Opinion ID: 1404796
Heading Depth: 1
Heading Rank: 6

Heading: Backflow Prevention

Text: 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). 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. 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? 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. 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. 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 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. 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 expense [4] (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. 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. 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. 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.