Domestic Tel. & Tel. Co. v. Metro. Tel. & Tel. Co.

• Decision Date: 06 May 1886
• Citation: 41 N.J.E. 241,3 A. 709
• Parties: DOMESTIC TELEGRAPH & TELEPHONE CO. v. METROPOLITAN TELEPHONE & TELEGRAPH CO. and another
• Court: New Jersey Court of Chancery

3 A. 709

41 N.J.E. 241

DOMESTIC TELEGRAPH & TELEPHONE CO.

v. METROPOLITAN TELEPHONE & TELEGRAPH CO. and another¹

Court of Chancery of NEW JERSEY.

May 6, 1886.

H. Young and T. N. McCarter, for complainant.

J. M. C. Morrow and J. D. Bedle, for defendants.

BIRD, V. C. During the period of time that interests us in determining the rights of the parties to this controversy, there was the National or American Bell Telephone Company of Boston, spoken of as the parent company, of which Theodore N. Vail was general manager. There was also the Bell Telephone Company of New York, which was a licensee of the American Bell, and the licensor of the complainant. E. Holmes was its president; A. S. Dodd, treasurer; Theodore N. Vail and John D. Harrison were directors. There was also the Domestic Dispatch Company of Newark, New Jersey, which afterwards became the Domestic Telegraph & Telephone Company of Newark, New Jersey, the complainant in this suit. George W. Hubbell was president; F. T. Fearey, J. Fearey, and John D. Harrison were directors. There was also the Western Union Telephone Company, which had control of other companies, and which was a rival to the companies above named. After the foregoing companies had been engaged in business some time, a company was formed in the place and stead of the said Bell Telephone Company of New York, called the Metropolitan Telephone & Telegraph Company of New York. This company licensed the company afterwards organized, called the New York & New Jersey Telephone Company. The companies last named are the defendants in this suit. Theodore N. Vail, who was the general manager of the American Bell, of Boston, and president of the Bell Telephone Company of New York, was from its beginning a director in the Metropolitan Telephone & Telegraph Company, and soon after became its president. John D. Harrison was a director in the Domestic Telegraph & Telephone Company of Newark and in the Bell Telephone Company of New York; became a director in the Metropolitan Telephone & Telegraph Company, and also in the New York & New Jersey Company. Thus it appears that Vail was interested in four of the companies named; Harrison in four; and Davis and Dodd in three New York companies,—the Bell, the Metropolitan, and the New York & New Jersey.

From 1875, to August 6, 1879, the Domestic Company, the complainant, was serving the public in Newark, New Jersey, by receiving and delivering dispatches upon preconcerted signals, which were limited to a very few. The Bell Company of New York, as the licensee of the American Bell of Boston, had the exclusive control of all the rights of the American Bell in the territory in and about the city of New York, including a radius of 33 miles from the city hall, and including also the county of Monmouth, in the state of New Jersey, but excluding the state of Connecticut. August 6, 1879, a committee of the Domestic Company, by authority of the board of directors, met the president and board of directors of the Bell Company of New York, when a memorandum of or for an agreement was made by them respecting the telephone business in Newark, and the townships of Harrison and Kearney. That memorandum stated that the agreement should continue in force five years, and that "the Domestic Company should have the first preference in making any contract at the termination of this agreement," and that I should at all times prosecute its business with all diligence, and that the exchange system should be established as soon as practicable, and, in default thereof, that the Bell Company should have the right to purchase the property of the Domestic Company, without regard to the good-will of the business, at a fair valuation, to be decided by arbitrators if the parties could not agree. It also stated that all disagreements should be submitted to arbitration.

I give these points of the memorandum because the Domestic' Company immediately proceeded to act under them, and because it is urged that they assist materially in coming to a fair understanding of the conduct of the parties, and of the agreement which was afterwards entered into by them.

