Southwest Distributing Co. v. Olympia Brewing Co.

• Decision Date: 27 June 1977
• Docket Number: No. 10802,10802
• Citation: 90 N.M. 502,1977 NMSC 50,565 P.2d 1019
• Parties: SOUTHWEST DISTRIBUTING COMPANY, a New Mexico corporation, Petitioner-Appellee, v. OLYMPIA BREWING COMPANY, a Foreign Corporation, Respondent-Appellant.
• Court: New Mexico Supreme Court

Page 1019

565 P.2d 1019

90 N.M. 502

SOUTHWEST DISTRIBUTING COMPANY, a New Mexico corporation Petitioner-Appellee, v. OLYMPIA BREWING COMPANY, a Foreign Corporation, Respondent-Appellant.

No. 10802.

Supreme Court of New Mexico.

June 27, 1977.

Keleher & McLeod, John B. Tittmann, Albuquerque, for respondent-appellant.

Knight, Sullivan, Villella, Skarsgard & Michael, Albuquerque, for petitioner-appellee.

Campbell & Bingaman, Santa Fe, for amicus curiae, Distilled Spirits Council of the United States.

Olmsted & Cohen, Charles D. Olmsted, Santa Fe, Fordyce & Mayne, Frederick M. Switzer III, St. Louis, Mo., for amicus curiae, Wine & Spirits Wholesalers of America, Inc.

OPINION

McMANUS, Chief Justice.

Petitioner-appellee Southwest Distributing (hereinafter Southwest) sought a mandatory injunction against respondent-appellant Olympia Brewing Company (Olympia), seeking to require Olympia to supply and sell Hamm's beer to Southwest for resale throughout New Mexico. The trial court temporarily restrained and enjoined Olympia from terminating the supply of Hamm's beer to Southwest, and on December 8, 1975 it permanently enjoined Olympia therefrom. Olympia appeals and we reverse.

A distributor of beer, wine, liquor, institutional grocery and sanitary supplies, Southwest has been a distributor of Hamm's beer in New Mexico since 1947, and the exclusive distributor since 1951. The distributorship agreement between Southwest and the Theodore Hamm Company (Hamm) was oral, did not provide for any fixed termination date, did not specify the quantity to be purchased or sold, or stipulate any other terms. Southwest's distributorship of Hamm's beer continued under the changes in ownership in the Theodore Hamm Company occurring in 1965 and in 1973.

On February 20, 1975, Olympia purchased certain of Hamm's assets, including its St. Paul brewery and the Hamm trademark. In a letter dated February 28, 1975, Olympia advised former Hamm distributors, including Southwest, that it would ship Hamm's beer to them on an "order to order" basis, pending Olympia's evaluation of how those Hamm distributors would fit in the Olympia distribution network. On April 11, 1975, the Alcohol Beverages Franchise Act, § 46-9-16 through -20, N.M.S.A. 1953 (Supp.1975), went into effect. In a letter dated April 12, 1975, Olympia notified Southwest that Olympia could better serve the New Mexico market through another distributor and would no longer accept orders from Southwest. Olympia's last shipment to Southwest was delivered prior to April 11, 1975 and no subsequent shipments were made after that date, whereupon Southwest sought to enjoin Olympia from terminating the supply of Hamm's beer to Southwest.

The trial court enjoined Olympia from terminating Southwest's distributorship on the bases that (1) Southwest had a vested property right in the distributorship; (2) Olympia purchased the assets of Hamm with an encumbrance thereon for the distributorship agreements; (3) the contractual agreement between Hamm and Southwest could not be terminated by Olympia without good cause; and (4) the Alcohol Beverages Franchise Act applied to the Olympia-Southwest transaction and that Olympia had violated the Act. The trial court erred in reaching these conclusions.

I. Vested Property Right

Southwest claimed, and the district court found, that Southwest had a vested "property right" in Hamm's beer and the beer distributorship. Southwest relied on Equitable Building and Loan Ass'n v. Davidson, 85 N.M. 621, 515 P.2d 140 (1973); Muckleroy v. Muckleroy, 84 N.M. 14, 498 P.2d 1357 (1972); and People v. Wisch, 58 Misc.2d 766, 296 N.Y.S.2d 882 (S.Ct.1969) for this proposition; however, these cases are inapplicable.

Equitable Building and Loan Ass'n v. Davidson, supra, held that a branch office of a savings and loan could be considered a "property right;" however, that case dealt with a public franchise granted by the state to an association. The reasoning is inappropriate where an agreement between private parties is concerned. Muckleroy v. Muckleroy, supra, also dealt with a type of "public franchise." The issue in Muckleroy was whether a medical license was "property;" here again the "franchise" in question was a right given by the state to a citizen and therefore is inapplicable to the case at bar. Muckleroy states:

Broadly defined, property includes every interest a person may have in a thing that can be the subject of ownership, including the right to enjoy, use, freely possess and transfer that interest. (Citations omitted.)

