Harding Glass Co. v. Twin City Pipe Line Co.

• Decision Date: 08 March 1930
• Docket Number: No. 8686.,8686.
• Parties: HARDING GLASS CO. v. TWIN CITY PIPE LINE CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

39 F.2d 408 (1930)

HARDING GLASS CO. v. TWIN CITY PIPE LINE CO. et al.^*

No. 8686.

Circuit Court of Appeals, Eighth Circuit.

March 8, 1930.

Joseph R. Brown and James B. McDonough, both of Ft. Smith, Ark., for appellant.

Harry P. Daily, of Ft. Smith, Ark. (Vincent M. Miles and John P. Woods, both of Ft. Smith, Ark., on the brief), for appellees.

Before VAN VALKENBURGH and GARDNER, Circuit Judges, and MUNGER, District Judge.

MUNGER, District Judge.

The Twin City Pipe Line Company brought suit to compel the Harding Glass Company to perform a contract, and obtained a decree. The glass company has appealed. The principal question involved is whether the contract is so illegal that the court will not aid in its enforcement. The glass company has a factory at Ft. Smith, Ark., and uses a large amount of gas in the manufacture of its products. The pipe line company is a public utility corporation which supplies gas from natural gas fields to Ft. Smith, where it sells the gas to industries, and to a company which supplies domestic consumers. Litigation had occurred between the glass company and the pipe line company and others over contracts for the supply of gas to the glass company. A compromise was reached, and a contract was made dismissing the pending legal proceedings, and providing that the pipe line company should lay a larger pipe to supply the glass company, and in this contract were the following provisions:

"The Harding Glass Company agrees to take all its requirements of gas for its plants in the City of Ft. Smith, Arkansas, from the Twin City Pipe Line Company so long as the Twin City Pipe Line Company can adequately supply its requirements and to pay for all gas furnished it hereunder, beginning September 1, 1926, at the regular sliding schedule of rates of twelve cents to fifteen cents, which is the rate now in effect for industries in the City of Fort Smith, Arkansas, or at such rate as may hereafter be fixed for industries in the City of Fort Smith by the proper regulatory body or Court having jurisdiction. All gas consumed by the Harding Glass Company up to September 1, 1926, shall be paid for at the rate of ten cents per thousand cubic feet.

"The Harding Glass Company agrees that in the event there is a shortage of gas so that there is not enough to adequately supply the domestic consumer, that the Twin City Pipe Line Company may discontinue serving it gas, upon condition that the same character of service be given the Harding Glass Company that is given other industries in the City of Fort Smith, Arkansas, and that his gas service be not discontinued unless that of other like industries is discontinued also."

The glass company thereafter took its requirements of gas from the supply furnished by the pipe line company for several years, but it then made preparations to take its supply of gas from another corporation which had a franchise permitting it to lay a pipe line to the factory of the glass company. Upon proof of these facts, a decree was entered ordering the glass company to take all of its requirements of natural gas from the pipe line company so long as it could adequately supply its needs, and to specifically perform the contract. The decree also enjoined the glass company from taking any of its requirements of gas from any other person or company so long as the pipe line company could adequately supply its needs.