The Bell Company at once commenced furnishing the Domestic Company with instruments, and the latter company at once commenced operations under its license, and prosecuted the business for many weeks before the more complete agreement was prepared and executed according to the mind of the parties. After many weeks the Bell Company of New York, by E. Holmes, president, and A. S. Dodd, secretary, and the Domestic Company, by George W. Hubbell, president, and F. T. Fearey, secretary, executed an agreement more fully expressing the understanding of the parties. It was dated August 6, 1879, and provided that it should continue in force until September 1, 1884. It provided that the Bell Company should furnish to the Domestic Company all the instruments required for use in the district named, unless the demand therefor should exceed the ability of the Bell Company to meet, in which case the Domestic Company was to have a proper proportion of the instruments, considering the obligation of the Bell Company to other licensees. This last provision goes far towards establishing the proposition that the different licensees were all expected to come in under similar contracts, or that the terms of the license to one were the same to all. This now seems to be unquestionably true as to rentals, as will hereinafter appear.

The Domestic Company agreed to pay an annual rental of $10 for every telephone delivered. It also agreed to prosecute diligently the business of introducing said telephones in said territory in New Jersey, "to the end of establishing a general system of telephonic intercommunication (known as the district exchange system) within and throughout the said city and townships in said state of New Jersey," and that, at the termination of said contract, it would redeliver said instruments to the Bell Company. It was also provided that, so long as the Domestic Company performed the terms of the agreement, the Bell Company would not authorize the use of telephones in the district "so as to interfere in any manner with the said district exchange system so to be established and built up." The Bell Company reserved to itself the right to establish communication between said district and other districts, under the control of the Bell Company; but when such communications should be established, then the Domestic Company, if requested so to do by the Bell Company, would connect with such lines, and receive such communications as may be transmitted, and would deliver them, and would transmit any that might be desired to be sent from said district to others. The Domestic Company agreed not to charge a higher rate for the use of said instruments than the average rate charged in other districts by the Bell Company, or by those licensed by the Bell Company, for corresponding service in similar districts.

I think this last provision indicates the object of the Bell Company to be to establish a uniform system of telephonic communication throughout all the territory under its control, so that a contract between the Bell Company and one of its licensees would be applicable to another.

The tenth section of the contract made it optional with the Bell Company, its successors or assigns, to purchase from the Domestic Company its telephonic lines and business, at fair prices, to be agreed upon at the time by the parties, without regard to valuation for good-will, and in case of disagreement the price should be fixed by arbitrators. But nothing was to be construed to make it obligatory upon the Bell Company to purchase the business and property of the Domestic Company.

The section of the contract of chief importance is the eleventh, which is in these words:

"If, at the expiration of the period of five years, (5,) the party of the first part shall not desire to conduct the business of telephonic district exchange directly, within said district of the party of the second part, or of merging said district into some other district, but shall, on the contrary, desire to have such business conducted for it, then and in such case the party of the second part shall have the first right of acquiring the license or agency to conduct such business at such rate or rental, and upon such terms, as may then be fixed and determined by said party of the first part."

The agreement then said that it was understood that diligence in establishing said business was of the essence of the contract, and declared that any failure in this respect might operate as a forfeiture.

When this contract was about expiring, the Domestic Company filed a bill in this court against the said the Metropolitan Telephone & Telegraph Company, which was the successor of the Bell Company, and also against the said the New York & New Jersey Telephone Company, which was the licensee of the Metropolitan Company, praying for a renewal of the license granted by the Bell Company, upon such terms as might be fixed upon by the court, and for an injunction against both companies, enjoining them from removing any of the telephones in the possession of the Domestic Company, and from refusing to deliver additional telephones according to said agreement, and from interrupting communication from, and from interfering in any other respect with, the business of the Domestic Company. Upon filing this bill and the affidavits, an order to show cause why an injunction should not issue was allowed. Upon the hearing of a motion for a preliminary injunction the answer of the defendants, and the affidavits thereto annexed, were read and considered. By their answer the defendants insisted that said eleventh section of the contract was without any force or effect; or, in other words, that it gave no rights whatever to the Domestic Company.

The injunction was denied. See Domestic Telegraph & Telephone Co. v. Metropolitan...