Ft. Smith Light & Traction Co. v. Kelley

• Decision Date: 21 March 1910
• Citation: 127 S.W. 975
• Parties: FT. SMITH LIGHT & TRACTION CO. v. KELLEY et al.
• Court: Arkansas Supreme Court

127 S.W. 975

FT. SMITH LIGHT & TRACTION CO. v. KELLEY et al.

Supreme Court of Arkansas.

March 21, 1910.

COPYRIGHT MATERIAL OMITTED

Appeal from Sebastian Chancery Court; J. V. Bourland, Chancellor.

Suit by the Ft. Smith Light & Traction Company against Harry E. Kelley and another, in which defendants filed a cross-complaint. From a decree dismissing the complaint and cross-complaint, both sides appeal. Reversed, with directions to grant the relief prayed for in the complaint, and dismissing the cross-complaint for want of equity.

On the 21st day of December, 1903, the city of Ft. Smith, by ordinance No. 634, granted to Harry E. Kelley and "assigns" a franchise to furnish natural gas to the inhabitants of the city for a period of 50 years. The Mansfield Gas Company, a corporation, owned natural gas wells in the vicinity of Ft. Smith and a plant or system of mains and pipes for operating same in the city. Kelley owned 95 per cent. of its stock. The Ft. Smith Light & Traction Company, a corporation, had the power under its charter to "generate, produce and furnish gas and electricity for lighting, heating, power and domestic uses," and "to furnish same to public or private consumers" in the city of Ft. Smith and suburbs. It also had the power "to buy and sell gas," and "to do a general merchandise business in electrical and gas appliances, supplies, fixtures and inventions; to install the same; and to do all things incident to or connected with any of the aforesaid purposes which might further and aid the purposes and objects aforesaid." In pursuance of those powers, the Ft. Smith Light & Traction Company was maintaining and operating an electric light and power plant in Ft. Smith; also an artificial gas plant and a system of mains and pipes for its distribution. On December 23, 1904, Kelley and the Mansfield Gas Company, appellees, entered into a contract with the Ft. Smith Light & Traction Company, appellant, "for the purpose," as the contract declares, "of selling natural gas to consumers in the city of Fort Smith, Arkansas, under the franchises granted in ordinance No. 634."

This contract provides, among other things, that "in consideration of the terms, conditions and agreements" set forth, the appellees are to supply natural gas to appellant "for and during the period of forty nine years," within the corporate limits of the city of Ft. Smith and its suburbs, "to be sold and disposed of" by appellant in the territory mentioned. It further provides that appellant "shall have the exclusive right to sell and dispose of said natural gas and to distribute the same within the limits aforesaid." The contract provides that appellant "shall use its system of mains and pipes in said city and the pipes of `appellees' already laid in said city," and that appellees at their own expense should make such additions to their mains and pipes in the city of Ft. Smith and suburbs as the demand for natural gas should warrant. The contract gave to appellees the power to control the prices of natural gas to the consumers, for all purposes except for illumination. For the latter purpose, the appellant had the right to fix the rate at $1 per thousand cubic feet. Under the contract appellant agreed to pay appellees for the natural gas, from the 1st day of January, 1905, to the 1st day of April, 1905, 25 per cent. of the gross earnings from the sale of it, as determined by meters, and, from the 1st day of April, 1905, to the expiration of the contract, 75 per cent. of the gross earnings, less 10 per cent. allowed appellant under certain conditions. Appellant was also to pay, in nine monthly installments, beginning April 1, 1905, a sum equal to 50 per cent. of the gross earnings (less 10 per cent. under certain conditions), from January 1, to April 1, 1905. "The gross earnings over and above the payments above stipulated" were to be retained by appellant as its compensation.

There was a provision in the contract by which appellant was to purchase of appellees the "distribution system" of the latter at the actual cost of installing same. Appellant was to pay 10 per cent. per annum on the cost of the distribution system (4 per cent. of this being designated "depreciation fund"), the payments to be made monthly, and to continue for 25 years, if appellees furnish appellant natural gas for that long. But if the supply of gas failed, so that appellees could no longer furnish same, appellant nevertheless was to purchase the distribution system, in that event by paying the cost thereof, "less the sums that had been paid under the four per cent. depreciation fund." Thereupon appellant was to have the use of the franchise granted to Harry E. Kelley. (In the contract, appellees are "parties of the first part," and appellant is "party of the second part.")

