Cent. New York Tel. & Tel. Co. v. Averill

• Decision Date: 14 June 1910
• Citation: 92 N.E. 206,199 N.Y. 128
• Parties: CENTRAL NEW YORK TELEPHONE & TELEGRAPH CO. v. AVERILL et al.
• Court: New York Court of Appeals Court of Appeals

199 N.Y. 128

92 N.E. 206

CENTRAL NEW YORK TELEPHONE & TELEGRAPH CO.

v.AVERILL et al.

Court of Appeals of New York.

June 14, 1910.

Appeal from Supreme Court, Appellate Division, Fourth Department.

Action by the Central New York Telephone & Telegraph Company against Charles S. Averill and another. From an order of the Appellate Division (129 App. Div. 752,114 N. Y. Supp. 99), reversing a judgment of the Special Term for defendants and granting a new trial, defendants appeal. Modified so as to reverse judgment of Special Term, and direct judgment for plaintiff as stated.

A. H. Cowie, for appellants.

Edwin Nottingham, for respondent.

WILLARD BARTLETT, J.

This is a suit in equity for an injunction to restrain the defendants from permitting the introduction of any other telephone system except that furnished by the plaintiff corporation in the Yates Hotel in the city of Syracuse. On August 18, 1902, the parties entered into a written contract for the rendition of telephone service in the hotel by the plaintiff, including the maintenance of a private hotel telephone exchange therein for a period of nine years. The contract contained the ordinary subscriber's agreement such as is in common use by telephone companies, but the only part which it is necessary to consider on the present appeal is a provision, which for convenience I shall call the exclusive clause, reading as follows:

‘It is understood and agreed by both of the parties hereto that the switchboard, apparatus, wires, cables and fixtures furnished under this contract shall be and remain the property of said Central New York Telephone & Telegraph Company, and that the instruments and apparatus are placed in said Yates Hotel for the purpose herein named, and that no instruments or wires other than those furnished by the first party are to be placed or maintained in said hotel or connected with or maintained in connection with sais switchboard, board, apparatus of fixtures, and that said instruments, apparatus, line or fixtures of the first party are not to be connected with or used in connection with any exchange, office or telephone, except those of the first party, or its connections, and only by lines connecting said switchboard with the company's office and switchboard as within provided.’

There was also a provision in the contract under which the defendants claimed the right to terminate it by giving 30 days' written notice to the plaintiff that they desired so to do. It is not necessary to discuss this provision further than to say that the trial judge decided that it did not give the defendants the right which they claimed to terminate the contract.

The telephone system of the plaintiff and the private hotel telephone exchange were duly installed in the Yates Hotel under the contract, and no controversy appears to have arisen under the contract until about the time of the commencement of this action in May, 1906, when another telephone system became available to the inhabitants of Syracuse. The defendants thereupon manifested an intention to introduce this other system in the Yates Hotel, and their threat to do so led to the institution of the present action, in which the plaintiff sought to enforce the exclusive clause in the contract which has already been quoted. The defendants pleaded a termination of the contract by reason of the service of 30 days' notice thereunder, and also that the contract was invalid and illegal ‘as void as against public policy for the reasons that the provisions thereof which in substance purport to confer upon the plaintiff an exclusive right to maintain a telephone system and furnish telephone service in the Yates Hotel tend to destroy competition in the telephone business and are discriminatory and therefore void, and contrary to public policy.’

Upon the trial the court at Special Term held (1) that the contract was not terminable by the defendants under the 30-day clause contained in the printed portion thereof; (2) that the exclusive clause was illegal and void in so far as it purported to grant to the plaintiff the exclusive right to maintain a telephone system in the Yates Hotel and the exclusive right to furnish telephone service thereto; and (3) that the rights in the Yates Hotel granted to the plaintiff by the exclusive clause constituted an inseparable part of the consideration for the contract, and that, therefore, the contract was wholly illegal and void. Judgment was thereupon rendered dismissing the complaint and awarding costs to the defendants. This judgment has been reversed by the Appellate Division, which has held (one member of the court dissenting) that the exclusive clause is not open to any legal objection whatsoever, but is a valid agreement which the plaintiff is entitled to enforce. We are therefore called upon to determine as between these conflicting views which is right.

