Title: Polo Ranch Co. v. City of Cheyenne

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Polo Ranch Co. v. City of Cheyenne1998 WY 147969 P.2d 132Case Number: 96-316Decided: 12/08/1998Supreme Court of Wyoming
 
POLO 
RANCH COMPANY; John N. Morris and Norma B. Morris; John C. Graham and Betsy M. 
Graham, Appellants (Defendants/Plaintiffs),

v.

CITY OF CHEYENNE, 
Cheyenne Board Of Public Utilities, Appellee 
(Plaintiff/Defendant).

 

Appeal from the District 
Court, Laramie County, Edward L. Grant, J.

 

Michael J. 
Sullivan and Morris Massey of Brown, Drew, Massey & Sullivan, Casper, WY; 
and Henry F. Bailey, Jr. of Bailey, Pickering & Stock, Cheyenne, WY. 
Argument presented by Mr. Sullivan, for Appellants.

J. Kent Rutledge 
of Lathrop & Rutledge; Gregory C. Dyekman and Matthew H. Romsa of Dray, 
Thomson & Dyekman, P.C., Cheyenne, WY; and Mayo Sommermeyer and Blair J. 
Trautwein of Sommermeyer, Wick Dow & Campbell, Fort Collins, CO. Argument 
presented by Mr. Rutledge, for Appellee.

Before 
LEHMAN, C.J., and THOMAS, MACY, GOLDEN and TAYLOR,* 
JJ.

* Chief Justice at time of 
oral argument; retired November 2, 1998.

LEHMAN, Chief 
Justice.

[¶1]      This case arises 
out of a 1955 Drilling and Water Use Agreement (Agreement) entered into between 
the predecessors in interest of appellant, Polo Ranch Company ("Polo Ranch" or 
"Ranch"), and the City of Cheyenne, Board of Public Utilities (City). For many 
years, the parties operated under the Agreement without problems, but in the 
1970s conflicts began to surface regarding Polo Ranch's contractual entitlement 
to water. After several years of escalating disputes, litigation ensued, 
involving declaratory judgment claims, contract claims and extra-contractual 
claims, all related to the 1955 Agreement. Polo Ranch appeals only three of the 
many issues decided below. Specifically, Polo Ranch assigns as error the court's 
determinations regarding 1) the City's obligation to drill and explore the lands 
covered by the Agreement; 2) assignment of costs for backflow prevention; and 3) 
Polo Ranch's connections to the City's lake lines. The court's conclusions on 
the first and third issues are supported by the evidence and in accordance with 
law and are, therefore, affirmed. However, we find the court's legal conclusion 
regarding backflow prevention contrary to the parties' intent as expressed by 
the language of the contract; and on that issue, we 
reverse.

ISSUES

[¶2]      Polo Ranch 
advances these issues:

I. Whether the 
trial court erred in its conclusion that the City did not breach the water 
lease, finding all of the "remaining lands" had been explored and tested by the 
City; that there was no obligation to drill or complete additional wells; and 
its interpretation of development provisions of Paragraph 4 of the water lease, 
such rulings being clearly erroneous, not supported by substantial evidence and 
contrary to law. Whether the court similarly erred in its conclusion that if 
there was such a breach it would not be material to the positions of the 
parties. Having failed to fulfill its obligation, whether the City can continue 
to maintain the exclusive right to drill on unexplored and untested lands. 
Whether the water lease should be terminated as to those 
lands.

II. Whether the 
court erred in requiring Polo Ranch to pay for backflow prevention given the 
fact that all of the groundwater wells and appurtenant equipment are the 
property of the City, and the collection, distribution, and delivery system in 
use was designed and constructed by the City.

III. Whether, 
given the 40-year history of dealings between the parties, the court erred in 
requiring Polo Ranch to disconnect its taps from the City lake lines or to 
execute a written agreement formalizing the arrangement between the parties for 
delivery of water from the lake lines in lieu of water from the north Bell 
wells.

