Court Opinion

ID: 3889270
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:18:35.427318+00
Date Added: 2024-06-11T13:55:46.660789
License: Public Domain

I cannot subscribe to the view of the majority that the restraining clause in the contract before us is valid. In my opinion the provisions of our code, former decisions of this court and the decisions of courts of other jurisdictions wherein the same or similar statutory provisions are in force impel a holding that the clause in question is void.
The record we here review discloses that Blair Brothers are engaged in cattle raising in meade County and are the owners of quite extensive ranch holdings, about 25,000 acres. The home ranch, comprising 7,000 acres, is located about four and one-half miles south of the City of Sturgis and along the main highway, U.S. No. 14, between said city and Rapid City, this state. It appears that this home ranch lies on both sides of the highway. Aware of the contemplated paving of this section of U.S. Highway No. 14, with the consent of Blair Brothers and before entering into the contract hereinafter set forth, the plaintiff explored some of the ranchers' lands in the vicinity of the highway for the purpose of locating thereon deposits of lime rock suitable for the paving project. Plaintiff and Blair Brothers then entered into an agreement in writing as follows:
"This Agreement made and entered into in triplicate this 27th day of April, 1946, by and between Blair Brothers of Meade County, South Dakota, party of the first part, and Pete Lien, 201 Buell Building of Rapid City, Pennington County, South Dakota, party of the second part:
"Witnesseth: The party of the first part, in consideration of the payment of One Dollar in hand paid, receipt of which is hereby acknowledged, agrees to and hereby does convey and grant to the party of the second part the exclusive right and priviledge to, at any and all times during *Page 100 
the term hereinafter provided for, enter upon, produce, excavate, screen and remove lime rock from all or any part of the following described real property situate in the County of Meade, State of South Dakota:
"South West Quarter (SW 1/4) of Section Thirty-Six (36) Twp. Five (5) Range Five (5) B.H.M.
"The first party warrants their title and ownership of said premises and the right to convey and grant the rights and privileges herein provided.
"The first party further grants and conveys to the second party the right to use all or any portion of said premises for the purpose of erecting any and all equipment which may be used by it in the production of sand and gravel, and the right to grade roads or right-of-ways to any and all points on said property necessary or useful in the production and removal of sand or gravel from same.
"The second party agrees to pay to the first party the amounts and sums per cubic yard, per ton, as hereinafter set forth for all acceptable sand, gravel, rock, clay or other suitable material removed from said premises, total payment to be based on Engineer's Final Estimates for material used from said premises in the carrying out of any construction contract which the second party has or may have with other persons during the term of this agreement: Said payment to be made on the 15th day of the month following the removal of said material and to be as follows:
"Four cents (4¢) per cubic yard for crushed rock
"The term of this agreement shall be a period of three years from date, unless both parties shall mutually agree for the termination of this contract and the rights and privileges herein provided.
"It is agreed and understood that the first party shall, at all times during the term of this agreement, have the use of any and all parts of said premises for any and all purposes except the production and removal of sand or gravel, except those portions actually being occupied and used by the second party for the production and removal of sand or gravel as herein provided. The second party, however, shall have the right of ingress and egress to and from the *Page 101 
premises to be used by it with the right to construct suitable cattle and stock passes or to fence any rights of way which said stock passes, if constructed, shall not be removed by second party upon the termination of this agreement.
"The second party agrees to construct and maintain a good and sufficient fence around the pits and to dispose of the overburden as may be directed by the first party, but at a distance, however, not to exceed 400 feet. Second party also agrees upon the termination of this agreement to slope all sharp and precipitous banks of any pits so as to reduce any hazary to livestock from same, but shall not be required to fill up any pits or excavations resulting from the operations as herein provided.
"It Is Agreed that where water supply, other than water herstofore used in the irrigation of said premises by first party, is available on said premises, the first party grants the second party the right to use the water for the purpose of pumping and screening sand or gravel, or for whatever purpose the second party may require in connection with producing sand or gravel.
"The second party shall have the right to place on the demised premises all necessary machinery, equipment, tool sheds and other structures required by it in connection with the operation with the full right to remove all of said machinery, equipment, and structures within sixty days after the termination of this contract, either by agreement or otherwise.
"In addition to the premises herein demised, the first party agree that they will not lease or demise any contiguous or adiacent 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.
"This Agreement shall be binding upon the heirs, executors, administrators or assigns of the first party; upon the successors or assigns of the second party.
