Gallup Electric Light Co. v. Pac. Improvement Co.

• Decision Date: 04 February 1911
• Citation: 16 N.M. 86,113 P. 848
• Parties: GALLUP ELECTRIC LIGHT CO.v.PACIFIC IMPROVEMENT CO. et al.
• Court: New Mexico Supreme Court

16 N.M. 86

113 P. 848

GALLUP ELECTRIC LIGHT CO.

v.PACIFIC IMPROVEMENT CO. et al.

Supreme Court of the Territory of New Mexico.

Feb. 4, 1911.Rehearing Denied March 4, 1911.

Syllabus by the Court.

A contract, which is the mere accompaniment of the sale of property, and entered into for the purpose of enhancing the price at which the vendor sells it, and which is collateral to the sale, and where the main purpose of the contract is the sale of the property, does not come within the inhibition of the act of Congress of July 2, 1890, c. 647, § 3, 26 Stat. 209 (U. S. Comp. St. 1901, p. 3201), even though the contract restrains trade to some extent.

A contract not to engage in business is a personal contract, and can only bind the parties to it.

Under a contract not to engage in business in competition with the purchaser of property, the party bound is not precluded from loaning money to others, even though they may use it to embark in business in competition with the purchaser.

Parties not signing the contract cannot be enjoined from engaging on their own behalf in business in connection with party bound, in competition with purchaser or his assignee.

Where evidence is taken by an examiner, who does not report findings of fact to the court, the same will be reviewed on appeal.

It is error to enter judgment for damages against parties not bound by the contract, even though the parties may have aided and abetted the contracting party in violating the contract.

Appeal from District Court, McKinley County; before Justice Ira A. Abbott.

Action by the Gallup Electric Light Company against the Pacific Improvement Company and others. Decree for plaintiff, and defendants appeal. Reversed and remanded.

A contract, which is the mere accompaniment of the sale of property, and entered into for the purpose of enhancing the price at which the vendor sells it, and which is collateral to the sale, and where the main purpose of the contract is the sale of the property, does not come within the inhibition of the Act of Congress of July 2, 1890, even though the contract restrains trade to some extent.

This action was begun in the district court of McKinley county, in the Second judicial district, by the appellee, who was plaintiff in the lower court, to restrain and enjoin the defendant company and its stockholders from carrying on the business of generating, selling, and distributing electricity for light and power purposes, and from furnishing electrical supplies and doing other work in connection with said business, and for damages alleged to have been sustained by appellee on account of appellants having engaged in such business.

Appellee bases its cause of action upon a written contract, made and executed on the 18th day of October, 1905, between Gregory Page, one of the defendants, and E. C. Allen, which contract was thereafter assigned by said Allen to the appellee. At the time of the execution of the contract, Page was the owner of all the capital stock of the appellee company, and sold said stock to said Allen and stipulated in said contract, among other things, as follows: “Said party of the first part (Gregory Page) further covenants and agrees that he will not engage in the business of generating electricity for light, power or other purposes, or in furnishing light, or in any way engage in business in competition with the business of said electric light company, in the town of Gallup, or its immediate vicinity.”

The complaint alleged that the defendant Page caused the Pacific Improvement Company, hereafter called the Pacific Company, to be organized for the purpose of generating electricity for light and power purposes; that Page furnished practically all the money which was invested in the business of said Pacific Company; that said Page controlled, operated, managed, and directed said company, and that the incorporators and subscribers to its capital stock were mere figureheads and had no substantial interest therein, and permitted the use of their names for the purpose of enabling Page to fraudulently evade and violate the provisions of the contract above quoted, and that the defendant company is engaged in the generation of electricity in violation of said contract; that the defendant company had secured a franchise from the town of Gallup, authorizing it to use its business of furnishing electricity for light and power purposes, and that said company would not have been organized, except for the wrongful acts of Page. Damages were alleged and an accounting was asked for, as to the amount of lighting done by the Pacific Company, and an injunction was prayed against the defendant company and the individual defendants, restraining them from carrying on said business in violation of the terms of the contract made by Page, and for general relief.

