A municipality is not bound to furnish water for fire
protection, and if it voluntarily undertakes to do so, it does not
subject itself to a greater liability.
While a diversity of opinion exists, a majority of the American
courts hold that the taxpayer has no such direct interest in an
agreement between the municipality and a corporation for supplying
water as will allow him to sue either
ex contractu for
breach or
ex delicto for violation of the public duty
thereby assumed.
In this case,
held that a taxpayer has no claim against
a water supply company for damages resulting from a failure of the
company to perform the contract with the municipality.
One agreeing to perform a public service for a municipality is
responsible for torts to third persons, but for omissions and
breaches of contract he is responsible to the municipality
alone.
A contract between a public service corporation and the
municipality should not be unduly extended so as to introduce new
parties and new rights and subject those contracting to suits by a
multitude of
Page 226 U. S. 221
persons for damages for causes which could not in the nature of
things have been in contemplation of the parties.
The conclusion that a property owner has no claim against a
water supply company for failure to conform to the contract does
not deprive him of any right, for had the municipality been guilty
of the same acts, no suit could be maintained.
In
Guardian Trust Co. v. Fisher, 200 U. S.
57, the contract with the water company expressly
provided for liability of the company to third parties, and the
state court having held that, under the law of North Carolina, an
action of this nature can be maintained, that question was not in
issue in this Court.
What is said in an opinion of this Court must be limited to the
facts and issues involved in the particular record under
investigation.
Guardian Trust Co. v. Fisher did not overrule
National Bank v. Grand Lodge, 98 U.
S. 124, holding that a third person cannot sue for the
breach of a contract to which he is a stranger unless in privity
with the parties, and is therein given a direct interest.
"The Spartan Mills" owned a number of houses in Spartanburg,
South Carolina. They were damaged by fire on March 25, 1907. The
German Alliance Company, which had insured the buildings, paid
$68,000, the amount of the loss, took from the mills an assignment
"of all claims and demands against any person arising from or
connected with the loss or damage," and brought suit, in the United
States Court for the District of South Carolina, against the Home
Water Supply Company on the ground that the fire could easily have
been extinguished and the damage prevented if the water company had
complied with its contract and duty to furnish the inhabitants of
the city with water for fire protection.
The complaint alleged that, on February 14, 1900, the city
council adopted an ordinance ratifying a contract, previously
prepared, between the city and the water company by which the
latter was empowered, for a term of thirty-three years, to lay and
maintain pipes in the streets and operate waterworks with which "to
supply the city and its inhabitants with water suitable for fire,
sanitary, and domestic purposes." The city agreed to use the
hydrants
Page 226 U. S. 222
for the extinguishment of fires and sprinkling purposes only, to
make good any injury which might happen to them when used by its
fire department, to pay rent for said fire protection for the term
of ten years at the rate of $40 per year for each hydrant, and
annually to levy a tax sufficient to pay what should become due
under the contract.
The company agreed to lay at least six miles of pipe, but on
sixty days' notice from the city would lay additional pipes and
install hydrants, not less than ten to the mile, for each of which
the city was to pay $40 per year.
The company agreed to keep all hydrants supplied with water for
fire protection, and to maintain a height of at least 70 feet of
water in the standpipe. If any hydrant remained out of order for
more than twenty-four hours after notice, the company was to pay
the city $7 per week while each hydrant was unfit for use.
It was further alleged that, in 1905 and 1906, the city ordered
the company to
"put in certain hydrants with connecting pipes, . . . which
order, if obeyed, would have carried water protection to within
about 200 feet of the building which first caught fire on March 25,
1907, instead of 650 feet, which was the distance of the nearest
hydrant to the said fire on said day; that, in violation of its
duty and obligation to adequately protect the property from fire,
and in defiance of the order of council, the defendant failed to
make such extensions, and as a direct result there was no plug near
enough to furnish water to extinguish said fire -- all due to the
defendant's culpable and willful negligence and disregard of duty
and obligations to said city and its inhabitants."
Other breaches were charged, in laying 4-inch instead of 6-inch
pipe; in neglecting to install the electric cut-off, and "in
failing absolutely to furnish water with which to extinguish such
fire and prevent its spreading to other houses."