The City of 
Cheyenne, appellee, restates the issues in this way:

I. Did the Trial 
Court correctly interpret the provisions of the 1955 Agreement concerning 
exploration and testing of the lands subject to the Agreement, and the City's 
obligation to drill wells, and was there sufficient evidence to support the 
Trial Court's conclusions that the City complied with those provisions and, in 
any event, that any breach of those provisions was not detrimental to Polo 
Ranch?

II. Did the 
Trial Court correctly determine that the City could require Polo Ranch to pay 
for backflow prevention reasonably necessary to protect the City's water 
system?

III. Did the 
Trial Court correctly determine that the City could require Polo Ranch to 
disconnect from the City's lake lines or to execute a written agreement 
formalizing the arrangement between the parties for delivery of water from the 
lake lines in lieu of water from the north Bell wells?

 

FACTS

[¶3]      On September 29, 
1955, John H. Bell (Bell) entered into a Drilling and Water Use Agreement with 
the City of Cheyenne.1 The gist of the Agreement was to 
give the City the exclusive right to drill for subsurface water under the lands 
of what is now known as Polo Ranch and to use the water produced from the Ranch, 
subject to delivery of a portion of the water to Bell. At the time the Agreement 
was entered, Bell had drilled eight wells in the Crow Creek Valley which were 
flowing at the surface, although none had been pumped.

[¶4]      The Agreement 
provided that the City was to drill test wells in Crow Creek Valley west of the 
eight flowing wells, and to complete and pump the test wells if sufficient 
quantities of water were present to justify development. The remainder of the 
lands covered by the Agreement were to be explored and tested with reasonable 
diligence and equipped with pumps until the area was fully tested. The City 
agreed to furnish Bell specified percentages of the produced water for 
irrigation, domestic, and stock watering purposes, and to deliver the water to 
Bell at the surface of the ground at the respective wells. The amount of water 
to be pumped is entirely within the City's discretion, but Bell is entitled to 
at least 43 million gallons of water each year at the City's expense. Bell is 
also entitled to have additional water produced, at his own expense, up to a 
percentage of the reasonable capacity of the field. The Agreement contains a 
provision which permits the City to terminate the Agreement in whole or in part 
if it determines that the area does not provide a feasible source of supply for 
its purposes. Bell has the right to terminate if production capacity is less 
than 155.5 million gallons in a twelve-month period, provided he gives the City 
notice and an opportunity to correct the deficiency.

[¶5]      In the two years 
following execution of the Agreement, the City drilled twenty-five test holes 
and completed ten of those wells for production. Of the ten completed wells, 
seven are south of the railroad tracks, in the Crow Creek Valley, and are 
referred to as the south Bell wells. The three wells north of the railroad 
tracks are above Crow Creek, and are referred to as the north Bell wells. 
Shortly after the City began producing the south Bell wells, it installed 
pipelines, valves, and other appurtenant equipment necessary to collect the 
water from these wells and transport it to Cheyenne. For reasons not documented, 
the City asked Bell to take his water from the south Bell wells from the 
collection pipeline rather than at the surface of the ground at the wells, as 
provided by the Agreement. Similarly, in lieu of water from the north Bell 
wells, Bell was provided water from the City's lake line which transports 
surface water from west of Cheyenne. The parties acted informally under the 
Agreement in other respects as well; Polo Ranch received water without regard to 
volumetric limitations in the Agreement, and was not charged for excess water. 
Despite these deviations, the Agreement has never been amended, and there are no 
other contracts between the City and Polo Ranch that govern the respective 
rights and responsibilities of the parties.

[¶6]      The parties 
operated for many years under the 1955 Agreement without dispute. However, 
starting in the mid-1970s, after Polo Ranch had succeeded to the Bells' 
interest, the parties' relationship began to deteriorate. The City began billing 
Polo Ranch for the expenses associated with producing water in excess of Polo 
Ranch's free entitlement. As well efficiencies decreased, the billing costs for 
additional water increased and became a subject of much dispute. Over the years, 
Polo Ranch's water needs increased as it expanded the number of acres irrigated 
and began using pivot sprinklers. Although much of the municipal water supply 
comes from surface water, the City's demands on the Bell field also increased 
because the City blends its surface water with ground water to comply with 
federal lead and copper content restrictions. The increased water needs of both 
parties created added tension and conflicts. Other disagreements centered around 
Polo Ranch's taps on the City's lake line and potential contamination at the 
Ranch's cross-connections on the City's collection line from the south Bell 
wells.