After the overruling of a demurrer, all of the defendants filed answers; defendant Page filing a separate answer, and the other defendants a joint answer, both answers being under oath. The Pacific Company and the defendants, other than Page, admitted that they were engaged in the generating of electricity, but denied that Page had contributed any money whatever to the said company, or that he owned any of its stock, or that he had anything to do with the management of the company, and alleged that the incorporators of the company had contributed all of the money used in and about the business. Page, in his separate answer, denied that he had anything to do with the Pacific Company, or that he had contributed any money to enable it to begin or carry on its operations. The plaintiff filed no replies to either of the two answers.

The cause was referred, and a part of the proofs were taken by an examiner and a part by the court. The court signed a decree enjoining the Pacific Company, the incorporators thereof, and the defendant Page from operating the lighting plant, or from directly or indirectly engaging in the business of generating electricity in the town of Gallup, and it also enjoined the defendant company from assigning the franchise which it had obtained from the town of Gallup, authorizing it to use its streets, and also from selling its electric light plant, and rendered judgment against the Pacific Company, the stockholders thereof, Gus Mulhulland, Joseph H. Coddington, J. A. Gordon, Palmer Ketner, and also against Gregory Page, for the sum of $3,250. Other restrictions were imposed upon all the defendants, which it will not be necessary to set out in detail.

From its decree, this appeal is taken by appellants.

E. W. Dobson and Frank W. Clancy, for appellants. Thomas K. D. Maddison and Reid & Hervey (Fergusson & Crew and William B. Childers, on the brief), for appellee.

ROBERTS, J. (after stating the facts as above).

There is some question as to whether this contract should not be held invalid as being contrary to public policy, under the rule laid down in Charleston Gas Co. v. Kanawha Gas Co., 58 W. Va. 26, 50 S. E. 878 (112 Am. St. Rep. 936), wherein the court says: “The supplying of illuminating gas is a business of a public nature, to meet a public necessity. It is not a business like that of an ordinary corporation, engaged in the manufacture of articles that may be furnished by individual effort. Hence, while it is justly urged that those public rules which say that a given contract is against public policy should not be arbitrarily extended so as to interfere with the freedom of contract, yet in the instance of business of such a character that it presumably cannot be restrained to any extent whatever, without prejudice to the public interest, courts decline to enforce or sustain contracts imposing such restraints, however partial, because in contravention of public policy.” To the same effect, and supporting the doctrine, are People ex rel. Peabody v. Gas Trust Company, 130 Ill. 268, 22 N. E. 798, 8 L. R. A. 497, 17 Am. St. Rep. 319; Gibbs v. Baltimore Gas Company, 130 U. S. 396, 9 Sup. Ct. 553, 32 L. Ed. 979; Chicago Gas Light & Coke Company v. People's Gas Light & Coke Company, 121 Ill. 530, 13 N. E. 169, 2 Am. St. Rep. 124; Greenhood on Public Policy, page 2.

Counsel for appellee insists that the principle laid down in the above cases has no application to the contract now before the court; that so long as the contract to refrain from doing business is not in violation of a public duty or of a previous contract, there is no distinction on account of the character of the business refrained from. Counsel for appellants concur in this view, and, by reason of this situation, we shall give no further consideration to this question, and are not to be understood as expressing any opinion thereon.

Appellants urge the invalidity of the contract under section 3 of the act of Congress of July 2, 1890. The section is as follows: “Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such territory or another, or between any such territory or territories and any state or states or the District of Columbia, or with foreign nations, or between the District of Columbia and any state or states or foreign nations, is hereby declared illegal.” Act July 2, 1890, c. 647, 26 Stat. 209 (U. S. Comp. St. 1901, p. 3201); 7 Fed. St. Ann. 344; and the cases of United States v. Trans-Missouri Association, 166 U. S. 327, 17 Sup. Ct. 540. 41 L. Ed. 1007, United States v. Joint Traffic Association, 171 U. S. 558, 19 Sup. Ct. 25, 43 L. Ed. 259, and Northern Securities Co. v. United States, 193 U. S. 331, 24 Sup. Ct. 436, 48 L. Ed. 679, are cited as supporting this proposition. It is true that, in the case of United States v. Trans-Missouri Association, the court used language that might support the contention that all contracts come under the act of Congress of July 2, 1890. This, however,...