WATER AND SEWER SERVICE STANDARDS UNDER STATE LAW
Sid Hemsley
MTAS
Utilities as a sale of goods within the meaning of the UCC
The Uniform Commercial Code-Sales, is codified at Tennessee Code Annotated, ' 47-2101 et seq. Tennessee Code Annotated, ' 47-2-105, and defines “goods” within the meaning of
the UCC-Sales, as:
All things (including specially manufactured goods) which are
moveable at the time of identification to the contract for sale other
than the money in which the price is to be paid, investment
securities (chapter 8 of this title) and things in action. “Goods” also
includes the unborn of animals and growing crops and other
identified things attached to the realty as described in the section
on goods to be severed from realty. (' 47-2-107)
That definition obviously does not expressly include water, sewer or gas. There are no
Tennessee cases on the question of whether such utilities are “goods” within the meaning of
Tennessee Code Annotated, ' 47-2-101 et seq. However, a few cases from other jurisdictions,
including North Carolina, have held that the sale of water, gas and electricity (but not sewer) to
customers are goods, generally because they are moveable and can be measured [48 ALR3d
1062, Electricity, Gas or Water Furnished By Public Utility as “Goods” Within the Provisions of
Uniform Commercial Code, Article 2 on Sales.
The implications of a utility being held to be a “good” within the context of the UCC-Sales,
is that the seller of the goods (municipality) may be liable for the quality of the utility under the
various warranties that apply to the goods: express warranties, implied warranties of fitness for a
particular purpose, and implied warranties of merchantability, none of which would apply under
the Tennessee Tort Liability Act. [See Tennessee Code Annotated, '' 47-3-312, 314, and 315].
At least one of the cases listed in 48 ALR3d 1062, above, held that even though electricity was
not a “good” within the meaning of the UCC, it was a service to which the warranties of fitness
and merchantability applied under state [Michigan] law.
However, for the purposes of holding a municipality liable for utility service standards
under contract law principles, it might make little difference that a particular utility is not a good
under the UCC-Sales.
Water pressure standards determined by contract law
In Harris v. Water & Light Company, 114 Tenn. 328 (1905), the Tennessee Supreme
Court held a private water company liable for the full cost of the destruction of a lumber company
by fire, on the ground that a contract between the parties obligated the former to “furnish, at the
fire plugs located on the premises of the firm, an ample supply of water at all times adequate in
force, volume, and quantity to produce a stream of water flowing through hose and fire nozzles
to throw upon the buildings, lumber, material and machinery sufficient to extinguish any and all
fires that might originate or be upon the premises.”
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Few, if any, municipal utility systems would enter into such a contract. However, Harris
appeared again in White v. Tennessee-American Water Company, 603 S.W.2d 140 (Tenn.
1980). There White sued Tennessee-American Water Company for breach of contract and
negligence, arguing that because of a lack of water pressure at W hite’s home, a small kitchen
fire could not be extinguished, and the fire spread and destroyed the home and its contents.
“This action,” said the Court “is purely and simply, an action for breach of contract, or for
negligence, brought by a customer directly against a utility for failure of the utility to render
contracted service. In that respect it is quite similar to Harris v. Columbia Water & Light Co., 114
Tenn. 328, 85 S.W. 897 (1904).”
There was apparently a written contract between the parties, but White’s complaint did
not elaborate in great detail on its contents and it was not an issue in the case. However,
White’s allegation that on the day of the fire and several years before, White had been a
customer of the water company, was good enough, concluded the Court, reasoning that:
One cannot become a “customer” of a utility without a contractual
relationship. It is illegal for a person to use water, or any other
property belonging to a utility, “without having previously
contracted with the company therefor.” T.C.A. ' 65-2708. A utility,
of course, is entitled to charge reasonable rates for its services,
and the pleadings in this case state on their face that the plaintiff
was paying the company for such services. There could be no
plainer or clearer statement of “privity” of contract between these
parties. [At 142]
A general state statute and Public Service Commission [now the Tennessee Regulatory
Authority] regulations governed the utility, and “These regulations obviously bear upon the
contractual relationship, express or implied, between the parties.” Reviewing those regulations,
the Court concluded that:
They expressly required a utility to so design and operate its
facilities as “to provide reasonable adequate and safe service to its
customers...” They specified the pressure to be maintained “at a
customer service connection” “under normal conditions of use of
water.” They provided that a utility should make all reasonable
efforts to prevent interruptions of service, and when interruptions
occur the utility is required to re-establish service with the shortest
possible delay consistent with the safety of its customers and the
general public. The regulations provide that where an emergency
interruption would affect fire protection service, the utility should
immediately notify appropriate officials. The utility is required to
exercise “reasonable diligence to furnish a continuous and
adequate supply of water to its customers and to avoid any
shortage or interruption of delivery thereof.” The regulations
provide that if the utility found it necessary to restrict the use of
water, it should notify its customers and give written notice to the
Public Service Commission. [At 142]
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Both Harris and White involve contracts between water customers and private water
companies, and generally the Tennessee Regulatory Authority’s utility regulations do not apply
to municipal utilities. But both cases, particularly the latter, are solid for the proposition that the
state statutes and regulations that apply to municipal utility systems are part of the contract
between those utilities and their customers. Municipalities in Tennessee operate their utilities in
their proprietary, rather than their governmental, capacity. Bybees Branch Water Association v.