The contract contains these further provisions, to wit:

"That the party of the second part may contract for and purchase natural gas from other parties or corporations when such parties or corporations will furnish, supply and deliver the same to the party of the second part at lower figures than the said parties of the first part will do, it being agreed, however, that before making any such contract or contracts the party of the second part shall give to said parties of the first part an opportunity to meet such prices. If said parties of the first part shall refuse to meet such prices as can be contracted for with other parties or corporations, and said second party shall have contracted with such other parties or corporations, the said parties of the first part shall have the right, by making a lower price, to reinstate the use of their natural gas under this contract.

"If the said second party shall contract for natural gas from other parties or corporations in conformity with the foregoing provisions the said party of the second part shall have the right to use the aforesaid pipes and distributing system of the said parties of the first part by continuing paying the parties of the first part the six and four per cent. herein provided, and shall have the right to use the franchises granted to the said Harry E. Kelley by the city of Fort Smith, Arkansas, by ordinance No. 634.

"That whilst the party of the second part has the right to manufacture, produce and sell artificial gas at all times, it shall nevertheless, at any and all times, during the period of this contract use every effort to sell and dispose of the highest maximum quantity of natural gas that shall be furnished, supplied and delivered to it by said parties of the first part."

There is a provision in the contract that appellees "will use due diligence in prosecuting their search for natural gas," and "that both parties agree to use every effort to extend the use of natural gas and to protect and promote the interests of each other over and above the interests of any other party, person or corporation." The contract contains various other provisions, but the above are all that it is necessary to mention.

In November, 1906, the Arkansas & Territorial Oil & Gas Company had developed a gas field near the city of Ft. Smith which was sufficient to supply that city with natural gas. This company was a West Virginia corporation, but doing business in this state. We will, for convenience, hereafter refer to it as the "Arkansas Company." This company offered to supply appellant gas at "lower figures" than appellees were doing. Appellant, pursuant to its contract, notified appellees in writing of the terms and prices of the Arkansas Company, and appellees in writing refused to meet the terms of the Arkansas Company. Whereupon, on the 6th day of November, 1906, appellant entered into a contract with the Arkansas Company, by which the latter agreed to furnish appellant natural gas for a period of five years from the 6th day of March, 1907 (unless the supply was sooner exhausted), for use within the corporate limits of the city of Ft. Smith and Van Buren, Ark., to be sold and disposed of by appellant at rates to be fixed by it, but at not less than the following net prices: For illuminating purposes, $1 per thousand cubic feet, etc. — then follows the minimum prices for other purposes. The contract made with the Arkansas Company contained a similar provision to that made with appellees, reserving to appellant the right to contract with others offering better terms; i. e., gas at "lower figures."

The appellant and appellees agreed that the exchange of gas supplies should be effected in such manner as to cause as little interruption as possible to the service, and accordingly the transfer from appellees' pipes to the pipes of the Arkansas Company was made January 23, 1907. The employés of appellant and of the appellees and the Arkansas Company assisted in making the transfer. Kelley, however, for appellees, gave appellant to understand that it was violating the contract, that he wanted the contract carried out, and that if appellant violated the contract, it did so at its peril. After the contract between appellant and the Arkansas Company was entered into, the appellees were preparing to furnish gas to the inhabitants of the city of Ft. Smith under the rights conferred, as they claimed, by ordinance No. 634, granting the franchise to Kelley. They had bought and laid pipes, dug ditches, put a notice in the paper that they were in the "natural gas business," and advising the people not to make contracts for their gas supply until they had seen the Mansfield Gas Company. They had proceeded, and were proceeding, to make contracts for supplying natural gas. Thereupon appellant brought this suit for temporary restraining order, and upon final hearing for perpetual injunction, against appellees. There was an answer by appellees, a cross-complaint by Kelley, and an answer thereto by appellant, all raising the issue as to whether appellees could proceed to furnish natural gas to the inhabitants of the city of Ft. Smith under the...