[¶7]      The litigation in 
this case began in August 1990, when the City filed a complaint against Polo 
Ranch, seeking $6,613.47 for pumping expenses under the Agreement. Polo Ranch 
raised numerous affirmative defenses and filed counterclaims seeking a 
declaration of the parties' rights, duties and obligations under the Agreement 
and equitable relief. In November 1994, the City sought declaratory relief 
permitting the City to require Polo Ranch to disconnect from the City's water 
transmission system or to install a backflow prevention system at Polo Ranch's 
expense. Again, Polo Ranch set forth numerous affirmative defenses and 
counterclaims alleging breach of the covenant of good faith and fair dealing, 
negligent operation and maintenance of the wells, civil rights violations under 
§ 1983, and inverse condemnation. The City subsequently amended the November 
complaint to include a claim for declaratory relief regarding connections to the 
City's lake line. A third suit, commenced by the City in December 1994, sought 
relief concerning access to Polo Ranch. In December 1995, Polo Ranch sued the 
City for, among other things, breach of the Agreement for failure to provide 
irrigation water. After resolving several issues by way of pre-trial motions, 
the district court consolidated the cases for trial.

[¶8]      Following a 
week-long bench trial starting March 25, 1996, the court resolved most of the 
claims in favor of the City. The court reiterated its earlier ruling that the 
1955 Agreement is clear and unambiguous, supported by adequate consideration, 
and enforceable and binding on the parties. Relevant to this appeal, the court 
concluded that the City fulfilled its contractual obligations to explore and 
test the lands covered by the Agreement. The court determined that Polo Ranch 
must pay for backflow prevention reasonably necessary to prevent contamination 
of the City's water system. Finally, the court ruled that Polo Ranch must 
disconnect from the City's lake line or formalize the arrangement between the 
parties by way of a written agreement. Although other issues were decided by the 
trial court, Polo Ranch has limited its appeal to those rulings described above. 
Additional facts relevant to the specific issues on appeal will be set forth in 
our discussion.

STANDARD OF 
REVIEW

[¶9]      The trial court 
entered extensive findings of fact and conclusions of law. The factual findings 
of a judge are subject to a broader scope of review than a jury verdict, and the 
appellate court may examine all of the properly admissible evidence in the 
record. Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 538 (Wyo. 1993). 
However, the court's findings are presumptively correct, and will not be set 
aside unless they are clearly erroneous. Id. A finding is clearly erroneous 
when, although there is evidence to support it, the reviewing court on the 
entire evidence is left with the definite and firm conviction that a mistake has 
been committed. Id. The court's conclusions of law are reviewed de novo. 
Id.

[¶10]   Our basic purpose in construing or 
interpreting a contract is to determine the true intent and understanding of the 
parties. Examination Management Servs., Inc. v. Kirschbaum, 927 P.2d 686, 690 
(Wyo. 1996); Amoco Prod. Co. v. Stauffer Chem. Co. of Wyo., 612 P.2d 463, 465 
(Wyo. 1980). Contract construction and interpretation are done by the court as a 
matter of law. Moncrief v. Louisiana Land & Exploration Co., 861 P.2d 516, 
524 (Wyo. 1993). In construing a written agreement, we must derive the meaning 
of the instrument from its language if the terms are clear and unambiguous. Id. 
We consider the contract as a whole, reading each part in light of all other 
parts. Examination Management Servs., 927 P.2d  at 690. Common sense and good 
faith are leading precepts of contract construction. Moncrief, 861 P.2d  at 
524.

