Tucson Federal Sav. & Loan Ass'n v. Aetna Inv. Corp.

• Decision Date: 16 June 1952
• Docket Number: No. 5461,5461
• Citation: 74 Ariz. 163,245 P.2d 423
• Parties: TUCSON FEDERAL SAVINGS & LOAN ASS'N v. AETNA INVESTMENT CORP.
• Court: Arizona Supreme Court

Page 423

245 P.2d 423

74 Ariz. 163

TUCSON FEDERAL SAVINGS & LOAN ASS'N v. AETNA INVESTMENT CORP.

No. 5461.

Supreme Court of Arizona.

June 16, 1952.

Fickett & Dunipace, of Tucson, for appellant.

Stahl, Murphy & Bishop, of Phoenix, and Krucker & Evans, of Tucson, for appellee.

UDALL, Chief Justice.

Aetna Investment Corporation, an Arizona company which is engaged in the insurance business with its principal place of business in Phoenix, was awarded damages by the superior court in the sum of $10,000 against defendant Tucson Federal Savings and Loan Association, a corporation, for the breach of a written agreement theretofore entered into between them. The matter is now brought before us for review.

In the interest of clarity we will refer to the defendant-appellant as Tucson Federal and to the plaintiff-appellee as Aetna.

Tucson Federal is a federal savings and loan association organized and existing under the Home Owners Loan Act of 1933, 12 U.S.C.A. § 1461 et seq., and carrying on its business in Tucson, Arizona. Under its charter and the rules and regulations of the Federal Home Loan Bank, by whom it is supervised, Tucson Federal is required to obtain fire and extended coverage insurance as collateral security on all mortgage loans made by it. Tucson Federal on November 30, 1941 entered into a written agreement with Aetna to provide this coverage. The contract, which recites a consideration of mutual promises, was to run for a ten-year period, and it obligated Tucson Federal to purchase exclusively from Aetna all policies of insurance needed in connection with its business, to be paid for at the rate at which said policies of insurance and bonds are written in Pima County, Arizona. Aetna on its part agreed to secure such insurance and bonds as 'may be needful or required' by Tucson Federal.

For nearly five years the parties operated under this agreement but with a change in the directorate of Tucson Federal its board of directors on September 16, 1946 revoked and rescinded, effective immediately, the prior agreement. Suit by Aetna followed, seeking damages. By its amended answer Tucson Federal admitted the execution of the written agreement and that since September 16, 1946 it had refused to comply with same. It then alleged certain affirmative defenses, viz: lack of authority of its then officers to enter into the agreement; lack of knowledge of the board of directors of Tucson Federal concerning the existence of the agreement; absence of consideration; violation of the statute governing restraint of trade; fraud perpetrated upon it by its former president, Joseph G. Rice, for the purpose of his own enrichment, etc., etc. Following a trial upon the merits before the court sitting without a jury, the court found as a fact that the agreement was entirely honest and fair; that there was an adequate consideration for the same; that as a direct and proximate result of Tucson Federal's breach of the agreement Aetna had been damaged in the sum of $10,000. Appropriate conclusions of law were made resolving all issues favorable to Aetna, and judgment in accordance therewith was regularly entered. This appeal followed.

Appellant's opening brief contains some 15 assignments of error and 17 propositions of law, covering in all 28 pages, hence it is impracticable to set them out in extenso. The contentions which we deem deserving of consideration will be hereafter set forth with the pertinent facts relative thereto.

Restraint of Trade--Monopoly

Tucson Federal contends that since it is bound to purchase its entire insurance requirements from the Aetna, that the agreement is in restraint of trade under section 74-101, A.C.A. 1939, and therefore illegal and void. The pertinent parts of section 74-101, supra, as follows:

'A trust is a combination of capital, skill, or acts, by two (2) or more purposes:

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* * *

'To prevent any competition in the manufacture, making, transportation, sale or purchase of merchandise, products or commodities, or to prevent competition in aids to commerce;

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* * * 'Any such combination is against public policy, unlawful and void, and no person may form or be in any manner interested, either directly or indirectly, as principal, agent, representative, consignee or otherwise, in any trust as herein defined. The creation or maintenance of a monopoly within the state, or the attempt to create or maintain a monopoly within the state, is unlawful and prohibited.'

