No. 12828
I N THE SUPREME COURT O THE STATE OF M N A A
F OTN
1975
L C W O W T R USERS ASSOCIATION,
OK O D AE
P l a i n t i f f and Respondent,
GERALD W. ANDERSON, d / b / a
MAGIC C I T Y VILLAGE,
Defendant and A p p e l l a n t .
Appeal from: D i s t r i c t Court o f t h e T h i r t e e n t h J u d i c i a l D i s t r i c t ,
Honorable A. B. M a r t i n , Judge p r e s i d i n g .
Counsel o f Record:
For Appellant :
Towe, Neely & B a l l , B i l l i n g s , Montana
Thomas E. Towe a r g u e d , B i l l i n g s , Montana
F o r Respondent:
Moulton, Bellingham, Longo & Mather, B i l l i n g s , Montana
Ward Swanser a r g u e d , B i l l i n g s , Montana
Submitted: September 29, 1975
Decided : NOV 1.7 1975
/
F i l e d : L4()'v ;
. ,.-
;t.,/'a.
1 u
Mr. Justice John Conway Harrison delivered the Opinion of the Court.
This is an appeal from a summary judgment and a permanent
injunction issued by the district court, Yellowstone County,
restraining defendant Gerald W. Anderson, d/b/a Magic City Village,
from hooking up any mobile homes to the facilities owned by the
plaintiff association, whether it be to take care of attrition or
otherwise, until such time as he can do so and not violate the
terms of the agreement and specifically the 60 unit limitation
provided for in the agreement or until the parties enter into a
new agreement which supercedes the existing agreement.
In 1955 residents of the Lockwood area, adjacent to Billings,
Montana, banded together in a voluntary nonprofit corporation
organized for the purpose of supplying water to its members. When
it was created there were approximately 150 homes servicing some
650 people in an area of some 2,200 acres known as the Lockwood
Community. In the 20 years of its existence the population of
the area has increased to some 2,630 people who live in 774 homes.
Some 590 are members of the Association while some 137 additional
homes receive water from the Association through their mobile
home courts that are treated as one unit for membership purposes.
At the time of organization the Association obtained a
loan from Farmers Home Administration (FHA) to put in a water
service line. The loan has not been fully repaid. The FHA took
a mortgage on the Association's property obligating it to conduct
its business in accordance with the by-laws and certain rules of
the FHA. Serious questions would arise from the mortgage pro-
visions, if the Association were to be classified a "public util-
ity".
To finance the Association memberships were sold for $50.
The Association adopted articles of incorporation and by-laws in
the form suggested by the FHA and it is a nonprofit corporation
organized for the purpose of supplying water to members only.
Its by-laws provide: (1) That the Board of Directors shall have
power to make, publish and enforce rules and regulations con-
cerning the distribution, use and application of the water under
its contract; (2) That the Board of Directors may take legal pro-
ceedings to prosecute, defend, compromise all lawsuits, to make
all contracts in the name of the corporation necessary and proper
for the conduct of the affairs and the carrying on of the busi-
ness of the corporation; (3) That no membership shall be issued
or connections made at any time when the capacity of the system
or the available supply of water is exhausted by the needs and
demands of existing members and connections; (4) That the manner
of delivering, measuring and regulating the supply of water to
members shall be prescribed by the corporation, and shall at all
times be under its control, and the Board of Directors or the
manager, with the consent of said Board, may make such rules and
regulations regarding the distribution and delivery of the water
as in its judgment may appear necessary or expedient for the best
interests of the corporation and its members; (5) That the member-
ship certificates of any member delinquent in the payment of
assessments thereon shall be subject to sale; (6) That the cor-
poration may, through its Board of Directors, after ten days notice
by mail of such delinquency, terminate the supply of water to any
user who is delinquent in the payment of any water charges, assess-
ments or rentals.
