Lien v. Northwestern Engineering Co.

39 N.W.2d 483, 73 S.D. 84, 1949 S.D. LEXIS 47

• Court: South Dakota Supreme Court
• Decided: October 21, 1949
• Docket: File No. 9011.
• Status: Published

Opinions

ROBERTS, J.

This action was commenced November 15, 1947, by Pete Lien against the two corporate defendants and Blair Brothers, a partnership.

It is alleged in the complaint that on or about April 27, 1946, the defendant Blair Brothers, the owner of contiguous tracts in Meade county containing valuable deposits of lime rock suitable for use in highway construction work, entered into a contract ’ with plaintiff to continue in force for a period of three years wherein the partnership granted to plaintiff the exclusive' right and privilege to remove lime rock from a described quarter section; that plaintiff was to pay four cents per cubic yard for materials removed and that the contract contained the following restrictive clause: “In addition to the premises herein demised, the first party agrees that they will not lease or demise any contiguous or adjacent acreage owned by them to third parties for the production of sand and gravel, rock or other similar material during the term of this agreement.”

It is further alleged that plaintiff made exploratory tests on the leased premises for the purpose of ascertaining the quantity and quality of lime rock deposits and the economical availability of such rock for highway construction work then about to be commenced by the state on U. S. Highway No. 14 which is in close proximity to the land described in the contract and found that such lime rock was of sufficient quality to meet the required engineering standards for such proposed construction work and that there was sufficient quantity capable of economical removal to supply the construction work on this highway; that defendant Blair Brothers had full knowledge of these facts prior to entering into the agreement and knew that plaintiff’s purpose in leasing the premises was to produce material for sale to the state or its contractors and that said defendant also knew that the leased premises contained the only known supply of economically available lime rock of acceptable quality for such highway construction work.

It is further alleged that thereafter Blair Brothers conveyed all their lands to the defendant Black Hills Hereford Ranches, Inc., and that the four brothers are the sole owners and stockholders of such corporation.

It is further alleged that the defendant Northwestern Engineering Company was awarded by the state a contract for paving a portion of the highway mentioned and that said defendant obtained from plaintiff quotations for crushed rock and these were used by the company in making its estimate and bid.

It is further alleged that defendant Northwestern Engineering Company, having at all times full knowledge of the above mentioned contract and its contents and over the objections of the plaintiff, entered upon contiguous or ad jacent acreage owned by Blair Brothers and removed in violation of the restrictive clause of the above contract approximately 24,000 tons of lime rock.

Defendants by their answer denied the material allegations of the complaint; asserted that plaintiff’s contract is unlawful and void in that it is against public policy and in restraint of trade; that it is unilateral and lacks mutuality and is without consideration; and that plaintiff’s contract did not include any area of the Blair Brothers ranch aside from the quarter section described therein and sufficient acreage only for ingress and egress.

This action, based on the theory that the right to perform a contract and to reap the benefits therefrom and the right of performance by the other party are property rights and that defendants interfered with and brought about a breach of the contract of April 27, 1946, was instituted to recover the resulting damage to plaintiff. The amount of tonnage involved was admitted to be approximately 24,000 tons. There was evidence that the crushed rock was worth 75 cents per ton after deducting production costs. The jury returned a verdict of $17,280.