[¶11]   We have also recognized that the 
language of a contract is to be construed within the context in which it was 
written. Examination Management Servs., 927 P.2d  at 690. The court may look to 
the surrounding circumstances, the subject matter, and the purpose of the 
contract to ascertain the intent of the parties at the time the agreement was 
made. Id. However, the context cannot be invoked to contradict the clear meaning 
of the language used, and extraneous circumstances do not justify inserting a 
provision contrary to the express terms of the contract; the court cannot make a 
contract for the parties. Id.

DISCUSSION

1. Exploration, 
Testing, and Development

[¶12]   Polo Ranch contends the City 
breached its obligation to explore, test and develop Ranch lands in accordance 
with the Agreement. As such, Polo Ranch contends that the Agreement should be 
terminated as to the unexplored and untested lands. The City counters that Polo 
Ranch never asserted a claim for termination of the Agreement and, therefore, 
that theory should be rejected on appeal. We have carefully reviewed the 
numerous pleadings and the trial transcript and we are not persuaded by the 
City's argument. Though perhaps the claim was not presented with the greatest 
clarity, especially with regard to the relief sought, the City's obligation to 
explore and test and its right to further explore and drill on Ranch lands have 
been at issue since Polo Ranch filed its initial counterclaim for declaratory 
judgment. The court denied the City's motion for summary judgment on the 
declaratory judgment, leaving the issues raised therein for trial. During trial, 
the matter was broached on several occasions by both parties. Finally, the court 
adopted the following conclusion of law from the City's proposed findings of 
fact and conclusions of law: "One of the contentions of Polo is that the City 
has failed to comply with the provisions of the 1955 Agreement concerning 
exploration and drilling of new wells, that paragraph 4 of the Agreement 
requires the City to drill at least 2 wells per year." Under these 
circumstances, we cannot say that the issue was not raised below. We turn, then, 
to the merits of the parties' arguments.

[¶13]   Paragraph 4 of the Agreement sets 
forth the City's obligations for exploration, testing and drilling. Starting in 
1955, and continuing into 1956 if necessary, the City was to "drill 
approximately 10 test holes upon the lands of Bell covered by this agreement in 
the valley of Crow Creek above (westerly from) the area in which the presently 
flowing wells have previously been drilled." The City was then required to 
complete wells "in such test area and in the area where flowing wells now 
exist," starting no later than the summer of 1956, and to complete at least six 
wells before the end of 1956. After the initial drilling,

[t]he remainder of the 
lands covered by this agreement shall be explored and tested with reasonable 
diligence and thereafter with similar diligence shall be equipped with casing 
and pumps at a rate of not less than two wells per year, until the area has been 
fully tested, except to the extent that this agreement may have been terminated 
in whole or in part, in accordance with paragraph 11 
hereof.

[¶14]   During 1955 and 1956, the City 
drilled twenty-five test holes and completed ten of those wells for production. 
Thereafter, the City did no further exploration or drilling. Polo Ranch's 
argument rests on the premise that the activity during 1955 and 1956 fell within 
the City's initial drilling obligation, leaving unfulfilled the City's 
obligation to explore and test the "remainder of the lands." The Agreement, 
however, only required that approximately ten test holes be drilled in the Crow 
Creek Valley the first two years, and that six of those be equipped with casing 
and pumps. The City drilled sixteen test holes in the Crow Creek Valley; seven 
of those test holes were completed. In addition, nine test holes were drilled 
north of the Crow Creek Valley, and three of those were completed with casing 
and pumps (the north Bell wells). This evidence is sufficient to establish that 
the City's test drilling in the first two years of the Agreement extended beyond 
the initial drilling requirements set out in Paragraph 4.

[¶15]   The plain language of Paragraph 4 
requires the City to drill and explore only "until the area has been fully 
tested." The term "fully tested" is not defined in the Agreement. However, the 
trial court concluded that the City's drilling activity during 1955 and 1956 
fulfilled its obligation to explore and test the remainder of the 
lands:

6. . . . Once the City 
has explored and tested the remaining lands subject to the Agreement, it has no 
obligation to drill additional wells. The City explored and tested the remainder 
of the lands covered by the Agreement when it drilled the 25 test wells shown on 
Exhibit 35. There is no evidence that the City was not diligent with respect to 
its testing and exploration, and there is no evidence that other wells would be 
discovered that would justify equipping and pumping.

