Telephone Co. v. Telephone Co.

other improved equipment and the extension of long distance service. The zone of influence of the United States companies comprises chiefly the state of Ohio, portions of Indiana, Michigan, Illinois, with limited service to points beyond. The service of the United States company is distributed to the public through local exchanges and pay station booths. The alliance of the United States and the various local companies through the operating contracts was, within the zone of its influence, in a general sense a rival and competitor of the Bell system.

The Middlepoint Home Telephone Company succeeded to the properties and rights of the Middlepoint Telephone Company and the Middlepoint Southern Telephone Company. Each of the former companies were in the independent system and under ninety-nine year contracts with the United States Company. Upon succeeding to the rights and properties of its predecessor companies the prior contracts were abandoned or superseded by the contract of September 2, 1904, entered into by the defendant company.

The main provisions of the existing contract are as follows:

Par. 4. "The second party (The Middlepoint Company) agrees to transmit all business to points not now reached by it or its own line or lines of the first party (except in Van Wert county).'

Par. "The first party (The United States Company) agrees to transmit all messages destined to points on the lines of the second party, not reached by its own system of wires, to and over the lines owned or controlled by said second party lying within Van Wert county, Ohio."

Par. 2. "Said parties agree not to enter into any contract with any other person, firm, or corporation whereby any of the rights, privileges, or advantages herein acquired by either party may be impaired."

Par. 5. "Each party hereto agrees to receive from the other all messages destined to points within its charter or connecting lines which may be delivered to it by the other party hereto."

Van Wert County.

Par. 6. "As to all messages received by the Middlepoint company and transmitted over the lines of the United States company the Middlepoint company shall receive twenty-five per cent of the toll charges, and the United States company the balance, provided the Middlepoint company shall in no case receive more than twelve and one-half cents for any message."

Par. 14. "This contract shall be in force for a period of ninety-nine years from the date hereof."

Pursuant to this and the preceding contracts the United States company constructed and has maintained long distance connections with the defendant's exchange and has furnished long distance service with interchange of business.

The Middlepoint company, in order to secure service to points and exchanges not reached by the United States company and better long distance service to points within the territory of the United States company, contracted on November 29, 1907, with the Central Union company for a connection of the wires of the Central Union company with the exchange and subscribers of the Middlepoint company and a designation of the former company as toll agent of the latter at a specific per centum compensation. The stipulated connections were made December 23, 1907, and maintained for long distance service and the routing of business until February 23, 1908, when terminated by the restraining order of the common pleas

court.

There is considerable testimony as to imperfect and inferior service at different points over the lines of the United States company and its connections. But we think that the nature of this service is not of such a character as to differ materially from that contemplated by the contract with the United States. company, nor has the proper foundation been laid for a termination of the contract upon that ground. The case rests upon the validity of the ninety-nine year contract. Independent of the obligations of the contract there is no doubt of the right of the Middlepoint company to maintain connections with and obtain the advantages of both companies. The Middlepoint company,

Telephone Co. v. Telephone Co.

therefore, is only restrained, if at all, by virtue of the obligations of its contract.

The Middlepoint company contends that the dual connections and long distance service afforded thereby greatly extends and improves the service to its patrons and facilitates thereby the public necessity represented by its charter and the dutics it has assumed. It therefore justifies its violation of the exclusive and nonimpairment covenants of its contract with the United States company upon the ground that such stipulations are ultra vires and opposed to public policy.

Gen. Code 9171 (R. S. 3455) among other provisions authorizes a telephone company in respect to other lines to "join with any other company or association in conducting, leasing, owning, using or maintaining such line or lines upon such terms as may be agreed upon.

This authority is sufficiently comprehensive to uphold an operating contract between telephone companies based upca mutual exchange of business. The terms "using" and "maintaining" so employed are not without significance and application in the present case. To "use" another telegraph or telephone line includes the necessary physical connection and operating control for a limited time. To "maintain" another line may reasonably and fairly include not only the physical agencies necessary in operation, but may be extended to the guaranteeing or furnishing of business.

