Fast Bearing Co. v. Precision Development Co.

Marbury, C. J., delivered the opinion of the Court. This is a suit brought on December 29, 1943, by the appellant, the Fast Bearing Company, a corporation, hereinafter called Fast, against Precision Development Company, a corporation, hereinafter called Precision, for the breach of an agreement between them, dated ²⁹¹ March 23, 1942. This agreement recites that Fast owns certain patents and patent applications for multiple oil film bearing units which Precision desires to manufacture, and that Fast grants to Precision the exclusive license to manufacture, use and vend the same under its patents for which Precision is to pay certain royalties or rents, calculated on the amount of gross sales, with an option to purchase the patents for the sum of $1,000,000. If any of the royalties are in arrears for thirty days, Fast can revoke the license.

Section 16 of the agreement states that it is agreed as a condition precedent to its making that Precision will “at all times during the life of this agreement and in good faith use reasonable efforts to promote, manufacture and sell the articles hereby licensed, or to be licensed to it, and will likewise encourage the use and adoption thereof in preference to any other type of multiple oil film bearing.” And it is further provided in this section that upon failure of Precision to use such reasonable efforts or to manufacture on a production basis and to list and offer for sale in the regular and customary manner for a period of six months, bearing units on which royalty is required to be paid, Fast shall have the right and option, upon sixty days’ notice, to revoke Precision’s license. Section 17 provides that Fast shall have no right to cancel the agreement because of the alleged breach by Precision in respect of Precision’s failure to comply with Section 16, or to pay the royalties provided “.in the event that such alleged breach is caused by any mandatory order, demand, or requisition of the United States Government acting through any of its agencies or because of any aet of God, condition of war, interference with production because of strikes, fires or other causes beyond the control of the licensee.” Section 20 provides that unless canceled by Fast for cause, or unless surrendered by Precision within thirty days of its date, the agreement is to remain in full force and effect until the last day of December, 1946, and thereafter is to continue from year to year unless Precision gives six months’ notice of its ²⁹² intention to terminate prior to the expiration of the calendar year. ■ The declaration contains the common counts and a special second count which alleges that the agreement was not canceled within thirty days and has never been canceled by either party except for an attempt by Precision, on April 19, 1943, through a letter to the effect that it did not intend to exercise any of the rights granted it, but this cancellation was not acquiesced in by plaintiff. The declaration further alleges that Precision, since the execution of the license agreement, has not in good faith used and has refused and failed to use reasonable efforts to promote, manufacture and sell the Fast bearings covered by the patents to the United States of America, and to other present and prospective users, and has refused to encourage the use of Fast bearings and has manufactured and sold only a negligible number thereof, but has promoted and manufactured at its plant, and sold and encouraged the use and adoption of other types of multiple oil film bearings competitive to Fast bearings, and has ignored and failed to perform the obligations imposed upon it by the agreement. That performance, in good faith of such obligations, would have resulted in sales of large numbers of said bearings to the United States and to other present and prospective users, and such sales would have yielded plaintiff large sums of money, and thereby the plaintiff has suffered great loss and damage, which it claims amounts to one million dollars.

The case was tried before two judges without a jury. They found that there were $616 in royalties due Fast for bearings actually manufactured. They disallowed all other claims on the ground that the Navy Department prevented Precision from manufacturing these bearings, and therefore Precision was not liable for its failure to do so. As a result a verdict and judgment were entered in favor of Fast against Precision for $616.

From this judgment, Fast appealed and Precision filed a cross-appeal. ²⁹³ Precision’s appeal is not from the amount of the judgment which it does not contest. It is based upon the fact that the trial judges, in their opinion, stated that there was a suspension of the activities of Precision necessitated by the urgent needs of the Navy Department. Precision contends that the facts found by the judges not only excused its failure to manufacture the bearings, but entitled it to terminate the license agreement and the judges should have so stated. As this case is a law case in which the result must be a judgment for either the plaintiff or the defendant, and as there is no place in a judgment for such a declaration as Precision wishes, it is apparent that its appeal is from the opinion and not from the judgment.

Such an appeal cannot be allowed, since the opinion is no part of the judgment. This is not changed by Part III, Rule 9 of the Rules Applicable to Law Only of the General Rules of Practice and Procedure adopted by this Court. That rule provides that when any proceeding at law is tried upon the facts by the Court, there shall be filed a brief statement of the grounds for the Court’s decision, and upon appeal this Court may review both the law and the evidence. There is, however, nothing in this rule authorizing us to entertain an appeal from anything in the statement of facts.

The appeal must be from the judgment. Under these circumstances, the appeal of Precision must be dismissed. Fast’s appeal is based upon the failure of the Court to allow any damages under the second count in the declaration. It claims that this is wrong because (1) Precision did not intend to perform its obligation under the license agreement either at the time it executed that agreement or at any time thereafter, and that its only object in making the agreement was to secure completion, by the Navy, of the plant in which the bearings were to be manufactured; in other words, that there was fraud at the’inception of the agreement and, (2) that the agreement was breached by Precision when it refused to provide bearings for test by the Navy Depart ²⁹⁴ ment by April 23, 1942, and when it sold some of the machinery specially designed and adapted for the manufacture of Fast bearings, and the tools and steel, thereby divesting itself of the essential means of such manufacture, and when it notified Fast by letter of April 19, 1943, that it did not intend at any time thereafter to exercise its rights under the license agreement.