It has been repeatedly stated that one who intentionally and without reasonable justification or excuse induces one of the parties to a contract to refuse to perform according to the terms thereof, with resulting damage to the other party to the contract, may be held liable in an action to recover such damage. 30 Am.Jur., Interference, § 18 et seq; Annotation 84 A.L.R. 43. The fact that a cause of action for a breach of contract exists in favor of plaintiff does not prevent his having a cause of action in tort. Liability is not predicated upon the breach of contract, but arises from intentional and wrongful interference with contractual relations. This is clearly demonstrated in Sorenson v Chevrolet Motor Co., 171 Minn. 260, 214 N.W. 754, 756, 84 A.L.R. 35, wherein it appears that plaintiff had an agency contract which gave him exclusive territory as a dealer for defendant company. The court said: “The contract between the plaintiff and defendant corporation imposed duties and rights. This contract and the benefits therefrom constituted a property .right. An intentitinál in terference therewith by one not having an equal or superior right is wrongful and precipitates liability. The intentional procurement of the breach of an existent contract, without just cause or excuse, makes him, who causes the breach, liable for resulting damages, and this is so even though he promoted his legitimate interests. When one has knowledge of the contract rights of another, his wrongful inducement of a breach thereof is a willful destruction of the property of another and cannot be justified on the theory that it enhances and advances the business interests of the wrongdoer. Fraud, misrepresentation, intimidation, coercion, obstruction, molestation, or the willful and intentional procurement of violation of contractual relations are practices which competition does not authorize.” And it has been held that the liability of the parties who unite to induce a breach of the contract or aid or participate therein knowing of the existence of the contract is joint and several. Hornstein v. Podwitz, 254 N.Y. 443, 173 N.E. 674, 84 A.L.R. 1; Husting Co. v. Coca-Cola Co., 194 Wis. 311, 216 N.W. 833.

Defendants contend that the contract for procuring the breach of which relief is sought tended to create a monopoly, was in restraint of trade and was contrary to the public policy of the state. The defendants were not liable if there was no valid contract. The statute, SDC 13.1802, which, it is claimed, prohibited this contract provides that it shall be unlawful for persons acting in combination “to fix prices, limit production, or regulate the transportation of any product or commodity so as to obstruct, delay, or prevent competition within this state of the production, sale, purchase, distribution, or transportation of such product or commodity, or., to make any combination, contract, or agreement for the purpose of doing any of said things.” This statute was originally enacted, Ch. 94, Laws 1897, in obedience to the requirements of Section 20 of Article 17 of the State Constitution. We are cited to no case which holds that contract similar to the one in question is invalid as between the parties. In Miles Laboratories v. Owl Drug Co., 67 S.D. 523, 295 N.W. 292, 295, this court said: “A monopoly such as is meant by Sec tion 20 of Art. 17 of our Constitution exists only where all or so nearly all of a product or commodity within a community or district is brought into the hands of' one man or set of men, as to practically bring the handling or production of the commodity within such single control, to the exclusion of competition or free traffic therein.” The contract here relied on did not relate to any other lime rock except that on the premises of Blair Brothers. It appears from the facts before us that this may have been the most economical source of supply, but the lime rock on the Blair land did not comprise all or any large portion of such material in the community. We cannot declare the contract to be illegal under this statute. Its necessary consequence was not to fix prices, limit production, or suppress competition.

Defendants do not claim that there was unfair dealing or mistake in entering into the contract. The parties were competent to contract and entered into the the agreement of April 27, 1946, because its terms then were evidently satisfactory to them. Defendants seek to have the restriction which the owners of the premises voluntarily assumed avoided on the ground that the restriction is unreasonable and contrary to public policy. “Generally, the tendency of the modern authorities is * * * to gauge the validity of the contract by the reasonableness of the restraint imposed as necessary to the protection of the covenantee, and as compatible with the public interest.” 17 C.J.S., Contracts, § 246. In Restatement of Law of Contracts, § 515, it is said that a restraint of trade by contract is generally unreasonable “if it (a) -is greater than is required for the protection of the person for whose benefit the restraint is imposed, or (b) imposes undue hardship upon the person restricted, or (c) tends to create, or has for its purpose to create, a monopoly, or to control prices or to limit production artificially, or (d) unreasonably restricts the alienation or use of anything that is a subject of property, or (e) is based on a promise to refrain from competition and is not ancillary either to a contract for the transfer of good-will or other subject of property or to an existing employment or contract of employment.” It is also stated, § 516, that the following transactions unless forming part of a plan to effect a monopoly are not in restraint of trade: “(a) A bargain by the transferor of property or of a business not to compete with the buyer in such a way as to injure the value of the property or business sold; (b) A bargain by the buyer or lessee of property or of a business not to' use it in competition with or to the injury of the seller or lessor.” In Williston on Contracts, § 1642, it is said: “The seller or lessor of property as distinguished from a business or good will may be a restrictive promise reasonably limited agree to refrain from himself engaging in a business or from disposing of his property iq such a way that others can engage in a business which would impair the value of the property to the buyer for the purpose for which he intended to use it.” It is generally recognized that a covenant on the part of a lessor not to lease other property during the term of the lease for competing business is valid. Annotations in L.R.A.1916E, 662 and 90 A.L.R.1449; Page on Law on Contracts, § 792.

