When you do su - username you perform a full login as that user, meaning that you are transferred to the user's home directory. When executing touch c in this way, you therefore try to run that command in the user's home directory.

Instead, drop the - from the command line:

su user1 -c "touch c"

This would execute touch c as user1 in the current directory.

Speculation:

The command failed because there is already a file called c in user1's home directory owned by another user.

When you do su - username you perform a full login as that user, meaning that you are transferred to the user's home directory. When executing touch c in this way, you therefore try to run that command in the user's home directory.

Instead, drop the - from the command line:

su user1 -c "touch c"

This would execute touch c as user1 in the current directory.

Speculation:

The original su - command failed because there is already a file called c in user1's home directory owned by another user.