CRANE v. EAST SIDE CANAL IRRIGATION CO

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District Court of Appeal, Third District, California.

CRANE et al. v. EAST SIDE CANAL & IRRIGATION CO.a1

Civ. 4920.

Decided: November 27, 1934

Fred B. Wood, of San Francisco, Norris J. Burke, of Sacramento, and Hugh K. Landram, of Merced, for appellant. Treadwell, Laughlin & Treadwell, of San Francisco, and C. Ray Robinson, of Merced, for respondents.

The defendant has appealed from a judgment of $19,200, which was rendered against it pursuant to a verdict returned in a suit for damages based on anticipated depreciation of the value of farm land on account of the inability of the defendant to fulfill the terms of a contract to furnish plaintiff C. A. Crane with water for the purpose of irrigation. After accepting the obligation of a contract to supply the plaintiff with water, the defendant conveyed its water rights to other parties so that it is unable to supply the water in fulfillment of the agreement. During more than twenty years that the plaintiff owned the land which is involved in this suit, he never used any water provided for by the contract. The cause, however, is based on the doctrine of anticipatory breach of contract and the expected damages as a result thereof.

For more than twenty years the plaintiff C. A. Crane has been engaged in the cattle business. During all of that time he owned 1,280 acres of grazing land which is included in adjacent sections 19 and 30, township 8 south, range 12 east, M. D. B. & M., in Merced county. This land is situated about ten miles southwest of the city of Merced. It is located twelve miles south of the Merced river, three miles north of the San Joaquin river, and fifteen miles easterly from the confluence of these two streams. In the vicinity of that property are Owens creek, Duck creek, Mariposa creek, and Dead Man creek. The Mariposa slough also lies to the south of plaintiff's land. This land is comparatively flat and level. It has never been cultivated for crops. It has always been used exclusively for grazing cattle thereon. While there is evidence that, with proper cultivation, the land would produce barley, rice, and alfalfa, there is no evidence that the plaintiff ever intends to use it for that purpose.

For more than forty years J. J. Stevinson, who was also engaged in the cattle business, owned a vast tract of land consisting of thousands of acres occupying the intervening space between the Merced river and the San Joaquin river westerly from plaintiff's property. Stevinson also possessed riparian, prescriptive, and appropriative water rights in that vicinity incident to both the Merced river and the San Joaquin river. March 21, 1898, Stevinson conveyed these water rights to the defendant East Side Canal & Irrigation Company, a corporation, of which he was then president and principal stockholder. The Occidental Land & Improvement Company, a corporation, which then owned sections 19 and 30 hereinbefore mentioned, also owned valuable and extensive water rights in the same vicinity. On the last-mentioned date, in consideration of conveying to the defendant corporation a right of way across sections 19 and 30 to be used for the construction and maintenance of an irrigation canal, it executed and delivered to the owner of those sections of land a contract, by the terms of which it was agreed the grantee and its successors in title would furnish the grantor of the right of way, and its successors, “all the water that may be required” for irrigating sections 19 and 30, not to exceed 14 cubic feet of water per second, to be paid for at the rate of not to exceed $2 per acre. This contract also provides that in consideration of the sum of $25 for each season, the owner of the land may close the canal gates in August and September of any year to flood the land east of the canal to a depth of not to exceed 18 inches for the purpose of irrigating the soil to produce grass or pasture. Sections 19 and 30 were subsequently conveyed to the plaintiff, who ever since has owned and still does own that land.

The agreement referred to reads, in part:

“That the said party of the first part does hereby sell and convey to the said party of the second part, its successors and assigns forever, a right of way for an irrigating canal upon and through sections nineteen (19) and thirty (30) * * *

“Said second party agrees for itself, its successors and assigns, that it will deliver and furnish to the first party from the main canal above mentioned, all the water that may be required, not exceeding at any time, fourteen (14) cubic feet of water per second, for the purpose of irrigating said sections * * * from the first day of March, 1898, and during the existence of said corporation and its successor or successors in interest, and that it will charge and collect from said first party, its successors and assigns, for said water, such rate per acre, irrigated as may be charged and collected for other lands irrigated by water from said canal, providing, however, that in no one year shall said charge for water for irrigating said lands exceed the sum of Two (2) Dollars, per acre, for each acre irrigated.

