Opinion
Opinion delivered June 29, 1931.
1. GAS — CONTRACT TO SUPPLY — EXCUSE FOR NONPERFORMANCE. — Where a utility company guaranteed to supply gas to a certain city within a certain time, contingent, however, upon acts of God "and other things beyond the control of the grantee herein," held that the phrase quoted is limited by the preceding words "acts of God" and includes only things that are similar in character, so that the refusal of a pipe line company to supply gas for distribution under the utility company's franchise did not excuse the latter's nonperformance of its contract. 2. DAMAGES — LIQUIDATED DAMAGES. — A provision in a contract obligating a utility company to pay $5,000 for breach of its undertaking to supply gas to a city within a specified time held a provision for liquidated damages.
Appeal from Pulaski Chancery Court; Frank H. Dodge, Chancellor; affirmed.
Donham Fulk, for appellant.
Buzbee, Pugh Harrison, for appellee.
STATEMENT OF FACTS.
This appeal is prosecuted by appellant companies from a decree holding them liable to the payment of bonds executed for the faithful performance of conditions in their gas distributing franchises granted by the appellee cities.
Appellant Cherokee Public Service Company applied for and obtained a franchise for furnishing and distributing natural gas to each of the following cities: West Helena, Blytheville, Marianna, Augusta and Wynne, and executed bonds with appellant guaranty company as surety guaranteeing the faithful performance of its part of the franchise obligations.
Appellant brought this suit against the Mississippi River Fuel Corporation, alleging it was a common carrier operating and maintaining a pipe line for the conveyance of gas from the fields of Louisiana through the State of Arkansas into the states of Missouri and Illinois. That it was constructing the pipe line through Arkansas and engaged as a common carrier of natural gas, and that, by reason of it being a common carrier, appellant company would have been able to secure a supply of natural gas in the several towns in the vicinity of and adjacent to the pipe line; and that it applied for and obtained gas franchises in said appellee cities. Also procured assignments of gas distributing franchises in the cities of Pocahontas and Corning. Exhibited copies of the franchises with the complaint. Alleged further that, in pursuance of the contracts and franchises entered into with said cities, appellant executed its surety bond in the penal sum of $2,000 each in favor of said cities, conditioned that it would comply with the terms, conditions and obligations of the said franchises, and executed a bond in the penal sum of $5,000 in favor of the city of Blytheville with the same conditions.
A copy of the bond executed to the city of Blytheville was attached to the complaint as an exhibit, the bonds executed to the other cities being of like form except as to the amount. The appellant guaranty company executed said bonds as surety for the public service company.
The guaranty company alleged the readiness and willingness of appellant service company to comply with the terms and conditions of the franchises; that it would have done so had it been possible for said terms and conditions to be performed; and that, notwithstanding, the Mississippi River Fuel Corporation was a common carrier and obligated to furnish gas at its "gate rate" to corporations and utilities for the use and benefit of various cities and towns of Arkansas, it failed and refused to furnish any supply whatever to the appellant, Cherokee Public Service Company, notwithstanding, the fact that it was furnishing gas to other public service corporations for distribution in the cities of Arkansas, Missouri and Illinois.
The complaint also alleged a conspiracy between the Arkansas Light Power Company and the Mississippi River Fuel Corporation to withhold furnishing gas to appellant, Cherokee Public Service Company, for the purpose of having the cities granting the franchises to forfeit or cancel the same, thereby enabling the Arkansas Light Power Company to obtain franchises in said cities and to monopolize the distribution of gas supplied by the Mississippi River Fuel Corporation.
That it was ready to demand and receive from the fuel corporation an adequate supply of gas at its usual "gate rates" for distribution in said cities and other cities where it might have been able to obtain franchises. That it was ready, able and willing to comply with all the terms of the franchises, and start constructing distributing systems in said cities. That the fuel corporation, knowing appellant's situation, failed and refused to comply with its legal obligation to supply gas to it or to enter into the contract with appellant whereby it would have been bound to furnish gas to it.
Alleged that, unless the cities were restrained from doing so, they would forfeit the contracts and franchises granted to appellant company to its irreparable damage, and, unless restrained, the United States Fidelity Guaranty Company would pay to the said cities the penalty of said bonds to the irreparable damage of appellant.
It is further alleged that the bonds are penal in nature and should not be enforced, and that the amount which the cities should be permitted to recover, if anything, should be limited to the actual damages suffered by reason of the failure of appellant to perform the conditions of its franchises, and that, if the city should be permitted to cancel or revoke its franchise, the fuel company should be held liable to it for the amount of damages sustained by the said cities; and that the appellant company should be relieved from the payment of any sum to the said cities by way of damages.
It further alleged that the appellant was entitled to a mandatory order requiring the fuel corporation to deliver to it, at places directed by it from time to time, an adequate supply of gas for distribution in said cities. That it was entitled to recover damages already sustained by reason of the failure on the part of the fuel corporation to comply with its legal obligations to furnish gas to said appellant, and to an order enjoining the said cities from canceling their said franchises, and an order restraining the guaranty company from paying out any sums or amounts whatever on account of the bonds executed in favor of the said cities.
