Manchester & L. R. R. v. Concord R. R.

• Decision Date: 14 March 1890
• Citation: 66 N.H. 100,20 A. 383
• Parties: MANCHESTER & L. R. R. v. CONCORD R. R.
• Court: New Hampshire Supreme Court

20 A. 383

66 N.H. 100

MANCHESTER & L. R. R.

v. CONCORD R. R.

Supreme Court of New Hampshire. Hillsborough.

March 14, 1890.

Demurrer to bill in equity.

C. H. Burns, J. F. Briggs, O. E. Branch, W. S. Ladd, and Fletcher Ladd, for plaintiff. J. W. Fellows, J. H. Benton, Jr., and Chase & Streeter, for defendant.

BLODGETT, J. This proceeding is a bill in equity for a discovery and an accounting of the defendant's dealings with the plaintiff's railroad properties from December 1, 1856, to July 1, 1887, under various contracts and leases; for the delivery of certain books, records, and papers alleged to belong to the plaintiff; for the return to it of rolling stock and equipments of the appraised value of $147,592, which went into the defendant's possession at the time it took the plaintiff's road, and which it still retains; and for the determination and adjustment of the respective rights of the parties in and to certain lands, depots, and tracks, situate in Manchester. In bar of the plaintiff's right to a recovery the defendant files three special pleas, and, as to the matters in the bill not covered by the pleas, it demurs. The plaintiff demurs to the pleas.

The first plea avers that the contracts between the parties, under which the defendant went into and retained the possession and management of the plaintiff's road for more than 30 years, were wholly beyond the corporate power of either party to make or to ratify, and that therefore the defendant should be hence dismissed with its costs and charges. In other words, not denying that it has received the full benefit of the performance of the contract by the plaintiff, the defendant says that it should in equity be permitted to retain the benefit and property so acquired, and be dismissed with costs, because it was not empowered by its charter to perform what it promised the plaintiff in return. The demurrer to this plea is sustained. The defense set up is so repugnant to the natural sense of justice, so contrary to good faith and fair dealing, and so opposed to the weight of modern authority, that it need only be said that, in equity at least, neither party to a transaction ultra vires simply, will be heard to allege its invalidity while retaining its fruits. However the contractual power of the defendant may be limited under its charter, there is no limitation of its power to make restitution to the other party whose money or property it has obtained through an unauthorized contract, nor as a corporation, is it exempted from the common obligation to do justice which binds individuals, for this duty rests upon all persons alike, whether natural or artificial.