"In Witness Whereof, the parties have hereunto set their hands and caused this instrument to be executed on the date first above written. *Page 102 
"Witnesses: __________                "Blair Bros. by __________ __________          "Party of The First Part "Enos Blair "Pete Lien __________ "Party of the Second Part __________ "State of South Dakota ss. "County of Meade
"On this 27th day of April, 1946, before me a Notary Public in and for said County, personally came the Enos Blair, personally known to me to be the identical person whose name is affixed to the foregoing agreement as party of the First Part, and he acknowledged same to be his voluntary act and deed for the purposes therein set forth.
"Witness my hand and Notarial Seal the date last aforesaid.
"Ivan H. Bell
Notary Public
"My Commission Expires: "June 1, 1949"
It is undisputed that Blair Brothers were at no time in the rock producing business prior to the making of this agreement.
The significant allegation in plaintiff's complaint respecting the premises covered and referred to in the agreement is as follows: "That such defendants also well knew, and were so advised by plaintiff, that such leased land and the contiguous and adjacent acreage thereto as owned by them, contained the only known supply of economically available lime rock of acceptable quality sufficient for such highway construction work."
If I correctly understand the view of the majority respecting the character of the transaction evidenced by the whole writing before us the same is by them deemed to be a lease. Also to be gathered from the opinion is the holding *Page 103 
that the leasing of land for the business of removing rock therefrom does not fall within the broad language of the fore part of SDC 10.0706 inhibiting all restraints against an "exercise" of lawful business. My position is that the agreement is not a lease and that regardless of its character the transaction cannot, in the face of the cited code provision, embrace a restraint upon an exercise of lawful business for the reason that the same is within the contemplation of the cited section and is not excluded by the stated exceptions. The plain purpose and intent of the restraining clause was to keep Blair Brothers out of the business of furnishing rock for the proposed paving project. To say that the leasing of land for the production of road-building material is an "exercise" of lawful business provokes no possible contradiction.
The majority opinion affixes to the restraining clause a strict and narrowed interpretation, i.e., that Blair Brothers 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 we are to adhere to the strict letter of the restraining clause, and dismiss for the moment its plain purpose and intended effect, we note that Blair Brothers agreed that they would not "lease or demise any contiguous or adjacent acreage," etc. Should we say that this clause means exactly what it says and nothing else we should then turn to the transaction between the Blair corporation and Northwestern Engineering Company and determine whether that transaction was in fact and in law a violation of the restraining clause we measure by the letter. If Blair Brothers did not agree not to engage in the business of selling rock then certainly the fact that they did so was not a breach of the restraining clause.
The fact is that the transaction between the Blair corporation and Northwestern Engineering Company does not at all measure up to a "lease" or "demise". The writing evidencing this latter transaction grants to the engineering company "the exclusive option to purchase the gravel and rock" from a small part of the ranchers' land. Giving an *Page 104 
option to purchase rock is not a leasing or demising of acreage. Accordingly, Blair Brothers, through their corporation, did nothing but engage in the business of selling rock and this, I agree, they clearly had a right to do.
I agree also that $1 is a sufficient consideration for the license to remove rock. I think, however, that such a sum could not create in the lands of Blair Brothers an interest in Lien deserving of the protection sought by the restraining clause. And no consideration whatsoever supports the clause against competition, an indispensable requisite to the validity of such an agreement.
I look upon the agreement as a license and nothing more or different and am supported in this vew by the holding of this court in Schnuerle v. Gilbert, 43 S.D. 535, 180 N.W. 953. Cf. Price  Baker Co. v. Madison, 17 S.D. 247, 95 N.W. 933. The exact character of the writing is perhaps unimportant except as we view the applicability of SDC 10.0706 and the effect thereof upon the clause of the writing restraining an exercise of lawful business. The question is simply whether the cited code section outlaws restraints upon an exercise of lawful business, with the exception of transactions expressly permitted by said code section. Licenses and leases are not included among the enumerated exceptions.
As pointed out in the majority opinion, counsel do not rely upon SDC 10.0706. I confess to have not confined my study of this particular question to the authorities presented in the thorough briefs of able counsel and to have invoked the statute as a bar against the validity of the restraining clause. With the view of those of my colleagues who regard my position as untenable I respectfully disagree. To others who have occasion in the future to study the matter I leave the decision whether I have drifted afield.
