Southwestern Telegraph & Telephone Co. v. Memphis Telephone Co.

• Decision Date: 16 February 1914
• Citation: 163 S.W. 1153,111 Ark. 474
• Parties: SOUTHWESTERN TELEGRAPH & TELEPHONE COMPANY v. MEMPHIS TELEPHONE COMPANY
• Court: Arkansas Supreme Court

163 S.W. 1153

111 Ark. 474

SOUTHWESTERN TELEGRAPH & TELEPHONE COMPANY v. MEMPHIS TELEPHONE COMPANY

Supreme Court of Arkansas

February 16, 1914

Appeal from Mississippi Chancery Court, Osceola District; Charles D Frierson, Chancellor, modified and affirmed.

STATEMENT BY THE COURT.

The Memphis Telephone Company instituted this suit, in the Osceola District of the Mississippi Chancery Court, against the Southwestern Telegraph & Telephone Company, the Tri-State Telephone Company and R. C. Rose, on November 10, 1911 asking damages for an alleged breach of the contract. The complaint alleged, in substance, that the Tri-State Company owned and operated a telephone plant in northeast Arkansas and was doing a long distance business in southeast Missouri and in Tennessee, and that at the same time the Memphis Telephone Company was operating a telephone plant in Memphis Tenn., and extending to other points in Mississippi and Tennessee; that on the 9th of September, 1910, the appellee entered into a contract with the Tri-State Telephone Company wherein the two companies agreed to construct a telephone line into the city of Memphis. That at that time the Tri-State Company had a line to Munford in Tipton County, and going to Bedford, and from there to Millington connecting with the Tri-State Company exchange at Millington. The contract provided for a division of tolls on an equal basis. The Tri-State Company agreed to route all business originating upon its system, for points reached by the Memphis Company, over and upon the lines so to be constructed and through the Memphis Company; that the contract should apply to all exchanges, or future exchanges, of either company, and the contract by its terms was to remain in force twenty-five years from and after the date of the completion of said line. That the parties had constructed the said telephone line according to the terms of the contract, and in doing so, plaintiffs expended the sum of $ 10,000 in the construction and equipment of its portion of said lines, which it completed some time during the latter part of July, 1911, and a few messages were transferred over same; that in July, 1911, the appellant obtained control of the Tri-State Company by purchasing stock of the stockholders therein at a price of about $ 150,000, and the Tri-State Company was completely merged in, and absorbed by, the appellant which took over and received, and yet holds, all the assets of the said Tri-State Company, together with certain personal and real property amounting in value to the sum of $ 150,000. That the plaintiff is informed and believes that the Southwestern Company expressly assumed all contracts and obligations of the Tri-State Company, by the terms of said transaction.

That after the purchase of the said stock of the Tri-State Company by appellant, and prior to the taking over of the property of the Tri-State Company, the defendants put it out of their power to fulfill said contract with the plaintiff by selling and conveying to the Cumberland Telephone & Telegraph Company their Tennessee property, and the joint line constructed in pursuance of said contract. That the defendant and the Cumberland Company severed said line immediately after said purchase, and left the plaintiff's part thereof wholly useless and without connection to the points to which it was built. That the defendants have repudiated said contract, and wholly refuse to perform same, or any part thereof. That the Southwestern Company and the Cumberland Company are part of the telephone system extending to all parts of the United States known as the Bell system. That they are not in competition. That the plaintiff company was not part of the Bell system, but is an independent telephone company, and a competitor of the said Southwestern and Cumberland Companies.

That the plaintiff has been greatly damaged by reason of said breach of contract, and that said joint line was constructed by each of the contracting parties with the sole view to profits, which would be made by them by joining thereto and such profits were contemplated by the parties, when the contract was made, and the loss which both parties had in mind is the loss which would arise by reason of the breach thereof. That the business which would have been done over said line, if same had been used, would have been large. Such business theretofore handled by the Tri-State Company had been very large, and plaintiffs would have derived large profits from its proportion of the tolls as fixed in the said contract. Judgment for $ 250,000 was prayed. The complaint was framed in two aspects. Recitals were there contained which appellee alleged entitled it to follow the assets of the Tri-State Company into the hands of the appellant, and to the extent of these assets, to require satisfaction of its demand by appellant. In the second place, it is averred that appellant had wilfully induced and procured the Tri-State Company to commit a breach of the contract, and was therefore directly liable.

