Kentucky-Tennessee Light & Power Co. v. City of Paris

• Court: Tennessee Supreme Court
• Writing for the Court: Green
• Citation: Kentucky-Tennessee Light & Power Co. v. City of Paris, 114 S.W.2d 815, 173 Tenn. 123 (Tenn. 1938)
• Decision Date: 02 April 1938
• Parties: KENTUCKY-TENNESSEE LIGHT & POWER CO. v. CITY OF PARIS et al.

114 S.W.2d 815

KENTUCKY-TENNESSEE LIGHT & POWER CO. v. CITY OF PARIS et al.

Supreme Court of Tennessee.

April 2, 1938.

Appeal from Chancery Court, Henry County; Tom C. Rye, Chancellor.

Suit by the Kentucky-Tennessee Light & Power Company against the City of Paris and others, to enjoin the city from erecting electric distribution system. From a decree dismissing the bill, complainant appeals.

Affirmed.

Travis, Brownback & Paxson, of New York City, Bruce & Bullitt, of Louisville, Ky., and Stout & Porter, of Clarksville, for Power Company.

Van Dyke & Cox, M. H. Goldston, and Kye Rorie, all of Paris, for City of Paris.

James Lawrence Fly and W. C. Fitts, Jr., both of Knoxville, and Frank H. Towsley, of New York City, for Tennessee Valley Authority.

GREEN, Chief Justice.

From a decree of the chancellor dismissing its bill on demurrer, the complainant has appealed to this court.

The complainant, Kentucky-Tennessee Light & Power Company, operating an electric light and power plant in Paris, Tenn., filed this bill to restrain that municipality from erecting a distribution system through which the city itself proposed to sell light and power — electric current to be supplied by Tennessee Valley Authority. The mayor and aldermen of Paris were made defendants along with Harold L. Ickes, Federal Administrator of Public Works, and Tennessee Valley Authority; a decree being sought against the two governmental agencies restraining them from participating in the aforesaid project of the city by making any grant or loan of funds or by supplying electric current.

Numerous questions were raised in the bill as to the powers of the several defendants in the premises. On appeal, the assignments of error call in question the powers of the city of Paris alone.

It is insisted that the city of Paris derives any authority it has to undertake this project from chapter 32 of the Public Acts of 1935, and the complainant contends that this act is unconstitutional for various reasons. The same attack was made upon the act in Tennessee Electric Power Company v. Mayor and Aldermen of Fayetteville, 173 Tenn. __, 114 S.W. 2d 811, this day decided. The validity of the act was therein sustained, and further discussion of this matter is not required.

It is further urged by the complainant that the city of Paris has disabled itself from undertaking the erection of this distribution system and engaging in competition with complainant in the sale of electric current by reason of a contract entered into between the city and the complainant in 1925.

Prior to 1925 the city was the owner of an electric light and water plant serving consumers in Paris, Tenn., and vicinity, and on December 16 of that year the city entered into an agreement with one Joseph H. Byrd whereby the said electric light and water plant with all its equipment was leased to Byrd for a term of thirty years. In consideration the lessee agreed to pay an annual rental of $30,000 per year and agreed to pay off and discharge bonded indebtedness of the city aggregating $355,000, these bonds maturing at intervals, the first set payable April 1, 1929, and the last set payable August 1, 1953. It was further agreed that the lessee was to be allowed a credit on the annual rent charge of $30,000 each year by the amount of the interest on the bonds for each year. The agreement contained another provision that upon payment by lessee of all of the bonds and upon an additional final payment of $45,000 in cash, the city would make a deed to the lessee of the properties described.

It should be noted that by agreement of the city the rights and obligations of Byrd under this contract were transferred to complainant, Kentucky-Tennessee Light & Power Company. It appears that the complainant has duly paid off the bonds that matured April 1, 1929. Other bonds have not yet matured. Complainant has also paid all rent due and has spent large sums of money in betterments and extensions.

The contract is elaborate, containing some thirty-six paragraphs in addition to the preamble and attestation clause. In the consideration of this appeal it is only necessary to set out paragraph 8 and paragraph 21.

"8. The City may, if it so elect, re-enter the business of manufacturing electric current or serving water to consumers in the City, or may grant a franchise to any person or corporation it may elect to compete with the Lessee, without prejudicing any of its rights under the terms of this contract."

"21. The City agrees to execute and deliver such franchises, contracts and other instruments as may be necessary to vest the Lessee with a good and valid lease to the said properties, to enable the Lessee to conveniently and legally serve customers within and without the City; and it is expressly agreed and understood, in leasing said properties, the Lessee leases during the said lease period the good will of the City in said properties; and if the Lessee should become the Purchaser, he is to acquire all proper easements, rights and privileges necessary and desirable to peacefully and conveniently carry on the business of selling and delivering water and electric current to consumers, subject to the provisions of the following clause."

In general terms the argument for complainant is that the city by this contract transferred the good will of the properties sold and that the city was thereby prevented from interfering with the complainant, by competition or otherwise, in the pursuit of the business involved.

The contract, as we construe it, contains no stipulation against future competition from the city. Such a stipulation has been declared by this court to be necessary upon the sale of the good will of the business, if the purchaser desires to forestall the seller from thereafter setting up a similar business. Jackson v. Byrnes, 103 Tenn. 698, 54 S.W. 984. The complainant relies on the following from Fine v. Lawless, 139 Tenn. 160, 201 S.W. 160, 162, L.R.A.1918C, 1045:

"But, without such a stipulation, the seller of a business and its good will is precluded from interfering with the purchaser in the enjoyment of the particular business stand which is transferred by him to the purchaser. There is implied in the contract of sale the agreement that the purchaser will not be disturbed by the seller in his right to enjoy all advantages that inhere in the premises used as the place of business. By implication of law the contract binds the seller not to do any act that would prevent the vendee's use of the stand, and all advantages incident to it, to the same extent and in the same way the vendor himself might have done but for the sale."

Fine v. Lawless, and the cases which it follows, each deals with the sale of a private business. While a municipality in the operation of an electric light plant, perhaps in the sale of the physical properties of such plant, may be said to act in its proprietary capacity, the municipality proceeds as an agency of government when it confers upon an electric light and power company the right to use the streets and the right within the city to sell electric current to the inhabitants. This is the granting of a franchise and a franchise always comes from the sovereign or from the government.

As noted in Fine v. Lawless, in the absence of a stipulation, the protection to the purchaser of the good will of the business arises from the contract of sale by implication. Since Charles River Bridge v. Warren Bridge, 11 Pet. 420, 9 L.Ed. 773, it has been the law that implications are not permissible in a grant involving the public interests; that...