This presents a question of first impression in this state but there are many cases cited to us by counsel for both sides from other jurisdictions upon the problem. Counsel for Tucson Federal principally rely upon Wright v. Southern Ice Co., Tex.Civ.App., 144 S.W.2d 933, and many other Texas cases holding in effect that under a statute similar to section 74-101, supra, an exclusive contract to buy all of a person's requirements of a commodity from one source is an unlawful combination in restraint of trade as it tends to lessen competition.

We think the construction given the statute by the Texas courts is too strict and upon the facts of this case would not be in accord with justice and common sense. It will be noted that in the later case of Brown v. Faulk, Tex.Civ.App., 231 S.W.2d 743, the court found that a contract whereby the defendant obligated himself to sell his entire production of milk to the plaintiff so long as the defendant was indebted to the plaintiff was valid. The Texas court also expressly retreated from its previous pronouncement in the Wright case and held that such a contract was not illegal in the absence of proof that the intention was to create an unlawful combination in restraint of trade.

The majority rule seems to be as expressed in Great Western Distillery Products v. John A. Wathen D. Co., 10 Cal.2d 442, 74 P.2d 745, 746, as follows:

'Statutes are interpreted in the light of reason and common sense, and it may be stated as a general rule that courts will not hold to be in restraint of trade a contract between individuals, the main purpose and effect of which are to promote and increase business in the line affected, merely because its operations might possibly in some theoretical way incidentally and indirectly restrict trade in such line.'

The contract in the instant case does not affect or attempt to control the insurance rates in the Tucson area as the premiums were to be the same as the 'board rates' existing at the time the policies are issued. Competition was only indirectly affected. There is nothing in the record to indicate that the parties did not enter into the contract in good faith or that they intended to create an unlawful combination to control the insurance market. Public welfare is not involved and the restraint upon one party is no greater than the protection required for the other party. We hold that for an agreement to be invalid as a restraint of trade it must be an attempt or must actually tend to control prices or that it unfairly stifles competition or the free flow of trade and commerce. This contract falls far short of being an unlawful restraint of trade.

Consideration

It is contended by Tucson Federal that the contract sued upon was illegal and void in that there was no valid consideration to support it. There are two ingenious arguments advanced, first: that any claimed consideration moving from Aetna to Tucson Federal would be a direct violation of sections 61-331, 61-336, and 61-341, A.C.A.1939. These sections are a part of the insurance regulations. Specifically they forbid rebating; require an insurance agent to have a license; and set out charges that are prohibited. We confess that we are unable to follow the tenuous reasoning of counsel whereby these provisions would be held applicable to the admitted facts of this case. Certainly under the agreement in question the borrowers paid no more nor less than they would have paid had the insurance been placed elsewhere, and had the Tucson Federal lived up to its contract to place with Aetna the insurance which it required its borrowers to carry there would have been no financial outlay on Tucson Federal's part except for the cost of the limited number of policies it directly acquired for its own protection. There was no rebating on Aetna's part as the premium charged was at 'board rates'. We quote the following excerpt from 44 C.J.S., Insurance, § 342b:

'Broadly speaking, a rebate, within the meaning of a statute prohibiting the giving of rebates, is a deduction from a stipulated premium allowed pursuant to an antecedent contract. * * *'

For a case involving a somewhat similar contract and very much in point, see Calvin Phillips & Co. v. Fishback, 84 Wash. 124, 146 P. 181, where the Supreme Court of Washington held that the contract did not violate their rebate statute even though the insurance agent was granted the exclusive right to write all fire insurance during the life of the mortgages as additional compensation. Secondly it is claimed that actually there was no consideration for the agreement, in that Aetna was only promising to do what it would be legally bound to do whenever it accepted a policy application and premium from an owner and hence there was no mutuality in this contract as between Aetna and Tucson Federal. Citing J. D. Halstead Lumber Co. v. Hartford A. & I. Co., 38 Ariz. 228, 298 P. 925; Pleasant v. Arizona Storage, etc., Co., 34 Ariz. 68, 267 P. 794. We believe that an examination of the agreement itself clearly indicates that each party to the agreement promised to conduct itself in a particular manner for a period of ten years. Tucson Federal promised to procure from Aetna all insurance policies of every description needed by it in the conduct of its mortgage loan business, and Aetna agreed on its part to furnish, at the standard prices, all such policies. Prior to this agreement Tucson Federal was under no legal obligation to acquire any insurance from Aetna, and by...