From territorial days until the adoption of our present code, and carried under the heading "Unlawful Contracts", the code provision respecting restraint of trade read thus: "Every contract by which any one is restrained from exercising a lawful profession, trade or business of any kind, otherwise than as provided by the next two sections, *Page 105 
is to that extent void." See section 898, Revised Code of 1919, and prior codes. The legislature of 1929, by an amendment to section 900, Revised Code of 1919, added a provision allowing certain of those engaged in licensed professions to agree upon the matter of competition. Such amendment further relaxed the inhibition declared by said section 898 to the extent only that an employee and his employer might agree, within stated limits, upon a restraint of an exercise of a lawful profession. SDC 10.0706, now found under the heading "Unlawful Contract Provisions", declares every contract restraining exercise of a lawful profession, trade or business, except certain agreements thereby expressly authorized, to be void to that extent. The revision has not changed the law. Allowing to this section a common interpretation, the law of the state provides that there can be no valid contract provision restraining an exercise of lawful business unless the same falls within one or the other of the enumerated exceptions, and unless the restraint embraces no more than stated limits of time and space. To such a statute the familiar maxim, "Expressio unius est exclusio alterius", or the expression of one thing is the exclusion of another, must surely apply. If this is not so then all persons, judges included, are denied the guide afforded by the law of the state intended to govern a transaction such as is here reviewed and it may again be truly said: "In such a case there is no measure of what is necessary to the protection of either party, except the vague and varying opinions of judges as to how much, on principles of political economy, men ought to be allowed to restrain competition." See Milgram v. Milgram, 105 Ind. App. 57, 12 N.W.2d 394.
The opinion of the majority cites the former decisions of this court wherein the validity of contract provisions restraining an exercise of a lawful business, trade or profession was considered. It is clear that in none of the cited cases has this court passed upon a covenant such as we now adjudge. I think it should be pointed out also that said decisions have in each case given full effect to our statute and that in none of them is there a suggestion that such contract provisions in transactions other than those *Page 106 
expressly excepted from the general inhibition of the statute should be upheld in this state. On the contrary, from Public Opinion Pub. Co. v. Ransom, 34 S.D. 381, 148 N.W. 838, 839, Ann.Cas. 1917A, 1010, it is fairly deducible that this court viewed the cited code section as altogether controlling and exclusive with respect both to transactions to which a restraint against competition may be incident and the "reasonableness" of such restraint. After referring to the general attitude of the courts of this country and England regarding contracts in restraint of trade, the opinion precedes quoted code provisions with the following observation: "In a very few states, among them being this state, the Legislatures, disregarding the fact that what might be a reasonable restraint, either as to time or territory, under certain conditions, would not be reasonable under other conditions, have enacted statutes fixing limitations both as to time and territory."
Emphasizing that under both the common law and our code there must be a transfer of the good will of a business to the protection of which the contract in restraint of trade is incident and supporting, this court unequivocally held that our statute has declared what is a "reasonable" restraint of trade.
Decisions of the courts of other jurisdictions wherein the same or similar statutory provisions relating to contracts restraining an exercise of lawful business are in force fully sustain the view that restraints of trade can be valid only if they fall within the exceptions and limits as by legislative acts specifically provided. The states wherein these decisions were handed down were without doubt some of the "very few states", referred to by Whiting, J., in Public Opinion Pub. Co. v. Ransom, supra, in which statutes such as ours determine what restraints upon lawful business are valid. Cases I have reviewed include those cited and referred to as support for the statement of the rule in 17 C.J.S., Contracts, § 258, as follows: "Under statutes in several of the states generally providing that every contract by which one is restrained from exercising a business or calling is void to that extent, except that an agreement by one who has sold the good will of a business, or by *Page 107 
a partner in anticipation of dissolution of a partnership, not to carry on a similar business within specified territory and for a specified time is permissible, a contract in restraint of trade may be valid only within the limits fixed."
The case of City Carpet, Etc. v. Jones, 102 Cal. 506, 36 P. 841, construed in the opinion of the majority, was expressly repudiated in Merchants' Ad-Sign Co. v. Sterling, 124 Cal. 429, 57 P. 468, 46 L.R.A. 142, 71 Am.St.Rep. 94.
The leading case in California is Vulcan Powder Co. v. Hercules Powder Co., 96 Cal. 510, 31 P. 581, 31 Am.St.Rep. 242. I take from the opinion in that case the following: "At common law, originally, all contracts which in any degree tended to the restraint of trade were void; but afterwards the rule was relaxed so as to countenance contracts for the partial restraint of trade, — that is, contracts in which the restraint was confined to reasonable limits of time or place, and which were founded upon sufficient consideration, etc. Quite a full statement of the rule at common law is to be found in Wright v. Ryder, 36 Cal. [342] 356. The rule, however, was uncertain, and led to much perplexing legislation; and the law upon the subject in this state is now declared in section 1673 of the Civil Code. That section is as follows: `Every contract by which any one is restrained from exercising a lawful profession, trade, or business of any kind, otherwise than is provided by the next two sections, is to that extent void.' The next two sections merely provide that one who sells the good will of a business may agree not to carry on a similar business within a specified county or city; and that, in anticipation of a dissolution of a partnership, a partner may agree not to carry on a similar business within the city or town where the partnership business is transacted. Neither of these two exceptions applies to the case at bar; and, if the contract here sued on is obnoxious to said section 1673, then the demurrer was properly sustained, and the judgment should be affirmed."
