Graham County Elec. Co-op., Inc. v. Town of Safford

• Decision Date: 19 March 1958
• Docket Number: No. 6262,6262
• Citation: 322 P.2d 1078,84 Ariz. 15
• Parties: GRAHAM COUNTY ELECTRIC COOPERATIVE, Inc., Appellant, v. TOWN OF SAFFORD, Appellee.
• Court: Arizona Supreme Court

Page 1078

322 P.2d 1078

84 Ariz. 15

GRAHAM COUNTY ELECTRIC COOPERATIVE, Inc., Appellant, v. TOWN OF SAFFORD, Appellee.

No. 6262.

Supreme Court of Arizona.

March 19, 1958.

Anderson & Smith, Safford, Jennings, Strouss, Salmon & Trask, Phoenix, for appellant.

Chester J. Peterson, Phoenix, Gust, Rosenfeld, Divelbess & Robinette, and Charles B. McAlister, Phoenix, Boyle, Bilby, Thompson & Shoenhair, Tucson, for appellee.

Hall, Catlin & Molloy, Tucson, Gentry, McNulty & Kimble, Bisbee, amici curiae.

PHELPS, Justice.

This is an appeal from a judgment in favor of the Town of Safford, appellee, and against Graham County Electric Cooperative, Inc., appellant, permanently enjoining the latter, its officers, agents and employees from selling and distributing electricity within the corporate limits of the Town of Safford, or attempting to expand its facilities within the corporate limits of said town.

The facts out of which the litigation arose are that Arizona General Utilities Company, an Arizona corporation, was operating in Graham County as a public service corporation under a certificate of convenience and necessity serving portions of the community with electricity for domestic and other uses. The Associated Electric Company, a Delaware corporation, owned all of the stock and the securities and long-term indebtedness of Arizona General Utilities Company. On February 8, 1946 the Associated Electric Company entered into an agreement as seller with the Graham County Electric Cooperative, Inc., the Town of Safford, and the Town of Thatcher as purchasers wherein the seller agreed to sell and the purchasers agreed to buy all the above-named assets of Arizona General Utilities Company. In the contract those assets were designated as the 'closing position.' This consisted of first mortgage bonds, open-account indebtedness, and 10,000 shares of common stock with no par value.

For brevity, the Associated Electric Company will hereinafter be designated as 'Associated', the Town of Safford as 'Safford', the Town of Thatcher as 'Thatcher', The Graham County Electric Cooperative, Inc. as 'Co-op' and the Arizona General Utilities Company as 'AGU.'

The contract of February 8, 1946, a part of the record in this case and to which reference is made in the argument, is immaterial in this litigation except insofar as it is incidental to a contract bearing date January 22, 1946 between Co-op, Safford and Thatcher relating to the joint acquisition by them of AGU together with all of its physical assets in Graham County, Arizona. The February 8th agreement provided for their joint purchase of AGU by 'position sale' from Associated upon terms and conditions therein provided which are also immaterial to a determination of the issues here involved. It is upon clause designated (2) of the contract of January 22, 1946 that this litigation must be determined. Clause (2) reads as follows:

'It is understood and agreed that Safford and Thatcher, or either, upon the annexation or extension of their corporate limits, at any time in the future, of territory adjacent to either of said towns, shall be sold the distribution facilities then existing in any such territory and owned by the Co-op upon a replacement new cost less depreciation basis, with no good-will or going concern element considered, and in no event shall the Co-op require that condemnation proceedings be instituted for such acquisition.' (Emphasis ours.)

It is the position of Co-op that the contract is invalid as in violation of the Rule Against Perpetuities; that it is vague, indefinite, uncertain and incapable of enforcement; and that at most it is a contract to make a contract. On the other hand, Safford contends that the contract provides for no restraint upon Co-op from selling any of its property at any time it sees fit and that the contract therefore violates in no manner the Rule Against Perpetuities. It further contends that the contract is valid and is capable of enforcement. Co-op has raised many other questions as evidenced by its nineteen assignments of error, but they are either interwoven with the issues arising out of the portion of the contract above set forth or are without merit. We will undertake to dispose of all of them either directly or indirectly.