The franchises granted by the city of Blytheville was set out and provides: "That all rights and privileges shall cease and terminate, unless the grantee shall have filed its acceptance bond within 30 days from the passage of the ordinance, and shall have the plane completed and in operation in full compliance with the terms of this franchise within 12 months." Section 9 recited that to insure the gas supply appellant was to post with the city council of Blytheville within 30 days, a surety bond in the sum of $5,000, it being understood "that the grantee's inability to furnish such gas within the period above named shall be contingent upon acts of God, and other things beyond the control of the grantee herein." It provides further: "It is stipulated and agreed by and between the city and grantee herein that the damages for breach of this section by the grantee will be $5,000, to secure payment for which above mentioned bond is given."
The franchise granted by the city of West Helena was in terms very similar to the other franchises, except that it did not require the execution of a bond for the faithful performance of same. Section 9 of the West Helena franchise provides:
"This franchise is granted with the full knowledge on the part of the city that the natural gas to be furnished by the grantee under the terms of this franchise is not secured from wells owned by the grantee, but it is to be furnished the grantee by other parties through pipe lines and that, therefore, the supply of gas available for distribution in this city may be interrupted or entirely discontinued from causes beyond the control of the grantee. In the event of such interruption or discontinuation from causes beyond the control of the grantee, there shall be no liability against the grantee; therefore the requirements of this franchise being that, so long during the term of this franchise as the grantee has a supply of gas available, it shall furnish such gas to said city and inhabitants thereof in accordance with the terms and conditions of this franchise."
The bond executed by appellant to the city of Blytheville in the sum of $5,000 recited the granting of the franchise on the 12th day of March, 1929, for supplying natural gas and the rates to be charged therefor and the guaranty of the compliance of the principal with the terms and conditions of the ordinance.
The Mississippi River Fuel Corporation filed a general demurrer to the complaint, and the cities filed general demurrers, answered denying the allegations of the complaint, and filed cross-complaints alleging the failure of performance of appellant's contract and prayed judgment on the acceptance bonds executed by appellant for the faithful performance of the franchises.
The guaranty company admitted the execution of the bonds described in the cross-complaints and for a defense thereto adopted the allegations of the complaint of the Cherokee Public Service Company, and also alleged that the terms and conditions of the franchises and bonds were such as to relieve the principal from any liability for anything that happened which was beyond its control; and that the failure of the public service company to secure a supply of gas for said cities was beyond the control of said company; and that neither it nor the bonding company were liable on account of the bonds sued on.
The cities filed a general demurrer to this answer and cross-complaint, and their demurrer to the complaint and to the answer of appellants and the cross-complaint were sustained, and, appellants declining to plead further, the court rendered judgment in favor of the cities for the amounts of the acceptance bonds, and from the decree the appeal is prosecuted.
(after stating the facts). Appellant contends that, under the terms of its franchises, it was only bound to furnish the gas in accordance with its contract, "contingent upon acts of God, and other things beyond the control of the grantee herein;" and that it was not liable for failure to perform its contract; being unable to procure a supply of gas for distribution to the cities under its franchises from the pipe line company, a common carrier of gas through the State. It alleged that all the parties to the franchises knew that appellant company had no gas wells or supply of its own, and must procure the gas from the pipe line company in order to perform its contracts for distribution. The franchise for the city of West Helena expressly states it is granted with a full knowledge on the part of the city that the natural gas to be furnished by the grantee under this franchise is not to be secured from wells owned by the grantee, but is to be furnished the grantee by other parties through pipe lines. That, because thereof, the supply of gas available for distribution "may be interrupted or entirely discontinued from causes beyond the control of the grantee," in which event there shall be no liability against the grantee therefor; the requirements of this franchise being that, so long, during the term of it, as the grantee has a supply of gas available, it shall furnish such gas to said city and the inhabitants thereof in accordance with the conditions and terms of the franchise.
In the franchises granted by the other appellees, the gas was agreed to be furnished in accordance with the ordinance within a year after the passage thereof and its acceptance by appellant, and to insure the supply a bond was required to be posted with the city council within 30 days after the acceptance of the ordinance; "it being understood, of course, that the grantee's inability to furnish such gas within the period above named shall be contingent upon acts of God and other things beyond the control of the grantee herein."
The allegations contained in the complaint that it was beyond the control or power of appellant company to procure a supply of gas for distribution under its franchises to the different cities from the pipe line company, notwithstanding it was ready and willing to contract and pay for such gas and entitled to its delivery from the said company, were not sufficient to relieve appellant from liability for its failure to perform its contracts in accordance with the terms of the franchises. It is not an allegation of facts showing "inability to furnish the gas contingent upon acts of God and other things beyond the control of the grantee herein." The failure or inability of appellant to make a contract with the pipe line company for delivery of the supply of gas for distribution under its franchises can in no wise be considered due to an "act of God," nor can it be construed to come within the meaning of the term "other things beyond the control of the grantee herein." The meaning of this latter general clause is limited by the expression preceding "acts of God," and includes, under the doctrine ejusdem generis, only such things as are similar in character, it being an old and settled rule of statutory construction, which confines the meaning of additional and general descriptive words to the class to which the preceding specific words belong. Hempstead County v. Harkness, 73 Ark. 600, 84 S.W. 799; State v. Ry. Co., 95 Ark. 114, 128 S.W. 555; Eastern Arkansas Hedge Fence Co. v. Tanner, 67 Ark. 156, 53 S.W. 886; Ex parte King, 141 Ark. 213, 217 S.W. 465; Greene County v. Smith, 148 Ark. 33, 228 S.W. 738.