84 N.M. at 15, 498 P.2d at 1358.

The case then held that although a medical license was a property right, it could not be considered "community property" because it was not subject to joint ownership. The point in Muckleroy was that an object of ownership may be property for one purpose but not for another. People v. Wisch, supra, is consistent with the Muckleroy decision because the court therein held that a milk route that had pecuniary value could be considered "property" which could be the object of an extortion.

Here the purported "property right" was the right to distribute Hamm beer. This was a right obtained under an oral agreement between two parties and therefore, a right obtained by a contract. It does not possess the characteristics of a property right because there was no evidence that Southwest could have sold or transferred its interest in the distributorship agreement to another person or corporation and forced Hamm to deal with the transferee. Southwest had the right to order beer from Hamm and to use the Hamm trademarks in selling Hamm products but Southwest had no right to "enjoy, use, freely possess and transfer" the distributorship as a piece of its own property. The only interest Southwest possessed was an oral contract agreement with Hamm.

II. The Encumbrance on Hamm's Assets

The district court found as a conclusion of law:

The assets of Theodore Hamm Brewing Company were sold to Respondent with an encumbrance on the assets of said Company as a matter of law and Respondent assumed those assets together with the encumbrance thereon as a matter of law, regardless of the terms of the purchase agreement.

Although there was no express agreement, Olympia may have impliedly assumed this contract through the purchase agreement with Hamm. Therefore, the 64-page purchase agreement must be scrutinized to see if it would support this conclusion.

Olympia agreed to purchase "all of the assets of Hamm utilized by Hamm in connection with the manufacture, sale and distribution of the Hamm's . . . brands of beer . . . and all other items of tangible personal property . . ." This clause was entitled "Acquired Assets" and is followed by four and one-half pages of enumerated items including (h), "Those agreements, undertakings, instruments, executory contracts . . . necessary or desirable for Olympia to use the Acquired Assets to conduct business . . . all of which are described on Exhibit A-h . . ." (Emphasis added.) Exhibit A-h referred to Collective Bargaining Agreements, advertising contracts, utility and licensing agreements. There was no reference to any distributorship contract. Section 4 related to liabilities and Olympia agreed to "assume, perform, and satisfy the following (and no other ) liabilities and obligations of Hamm . . ." (Emphasis added.) Again, no distributorship agreement was referred to. Under section 7(c)(i) Hamm represented, warranted and agreed that, "Except for the encumbrances (which were specified) . . . Hamm has good and marketable title to all the Acquired Assets free and clear of all mortgages, liens and encumbrances, of every kind and character . . ." Not only did Olympia not assume the distributorship, as a part of the Acquired Assets, but Hamm warranted that those assets would not be subject to any encumbrance.

Southwest also relied on a letter dated April 16, 1975 wherein the Board of Directors of Theodore Hamm Company expressed regret at Olympia's actions in terminating some wholesalers. The directors said, "We believed that by selling to Olympia and Pabst we had substantially accomplished the purpose of Theodore Hamm Company to assure a supply of Hamm's beer for the wholesaler organization, to preserve jobs, and to keep the brands alive." (Emphasis added.) However, the directors did not contend that there was an agreement or a contract which obligated Olympia to comply with those terms. Despite the language in the purchase agreement the district court held that as a matter of law the assets were encumbered.

Based upon the findings of fact and the record, there was no support for this conclusion of law. In American jurisdictions it is well settled that a corporation which purchases the assets of another corporation does not automatically acquire the liabilities or obligations of the transferor corporation except (1) where there is an agreement to assume those obligations; (2) where the transfer results in a consolidation or merger; (3) where there is a continuation of the transferor corporation; or (4) where the transfer is for the purpose of fraudulently avoiding liability. Forest Laboratories, Inc. v. Pillsbury Company, 452 F.2d 621 (7th Cir. 1971); Pankey v. Hot Springs Nat. Bank, 46 N.M. 10, 119 P.2d 636 (1941); 15 W. Fletcher, Cyclopedia of the Law of Private Corporations § 7122 (Rev. perm. ed. 1973). A manufacturer or seller may stop doing business, or refuse to do business with any person or corporation unless such refusal would result in, or is designed to promote, unlawful activity. United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919); Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969). None of the exceptions to the general rule are found in the present case.

A case which is strikingly similar to the present situation is Oak Distributing Co. v. Miller Brewing Company, 370 F.Supp. 889 (S.D.Mich.1973) wherein the...