It is, however, contended by the Middlepoint company, and in our opinion correctly, that the letter of the statute conferring charter power is not the absolute test of ultra vires. The well established rules of public policy as reflected in the trend of decided cases and statutes in pari materia will often be engrafted as exceptions upon a general grant of power by the charter act. The special provisions of the enabling act may, however, reflect a legislative intent upon the subject of public policy, and if so, must be applied, although in some measure modifying the pre-existing rules.

But mere general phraseology should not be held to over

Van Wert County.

turn or subvert long continued and well settled rules of public policy.

Assuming then that the contract under consideration is within the letter of the statute, we proceed to the consideration whether it is obnoxious to the established rules of public policy.

It is not without importance to note that the suit here is between the contracting parties, one seeking to sustain and the other to avoid the contract. No better statement can be given of the underlying principle upon which the jurisdiction rests in cases of this kind than that by Chief Justice Wilmont in Low v. Peers, Wilmont's Opinions 377, cited in Crawford v. Wick, 18 Ohio St. 190, 203 [98 Am. Dec. 103].

"It is the duty of all courts of justice to keep their eyes steadily upon the interests of the public even in the administration of commutative justice; and when they find an action is founded upon a claim injurious to the public, and which has a bad tendency, to give it no countenance or assistance 'in foro civili.'"

The contract under consideration is attacked upon the ground, (1) that it is in restraint of trade and tends to stifle and restrict competition, and (2) that it disables the contracting public service corporations in respect to certain public duties made incumbent by the charter and regulating acts.

In the consideration of the principles of public policy as affecting the validity of contracts the courts do not proceed upon abstract theory, nor allow themselves to be controlled by a narrow view of the terms employed. To vitiate a contract in such case the public welfare in a practical sense must be injuriously affected either in fact or in logical and natural tendency.

This doctrine finds support in the opinion of Mr. Justice Harlan in the recent case of the Continental Wall Paper Co. v. Voight & Sons Co. 16 O. F. D. 216, 240 [212 U. S. 227, 266; 29 Sup. Ct. Rep. 280], as follows:

"The adjudged cases all hold that, upon the question whether the particular contract sought to be enforced arises out of an illegal transaction, the court will not be restricted to a

Telephone Co. v. Telephone Co.

partial statement of the facts, but will consider all the circumstances connected with the transaction, so as to ascertain its real nature.'

To the same effect are, Whitwell v. Tobacco Co. 125 Fed. Rep. 454, 460 [60 C. C. A. 290], and Philips v. Cement Co. 125 Fed. Rep. 593 [61 C. C. A. 19].

It is, therefore, clear that the provisions of the contract between the telephone companies must be considered in the light of surrounding facts, its real scope, purpose, and logical tendency as affecting the public interest.

It can hardly be doubted that at the time of its execution, and in view of the existing situation, the contract was not only beneficial to the contracting parties, but conducive to the public interest. It gave to each company a needed service and a mutual exchange of business. The Middlepoint company secured the advantages of the highway of the United States company for long distance service for a long term of years, and of the interchange of business.

The contract in no wise affected the service of the Bell companies in their usual mode and through their chosen agencies, nor as applied to existing conditions did it tend to stifle or suppress competition. On the contrary, from a practical and business standpoint competition was thereby promoted and made more effective. Any other view sacrifices substance to mere shadow and practical judgment to abstract theory.

It must be kept in mind that the combining companies here. were substantially and practically noncompetitive, and herein is found the distinction between the case at bar and many of those cited.

Central Ohio Salt Co. v. Guthrie, 35 Ohio St. 666, and State v. Oil Co. 49 Ohio St. 137 [30 N. E. Rep. 279; 15 L. R. A. 145; 34 Am. St. Rep. 541], were combinations of competing companies to control prices and production. The prices had not in fact been raised, but the legitimate tendency of the control was to artificial increase of prices. The court was not, therefore, content to accept as conclusive the one fact that prices were for the time being lowered, but took the broad view that