New Britain v. New Britain Telephone Co. , 74 Conn. 326 ( 1902 )

If it was the main purpose of the city to stimulate a business rivalry between the defendant and the Southern New England Telephone Company, then, certainly in the absence of any finding that the city had a legitimate interest in the event, or of facts from which that conclusion fairly follows, the undertaking falls outside its corporate powers. The city had power to stipulate for the continuance of the defendant's business by the defendant, if the city's interests under the antecedent contract were fairly involved in such action, but, without some real or apparent ground therefore arising out of its contract relations and based upon self-protection, it had no right to discriminate against a single company while leaving the defendant open to convey to or combine with any other. To hold broadly and without limitation that it might so do under the usual charter powers of a municipal corporation, or even to hold that the mere contracting for the use of the poles carried with it as a necessary incident such extraordinary power as that referred to, is to remove restrictions upon municipal action at a point where it seems most essential to retain them. It is the policy of the law to hold municipal bodies to the exercise of their proper functions; not to discover for them new lines of activity foreign to the scope or purpose of their corporate existence.

But it is the duty of the court to sustain the agreement if any reasonable construction which its terms admit justifies that conclusion. Such a construction is possible here, and voices what we must suppose to have been the true intent of the parties. While the Southern New England Telephone Company is specifically named, it is clear from the whole transaction that the city's design was not solely to keep the defendant from the control of that corporation, but chiefly that the defendant should maintain an independent integrity as an active business concern, — either under its then existing management or under such other control as would insure the preservation of the city's rights under its contract. The condition against absorption by this particular corporation was only a detail of this general design, and not its main purpose. Probably the precise danger so sought to be guarded against was the only danger in sight when the agreement was entered into by the parties. In this view of the undertaking, and, it seems to me, in this view only, the provision for maintaining "competition" is without offensive significance. It becomes merely an alternative way of expressing the real spirit of the obligation, which was to preserve in the defendant, or in its legal successors, an effective instrument for the carrying out of the contract.

Under whatever name it is urged, therefore, the only basis for a recovery here is the defendant's surrender of its control to another corporation. The fact that its successor happens to be the Southern New England Telephone Company is without necessary significance in considering the question of damage. The condition of the obligation provides both generally and specially for the contingency which has arisen. It recites that "if the said obligor shall sell its property, or its control shall go into the hands of other parties," the bond shall be of full force. Obviously the damages recoverable for such a breach alone, that is, unless it includes as an element this matter of "competition," are to be measured strictly by the damage shown to have been suffered because of it. The resolution of the common council directing the exaction of a bond and dictating its terms and amount makes this clear. It provides as one of the conditions of the bond, "in case this company sells out, or its control goes into other party's hands, that its competition must be kept up with the Southern New England Telephone Company, and in case its control passes into their hands the bond shall be forfeited." It is only when the control passes to this one named possible successor that an attempt is made to assess the damages in advance. The range of possible change of control is unlimited, save by this one restriction. The field is open to all the world, save to this one company, and, except in this single contingency, the plaintiff recognizes the possibility of determining the actual damage that may follow such a change of control, and is satisfied with a recovery commensurate to the damage suffered, to be estimated upon actual proof of loss.

If the provision for "competition" is stripped of its literal import, therefore, the agreement cannot be sustained as one calling for liquidated damages, without full recognition of its arbitrary and inequitable character, and nothing upon the record discloses sufficient ground for the discrimination which it attempts. We are not to assume that peculiar or unusual elements of damage to the city would attend the transfer of the defendant company to the Southern New England Telephone Company, which would not attend a transfer to any other concern, or that greater difficulty would attend the assessment of damages in one event than in the other. The finding warrants no such conclusion. Such facts found as bear at all upon this feature of the case plainly exclude it.

This essential unfairness of the stipulation in question is therefore apparent at the outset. The unfairness is of course emphasized by the fact that the changed condition of affairs which brings about the forfeiture is one merely in name, so far as the city is concerned, and that neither inconvenience nor damage has resulted from it. Presumably the security which the bond affords was exacted as a legitimate protection against loss or damage. It does not follow that such loss or damage was expected, even though the event that might give rise to it was foreseen. The results which have followed the broken condition are those which might have been expected to follow. If the parties had in contemplation only such elements of damage as the bond can reach, it is hardly conceivable that a different result was looked for. If, on the other hand, they had in mind, as an element of recoverable damage, the effect upon the New Britain public generally of an abandonment of "competition" by the defendant company, they were obviously reckoning with something that the city's undertaking does not and cannot include. In either event the circumstances show that there was no attempt to determine in advance a fairly compensatory sum, and that the sum in fact named bore no intelligent relation to any reasonable expectation of damage.

In this situation the duty of the court is plain. It cannot lend its aid to give the plaintiff the inequitable advantage that must follow a literal enforcement of the stipulation. It is well settled that the language of the parties in such an instrument is of no determining force where it conflicts with the true character of the undertaking embodying it. No expressed agreement to fix, or stipulate, or liquidate, damages in advance, will avail as such against the real nature of the obligation. It is suggested in 2 Sedg. on Dam. (7th ed.) p. 254, as "the fundamental principle governing the whole subject," that courts "will only follow the expressed intention of the parties to liquidate the damages, when this intention is not calculated to work injustice, or to substitute for the compensation, which the law regards as proper, an arbitrary and oppressive pecuniary fine." It is not conclusive that the parties say the damages are liquidated; it must appear that this is the fact, and the actual liquidation of damages means more than the mere naming of an arbitrary sum, — the sum named must bear some rational relation to the contingency provided against. This rule has found general support in the courts of this county. One of the latest cases which fully approves it after a careful review of the authorities is that of Chicago House-WreckingCo. v. United States, 45 Cir. Ct. App. 343. It is clearly entitled to favor here, where it is but the extension of an equitable principle that finds expression in our statute limiting the recovery on a penal bond to such damages "as are equitably due." General Statutes, § 1115. As is said in the case just cited: "If the parties could at will change what is essentially a penalty, and properly intended to enforce the obligations of the contract, into stipulated damages, it could be done in any case, although the damages might be either nominal or easily assessable."

For the reasons given I think the rule is of application to this case, and that upon the facts found it was error for the trial court not to so hold and render judgment for only nominal damages.