do you recall saying to Mr. Mendelsohn in words or in substance in reference to Mr. Riess that, he, Riess, 'knows what he is talking about, and its obvious that he's got a big fight on his hands because the water boys in the State don't like it'? * * * [A.] I think that's generally probably true.'

The contract, after reciting Riess' experience in locating and developing wells of potable water 'from sources in hardrock water-bearing channels and other sources from which water is not now obtained or utilized' and the District's desire for 'new sources of water,' consents in paragraph 1 to assignment of the agreement to a corporation upon condition that it assume the obligations thereof and provide the benefit of Riess' services. ³ The assignment to plaintiff corporation was made and was approved by defendant.

Paragraph 2 provides that the wells be located within a specified area of some 3500 square miles, a large part of which lies on the northerly side of the mountains and wholly outside the Santa Ana River watershed. Riess was to select drilling sites subject to reasonable approval by the District, the first well to be in ...