The defendant made no question as to the right of the
Page 226 U. S. 223
insurance company to maintain the action if the Spartan Mills
could have done so, but filed a general demurrer which was
sustained July 14, 1908. That judgment was affirmed November 4,
1909, by the circuit court of appeals (174 F. 764), and the case
was brought here by writ of certiorari.
Page 226 U. S. 227
MR. JUSTICE LAMAR, after making the foregoing statement of
facts, delivered the opinion of the Court.
In
Ancrum v. Camden Water Company, 82 S.C. 284, the
Supreme Court of South Carolina, construing a contract much like
the one here involved, held that a taxpayer could not maintain an
action against a water company for damage due to its failure to
furnish water as required by such an agreement with the city. The
plaintiff, however, contends that, although the present suit is for
damage to property located in South Carolina, that decision is not
of controlling authority, because it was rendered two years after
this action was begun. Relying on
Burgess v. Seligman,
107 U. S. 20, it
insists that, when the contract was made, February, 1900, there was
no settled state law on the subject, and therefore the federal
courts must decide for themselves, as matter of general law, the
much controverted question as to a water company's liability to a
taxpayer for failure to furnish fire protection according to the
terms of its contract with the city.
The courts have almost uniformly held that municipalities are
not bound to furnish water for fire protection. Such was the
unquestioned rule when they relied, as some still do, on wells and
cisterns as a source of supply; nor was there any increase of
liability with the gradual increase of facilities, though, with the
introduction of reservoirs, standpipes, pumping stations, and steam
engines, cities were frequently sued for damages resulting from an
inadequate supply or insufficient pressure. But the city was under
no legal obligation to furnish the water, and if it voluntarily
undertook to do more than the law required, it did not thereby
subject itself to a new or greater liability. It acted in a
governmental capacity, and was
Page 226 U. S. 228
no more responsible for failure in that respect than it would
have been for failure to furnish adequate police protection.
If the common law did not impose such duty upon a public
corporation, neither did it require private companies to furnish
fire protection to property reached by their pipes. And there
could, of course, be no liability for the breach of a common law,
statutory, or charter duty which did not exist. It is argued,
however, that even if, in the first instance, the law did not
oblige the company to furnish property owners with water, such a
duty arose out of the public service upon which the defendant
entered. But if, where it did not otherwise exist, a public duty
could arise out of a private bargain, liability would be based on
the failure to do or to furnish what was reasonably necessary to
discharge the duty imposed. The complaint proceeds on no such
theory. It makes no allegation that the defendant failed to furnish
a plant of reasonable capacity, or neglected to extend the pipes
where they were reasonably required. Nor is it charged that what
the company actually did was harmful, in itself, or likely to cause
injury to others, so as to bring the case within the principle
applicable to the sale of unwholesome provisions, or misbranded
poisons, which, in their intended use, would be injurious to
purchasers from the original vendee. So that, notwithstanding
numerous charges of culpable, wanton, and malicious neglect of
duty, this suit -- whether regarded as
ex contractu or
ex delicto -- is for breach of the provisions of the
contract of February 14, 1900, which must therefore be the measure
of plaintiff's right and of the defendant's liability.
Whether a right of action arises out of such a contract in favor
of a taxpayer is a matter about which there has been much
discussion and some conflict in decisions. Although for nearly a
century it has been common for private corporations to supply
cities with water under this
Page 226 U. S. 229
sort of agreement, we find no record of a suit like this prior
to 1878, when the Supreme Court of Connecticut, in a brief decision
(
Nickerson v. Hydraulic Co., 46 Conn. 24), held that the
property owner was a stranger to the agreement with the
municipality, and therefore could not maintain an action against
the company for a breach of its contract with the city. Since that
time. similar suits, some in tort and some for a breach of the
contract, have been brought in many other states. In view of the
importance of the question, the subject has been examined and
reexamined, the contract subjected to the most critical analysis,
and many elaborate opinions have been rendered. They are cited in 3
Dillon, Munic.Corp. ยง 1340, and in the
Ancrum case,
supra.