The answer denied all the material allegations of the complaint.

The appellee and the Tri-State Company respectively complied with the contract, for the construction of the new lines, and they were in position to operate under the contract, when the sale took place as alleged in the complaint. The contract, which was introduced in the evidence, provided in substance that each company would do its long-distance business exclusively over the lines of the other, to all points reached by it, upon an agreed division of tolls. The shares of the stock of the Tri-State Company were assigned to certain officers and employees of the appellant, but the money for the stock was paid to the Tri-State Company's stockholders by appellant. Upon the acquisition of the properties of the Tri-State Company no attempt was made to comply with the contract herein sued on. But upon the contrary, the appellant immediately sold its lines in Tennessee to the Cumberland Company. The said R. C. Rose, was the general manager of the Tri-State Telephone Company, and owned a controlling interest in that corporation, and first negotiated for the sale of his individual stock; but appellant agreed with Rose to buy all the stock of the Tri-State Telephone Company, at the same price paid Rose, provided the stock was offered for sale within a certain specified time. Rose's stock was purchased on May 26, 1911, and thereafter all the remaining stock was also purchased.

The breach of the contract sued on is admitted, and appellant concedes its liability for some damages; but it says the amount should only be nominal damages, for reasons that will be set out hereafter. Upon the other hand, appellee says it should have damages, not only compensating its loss growing out of the breach of the contract, but punitive damages as well. The proof shows that the superintendent of appellant had knowledge of the existence of the contract between appellee and the Tri-State Company on June 12, 1911, but there was no proof of any knowledge of that fact on the part of appellee, prior to that time; but at that time appellant had already bought and paid for a controlling interest in the Tri-State Company. The Tri-State Company was reorganized, and at a meeting of its directors at Osceola on July 1, 1911, its superintendent was directed to sell that part of its property situated in the State of Tennessee, and on the next day it was sold to the Cumberland Company, and the operating control of the lines, which would have made it possible for the Tri-State Company to comply with its contract, passed into the hands of the Cumberland Company, which company at once cut loose the connection with the lines of the appellee.

On September 22, 1911, the officers and directors of the Tri-State Company, being officers and employees of the appellant, conveyed the entire remaining portion of the Tri-State Company in Arkansas to the appellant for a cash consideration of $ 118,415.66. This money was not, in fact, paid to the Tri-State Company, but represented the money which appellant had already paid Rose and other stockholders of the Tri-State Company, and some small debts of that company which appellant had paid. The property of the Tri-State Company in Missouri had been sold by the appellant to the Missouri Bell Telephone Company. On October 5, 1911, the Tri-State Company, by proper resolution filed in the office of the Secretary of State of Arkansas, was dissolved. There was a decree in favor of appellee in the court below for $ 34,500, and both parties have appealed. Other facts will be stated in the opinion.

Decree affirmed.

A. P. Wozencraft, D. A. Frank and Walter J. Terry, for appellant.

1. The damages sought to be recovered are not such as naturally result from the breach of the contract, nor such as could have been contemplated as a probable consequence of a breach of the contract. 103 Ark. 584, 148 S.W. 271, and cases cited; 11 N.W. 829.

2. The evidence is convincing that there was and is no means of ascertaining reasonably any damages suffered by the complainant. The damages claimed are merely contingent and speculative.

In order to determine that there was loss of profits, there must be proof that there would have been a profit, and, in this case, not only so, but that there would be a profit continuously for the entire twenty-five years. 78 Ark. 336, 93 S.W. 987; 13 Cyc. 53, 54; 80 Ark. 232, 96 S.W. 988; 91 Ark. 433, 121 S.W. 920; 141 N.C. 284, 53 S.E. 885, 8 L. R. A. (N. S.) 255; 9 Wheat. (U.S.) 377, 6 Law Ed. 115; 5 Wheat. 116; 3 Wheat. 560; 124 Mass. 424, 26 Am. Rep. 673; 124 U.S. 454, 31 Law Ed. 483; 7 Cush. (Mass.) 516; 139 U.S. 199, 35 Law Ed. 150; 95 N.E. 964.

3. The only correct measure of appellee's damages would be the damage...