In addition, the 
court concluded that Polo Ranch

fail[ed] in its burden of 
proof that, if it was a breach of the Agreement not to drill more wells, the 
breach would be a material factor in the City's ability to produce water, in 
Polo's entitlement to more water; in short, that it would materially affect the 
parties' positions. The City and Polo both would be up against the safe yield of 
the well field and the City would have to exercise its discretion concerning how 
much to produce accordingly.

The City's 
argument, and the court's implied conclusion, is that the City's obligation to 
develop the water under the Ranch is limited by the safe yield of the field. The 
City's expert groundwater hydrologist, W. Todd Jarvis, defined "safe yield" as 
the amount of ground water that can be developed from an aquifer without causing 
trouble, for example, a drop in the water table or land subsidence which might 
adversely impact water quality.

[¶16]   The 1955 Agreement makes several 
references to the production capacity of the area, and to what might be said to 
fall within the above definition of safe yield. Paragraph 6, which sets out Polo 
Ranch's entitlement to water, provides for the contingency that the City may 
pump less water than "the proven area of the field is capable of producing 
without depleting the field or materially lowering the water table." That 
paragraph also refers to "firm production capacity of the field," "dependable 
annual production of the field, without depletion or material draw-down of the 
basic water table," "reasonable capacity" and "reasonably full firm capacity" of 
the field, and "reasonable firm capacity of the wells." Paragraph 10 permits 
Bell to terminate the Agreement "[s]hould the firm productive water capacity of 
the entire area as determined by the actual production from the wells and 
measurement of the water table" be less than 155.5 million gallons per 
year.

[¶17]   The above provisions, read together 
and in light of the entire contract, demonstrate the parties' intent that the 
water resource underlying the Ranch not be overdeveloped so as to deplete the 
water supply or materially draw down the water table. A reasonable construction 
of those provisions is that they express the understanding that the City's 
obligation to develop water is limited to the safe yield of the proven area of 
the field. That construction is consistent with the exploration and testing 
requirements of Paragraph 4; reasonably diligent exploration and testing would 
define or "prove" the area of the field.

[¶18]   Of the nine test holes drilled 
north of Crow Creek, six were drilled along a north-south section line to the 
northern perimeter of the Ranch property. The test drilling in the Crow Creek 
Valley did not extend to the western property boundary, but did cover four 
complete sections, and reached the southern boundary of the eastern sections. 
The six northernmost and three westernmost test holes were not completed. Jerry 
Mark, the current director of the Cheyenne Board of Public Utilities, testified 
that the reports from the drillers who drilled the test holes indicated that 
some of the wells did not produce sufficient quantities of water to justify 
completion. Others were not completed because they caused interference with the 
production of other wells in the Bell well field. Mr. Mark's testimony was 
consistent with that of Mr. Jarvis, who noted that pumping from at least one of 
the Bell wells interferes with other nearby wells outside the area covered by 
the Agreement. The court could reasonably conclude from this evidence that the 
City's drilling activity during 1955 and 1956 fully tested the 
area.

[¶19]   Polo Ranch points to Mr. Jarvis' 
testimony, that the nature of the aquifer is heterogeneous and may contain 
pockets of water, and that there are other water-bearing formations in the area, 
as evidence that more exploration and testing would result in more water being 
available, and hence, increase the safe yield of the field. The language of the 
Agreement indicates that the parties contemplated development of the water table 
in which the original flowing wells were drilled. Paragraph 3 provides that 
"[a]ll wells drilled shall be drilled to the sands or aquifer in which the water 
now flowing from drilled wells was discovered." Additional evidence of that 
intent is found in the termination provisions of Paragraph 10, which are based 
in part on the "firm productive water capacity of the entire area as determined 
by . . . measurement of the water table." The City had no obligation to seek 
water in other formations. Moreover, empirical data gathered from the late 1950s 
to the present demonstrates that the static water level in the water table 
underlying the Bell wells has dropped at least seven feet since 1955, and 
continues to decline, even at current production levels. A reasonable inference 
is that additional wells in the same aquifer in which the original flowing wells 
were drilled would not yield more water, but would further deplete the water 
table.