In Merchants' Ad-Sign Co. v. Sterling, supra, the California court held squarely that unless a contract provision restraining an exercise of lawful business is incident or ancillary to a transaction expressly declared by statute to *Page 108 
be excepted from the general inhibition the same is void. To the same effect is Dodge Stationery Co. v. Dodge, 145 Cal. 380,78 P. 879.
In Getz Bros.  Co. v. Federal Salt Co., 147 Cal. 115,81 P. 416, 417, 109 Am.St.Rep. 114, it is written: "That these covenants are illegal as being in restraint of trade, against the express mandate of the law of this state and of the United States, we entertain no doubt. Section 1673 of our Civil Code is as follows: `Every contract by which one is restrained from exercising a lawful profession, trade or business of any kind, otherwise than is provided by the next two sections, is, to that extent, void.' The only exceptions contemplated by the succeeding sections are to the effect that a vendor who sells the good will of his business may agree not to carry on a similar business within a single specified county or city so long as the buyer, or any person deriving title to the good will from him, carries on a like business therein; and that a partner, in anticipation of the dissolution of a partnership, may agree not to carry on a similar business within the city where the partnership business was transacted. Saving for these two classes of agreement, all others which restrain the exercise of a lawful business, trade, or vocation are void."
See also Chamberlain v. Augustine, 172 Cal. 285, 156 P. 479; General Paint Corporation v. Seymour, 124 Cal.App. 611,12 P.2d 990; Summerhays v. Scheu, 10 Cal.App.2d 574, 52 P.2d 512.
The cases of Grogan v. Chaffee, 156 Cal. 611, 105 P. 745, 27 L.R.A., N.S., 395; Miles Medical Co. v. John D. Parks  Sons Co.,220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502, and D. Ghirardelli Co. v. Hunsicker, 164 Cal. 355, 128 P. 1041, cited in the majority opinion, should be read together and in the order just cited. I fail to find in these or in other opinions handed down in California a decision upholding a restraint against an exercise of lawful business unless such restraint is clearly not within the contemplation of the statute. Indicative of the holdings of that court in respect to transactions not within the comtemplation of the statute is the decision, cited in the majority opinion, in Great Western Distillery Products v. John A. Wathen Distillery *Page 109 
Co., 10 Cal.2d 442, 74 P.2d 745, 746, wherein it is declared: "In our view of the contract its terms indicate that it was entered into, not for the purpose of restricting any trade or business,but for the purpose of promoting one. * * * `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 mainpurpose and effect of which are to promote and increase businessin the line affected, merely because its operations might possibly in some theoretical way incidentally and indirectly restrict trade in such line.'" (Emphasis supplied.) The striking difference between a contract such as was before the court in the case last cited and the one now before us is readily apparent. Of the latter it must be said that the purpose of the restraining clause was to grant to plaintiff Lien a monopolistic grip upon "the only known supply of economically available lime rock of acceptable quality for such highway construction work" and vest in him also the opportunity to exact from the public, the state, a price for rock unaffected by rock sought to be removed from the market by the invalid restraining clause. Not alone from the contract and from plaintiff's complaint do we determine his design. His testimony establishes beyond dispute that his deal with Blair Brothers was calculated to "tie up" all of the suitable rock in the community of the highway project. This attempt on plaintiff's part to create a monopoly cannot be justified simply by the fact that other rock was available at considerable distances burdened with a haulage cost of six cents per ton mile. A haul of twenty-four thousand tons a distance of twenty-five miles at a cost of $36,000 indicates the effect of the grab intended by the restraining clause. That the purpose of this clause was inimical to the public interests is badly patent. These facts were all before the trial court when plaintiff rested his case and defendants' motion for a directed verdict was denied. The denial of said motion is an assigned error.