Town of McMinnville, 333 S.W.2d 815 (1960), explains the significance of the proprietary
capacity in that context:
A municipal corporation engaged in the business of supplying
public utilities and facilities is regarded as a public corporation
transacting private business for hire, and, in that respect and to
that extent, as a public or quasi private corporation. 62 C.J.S.
Municipal Corporations, Sec. 3, p. 73.
The city in its operation of utilities does so in its proprietary or
individual capacity rather than in its legislative or governmental
capacity. It is thus governed, for the most part, by the same rules
that control a private, individual or business corporation. [206
Tenn. 375] City of Knoxville v. Heth, 186 Tenn. 321, 210 S.W.2d
326, 329.
[Also see City of Shelbyville v. State ex re. Bedford County, 220 Tenn. 197, 415 S.W.2d 139
(1967); Batson v. Pleasant View Utility District, 592 S.W.2d 578 (Tenn. App.1980); Maury
County Board of Public Utilities v. City of Columbia, 854 S.W.2d 890 (Tenn. App. 1993).]
The Tennessee Tort Liability Act abolished the distinction between governmental and
proprietary functions for the purpose of that act. [Tennessee Code Annotated, ' 29-20-201], but it
has been held that the Tennessee Tort Liability Act does not apply to breach of contract cases.
[Simpson v. Sumner County, 669 S.W.2d 657 (Tenn. Ct. App. 1983); Harper v. City of Milan, 825
S.W.2d 92 (Tenn. Ct. App. 1991).] For that reason, the proprietary nature of municipal utilities is
still a significant factor with respect to their rights and obligations under contracts.
Water pressure standards that might apply to a municipal utility system arose in a trial
court case: Town of Rogersville v. Dennis, 3rd Judicial District, Hawkins County Chancery Court,
No. 10617. Although trial court cases are not “the law” in the same sense as cases decided by
the courts of appeal, they are instructive as to how those courts might handle questions on those
issues.
In that case the Chancery Court , citing Harris, above, held that the Town of Rogersville’s
failure to furnish adequate water pressure to the plaintiff’s apartment house was a breach of
contract, not a tort. [But it had reservations about that conclusion, declaring Harris “rather
ancient authority in light of the Governmental Tort Liability Act,” and declaring that much of the
proof in the case was more oriented toward tort than contract. In light of that reservation, why the
court did not cite White, above, is a puzzle.] The apartment building sat on a “rather high hill,
resulting in a serious lack of adequate water pressure to the various apartments.” The question
about the potential for inadequate water pressure had apparently arisen prior to the completion
of the apartment building. The city’s water line was located at the base of the hill upon which the
apartment building sat, and the plaintiffs constructed separate water lines for each apartment
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from the city’s main. The city argued that its duty to furnish adequate pressure applied only to
the apartment’s property line at the base of the hill.
The Court did not agree. It held as a matter of law that “the plaintiff owed a duty to the
defendants to furnish a minimum of 20 psi at each of the separate meters of each of the tenants
of the defendant’s apartment house and that same was breached in that the plaintiff has not
provided adequate pressure in accordance with minimum state standards.” [Emphasis is mine.]
It reasoned that:
The plaintiff-municipality is subject to the provisions of the Safe
Water Drinking Act, TCA 68-13-701, et seq. Pursuant to that Act,
the Tennessee Department of Health and Environment has
adopted Regulation No. 1200-5-1-.17(9) which reads as follows:
All community water systems shall be operated and maintained to
provide minimum positive pressure of twenty (20) psi throughout
the distribution system. [Emphasis supplied]
The court conceded that the term “distribution system” was not defined in statute or
regulation, but found as a matter of law that the term included all of the system on the system’s
side of the meter. Its basis for that finding was that:
Notwithstanding the absence of a regulation defining the limits of a
water distribution system, it is clear from the correspondence filed
in support of the defendant’s motion for summary judgment that
the Tennessee Department of Health and Environment believe
that the distribution system includes all water lines up to each
individual meter.