Through the years as the membership increased the Associa-
tion has adopted rules and regulations which require new members
to pay the expense of bringing water from the main to their prop-
erty lines and then on to their dwellings. This was done through
the Board of Directors elected by the membership and who serve
without pay. Throughout its existence the Association has assumed
it was not a public utility and at no time during this period
has the Public Service Commission ever attempted to regulate the
Association.
In 1972, defendant Gerald W. Anderson, d/b/a Magic City
Village, requested water for a trailer court. The first request
was for a 3 0 0 unit court. He was advised by the Association's
Board of Directors that he would be required to build a loop
from the school to his property line, if he intended to develop
the 3 0 0 units. He chose to cut down his request for water to
6 0 units and he was allowed, for the 6 0 unit development, to take
off from a nearby main. The 1972 agreement contains this state-
ment:
" * * * it is understood by and between the
parties that no more than sixty ( 6 0 ) mobile
home sites shall be served by such facilities."
This 6 0 mobile home limitation was put in on the advice of the
Association' s engineer.
Service was provided to the defendant's development and
by October 2, 1972, he was in violation of the agreement and he
was requested by the Board to attend a meeting to discuss the
matter. He refused to attend. On January 15, 1974, defendant
was advised by letter that if he did not reduce the number of
units to 6 0 his service would be terminated. Through his attor-
ney, defendant answered the January 15 letter on January 28:
"In return for your granting an extension of time
on the shutoff date, my client will take the
necessary steps to reduce the number of homes
served back down to sixty ( 6 0 ) * * *. "
In answer to this request the Association notified defendant's
attorney that it was willing to try to work the problem out,
"However, we will not grant an extension past the end of February."
As a result of these letters BlaineAnderson, son of de-
fendant, on February 7, attended a meeting of the Board of the
Association and stated that his father would complete the water
loop originally requested by the Association to get additional
units. He asked the Board to allow normal attrition to reduce
the number of trailers in the court back to 60. The Board
agreed to this request but again defendant did not live up to
agreements made with the Board. By March 11 there were 70
trailers on the development. Defendant was notified he had 10
days to reduce to 60. He not only did not comply but rather, in
the next 30 days, he told all mobile home dealers of a planned
expansion and ran advertisements for additional trailer spaces.
On March 22, 1974, the Association filed a suit to en-
force the terms of the agreement and to enjoin defendant from
placing additional trailers on the court in violation of the agree-
ment. Coincidently, defendant changed attorneys.
At the time of the show cause hearing the Association's
officers testified and introduced exhibits to show the violation
of the agreement and that it was not a public utility. The only
testimony of defendant went to the need for a restraining order
and a bond. No testimony was offered as to the substance of the
complaint or that the Association was a public utility.
The trial court found that defendant had violated the
contract; that defendant's assertion there was a mutual mistake
or fraud in drawing up the agreement was groundless; and, that
defendant was estopped from asserting this defense on the grounds
he accepted the benefits of the contract and that this evidences
an understanding consistent with the agreement.
On appeal, defendant sets forth a number of issues, how-
ever we find the only real question to be resolved is whether or
not plaintiff's operations come under the Public Service Comrnis-
sion. It is clearly apparent from the testimony of the witnesses
and the exhibits introduced that to get water from the Association
one must be a member. Only members, as such, are allowed to use
the system and they use it on a nonprofit cost sharing basis,
as required by the FHA. By joining the Association, members
agree to be bound by its rules and regulations.
Without holding that plaintiff is a form of utility,
we will assume that it is and then decide if the service render-
ed is for the public for which compensation is received.