There is a finding in accordance with the allegations of the complaint and to which no exception is taken, to the effect that the plaintiff installed the private hotel telephone exchange in the Yates Hotel at an expense of $2,700, which it was induced to incur by reason of and in reliance upon the nine-year term of service provided for in the contract and the exclusive telephone privilege thereby granted; and that ‘the plaintiff would not have installed in said hotel said private telephone exchange and incurred said expense in so doing if it had understood said contract might be terminated by the defendants on 30 days' notice after the expiration of one year from the commencement thereof or that the telephone privilege given by it was not exclusive.’

It is manifest that the exclusive clause is a contract in restraint of trade. It prevents any one in the Yates Hotel from having telephone communication with customers of other telephone companies than the plaintiff. It prevents the persons served by such other companies from having telephonic communication with the Yates Hotel. It likewise destroys competition by shutting out all rivals of the plaintiff.

The restraint of trade thus effected, however, is only partial; and while a contract in general restraint of trade is still deemed illegal and void, the law permits contracts in partial restraint of trade, under some circumstances, where they are not unreasonable and are supported by sufficient consideration. Oregon Steam Navigation Company v. Winsor, 20 Wall. 64, 22 L. Ed. 315;Diamond Match Co. v. Roeber, 106 N. Y. 473, 13 N. E. 419,60 Am. Rep. 437;Leslie v. Lorillard, 110 N. Y. 519, 18 N. E. 363,1 L. R. A. 456;Wood v. Whitehead Bros. Co., 165 N. Y. 545, 59 N. E. 357. The respondent contends that the exclusive clause here in controversy belongs to the class of contracts in partial restraint of trade which have thus been sanctioned by the courts; but this view leaves out of sight an essential difference which cannot be disregarded. Where the business to which the contract relates is of such a character that it cannot be subjected even to the partial restraint which is contemplated without injury to the public interest, then such partial restraint cannot be tolerated. West Va. Transportation Co. v. Ohio River Pipe Line Co., 22 W. Va. 600, 625, 46 Am. Rep. 527. In the case cited it is declared that all the authorities warrant the inference ‘that, if there be any sort of business which from its peculiar character can be restrained to no extent whatever without prejudice to the public interest, then the courts would be compelled to hold void any contract imposing any restraint however partial on this peculiar business, provided, of course, it be shown clearly that the peculiar business thus attempted to be restrained is of such a character that any restraint upon it, however partial, must be regarded by the court as prejudicial to the public interest.’ The court then proceeds to inquire whether there are any sorts of business of this peculiar character, and concludes that such is the nature of the business carried on by railroad and telegraph companies.

The business of a telephone company, in its broader aspects at least, is legally indistinguishable from that of a telegraph company, the telephone being a telegraph in all essential particulars. In New Jersey it has been held that a corporation organized under an act to incorporate and regulate telegraph companies, and authorized thereby to exercise the power of eminent domain, may condemn lands for a telephone line although telephones are not mentioned in the statute. Duke v. Central N. J. Telephone Co., 53 N. J. Law, 341, 21 Atl. 460,11 L. R. A. 664. In this state the statutory provisions for the incorporation of telegraph and telephone companies are contained in the same article and section of the transportation corporations law (Consol. Laws, c. 63), and the same provisions for the exercise of the power of eminent domain and the occupancy of the public roads, streets, and highways apply to each. Article 9, §§ 100, 102. Wherever the character and functions of telegraph companies have been considered by the courts, the prevailing opinion has been that they are to be deemed public service corporations, affected by a public interest, and hence that contracts tending to restrict the free and general use of their lines are invalid. The same doctrine is equally applicable to the business of telephone companies. In the case of Western Union Telegraph Co. v. Chicago & Paducah R. R. Co., 86 Ill. 246, 29 Am. Rep. 28, the contract provided that the railroad company would furnish and erect telegraph poles and wires along its railroad for the telegraph company, and assured to the latter in exclusive right of way along the railroad, so far as it legally might do so. The court held that, so far as this contract precluded the railroad company from permitting other telegraph companies to place wires on the same poles, it was valid, but that it was contrary to public policy if construed as preventing another telegraph company...