As we stated at the outset, this is a suit for breach of contract. It is not a proceeding to avoid the contract for fraud in its inception, nor is it an action of deceit based upon such fraud. The evidence produced by Fast to uphold its first contention is, therefore, only relevant to show that Precision’s actions after the contract was signed were a result of its own fraudulent intention never to carry out its agreement, and were not the result of other conditions beyond its control. It may also be pertinent against the defense of impossibility or performance, if it shows that Precision knew of the Navy’s determination not to use Fast bearings without a test before the signing of the contract.

The real questions in the case are, was the contract breached by Precision, if so, why, and what damage was suffered by Fast as a result. In the consideration of these questions we turn to the evidence. In 1941, Precision, which was a subsidiary of Socony Vacuum Oil Company and Sun Oil Company, and Martin and Schwarz, also a subsidiary of these companies, had arranged for the construction of a plant for the manufacture of gasoline dispensing pumps, such new plant to be erected on College Avenue, Salisbury, Maryland. They both planned to move to the new Precision building when erected.

Socony Vacuum, however, opposed the construction of this building, and only the front of it was built. In January, 1942, a Mr. Rigterink, who was a war contact man of Precision, called on Mr. Fast, the president of Fast, and said that Martin and Schwarz had been instructed by the Government to engage in war work, and had been referred to Mr. Fast as the owner of machinery, tools and equipment which Pre ²⁹⁵ cisión might purchase for use in a war project. From that interview grew negotiations for the manufacture of Fast bearings by Precision, and a joint effort was made by the two companies to interest the Navy Department in the use of such bearings on naval vessels. These bearings had previously been tested by the Navy Department Experimental Staff and had been approved for Navy use.

Commander Lee, in the Bureau of Ships, to whom the representatives of the two companies were referred by the Navy Department officials, became interested in the use of the bearings on propeller shafts in the destroyer escort program which was then under consideration. He was advised that Precision would want the Navy to furnish additional facilities if it was to undertake the manufacture of Fast bearings for such use, and told Precision that the Navy would provide those facilities if the bearings met with the approval of the Naval architects, and he suggested that Mr. Fast and Mr. Rigterink call upon them, which they did. They went to Salisbury to determine what actual facilities Precision would need, and there they met Mr. Bateman who was the president of Precision. Fast suggested that a certain structure in Salisbury known as the Jackson Shirt Factory would be suitable and would avoid the necessity of the Navy adding to the Precision plant, but Mr. Bateman said he would not go through with the plans unless the Navy would provide an addition to the Precision plant.

There is also some testimony that Mr. Pew, Chairman of the Board of Precision, expressed the thought that such addition could be bought from the Navy after the war for a song. On February 3, 1942, Commander Lee arranged a hearing by the Shore Facilities Section of the Bureau of Ships, so that it could be determined whether or not the Navy should supply the facilities desired by Precision, including the addition to Precision plant. The hearing was held on February 4th. Mr. Bateman testified that Precision proposed to manufacture Fast bearings and Fast couplings and needed for that purpose the additional structure and certain ²⁹⁶ machinery and equipment to supplement that owned by Precision and that which it proposed to acquire from Fast.

It was there developed that* the facilities could be provided by the Navy and might be used for other things. In the same month, certain Salisbury people made objections to the Navy Department to the furnishing of money by the Navy for the additional structure, claiming, as had Mr. Fast, that the program could be carried on at the Jackson Shirt Factory. However, towards the last of February Precision learned that the Navy would ' provide the facilities applied for, including the plant addition. About that time Rigterink began the investigation of Fast bearings from some of the users, included among others, Bartlett Hayward Company and Koppers Company, Baltimore.

The Koppers Company had had a suit with Fast, involving the lease of machinery, which suit Fast had won in this Court. See Fast Bearing Co. v. Koppers Co., 181 Md. 203 , 29 A. 2d 289 . Rigterink testified that he got good reports from several users, but that a Mr. Perkins of Koppers Company told him that Fast was no good and that his bearing was no good. This information was not given to Fast, nor, according to Precision’s testimony, was it given to the Navy Department.

Mr. Bateman did, however, say that they thought it was more or less up to the Navy Department to make the decision “with their eyes open” as to what they would do about the bearings. Fast suspects that some adverse information was given to the Navy Department by Precision, because, about the time that Perkins made his statement, Commander Lee was informed by the Navy Design Division that Fast bearings did not have a clear operating record, and they opposed their use in the destroyer escort program. Commander Lee said that a question as to the use of Fast bearings in the program first occurred in that manner, so far as he knew. On March 12, 1942, Commander Lee wrote a letter to the War Production Board that in going ahead with the facilities contract with the Precision Development Company, the Bureau of Ships was guided by the need for ²⁹⁷ self-aligning shaft bearings, Fast type couplings, Kings-bury thrust bearings and special types of speed reducing housings.