[¶20]   The evidence supports the court's 
conclusion that the area covered by the Agreement has been fully tested. As 
such, the court correctly determined that the City has no further obligation to 
explore and test under the Agreement. The Agreement makes no provision for 
partial termination under the circumstances present here. The court's decision 
on this issue is affirmed.

2. Backflow 
Prevention

[¶21]   Paragraph 7 of the 1955 Agreement 
provides that "[a]ll water to which Bell shall be entitled hereunder shall be 
delivered to him at the surface of the ground at the respective wells involved." 
At the City's request, the parties later changed the method of delivery so that 
Bell received water from the south Bell wells via taps connected directly to the 
City's distribution lines. The connections serve Polo Ranch's residences, 
irrigation systems and stock tanks. This arrangement worked for many years until 
testing in 1994 revealed unacceptable total coliform levels in the water from 
two of the south Bell wells, prompting a field inspection by the Environmental 
Protection Agency (EPA).

[¶22]   In a letter to the City dated 
August 3, 1994, the EPA notified the City that the cross-connections from the 
City's water transmission line to the Polo Ranch created a possibility of 
contamination of the City's water supply. EPA requested that the 
cross-connections be eliminated or backflow measures implemented by August 25, 
1994, or it would consider action under § 1431 of the Safe Drinking Water Act.2 On August 16, 1994, the City 
informed Polo Ranch that it must disconnect from the City's water collection 
system, and that Polo Ranch's entitlement would be delivered in accordance with 
the Agreement, "at the surface of the ground at the respective wells." To assist 
Polo Ranch in complying with the decision, the City installed a valve which 
isolated the south Bell field from the rest of the City's system, thereby 
allowing Polo Ranch to have exclusive use of south Bell well water on an interim 
basis. As of November 1994, Polo Ranch had not made arrangements to disconnect 
from the City's lines, and the City sought a declaratory judgment that Paragraph 
7 of the 1955 Agreement was valid and enforceable, or in the alternative, that 
the City could require Polo Ranch to pay for backflow prevention 
measures.

[¶23]   The trial court ruled that the City 
is estopped from disconnecting Polo Ranch from the City's system. The court 
reasoned that because the City affirmatively requested a departure from the 
Agreement for its own benefit, it would be inequitable to now allow the City to 
fundamentally change the system of delivery. That decision is not before us on 
appeal. As a result, a backflow prevention system must be installed to comply 
with EPA requirements.3 The key question, then, is who must 
bear the cost of such a system, the City or Polo Ranch?

[¶24]   The trial court found that the 
potential for contamination is directly caused by the activities and operations 
of the Ranch, and concluded that, since the stock watering tanks are owned and 
used only by Polo Ranch, Polo Ranch must pay. Polo Ranch asserts that, because 
the City owns the wells and the appurtenant equipment and designed and 
constructed the collection, distribution and delivery system currently in use, 
backflow prevention is the City's responsibility.

[¶25]   As both parties recognize, the 
Agreement does not specifically address the situation that has arisen, making 
the question of financial responsibility a difficult one to answer. Polo Ranch's 
use of the water for stock watering was clearly anticipated when the Agreement 
was entered, and the cross-connections to the Ranch's stock tanks were designed 
and installed by the City well over thirty years ago. The parties simply did not 
foresee the environmental regulation which has given rise to the dispute here. 
Therefore, our goal is to determine the true intent and expectations of the 
parties regarding allocation of costs at the time and place the Agreement was 
entered. Examination Management Servs., 927 P.2d  at 690; see also 2 E. ALLAN 
FARNSWORTH, FARNSWORTH ON CONTRACTS § 7.16, at 305-06 (1990). To accomplish 
this, we look to the language of the contract, as well as the surrounding 
circumstances, the subject matter, and the purpose of the contract. 
Id.