This Court concurs with the Department’s rationale. If the City is to
allow each separate apartment of a multi-unit building to be
metered and billed separately, it must be presumed that the city
water system is responsible for all aspects of supplying water,
including pressure, up to each individual meter UNLESS by duly
enacted ordinance it makes abundantly clear that its responsibility
for maintenance and water pressure ends at the property line of
each owner-customer....
Stated another way, in the absence of an ordinance indicating to
the contrary, this Court believes that most people would assume
that the city has assumed responsibly for all aspects of supplying
water up to the customer’s meter. In other words, one normally
would conclude that the “water distribution system” is everything
on the system-side of the meter. [Memorandum Opinion on Order
granting Partial Summary Judgment, p. 2-3].
Needless to say, the city had no such ordinance.
Following a trial on the question of damages, the Chancery Court further found that:
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The Court concurs with the jury’s finding that both the counterplaintiffs and the town recognized that a water pressure problem
was imminent. Notwithstanding that knowledge, the town tacitly
allowed the counter-plaintiffs to construct or design their water
supply system as they did.
A utility or municipality may not effectively delegate to a landowner
the utility’s responsibility to furnish water to its citizens. In other
words, the city had both the right and the duty to insist upon the
basic design and configuration of the water supply system and to
refuse to connect a system that was predestined to fail by reason
of inadequate pressure.
Knowing that a single 2-inch line would be inadequate in light of
the elevation and demand placed upon the system by the number
of users, the city simply should have refused to approve the
design. It would have been within its rights to have insisted that
the counter-plaintiffs run as many separate lines up the hill to the
apartment building as would have been required to adequately
service the number of apartments [12].
Since the town installed the meters where it did, it tacitly approved
or adopted the design of the system and, under applicable state
regulations, it therefore must furnish the requisite pressure at each
meter. [The court’s emphasis] [Memorandum and Order, 12/3/91]
Probably in response to this case, the definition of “distribution system” contained in Rule
1200-5-1 was amended and presently reads as follows:
(20) “Distribution System” means all water lines up to the point of a
meter. For unmetered systems distribution system includes all
lines up to the customer’s service tap. [Rule 1200-5-1-.04(20) ]
An interesting case decided under the Tennessee Tort Liability Act in connection with the
chancellor’s conclusion that the City of Rogersville could have insisted the apartment owner
install water lines on his property that would better insure adequate pressure is Helton v. City of
Morristown, 20 TAM 39-10 (Ct. App. E. Section, filed Aug 31, 1995). There the Court put aside
the question of whether the act of building officials setting construction standards higher than
contained in the various building and utility codes was a planning or operational decision, relying
on Tennessee Code Annotated, ' 29-20-205(3) (which preserves the immunity of local
governments for negligent acts pertaining to the issuance and denial of permits, etc.
State Statutes and regulations that may support other court decisions similar to
Harris, White, and City of Rogersville
The Declaration and Policy and Purpose of the Tennessee Safe Water Drinking Act,
found at Tennessee Code Annotated, ' 68-221-701 et seq. provides that:
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Recognizing that the waters of the state are the property of the
state and are held in public trust for the benefit of its citizens, it is
declared that the people of the state are the beneficiaries of this
trust and have a right to both an adequate quantity and quality of
drinking water. [Tennessee Code Annotated, ' 68-221-702]
Extensive rules governing water quantity and quality standards for drinking water and
other water piped for human consumption or use have been by the Tennessee Department of
Environment and Conservation and are found in The Rules and Regulations of the State of
Tennessee, Chapter 1200-5-1.
Other state statutes declare public health and safety policy with respect to municipal
water and sewer services:
Tennessee Code Annotated, ' 7-34-103(b) [Revenue Bond Law]:
No municipality shall operate such public works for gain or profit or
primarily as a source of revenue to the municipality, but shall
operate such public works for the use and benefit of the customers
served by such public works and for the promotion of the welfare
and for the improvement of the health and safety of the inhabitants
of the municipality. [Emphasis mine]
Tennessee Code Annotated, ' 7-34-115(a) [Revenue Bond Law, but this provision of that
law probably applies to all municipal utilities in Tennessee]:
....No public works shall operate for gain or profit or as a source of
revenue to a governmental entity, but shall operate for the use and
benefit of the consumers served by such public works and for the
improvement of health and safety of the inhabitants of the area
served. [Emphasis mine]
Tennessee Code Annotated, ' 7-35-201 [Sewers and Waterworks]:
In order to protect the public health of persons residing within
congested areas [municipality is authorized to require connections
to public sewers, etc.]
Town or Rogersville is consistent with Harris and particularly White, above, for its
adoption of state polices and standards governing municipal water supply-water pressure. It is a
logical step for the courts to apply state policies and standards governing water quality.
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