Appellant glass company asserts that the portion of the contract which requires it to take all of its requirements of gas exclusively from the pipe line company is illegal and contrary to public policy, because it is in restraint of trade, tends to the monopolization at Ft. Smith of the sale of gas by the pipe line company, and is an undue restraint of business competition between companies supplying gas. It is to be observed that the contract obligates the glass company to take the gas without any limit of time, unless one of the conditions of the contract arises. It appears that the glass company is the largest consumer of gas among the industries of Ft. Smith. The public policy to be ascertained is the public policy of Arkansas. Northwestern Mut. Life Ins. Co. v. Johnson, 254 U. S. 96, 100, 41 S. Ct. 47, 65 L. Ed. 155; Whitfield v. Ætna Life Ins. Co., 205 U. S. 489, 495, 27 S. Ct. 578, 51 L. Ed. 895; McCue v. Northwestern Mut. Life Ins. Co. (C. C. A.) 167 F. 435, 442. It is only in clear cases that a contract will be declared illegal because of public policy. Steele v. Drummond, 275 U. S. 199, 205, 48 S. Ct. 53, 72 L. Ed. 238. The character and tendency of the contract is to be considered, rather than the good intentions of the parties, or the absence of actual injury. McMullen v. Hoffman, 174 U. S. 639, 647, 19 S. Ct. 839, 43 L. Ed. 1117; Greenhood on Public Policy 5; Gibbs v. Smith, 115 Mass. 592, 593; United States v. E. C. Knight Co., 156 U. S. 1, 16, 15 S. Ct. 249, 39 L. Ed. 325; Weil v. Neary, 278 U. S. 160, 173, 49 S. Ct. 144, 73 L. Ed. 243. The Constitution of Arkansas (article 2, § 19) contains this provision: "Perpetuities and monopolies are contrary to the genius of a republic, and shall not be allowed." No specific determination is found in the statutes or decisions of the Supreme Court of Arkansas applicable to the exact situation. That court has decided many questions involving alleged restraints of trade (see Woodruff v. Berry, 40 Ark. 251; Webster v. Williams, 62 Ark. 101, 34 S. W. 537; Shapard v. Lesser, 127 Ark. 590, 193 S. W. 262, 3 A. L. R. 247; Wakenight v. Spear & Rogers, 147 Ark. 342, 227 S. W. 419) in recognition of the common-law principles applicable. It is apparent from the record in this case that there were several companies which had authority to sell gas to the appellant. It is conceivable that other companies may come into existence able to supply the appellant's needs. One such company is ready to sell appellant its requirements. Is the contract valid by which the glass company agreed to buy exclusively from the pipe line company, so long as it could supply its needs? In Coombs v. Burk, 40 Cal. App. 8, 10, 180 P. 59, the question was presented of the validity of a contract whereby a customer of a gas company agreed to purchase all the gas which he might use. In that case the court said:

"`Whatever tends to prevent competition in business impressed with a public character is opposed to public policy and is therefore unlawful.' Greenhood on Public Policy, p. 180.

"Where a contract affects such character of business, since no restraint, however partial, can be tolerated, the court will not inquire into or consider the extent of the restriction imposed. Gibbs v. Consolidated Gas Co., 130 U. S. 396, 9 S. Ct. 553, 32 L. Ed. 979; West Va. T. Co. v. Ohio R. P. L. Co., 22 W. Va. 600, 46 Am. Rep. 527; Gwynn v. Telephone Co., 69 S. C. 434, 48 S. E. 460, 67 L. R. A. 111, 104 Am. St. Rep. 819; Central Ohio Salt Co. v. Guthrie, 35 Ohio St. 672. As to private business, the conduct of which does not affect the public welfare, and hence involves no question of public policy, a different rule applies, under which contracts, if reasonable in their terms, will be enforced.

"Concededly in the instant case the Gas Corporation was engaged in a business impressed with a public character (Gibbs v. Cons. Gas Co., supra), and from a reading of the contract it is apparent that its purpose in making the same was to prevent defendant from discontinuing the use of gas furnished by it, and, in lieu thereof, obtaining a supply from another company engaged in supplying gas to the inhabitants of the city. That the contract was not only in restraint of trade, but if upheld would tend to stifle competition and give plaintiff's assignor a monopoly of the business of furnishing a supply of gas in the city, and hence be detrimental to the public welfare, admits of no controversy."

In People ex rel. Perceval v. Public Service Commission, 163 App. Div. 705, 707, 148 N. Y. S. 583, 585, a public utility company supplying electric current required of those who sought to become its customers an agreement that they should take no electric current from any other company. In awarding a writ compelling the company to supply the needs of an applicant for service, although he also proposed to take electric current at the same place from another company, the court said:

"It is, of course, the rule that such a corporation may establish reasonable regulations respecting the use of the service which it proposes to furnish, and each customer requiring the service is called upon to comply with such regulations. In our opinion, however, the requirement that a consumer must take all of its electricity from one company, or receive none at all, is not in any proper sense a regulation respecting the use of the service, but is a purely arbitrary attempt on the part of the company to insure to itself a monopoly of furnishing electrical current. If the company can lawfully decline to furnish any current to this relator because he also proposes to obtain electricity from a neighbor (not a competing company), it can equally well refuse * * * electrical current to a consumer who himself generates a part of the current which he uses. Such a limitation upon the company's obligation would, as it seems to us, be quite unreasonable. An exclusive clause similar in purport and intention...