[¶26]   We turn our attention first to the 
introductory recitals. Recitals "are frequently intended to, and often do, shed 
light on the circumstances the parties wished to have considered in the 
interpretation of the contract." Examination Management Servs., 927 P.2d  at 694 
(quoting 2 FARNSWORTH, supra, § 7.10, at 258-59). The recitals state that Bell 
had drilled eight wells in the Crow Creek Valley which were flowing at the 
surface, and that Bell was presently using the water as needed for irrigating 
meadows. The recitals further inform us that

Bell has refused to sell 
to the City for a cash consideration the water under such lands. Under such 
circumstances, Bell and the City desire to enter into an agreement under which 
the City shall have the exclusive right to drill for subsurface water under such 
lands and to use the water produced therefrom for the times hereinafter 
provided, subject to delivery of a portion of such water to Bell in accordance 
with the terms, limitations and conditions hereinafter 
contained.

Thus, the City 
sought a reliable source of ground water, while Bell's key purpose in 
contracting was to insure that he would continue to receive 
water.

[¶27]   We turn next to the substantive 
provisions of the Agreement. Paragraph 6, which deals with Polo Ranch's 
entitlement to water, is the only provision which contains language relating to 
the allocation of expenses. Paragraph 6 states in part:

Bell shall be entitled to 
receive as full consideration for all rights and privileges hereby granted to 
the City, and the City agrees to furnish Bell at its own expense4 (except as hereinafter provided), 
the following percentages of water produced from the area covered by this 
agreement. . . .

(Emphasis added.) The 
Agreement sets out two situations in which pumping expenses are to be paid by 
Bell.5 Otherwise, the Agreement contains 
no language requiring expenditures of any kind from Bell.

[¶28]   The record also contains extrinsic 
evidence which pertains to the context within which the Agreement was written. 
It is appropriate for this court to examine such "context evidence" for the 
limited purpose of ascertaining the intent of the parties at the time the 
Agreement was made. Examination Management Servs., 927 P.2d  at 690. Here, the 
record contains typewritten "Notes on Bell Ranch Water Made for John Bell," made 
while the parties were negotiating the Agreement, which iterate that "[c]osts of 
testing, drilling, installing pumps, casing pipelines, power costs, repairs, 
upkeep, etc., (all expense in connection with exploration and production of 
water) to be at City expense."

[¶29]   The substantive provisions and 
recitals lead us to conclude the parties intended that, in exchange for giving 
to the City the exclusive right to drill and use the water under the Ranch, Bell 
would receive a certain amount of water for free. The contextual evidence is 
consistent with the written Agreement and confirms the parties' intent that the 
City would bear the expenses associated with producing water. A backflow 
prevention system is necessary in order for the City to meet its obligation to 
furnish water to Polo Ranch under the current delivery system. We can only 
conclude that the financial responsibility for backflow prevention, as for other 
expenses necessary to furnish water to the Ranch, rests with the 
City.

[¶30]   The court's decision that Polo 
Ranch must pay for backflow prevention is contrary to the intent of the parties 
as expressed in the language of the Agreement, and we 
reverse.

3. Lake Line 
Taps

[¶31]   Polo Ranch does not obtain water 
from the north Bell wells, but instead has seven taps in the City's lake line 
through which the ranch obtains raw water for stock watering. According to 
testimony presented at trial, the City requested that Polo Ranch take water from 
the lake line in lieu of water from the north Bell wells. During the course of 
this litigation, the City requested a declaratory judgment allowing the City to 
remove Polo Ranch's lake line taps or to require Polo Ranch to memorialize the 
arrangement in accordance with formal policies adopted by the Board of Public 
Utilities.

[¶32]   The court determined that no 
contractual provision entitles Polo Ranch to connect to the lake lines and that 
the City has no obligation to continue the present arrangement without a formal 
agreement. Polo Ranch argues that, because the City affirmatively requested the 
current delivery system, just as it affirmatively requested a deviation from the 
delivery system for the south Bell wells, estoppel should apply here as well.6 Polo Ranch contends that the Court 
offered no reasonable explanation for treating the two situations differently. 
We disagree.