If it was not shown that appellant's inability to procure the gas for distribution was due to the fact that the fields from which the pipe line carrier was operated had ceased to produce gas, or that the pipe line company, because of the exhaustion of production of gas in the fields from which its supply of gas had been produced and inability to discover other fields of production to supply its needs, had ceased operation, it might have relieved appellant of the obligation of its contract for distribution of gas under its franchises, or rather for damages for breach of it, according to its terms, and been a complete defense to the suits. Or it may be that, if it was shown the public enemy had destroyed the pipe line, or the government or State had taken it over under some necessity for operation, this would have excused the performance of the contract by the appellant.
It certainly cannot be said, within the meaning of the term "and other things beyond the control of the grantee herein," following the words "acts of God," that the refusal of the pipe line company, alleged to be a common carrier of gas, to make a contract with appellant company to supply gas for distribution under its franchises, was a thing beyond the appellant's control, excusing it from the performance of the contract, and the court did not err in sustaining the demurrer.
Appellant contends, in any event, that the court erred in not considering the acceptance bonds, required by the cities, as providing a penalty or forfeiture, instead of liquidated damages. In Nilson v. Jonesboro, 57 Ark. 168, 20 S.W. 1093, a case where the city brought suit to recover on a bond given it to guarantee the performance of a contract to complete a line of street railway within a year, the court considered the contract as liquidated damages and gave judgment for the stipulated amount. It was there said:
"The only question to be decided in this case is, whether the sum mentioned in the third clause of the contract should be treated as a penalty or as liquidated damages. * * * The authorities, however, show that where the intention to liquidate the damages is not obvious, the stipulated sum will usually be given the effect of a penalty if it exceeds the measure of a just compensation and actual damage sustained is capable of proof. But where the contract is of such nature that the damage caused by its breach would be uncertain and difficult of proof, the sum named by the parties is generally held to be liquidated damages, if the form and language of the instrument are not unfavorable to that construction and magnitude of the sum does not forbid it. * * *
"In the case at bar the appellee is a municipal corporation and could not in its corporate capacity suffer any injury by a breach of the contract. If an actual loss was contemplated by the stipulation in question, it could only therefore have been such as would result to the public. And, as the parties must have known that it was wholly impracticable to measure this by any rule of damages, it is reasonable to suppose that they intended to fix the terms of the contract the precise sum recoverable for its breach. Clark v. Barnard, 108 U.S. 436, 460, [ 2 S.Ct. 878.]"
In Robbins v. Plant, 174 Ark. 639, 297 S.W. 1027, 59 A.L.R. 1128, the court, after a review of the authorities, said:
"These cases hold that, if the contract provides for a definite sum as the liquidated or stipulated amount to be paid upon a breach thereof, then the amount so fixed upon by the parties may be sued for; and it is not necessary for plaintiff to prove any actual loss by reason of the defendant's breach of the contract. All that is necessary to entitle the plaintiff, in such a case, to recover the stipulated sum, is to show the breach of the contract upon which the payment thereof depends. In other words, the effect of a clause for stipulated damages is to substitute the amount agreed upon as liquidated damages for the actual damages resulting from the breach of the contract, and thereby prevent a controversy between the parties as to the amount of damages." See also city of Salem v. Anson, 40 Or. 339, 67 P. 190, 56 L.R.A. 169.
In the Blytheville franchise it is expressly stipulated that the damages for breach of this section (the one requiring the giving of the $5,000 bond) will be $5,000, to secure the payment for which the above mentioned bond is given.
The contracts and franchises of the other cities and the bonds for the performance of which appellant was required to give are all of such nature as to show that the damages caused by the breach thereof would be uncertain and difficult to prove, and the sum named by the parties was correctly held to be liquidated damages, the form and language of the instruments not being unfavorable to that construction, and since, if any loss was contemplated by the parties for the breach of the contracts, it could only have been such as would have resulted to the public, "and (as said in Nilson v. Jonesboro, supra), as the parties must have known that it was wholly, impracticable to measure this by any rule of damages, it is reasonable to suppose that they intended to fix by the terms of the contract the precise sum recoverable for its breach."
It follows from what has been said that no error was committed by the court in sustaining the demurrer to the complaint of appellant company, and to its answer to the cross-complaint of appellee cities; nor in holding the amounts of the bonds to be liquidated damages and recoverable as such, and the decree is in all things affirmed.