SDC 10.0706 provides that “every contract restraining exercise of a lawful profession, trade, or business is void to that extent” except that an agreement by one who has sold the good will of a business, or by a partner in anticipation of dissolution of a partnership, not to carry on a business within specified territory and for a specified time, or an agreement by an employee restraining him within defined limits from competing with his employer after his employment ends is permissible. This statute is not relied upon by Appellants, and a contention that the covenant herein is void as in violation of its terms would clearly be untenable. Decisions of this court considering the validity of contracts thereunder relate to the sale of the good will of a business or profession or the dissolution of a partnership, Prescott v. Bidwell, 18 S.D. 64, 99 N.W. 93; Griffing v. Dunn, 23 S.D. 141, 120 N.W. 890, 20 Am.Cas. 579; Brown v. Edsall, 23 S.D. 610, 122 N.W. 658; Public Opinion Pub. Co. v. Ransom, 34 S.D. 381, 148 N.W. 838, Ann.Cas.1917A, 1010; Kidder Equity Exchange v. Norman, 42 S.D. 229, 173 N.W. 728, 5 A.L.R. 1180, and no consideration therein is given to the validity and effect of a covenant similar to the one in the instant case against leasing other property for a competing business. The provisions of this section as originally enacted, §§ 959, 960, 961, R.C.C. 1877, were adopted from the statutes of California. In the case of City Carpet Etc. Works v. Jones, 102 Cal. 506, 36 P. 841, the court points out that this statute did not introduce a new principle of law, but it simply eliminates from the controversy the question of reasonableness where a case falls within one of the exceptions. In Smith v. San Francisco & N. P. Ry. Co., 115 Cal. 584, 47 P. 582, 589, 35 L.R.A. 309, 56 Am.St.Rep. 119, the court said: “The rule invalidating contracts in restraint of trade does not include every contract of an individual by which his right to dispose of his property is limited or restrained. Section 1673, Civ. Code, makes void every contract by which one is restrained from ‘exercising a lawful profession, trade, or business,’ except in certain instances. But this is far different from a contract limiting his right to dispose of a particular piece of property except upon certain conditions. As the owner of property has the right to withhold it from sale, he can also, at the time of its sale, impose conditions upon its use without violating any rule of public policy.” In Grogan v. Chaffee, 156 Cal. 611, 105 P. 745, 27 L.R.A., N.S., 395, cited with approval by this court in Miles Laboratories v. Owl Drug Co., supra, the court recognized that the mere fact that some restraint results does not render a contract void under the statute referred to. In D. Ghirardelli Co. v. Hunsicker, 164 Cal. 355, 128 P. 1041, the court said that it saw no reason for modifying its holding in the Grogan case and sustained a contract which it regarded as reasonable both as to the public and the parties and limited to what was fairly necessary for the protection of the covenantee. See also Pavkovich v. Southern P. R. R. Co., 150 Cal. 39, 87 P. 1097; United Farmers Ass’n of California v. Klein, 41 Cal.App.2d 766, 107 P.2d 631; Associated Oil Co. v. Myers, 217 Cal. 297, 18 P.2d 668; Great Western Distillery Products v. John A. Wathen Distillery Co., 10 Cal.2d 442, 74 P.2d 745; Gibbs v. Consolidated Gas Co., 130 U.S. 396, 9 S.Ct. 553, 32 L.Ed. 979; Miles Medical Co. v. John D. Parks & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502; Pittsburgh Plate Glass Co. v. Paine & Nixon Co., 182 Minn. 159, 234 N.W. 453.