“Said second party also agrees that upon payment to it or its successors in interest, of twenty-five (25) dollars, said first party may, in August or September of any year, for the purpose of irrigating the natural grass or pasture upon those parts of sections nineteen (19) and thirty (30) * * * close the canal gates and back the water over so much of said lands as it will cover when standing to a height of eighteen (18) inches above the general level of land on east line of right of way on the east bank of the canal.

“It is understood and agreed that the water to be furnished under this agreement is intended to form a part of the appurtenances to said described land and the right thereto shall be transferable only with and run with said land, and that the party of the second part is bound by this instrument to all subsequent owners of said land but to no other person or persons.

“It is covenanted and agreed by the parties hereto that the party of the second part shall not be responsible for the deficiency of water caused by drouth or insufficiency of water in the river, temporary damage by flood or other accident, but that the party of the second part shall employ due diligence at all times in restoring and protecting the flow of water in its canal.”

At no time prior to the commencement of this suit did the plaintiff ever request the defendant to furnish him with water, nor did he use water pursuant to the terms of the preceding contract.

March 19, 1928, in consideration of the sum of $200,000, and of the dismissal of all pending actions involving water rights, the defendant corporation and J. J. Stevinson conveyed to the Southern California Edison Company, a corporation, the absolute right to “take, divert, use and store water,” without limitation of time, from the San Joaquin river for irrigation and for hydro-electric power purpose, together with “an easement in the canals and works” of the defendant. The sole condition of this grant of water rights is that the Edison Company shall return the water used for power purpose to the San Joaquin river at a point “above Herndon in Fresno County,” which is 60 miles below the property of the plaintiff. So, also, on January 21, 1929, in consideration of the sum of $100,000, and the dismissal of all pending suits involving water rights, J. J. Stevinson, a corporation, conveyed to seven other water companies all of its water rights on the San Joaquin river within Merced county.

As a part of the consideration for the grants last mentioned, the defendant and J. J. Stevinson dismissed the actions in all pending litigation involving their water rights. The respondent contends the conveyances of these water rights and the dismissal of these pending suits render it impossible for the defendant to fulfill its previous contract of March 16, 1898, to supply plaintiff with water to irrigate his land in sections 19 and 30, if he should desire the use of that water at any time in the future. It is asserted by the respondent that this conduct on the part of the defendant constitutes an anticipatory breach of the contract to furnish the plaintiff with water, which authorizes the maintenance of a suit for damages for all loss which is reasonably attributable thereto.

Upon that theory this suit was commenced. It was tried with a jury which returned a verdict of $25,000 in favor of the plaintiff. On a motion for new trial the amount of the judgment was reduced by the trial court to $19,200, which sum was accepted by the plaintiff as satisfactory. From that judgment the defendant has appealed.

On appeal it is contended the conveyance of the water rights and the dismissal of the suits by the defendant do not constitute an anticipatory breach of the contract to furnish plaintiff water; that the verdict and judgment are not supported by the evidence for the reason that there is no competent evidence of past or future damages, and because there is no evidence that plaintiff ever did use water under the terms of the contract, or that it is probable they ever will require the use of the water for that purpose in the future. It is also asserted the court erred in receiving evidence and in giving to the jury and refusing to give certain instructions.

We are of the opinion the evidence in this case shows an anticipatory breach of the contract on the part of the defendant to furnish the plaintiff with water for irrigation of sections 19 and 30, township 8 south, range 12 east, in Merced county, by the defendant conveying to other parties all of its title to nonriparian water rights in that vicinity, and thus rendering it practically impossible for the grantor to fulfill the agreement. An anticipatory breach of contract occurs on the part of one of the parties to the instrument when he positively repudiates the contract by acts or statements indicating that he will not or cannot substantially perform essential terms thereof, or by voluntarily transferring to a third person the property rights which are essential to a substantial performance of the previous agreement, or by a voluntary act which renders substantial performance of the contract impossible or apparently impossible. 1 Restatement of the Law of Contracts, p. 475, § 318; 6 Cal. Jur. p. 457, § 273; 3 Elliott on Contracts, p. 206, §§ 2028-2039; 3 Page on Contracts, p. 2220, §§ 1436-1443.