The second plea avers, and the demurrer of course admits, that at the time of the making of the contracts between the parties, and of the dealings thereunder, their respective roads "were rival and competing railroads, by the competition of which the prices of transportation thereon were, and, but for said supposed contracts, dealings, transactions, operations, and business, would have continued to be materially reduced, and said alleged contracts, dealings, transactions, and business were made and had for the purpose, of destroying and preventing such competition, and did destroy and prevent it." It will be noticed that there is no averment in the plea that the purpose of the contracts was to raise the prices of transportation above are as on able stand are, or that they did have this effect, or that the public were prejudiced by their operation in any manner; and the naked question presented then is, whether all contracts between rival railway corporations which prevent competition are necessarily contrary to public policy, and therefore mala prohibits and illegal in themselves. To state this question is to answer it in the negative, because it is obvious that the illegality depends upon circumstances. While, without doubt, contracts which have a direct tendency to prevent a healthy competition are detrimental to the public and consequently against public policy, it is equally free from doubt that when such contracts prevent an unhealthy competition, and yet furnish the public with adequate facilities at fixed and reasonable rates, they are beneficial, and in accord with sound principles of public policy. For the lessons of experience, as well as the deductions of reason, amply demonstrate that the public interest is not subserved by competition which reduces the rate of transportation below the standard of fair compensation; and the theory which formerly obtained that the public is benefited by unrestricted competition between railroads has been so emphatically disproved by the results which have generally followed its adoption in practice that the hope of any permanent relief from excessive rates through the competition of a parallel or rival road may, as a rule, be justly characterized as illusory and fallacious. Upon authority also, arrangements and contracts between competing railroads, by which unrestrained competition is prevented, do not contravene public policy. Hare v. Railroad Co., 2 Johns. & H. 80, is directly in point. In that case a bill in chancery had been brought by a stockholder in the defendant company to annul an agreement between two railway companies to divide the profits of the traffic in fixed proportions; and it was admitted there, as it is here, that the purpose of the agreement was to prevent competition. In dismissing the bill Vice-Chancellor WOOD said, (page 103:) "With regard to the argument against the validity of the agreement, I may clear the ground of one objection by saying that I see nothing in the alleged injury to the public arising from the prevention of competition. * * * It is a mistaken notion that the public is benefited by pitting two railway companies against each other till one is ruined, the result being at last to raise the fares to the highest possible standard. "So, also, in 1 Redf. R. R. § 146, par. 2, it is said: "There is no principle of public policy which renders void a traffic arrangement between two lines of railway for the purpose of avoiding competition." And Mr. Morawetz says, in his admirable treaties on Corporations: "Public policy clearly does not demand that railroad companies operating competing lines shall engage in strife causing their financial ruin; and, so far as agreements among companies are designed to effect this result, their purpose is not injurious to the public, or illegal. Moreover, such agreements are positively beneficial to the public, so far as they prevent the fluctuation of rates and unjust discriminations among shippers, which invariably attend the unrestricted competition of rival companies. It is therefore impossible to support the proposition that all agreements among railroad companies which restrict competition are condemned by law. Some such agreements may be contrary to public policy, and unlawful; but if an agreement of this character is a reasonable business arrangement to protect the shareholders and creditors of the companies from loss, and does not cause unreasonably high charges or violate any duty which the companies owe to the public, it should be sustained and enforced by the courts." Mor. Corp. (2d Ed.) § 1131. In the same section, in speaking of contracts in restraint of trade, (to which many of the authorities and much of the argument for the defendant relate,) he says: "Even if there were such a rule, as has been claimed, applicable to competition in trade, the principle and policy of the rule would not be applicable to traffic arrangements designed merely to prevent ruinous competition and 'wars' among railroad companies. The main objection which has been urged against combinations restraining competition in trade, namely, that such combinations tend to produce monopolies and cause extortion, has no application to combinations among railroad companies, for railroad companies are prohibited by law to charge more than reasonable rates. It should be observed also that competition among railroad companies has not the same safeguards as competition in trade. Persons will ordinarily do business only when they think they see a fair chance of profit; and if press of competition renders a particular trade unprofitable, those engaged in that trade will suspend or reduce their operations, and apply their capital and labor to other uses, until a reasonable margin of profit has been reached. But the capital in vested in the construction of a railroad cannot be withdrawn when competition renders the operation of the road unprofitable. A railroad is of no use except for railroad purposes, and if the operation of the road were stopped the capital invested in its construction would be wholly lost. Hence it is for the interest of a railroad company to operate its road, though the earnings are barely sufficient to pay the operating expenses. The ownership of the road may pass from the shareholders to the bondholders, and be of no benefit to the latter; but the struggle for traffic will continue so long as the means of paying operating expenses can be raised. Unrestricted competition will thus render the competitive traffic wholly unremunerative, and will cause the ultimate bankruptcy of the companies unless the portion of their traffic which is not the subject of competition can be made to bear the entire burden of the interest and fixed charges. "The application of these principles to the plea under consideration is patent and decisive. The geographical location and relative resources of the two roads were such as to render it obvious that the plaintiff could not reasonably hope to successfully compete with its more powerful rival. The alternatives presented, it may safely be assumed, were combination or ruinous competition. It accepted the former; and as the combination did not, so far as appears by the pleadings, raise the rate of transportation above the standard of fair compensation, or violate any...