Appellants in the instant case did not agree not to engage in the business of quarrying or selling rock, but only that they would not lease any contiguous or adjacent land “to third parties for the production of sand or gravel, or other similar materials.” If the restriction imposed was not greater than protection to the covenantee required and was compatible with the public interest, it cannot be deemed a contract in restraint of trade.

Defendants in support of their position cite Brewer v. Marshall, 19 N.J.Eq. 537, 97 Am.Dec. 679, holding void as in restraint of trade a covenant by the grantor of land that neither he nor his assigns would sell marl from land adjoining the land conveyed. An action was brought by the successors in interest of the original grantee to enforce the covenant. In that case the court said: “The substance of this covenant is, that neither the former owner of these premises, nor his assigns, shall sell by the quantity any marl taken from these lands. This is not a restriction on the use of the land, for the marl can be dug up and used upon the land; but the restriction is on the sale of the marl after it shall have been dug up. Marl of course is an article of merchandise, and the covenant retrains traffic in that article. It prohibits the sale of it at any time, in any market, either by the owner of the lands or by his assigns. Now, it seems to me that this is a plain contract ‘against trade and traffic, and bargaining and contracting between man and man.’ That it is the rule that all general restraints of trade are illegal has never been doubted since the famous opinion of Lord Macclesfield in Mitchel v. Reynolds, reported in 1 P. Wms. 181.”

That case appears to be in conflict with later decisions. See 13 C.J., Contracts, § 429, note 61, 17 C.J.S., Contracts, § 255. However, it is clearly distinguishable from the facts in the instant case. In that case the restriction was general as to time and the court found that it transcended “the limits of utility to the covenantee.” The restriction in the instant case was limited to three years and did not unreasonably restrict the use to be made of the premises. Plaintiff was engaged in the business of quarrying and selling crushed rock, .and the only effect of the covenant in question was to prevent the leasing of other land for competing business. We are of the opinion that the restrictive covenant herein was not unreasonably restrictive on the rights of the appellants and did not contravene public policy.

It is also insisted that there was no mutuality of contract between the parties and for that reason the agreement was not binding upon the defendants. The basis of this claim is that there was an obligation to sell lime rock, but no corresponding obligation on the part of the plaintiff to purchase such material. The contention is supported by the case of McCaul-Dinsmore Co. v. Heyler, 44 S.D. 418, 184 N.W. 243, holding that a unilateral agreement is invalid where one of the parties agrees to sell such quantity of material as the other party may order, but without any obligation upon the part of the latter to order or accept any such material. It was there recognized that where there is no consideration for a contract the mutual promises of the parties constitute the consideration. We think that the case cited has no application to the fácts in the instant case. Where there is an agreement founded on a consideration, it is not invalid for want of mutuality because it is obligatory on one party and optional on the other. Schlegel Mfg. Co. v. Peter Cooper’s Glue Factory, 231 N.Y. 459, 132 N.E. 148, 24 A.L.R. 1352. There is recital of consideration and acknowledgement of the receipt thereof in the contract.