The appellant asserts that the doctrine of anticipatory breach of contract does not apply to the facts of this case, under our California decisions, for the reason that it has been held the mere conveyance of real property, or an interest therein, by a party to a previous contract for its sale before the time of performance does not necessarily prevent the grantor from fulfilling the agreement since he may subsequently acquire the title thereto by a reconveyance of the property before the agreed time of performance, enabling the vendor to thus fully perform the terms of the contract. The earlier California cases to that effect, however, are distinguished by the case of Brimmer v. Salisbury, 167 Cal. 522, 140 P. 30, 34, wherein it is said that if the vendor conveys the property without protecting the rights of the other contracting party under an unfulfilled executory agreement, the subsequent conveyance will be deemed to be a breach of the contract so as to entitle the injured party to sue for all damages accruing as a result thereof on the doctrine of anticipatory breach of contract. That case holds that the contract is not breached if the vendor of the land does convey it subject to the prior rights assured by the contract, or otherwise protects those rights against the subsequent conveyance. The court says in that regard: “Our adjudications hold that, in an action for breach of contract based upon a conveyance by the vendor to a third person during the existence of such an executory contract of sale, the averment merely that the vendor has sold does not state a complete cause of action; the reason being given in Easton v. Montgomery [90 Cal. 307, 27 P. 280, 25 Am. St. Rep. 123], supra, and repeated and reaffirmed in the Shively Case [99 Cal. 259, 33 P. 848], supra, and again in the Garberino Case [109 Cal. 125, 41 P. 857], supra. * * * A vendor will not have breached his contract if he shall have conveyed the property subject to or under circumstances such as do protect the rights of his vendee. * * * Where a vendee contracts with one having none or an imperfect title, he contracts in the hope or expectation that the vendor may be able to perfect the title. Such is not the case where the vendor has title and thereafter parts with it. * * * It is, of course, no answer to say that the vendor thereafter may be able to go into the open market and repurchase the property. Common experience tells us that such an expectation is in its nature but a remote possibility and that such a vendor has not the slightest intention of so doing.”

The Brimmer Case, supra, contains a complete review of the previous leading cases in California regarding that subject, and it holds that the mere conveyance of real property in violation of the express terms of a previous executory contract to sell land to another person may not be deemed to be a breach of the agreement unless the vendor fails to transfer the property subject to the prior rights secured by the executory contract or fails in some manner to protect the prior rights. It is there said: “A vendor will not have breached his contract if he shall have conveyed the property subject to or under circumstances such as do protect the rights of his vendee.” It follows that if the property is conveyed without protecting the interest secured by a previous executory contract with relation thereto, the subsequent transfer of title does constitute a breach of the previous agreement which authorizes a suit for damages on the doctrine of anticipatory breach of contract. Heden v. Point Reyes Land Co., 185 Cal. 121, 125, 196 P. 44. In the present case the water rights were conveyed by the defendant without attempting to protect the interest of the plaintiffs. There is no reasonable probability that the defendant ever will or can repossess these water rights so that it could fulfill the contract with plaintiffs. The doctrine of anticipatory breach of contract therefore applies to the circumstances of this case.

There is, however, no satisfactory evidence of detriment to the plaintiff on account of the conveyance of the defendant's water rights. The evidence fails to support the judgment with respect to the amount of damages awarded. The record is uncontradicted that for more than twenty years after the execution of the contract of March 21, 1898, to supply the plaintiff with water for irrigation of his 1,280 acres of land, he continued to use the land only for grazing stock. He never exercised his right to purchase water under the provisions of that contract during that entire period of time, or at all. He continued to use the land, as he had always used it, without irrigation. There is evidence that the land, under proper cultivation, might produce barley, rice, or alfalfa; but there is no evidence that the plaintiff ever intends to use it for that purpose. There is no evidence that the natural growth of grass on the property, which was relied on by the plaintiff to feed his stock, would ever be affected by the lack of water which might have been supplied under the terms of the contract. There is no evidence that the future use of water for irrigation purpose could not be purchased from the parties to whom the defendant sold its water rights for the same price which was fixed by the contract. The only evidence of alleged damages for anticipatory breach of the contract was furnished by four witnesses who testified that the market value of the property with the water rights attached thereto as provided by the terms of the contract prior to January 21, 1929, when the water rights were conveyed, was from $50 to $75 an acre, and that the market value of the land without the water rights was only $25 per acre. With the exception of the testimony of one witness, this evidence was adduced over the objection of the appellant that, “It is incompetent, irrelevant and immaterial, * * * and is not a proper measure of valuation and not based upon the evidence in this case.”