From them it appears that the majority of American courts hold
that the taxpayer has no direct interest in such agreements, and
therefore cannot sue
ex contractu. Neither can he sue in
tort, because, in the absence of contract obligation to him, the
water company owes him no duty for the breach of which he can
maintain an action
ex delicto. A different conclusion is
reached by the supreme courts of three states, in cases cited and
discussed in
Mugge v. Tampa Water Works Co., 52 Fla. 371.
They hold that such a contract is for the benefit of taxpayers, who
may sue either for its breach or for a violation of the public duty
which was thereby assumed.
The plaintiff presses these decisions to their logical
conclusion, and sues not for negligence in operating the plant, but
for breach of the contract of construction. The complaint charges
that, as a direct consequence of the refusal to lay the pipes as
provided by the contract, there was no plug near enough to
extinguish the fire. The other allegations as to putting in 4-inch
instead of 6-inch pipe, and failing to install the electric
cut-off, are immaterial, except on the theory that, if the property
owner was indeed a beneficiary, it, after acceptance, would be
entitled
Page 226 U. S. 230
to all the rights of the original promisee, and if not otherwise
injured, might at least recover nominal damages for any breach. By
the same reasoning, it, with the other members of the class, might
release the company from liability already incurred, or even
discharge it altogether from the duty of carrying out the agreement
in the future. If this did not entirely substitute the taxpayer for
the municipality, it would at least subject the promisor to
liability to many, where it only had contracted with one.
Dow
v. Clark, 7 Gray 201.
In many jurisdictions, a third person may now sue for the breach
of a contract made for his benefit. The rule as to when this can be
done varies in the different states. In some, he must be the sole
beneficiary. In others, it must appear that one of the parties owed
him a debt or duty, creating the privity necessary to enable him to
hold the promisor liable. Others make further conditions. But even
where the right is most liberally granted, it is recognized as an
exception to the general principle, which proceeds on the legal and
natural presumption that a contract is only intended for the
benefit of those who made it. Before a stranger can avail himself
of the exceptional privilege of suing for a breach of an agreement
to which he is not a party, he must at least show that it was
intended for his direct benefit. For, as said by this Court,
speaking of the right of bondholders to sue a third party who had
made an agreement with the obligor to discharge the bonds, they
"may have had an indirect interest in the performance of the
undertakings . . . , but that is a very different thing from the
privity necessary to enable them to enforce the contract by suits
in their own names."
Nat. Bank v. Grand Lodge, 98 U.
S. 124.
Cf. Hendrick v. Lindsay, 93 U.
S. 149;
National Savings Bank v. Ward,
100 U. S. 202,
100 U. S.
205.
Here, the city was under no obligation to furnish the
manufacturing company with fire protection, and this
Page 226 U. S. 231
agreement was not made to pay a debt or discharge a duty to the
Spartan Mills, but, like other municipal contracts, was made by
Spartanburg in its corporate capacity, for its corporate advantage,
and for the benefit of the inhabitants collectively. The interest
which each taxpayer had therein was indirect -- that incidental
benefit only which every citizen has in the performance of every
other contract made by and with the government under which he
lives, but for the breach of which he has no private right of
action.
He is interested in the faithful performance of contracts of
service by policemen, firemen, and mail contractors, as well as in
holding to their warranties the vendors of fire engines. All of
these employees, contractors, or vendors are paid out of taxes. But
for the breaches of their contracts the citizen cannot sue, though
he suffer loss because the carrier delayed in hauling the mail, or
the policeman failed to walk his beat, or the fireman delayed in
responding to an alarm, or the engine proved defective, resulting
in his building's being destroyed by fire. 1 Beven, Negligence in
Law (3d ed.) 305; Pollock on Torts (8th ed.) 434, 547;
Davis v.
Clinton Waterworks Co., 54 Ia. 61.
Each of these promisors of the city, like the water company
here, would be liable for any tort done by him to their persons.
But, for acts of omission and breaches of contract he would be
responsible to the municipality alone. To hold to the contrary
would unduly extend contract liability, would introduce new parties
with new rights, and would subject those contracting with
municipalities to suits by a multitude of persons for damages which
were not, and, in the nature of things, could not have been, in
contemplation of the parties.
The result is that plaintiff cannot maintain this action, and,
though based upon the general principle that the parties to a
contract are those who are entitled to its rights,
Page 226 U. S. 232
is in accordance with the particular intent of those who made
this agreement.