First, we are of the view that the claim of Co-op that the contract of January 22, 1946 violates the Rule Against Perpetuities is without merit. We are unable to discern any element of a violation of that rule in the terms of the contract. It places no restrictions whatever upon Co-op in the alienation of its property at any time it might desire to alienate it, nor does it provide that Co-op may not vest title thereto at any time in any one, subject only to the condition that Safford has the right to purchase it upon the happening of the contingency therein named.

We are also of the view that there is nothing so vague, indefinite and uncertain about the contract that makes it incapable of enforcement. It is clear from the language employed that the contracting parties contemplated at the time of its execution that if and when Safford brought additional territory within its corporate limits by the legal process of annexation (which it did within two years thereafter), Co-op would sell its distribution facilities within that area 'upon a replacement new cost less depreciation basis.'

Counsel for Co-op attempted to prove by its general manager, Helmers, that the formula above set forth was ambiguous because of the fact that the word 'depreciation' used therein could be figured in several different ways. He named: (1) the 'straight line method'; (2) the 'point of digits method'; (3) the 'percentage method'; and (4) the 'standard formula used by REA' which he says 'differs from depreciation charged by utilities under Federal Power Commission rulings,' and he added 'there are a great number of methods of figuring depreciation'. However, he did not give the court any enlightenment as to how any of these methods were figured or how one method differed from any of the others, nor did he state anywhere in his testimony what the variables or variations in the results would be. So far as the record in this case reveals there may not be any material difference in the final results regardless of the method employed. We have the statement of the same witness, however, that there has been a difference of opinion between Co-op and Safford as to the 'replacement new cost' of poles and wires. This proves nothing except that they could not agree upon what the market price was at that time. Such a result seems to be unjustified. The most uninformed citizen in Graham County can ascertain the cost of both new poles and new wire of the type used by Co-op and also the cost of installation. There cannot be any variables or variations in the cost thereof to such an extent that reasonable men may not agree thereon.

Inasmuch as the facilities involved consist largely of wires, poles and necessary installations, certainly the court cannot experience any great difficulty in solving any problems involved from the standpoint of 'depreciation.' The agreement itself provides that 'depreciation' shall have as its basis 'replacement new cost' and not 'the original cost thereof.' This pinpoints the costs from which depreciation is to be deducted and removes any justifiable claim that clause (2) of the contract is ambiguous. The amount of defreciation in the instant case is dependent upon and must be determined by the useful life of the property involved and the proportion or percentage of 'the useful life' of it that has been utilized by use. action of the elements of nature upon it, and obsolescence and inadequacy, if any. The 'replacement new cost', that is, the cost today including installation, is ascertained by determining what the wire and poles and other distribution facilities, if any, would cost in the open market today plus the cost of installation at present wages. Upon determining the depreciation by use of the factors above mentioned the present value of said property may be ascertained by deducting the depreciation from the 'replacement new cost.'

Webster's New International Dictionary (2d ed. 1949) defines 'depreciation' as 'a falling of value; * * * decline in value of an asset due to such causes as wear and tear, action of the elements, obsolescence, and inadequacy.' In Addressograph-Multigraph Corp. v. United States, 78 F.Supp. 111, 122 note 1, 112 Ct.Cl. 201, 'depreciation' is defined as 'the decline in value of an asset due to such causes as wear and tear, action of the elements, obsolescency and inadequacy.' In Cumberland Tel. & Tel. Co. v. City of Louisville, C.C., 187 F. 637, 653, the court defines 'depreciation' as 'the loss in value of some destructible property over and above current repairs.' And in Downers Grove Community High School Dist. No. 99 v. Board of Educ. of Nonhigh School Dist. of DuPage County, 329 Ill.App. 208, 214, 67 N.E.2d 605, 608, the court defines 'depreciation' as 'a loss over and above current repairs.' Nothing more complicated than the above definitions should be...