Section 70-105, R.C.M. 1947, provides:
"Every public utility is required to furnish
reasonably adequate service and facilities. * * *"
Defendant argues that under cases of this Court (City of
Polson v. Public Service Commission, 155 Mont. 464, 473 P.2d 508;
Hames v. City of Polson, 123 Mont. 469, 215 P.2d 950; State ex
rel. Billings v. Billings Gas Co., 55 Mont. 102, 173 P. 799) the
Association is a public utility, cannot deny service to anyone
in its area, and being a public utility the agreement is unen-
forceable as contrary to public policy and the clear mandate of
the law. Under the facts here, we do not agree. The general law
is found in 73 C.J.S. Public Utilities 5 2, P. 992 and B 7b,
"The test is, therefore, whether or not such
person holds himself out, expressly or impliedly,
as engaged in the business of supplying his pro-
duct or service to the public, as a class, or to
any limited portion of it, as contradistinguished
from holding himself out as serving or ready to
serve only particular individuals. * * * It has
been stated that the true criterion by which to
determine whether a plant or system is a public
utility is whether or not the public may enjoy
it of right or by permission only. * * * "
"Accordingly, a utility must act toward all members
of the public impartially, and treat all alike,
and it cannot arbitrarily select the persons
for whom it will perform its service or furnish
its commodity, or refuse to one a favor or privilege
which it has extended to another, since the term
'public utility' precludes the idea of service
which is private in its nature and is not to be
obtained by the public. * * * "
While Montana has not had occasion to define the term
"public utility", a number of jurisdictions have established a
workable definition by case law. 64 Am Jur 2d, Public Utilities,
§5, p. 553, notes:
" * * * In the absence of statute, the most im-
portant test used in determining whether such an
organization or group is in fact a public utility
in this respect is the factor of serving or will-
ingness to serve the entire public within the
area in which the facilities of the organization
are located. If it confines its service to its
own stockholders or to members of its own group,
and does not serve or hold itself out as willing
to serve the public, it is not ordinarily con-
sidered a public utility. * * *"
See: Cherry Lake v. Kearce, 157 Fla. 484, 26 So.2d 434;
Garkane Power Co. v. Public Service Com., 98 Utah 466, 100 P.2d
571, 132 ALR 1490; State v. Nelson, 65 Utah 457, 238 P. 237, 239,
42 ALR 349.
In Nelson, cited with approval in Garkane Power Co., the
Utah court held:
"No one may successfully contend that it is compe-
tent for the Legislature to regulate and control
in such respect a mere private business or to
declare a private'business to be public service
or a public utility. In other words, the state
may not, by mere legislative fiat or edict, by
regulating orders of a commission, convert mere
private contracts or a mere private business into
a public utility or make its owner a common carrier.
[Citing cases] So, if the business or concern is
not public service, where the public has not a
legal right to the use of it, where the business
or operation is not open to an indefinite public,
it is not subject to the jurisdiction or regulation
of the commission."
See also: 73 C.J.S. Public Utilities S2, p. 991; So. Cal. Edison
Co. v. Railroad Comission, 194 Cal. 757, 230 P. 661; Choctaw
Electric Co-operative v. Redman, Okla. 1954, 293 P.2d 564; San
Miguel Power Ass'n v. Public Service Corn., 4 Utah 2d 252, 292 P.2d
In the instant case, the trial judge issued a memorandum
and order, noting:
"At the hearing on the restraining order plaintiff
presented evidence covering the purpose, formation
and operation of its business. Testimony was also
taken as to negotiations leading up to the contract,
the pertinent provisions of the contract, and de-
fendants alleged violations thereof. The Court
entered its findings of fact and conclusions of
law by which it denied the defendant's claim that
the Court had no jurisdiction, and thereafter
entered judgment granting plaintiff the permanent
injunction it sought."
After careful examination and consideration of the trial
court's findings of fact, conclusions of law and judgment, we
find them to be correct. Here, service is rendered only to mem-
bers who share the costs of operation. The service is contractual.
Having so found, it is unnecessary for us to consider
defendant's jurisdictional question. The trial court found a
breach of contract and properly granted summary judgment.
The judgment is affirmed
h
'id-
L ------ &. & -
4 &-
+
We concur:
i
I
................................ .
I
Chief Justice
sitting in place of Mr. J
Frank I. Haswell.