We are of the opinion the damages which were awarded in this suit are too remote, uncertain, and speculative to support the judgment. The only damages which may be recovered for the breach of a contract are such as appear from the evidence to be the reasonable and probable result of the breach. 17 C. J. p. 742, § 76. This is a suit for damages for breach of a contract to furnish water for irrigation of land for grazing purpose. It was never used for any other purpose. There is no evidence that it ever will be used for any other purpose, or that it is the intention of the plaintiff to attempt to use it for any other purpose. The plaintiff is entitled to compensatory damages for breach of the contract measured by the loss which he has actually sustained in the past together with the loss which the evidence shows that he is reasonably likely to sustain in the future. The evidence is uncontradicted that he sustained no loss in the past. It appears from the plaintiff's failure to use the water in the past twenty years and the absence of evidence that he ever intends to use the property for a different purpose in the future, that it is not reasonably probable he will sustain any loss in the future by virtue of the breach of contract.

Section 3301 of the Civil Code provides that “No damages can be recovered for a breach of contract which are not clearly ascertainable in both their nature and origin.” Volume 1 of the Restatement of the Law of Contracts, p. 515, § 331, declares that:

“(1) Damages are recoverable for losses caused or for profits and other gains prevented by the breach only to the extent that the evidence affords a sufficient basis for estimating their amount in money with reasonable certainty.

“(2) Where the evidence does not afford a sufficient basis for a direct estimation of profits, but the breach is one that prevents the use and operation of the property from which profits would have been made, damages may be measured by the rental value of the property or by interest on the value of the property.”

The only measure of damages to the plaintiff's property which is suggested in the present case is the possible loss of future crops for lack of irrigation afforded by the terms of the contract. Under such circumstances the measure of damages for the breach of a contract to supply water is the difference in the rental value of the land with and without the water. Fresno Canal & Irr. Co. v. Perrin, 170 Cal. 411, 149 P. 805, 808; Pallett v. Murphy, 131 Cal. 192, 63 P. 366, 368; 3 Kinney on Irrigation, p. 3135, § 1698. The Pallett Case last cited was a suit for damages for failure to supply water for irrigation of farm land pursuant to the terms of a contract. The judgment for damages, based on the difference in the rental value of the land with and without the water, was affirmed. The court said in that regard: “The evidence objected to and received by the court was confined to the rental value of the land with and without water for irrigation. This was the true rule. Evidence as to the value of a possible crop that might be grown with the use of water would be as purely speculative as could well be imagined.”

In the Fresno Canal & Irrigation Company Case, above cited, the defendant recovered damages on his cross-complaint for failure of the company to furnish him with water for irrigating his farm land. The only evidence of the measure of damages was confined to the difference in the rental value of the land with and without the water. The judgment was affirmed. The court said, regarding that measure of damages: “The only evidence offered regarding the measure of damages was proof of the annual rental values of the lands with water for irrigation and of the rental values without water. The measure of damages in such cases, where there has been total failure to deliver water as contracted for, ‘is the difference between the rental value of the land with water and its value without it, and the lawful price of the water should also be taken into consideration and deducted.’ Crow v. San Joaquin, 130 Cal. 314, 62 P. 562, 1058; Pallett v. Murphy, 131 Cal. 197, 63 P. 366.”

The respondent therefore erroneously assumed that the measure of damages under the circumstances of this case was the difference between the market value of the land with and without the water. The objections to the introduction of the evidence based on market value, only, should have been sustained.

Nor is the judgment aided by the fact that one witness testified without objection to the market value of the land with and without the water, for the reason that there is no evidence in the record based upon a proper measure of damages, and because there is no evidence that the land will be reasonably likely to be damaged on that account or that the plaintiff will sustain any loss in the future by virtue of the failure of the defendant to furnish the water pursuant to the terms of the contract. By the terms of the contract the defendant agreed to furnish plaintiff with water for irrigating his 1,280 acres of land for the sum of $2 an acre, and he was also permitted to close the gates of the canal which crosses his property and flood the lower land from the water of the canal during specified months of any year for the further sum of $25 a season. The evidence is undisputed that the plaintiff has never exercised these privileges. There is no evidence that he ever intends to do so. There is no evidence that it would cost the plaintiff any greater sum of money to irrigate his land in the future, if he ever decides to do so, by purchasing the water from the irrigating company to which the water rights were conveyed by the defendant than it would have cost him under the terms of the water contract.

For the reason that the award of damages is too remote, speculative, and uncertain, and because it is not supported by satisfactory evidence, it becomes necessary to reverse the judgment.

The appellant has assigned other errors in the admission of evidence and in giving to the jury and refusing to give certain instructions, which are unnecessary for us to determine in view of the foregoing conclusions which dispose of this appeal.

The judgment is reversed.

PER CURIAM.