The statutes of North Dakota and Oklahoma on restraint of trade read exactly as did ours prior to the 1929 amendment mentioned above and our 1939 code revision. *Page 110 
In Mapes v. Metcalf, 10 N.D. 601, 88 N.W. 713, 716, it is written: "The principles upon which contracts in restraint of trade have been held void by the courts of England and this country proceed upon the theory that the public welfare demands that private citizens shall not be allowed, even by their own voluntary contract, to restrain themselves unreasonably from the prosecution of trade, callings, or professions, or from embarking in business enterprises in the promotion and encouragement of which the public has an interest. Just what amounts to a reasonable restriction becomes a question of much delicacy, to be determined upon the facts peculiar to each case. In this case, however, we are freed from the embarrassment of judically determining whether the restraints imposed by this contract are reasonable or unreasonble, by an express statute upon the subject." See also Brottman v. Schela, 52 N.D. 137, 202 N.W. 132, and Olson v. Swendiman, 62 N.D. 649, 244 N.W. 870. From Hulen v. Earel, 13 Okla. 246, 73 P. 927, 930, the following: "But, no matter what may be the rule in other states governing this class of contracts, we have a statute which governs such contracts in this territory." Again in Wesley v. Chandler, 152 Okla. 22,3 P.2d 720, 722, Swindall, J., with frequent reference to Williston on Contracts, for the Supreme Court of Oklahoma says: "Among the grounds on which agreements in unreasonable restraint of trade are held illegal are the injury to the seller and those dependent upon him by reason of the deprivation of his rights, and the injury to the public resulting from unreasonable lessening of competition or the creation of, or the tendency to create, a monopoly. It would seem that our Legislature was concerned to an inordinate degree with the possible injury to the public." The same may fairly be said of SDC 10.0706, but our statute lies before us as the rule by which the validity of restraints upon an exercise of lawful business are to be judged.
In E.S. Miller Laboratories, Inc., v. Griffin, Okla.Sup.,194 P.2d 877, 3 A.L.R.2d 519, (opinion dated June 15, 1948), referring to the common law rule, which is now generally termed the "rule of reason", the Oklahoma Court mentions the holding of this court in Prescott v. Bidwell, 18 S.D. 64, *Page 111
99 N.W. 93 and quotes from Vulcan Powder Co. v. Hercules Powder Co., and Olson v. Swendiman, both cited above, in determining the effect of the statutes of that state upon the so-called rule of reason. Pointing out that the contract before the court would be valid in states where the common law rule prevails, the decision avoids the restraint upon the ground that the same is inhibited by section 217 of the Oklahoma code 15 U.S. 1941 § 217, corresponding with the fore part of SDC 10.0706.
Numerous decisions similar to the opinion of the Minnesota Court in Pittsburgh Plate Glass Co. v. Paine  Nixon Co.,182 Minn. 159, 234 N.W. 453, 455, cited in the majority opinion, are in the books. From the Minnesota case it is obvious that the statute of that state is not at all like SDC 10.0706. It is plain also that the court in that case looked upon the contract there in question as not prohibited by the statute. The opinion quotes from a prior Minnesota case as follows: "If the necessary effectof the combination is to stifle or to directly or necessarilyrestrict free competition, it is under the ban of the law,whatever may have been the intention of the parties. But if "it promotes and but remotely and incidentally restricts competition, while its main and chief effects are to foster the trade and increase the business of those who make and operate it, then it is not a contract, combination, or conspiracy in restraint of trade within the true interpretation of this act, and it is not subject to its denunciation.'" (Emphasis supplied.) Clearly, this case falls in the same category as that of Great Western Distillery Products v. John A. Wathen Distillery Co., supra.
Altogether independent of statute the general view of the courts is as declared in Restatement, Contracts, § 515: "A restraint of trade is unreasonable, in the absence of statutoryauthorization * * *, if it * * * (c) tends to create, or has for its purpose to create, a monopoly, * * * 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 * * *." (Emphasis supplied). That the license held by plaintiff had for its purpose the *Page 112 
creation of a monopoly and was not a contract for the transfer of property is readily palpable.
It must be agreed that in the instant case we had not a buyer, nor even a lessee, of a business or other property. Lien was but a licensee carrying a hope that he might have or find a buyer for products his license allowed him to take from a small part of the ranchers' land. The restraint therein written is not only contrary to the policy of express law but it is clearly against the express provision first found in said code section and therefore unlawful and unenforceable. SDC 10.0701. Nor can the restraint obtained by plaintiff withstand the test under the rules by which the courts, without benefit of statute, have sought to appraise the elusive quality of reasonableness. A sustained review of cases bearing upon the question has revealed no reported decision upholding a transaction at all comparable to the one brought before us by this appeal. Also, my conception of justice excludes the theory upon which it may be said that for $1, a mere licensee in this state can tie up the rock business in a community and then recover over $17,000 because he "might have made" such a profit as a result of the monopoly he intended to create against the interest of the public in the construction of a state highway. The bare statement of the deal refutes its legality.