If the company had, indeed, made a valid contract for the
benefit of a third person, the amount of the damages for which it
might be liable would be immaterial. Yet, where there is no such
express agreement, and liability to a taxpayer is sought to be
raised by implication, it is proper to test the correctness of the
proposed construction by noting the results to which it would lead.
The contract was made in February, 1900. By its terms, the city
was, during a period of ten years, to pay $40 per annum for each
hydrant. During that time, the property subject to damage by fire
might double or quadruple in value. The failure to provide that the
water rent of $40 per hydrant should rise or fall with the increase
or decrease in such values indicates that liability for damage to
that property was not in the contemplation of the parties, and that
no payment therefor was included in the price for each hydrant.
Otherwise the amount of payment would naturally have varied with
the risk assumed.
In some states, it is held that, in the absence of a statute, a
city can neither directly nor indirectly make a contract with a
water company that the latter should pay private individuals for
fire damage, since that would involve the use of public money to
secure a private benefit to the owner of private property.
Hone
v. Presque Isle Water Co., 104 Me. 217. In the
Ancrum
case,
supra, the South Carolina court held that the amount
paid per hydrant was so insignificant by comparison with the
enormous risk involved as clearly to indicate that neither the city
nor the water company intended that the latter should be liable to
the taxpayer for a breach of the company's contract with the
city.
This conclusion deprives the property owner of no right, for if
the city had owned the works and had been guilty of the same acts
as are charged against the water company
Page 226 U. S. 233
here, no suit could have been maintained against the
municipality. There was no creation of a right to fire protection
if, instead of doing so itself, the city contracted with a private
company to furnish water. It bought the citizen no new right of
action, and did not bargain to secure for him an indemnity against
loss by fire, but left him to protect himself against that hazard
by insurance, paying the premium direct to an insurance company
instead of indirectly, through taxation. When, in pursuance of such
precaution, the Spartan Mills insured the houses, and the plaintiff
later settled the fire loss, there was no right of action in favor
of the manufacturing company against the water company to which the
insurance company could be subrogated.
The plaintiff urges that, whatever the rule elsewhere, it is
entitled to recover under the decision in
Guardian Trust
Company v. Fisher, 200 U. S. 57. But
the facts there differ from those in this record. There, the water
company had an exclusive right to use the streets in the City of
Greensboro under an ordinance which, among other things, provided
that
"said water company shall be responsible for all damage
sustained by the city, or any individual or individuals, for any
injury sustained from the negligence of the said company either in
the construction or operation of their plant."
(P.
200 U. S. 58.)
Buildings were destroyed as a result of the negligent failure of
the company to furnish sufficient water while operating its plant.
The owner brought suit against the water company in the courts of
North Carolina, where it had previously been settled that such
actions could be maintained. He recovered a judgment "for the
tortious injury and damage done to the plaintiff by the negligence
of the defendant." 128 N.C. 375. Execution issued, but no levy
could be made, because the property of the water company was in
possession of a receiver, appointed in foreclosure proceedings
pending in the United States
Page 226 U. S. 234
court. The plaintiff intervened therein, claiming that he was
entitled to be paid before the bondholders by virtue of the North
Carolina statute, which provided that "judgments for corporate
torts" should take priority over older mortgages.
It was urged, among other things, by the bondholders, that the
suit in the state court was really for breach of contract, and that
entering the judgment as for a tort did not change the nature of
the action so as to entitle the plaintiff to the benefits of the
North Carolina statute.
It was that question alone, as to the character of the suit and
judgment, which was before this Court. What was said in the opinion
must be limited, under well known rules, to the facts and issues
involved in the particular record under investigation. The
Fisher case could not have decided the primary question as
to the right of the taxpayer to sue, for that issue had been
finally settled by the state court. It raised no federal question,
and was not in issue on the hearing in this Court. Neither did the
Fisher case overrule the principle announced in
National Bank v. Grand Lodge, that a third person cannot
sue for the breach of a contract to which he is a stranger unless
he is in privity with the parties and is therein given a direct
interest. The judgment of the circuit court of appeals is
Affirmed.