We think that the trial court rightfully construed the language of the restrictive covenant as including the SEV4 of the SE14 of Section 26, from which defendant Northwestern Engineering Company quarried and removed lime rock under a contract with defendant owners. The contract with plaintiff described the SW14 of Section 36. It is admitted that the Blairs also owned the NW14 of 36 and the SV2 of the SW!4 of Section 25. The restrictive provision included “contiguous or adjacant acreage.” Defendants urge that these words signify near to or in the vicinity of and not. necessarily adjoining and that it was for the jury under proper instructions to determine whether the forty acre tract from which the defendant contractor removed rock was within the meaning of the restriction. . It may be admitted that where a written contract is ambiguous and extrinsic evidence as to intention has been introduced a question of fact may arise which must be submitted to the jury. The word “contiguous” in its primary sense means in “actual contact or touch” and when applied to tracts of land it ordinarily conveys the idea that they border each other. 17 C.J.S., Contiguous, 178. The meaning of this word in the contract would appear to be plain and obviously applied to all the lands of the defendant owners adjoining or bordering on the SWÍ4 of Section 36. The word “adjacent” does not necessarily denote “adjoining”, but is sometimes defined as “lying near” or “close”. 1 C.J.S., Adjacent, 1464. The forty acre tract from which defendant Northwestern Engineering Company obtained its lime rock was within a body of land bordering on the SWx/4 of Section 36 and it is not here material whether the restriction applied to tracts not adjoining, but not widely separated. We conclude that there was no fact question in this respect for ihe jury

Defendants also insist that it does not appear from the evidence that plaintiff .sustained more than nominal damages; that there was no obligation on the part of the Northwestern Engineering Company to purchase lime rock from plaintiff; that if that company had procured such material elsewhere it would have afforded plaintiff no cause of action; that no lime rock was taken from the Blair land for which plaintiff had a market and consequently the wrongful taking caused no loss of profits to plaintiff; and that if there was any liability the instructions informing the jury, in substance, that the measure of damage was the market value of the crushed rock at the time of its removal from the premises less what it cost to produce it including royalty were erroneous.

The Blairs, as we have stated, vested plaintiff with the right and privilege of quarrying lime rock on the land described in their contract, subject to the payment of a royalty, and this action is by the owner of such right and of the right to enforce the restrictive covenant in the contract with respect to lime rock on contiguous or adjacent land. True, the Northwestern Engineering Company was not a party to that contract, but it had full and actual knowledge of its terms. Plaintiff having such exclusive rights with respects to the lime rock on the Blair land, the Northwestern Engineering Company had no lawful right to enter thereon and take lime rock. The damages, if any, are not for the breach of the contract but for tort and include the loss or detriment proximately caused by the wrongful act of defendants.

The instant case presents a situation similar to that found in Garden City Sand Co. v. Southern Fire Brick & Clay Co., 260 Ill. 231, 103 N.E. 207, Ann.Cas.1914D, 173. In that case the owner of land contracted to supply plaintiffs with fire clay and agreed not to work, lease or operate any other fire clay plant on his land during the period of the contract or to sell such product to other persons than the plaintiffs. Defendant company with actual and constructive knowledge of the contract bought a part of the land described in the contract and erected a plant thereon for the production of fire clay. Defendant asserted that it could not be held liable for damages and that the only relief obtainable was an injunction restricting it from removing fire clay. The court concluded that plaintiffs were entitled to the profit they might have made on the clay taken from the land purchased by defendant. There was in that case the comparable situation that plaintiffs were not prevented from obtaining the materials contracted for and were not wrongfully prevented from transacting or carrying on a business. The court recognized that a loss of probable profits in the business of the plaintiffs was not a proper, element of damages. So in the instant case, admittedly plaintiff had the exclusive right to enter upon, excavate and remove rock from the Blair land. The case is not materially different from what it would be if the encroachment were on the quarter section described in the contract. The contention of defendants is tantamount to saying that plaintiff must submit to an invasion of those rights and a practical destruction of his so called leasehold without re dress. We conclude that the loss of profits that plaintiff might have made on the rock taken resulted directly and proximately from the wrongful acts of the defendants.

It seems to us that this is a case in which the loss to plaintiff can be measured only by allowing him to recover the value of the crushed rock, less the cost of production. See 58 C.J S., Mines and Minerals, § 137. The trial court correctly applied this rule in instructing the jury as to damages.

The judgment appealed 'from is affirmed.

SMITH, P. J., and RUDOLPH, J., concur.