[¶33]   There are important factual 
differences between the two situations. Perhaps most importantly, the lake line 
does not contain or carry water from the Bell wells, and thus, the rights and 
obligations of the parties with respect to the lake line water are not governed 
by the 1955 Agreement. Although the evidence is undisputed that Polo Ranch takes 
water from the lake lines in lieu of water from the north Bell wells, the taps 
to the lake lines are not metered, and the water delivered to Polo Ranch from 
those lines has never been included in the figures used to calculate Polo 
Ranch's entitlement under the Agreement. No doubt the current arrangement is 
beneficial to Polo Ranch, but it is outside the scope of the Agreement. The 
court correctly concluded that the City has no obligation to continue the 
arrangement.

[¶34]   The court's ruling on the lake line 
taps is affirmed.

CONCLUSION

[¶35]   Faced with an Agreement that has 
been in existence for over forty years, major deviations from the Agreement 
which were not memorialized, and changes in law and circumstances, the trial 
court had before it a difficult task in resolving the parties' numerous 
disputes. The court's conclusion which assigns to Polo Ranch the costs 
associated with backflow prevention is contrary to the intent of the parties to 
the Agreement, and on that issue we reverse. In all other respects, the Judgment 
is affirmed.

Footnotes

1 The 
Agreement was also executed by Bell's wife, Ella Marie Bell, who was "joined to 
release any interest she may have in the subject premises for the purposes of 
this agreement."

2 Section 
1431 of the Safe Drinking Water Act (Act) is entitled "Emergency powers," and 
authorizes the EPA Administrator to take action upon receipt of information that 
a contaminant which is present in or is likely to enter a public water system or 
underground source of drinking water may present an imminent and substantial 
endangerment to the public health. 42 U.S.C.A. § 300(i)(a) (1991). The section 
authorizes broad forms of affirmative relief, and although it does not 
specifically state against whom such action can be taken, subsection (b) 
provides for civil penalties against "any person" who violates an order issued 
by the Administrator. 42 U.S.C.A. § 300(i)(b) (Supp. 1998). The Act broadly 
defines "person" to include, among others, individuals, corporations, 
associations, and municipalities. 42 U.S.C.A. § 300f (12) 
(1991).

3 In addition 
to the federal legislation relied on by the EPA, state and local regulations are in place to guard against potential contamination of 
domestic water supplies. See, e.g., Department of Environmental Quality, Water 
Quality Rules and Regulations, ch. XII, § 13(I) ("There shall be no connection 
between a water distribution system and any user whereby unsafe water or 
contamination may backflow into the system."); Code of Ordinances of the City of 
Cheyenne, Wyoming, § 44-35 [hereinafter Cheyenne City Code] ("[N]o 
cross-connections shall be permitted which, in the opinion of the Board [of 
Public Utilities], may contaminate the city water system. The water may be 
turned off to premises with cross-connections by the Board until such 
cross-connections are removed."); Uniform Plumbing Code, § 602.4 (incorporated 
into the Cheyenne City Code in Chapter 10, which sets forth building 
requirements) ("No plumbing fixture, devise, or construction . . . shall be 
connected to any domestic water supply when such . . . connection may provide a 
possibility of polluting such water supply . . . unless there is provided a 
backflow prevention device approved for the potential hazard."). However, none 
of these provisions alters the contractual relationship between the City and 
Polo Ranch, or answers the question of who must bear the financial 
responsibility for backflow prevention measures.

4 The 
Agreement consistently uses the pronouns "he" or "his" when referring to Bell, 
while "it" or "its" refer to the City.

5 When the 
field is capable of producing more than 292.5 million gallons per year and the 
City chooses not to produce water in excess of that amount, Bell is entitled to 
have what would have been his proportionate share produced at his own pumping 
expense. Bell is also entitled to pump water at his own expense where wells have 
been cased and pumping equipment installed, but the City has not yet completed 
collecting lines.

6 With 
respect to the south Bell wells, the court concluded that the City was estopped 
from "fundamentally chang[ing] the method of implementation upon which it 
insisted for its benefit."