The letter states that the tools held in storage by Mr. Fast, plus those to be supplied under the facilities contract to round out the tool equipment in the shop, will make it possible for the Precision Company to produce units of the type outlined in substantial quantities. Commander Lee also states in his letter that it is difficult for the Bureau to make any definite statement with regard to the total orders to be placed with the company for any particular unit, but it is hoped that they will manufacture line shaft bearings for all ships of the destroyer type, and in addition, that there is an acute shortage of Kingsbury type thrust bearings, and it is expected that -this company will be called on by other manufacturers to supply them with these units, and that the same is true of Fast type couplings. It is obvious from this letter that, at that time, the Navy intended that the plant should be used for the manufacture of articles other than Fast bearings and couplings. Meanwhile, the negotiations between Precision and Fast were going on, and by February 26, 1942, contracts between them were agreed upon, and on that date were executed by Fast and sent to Precision.

One of these contracts was the original draft of the one in question in this case, and another related to the purchase by Precision of Fast machinery, equipment and steel. This last contract was before this Court in the case of Precision Development Co. v. Fast Bearing Co., 183 Md. 399 , 37 A. 2d 905 . That was a suit for the purchase price of the machinery, and a judgment of $98,439.41 in favor of Fast was affirmed. On March 19, 1942, Fast was advised that Bateman had on that day accepted the Navy letter of intent, and that he requested Fast to execute and send the revised license agreement to Bateman at once, and that Mr. J. Edgar Pew, one of the officials of the Sun Oil Company wanted to see Mr. Fast on the following day.

The Navy letter of intent was dated March 4, 1942, was addressed to Precision, and was signed by the Chief of ²⁹⁸ the Bureau of Ships. It stated that it had been deemed essential to the prosecution of the war that industrial plant facilities having an estimated cost of $218,500 be provided as an addition to Precision’s existing plant at Salisbury “to enable you to produce Fast bearings and. couplings which are to be used in the building of escort vessels necessary for the war effort.” The schedule in the letter was that the extension to the plant was to cost $120,000; railroad sidings, etc., to cost $5,400, and the balance, except a reserve of $19,060 for contingencies, was to be used for machinery. Mr. Fast executed the agreement, which is the one sued on here, on March 19, 1942, and forwarded it, and on March 20th went to Philadelphia and saw Mr. Pew. There is a difference in the testimony as to what occurred at this interview on March 20th.

Mr. Fast said that Mr. Pew informed him that he had bad news for him; that he said that the Navy was not going to use Fast bearings; that the Navy wanted Precision to guarantee the bearings, but Precision was unable to do so. Mr. Fast said he told Mr. Pew that he had information that he could obtain an agreement from the Navy to test the bearings at sea, and that Mr. Pew stated that he would have his full cooperation in respect to the bearings if Mr. Fast succeeded. Mr. Pew did not testify as to this converation, although he was in Court. Mr. Bate-man testified that he didn’t remember exactly when the conference was, but his recollection was that Mr. Fast was interested in having Precision guarantee the performance of his bearings, but finally agreed that it would be poor policy.

Commander Lee testified that it was decided by him, after discussing the matter with the members of the design division of the Bureau of Ships, that his early decision to use Fast bearings in the escort program was unwise. Several of the officials opposed it, and sometime in March he notified Mr. Fast and Precision, at relatively the same time, within two or three days, that he had so changed his decision. Mr. Fast stated that he had a conference with Commander Lee ²⁹⁹ on March 26, 1942, and that Commander Lee said, that, without a guarantee, the Navy could not accept any equipment, and that Mr. Pew and Mr. Bateman had refused to guarantee it. He also testified that Commander Lee said that he would be willing to authorize a full scale test of one of the bearings and would put at Mr. Fast’s disposal a couple of Navy ships so that he could give the bearing a sea-going test.

Commander Lee, in his testimony, said that he did not recall Mr. Fast saying that Mr. Pew had refused this guarantee for bearings, and did not confirm the statement that Mr. Pew and Mr. Bateman had been to see him, but said that he had never seen Mr. Pew in his life; that to the best of his knowledge the question of a guarantee on these bearings was never raised with him by anybody, and that such a guarantee was absolutely of no importance in respect to the decision not to use them; that a guarantee of the bearings for the ships, while it might have paid for the bearing had it failed, could not have made up for what would probably have happened in 1943 had these ships been made non-operative due to the failure of the bearing. Commander Lee further said that the final decision was made in the Bureau of Ships, uninfluenced by any representative of Precision or Mr. Fast. Commander or Captain Lee (he had been promoted at the time of his testimony) stated that he told Mr. Fast when he communicated the decision of his department to him, that it was not a prudent thing for the Bureau to install a bearing in the ships involving the destroyer escort program until the bearing had undergone tests at sea, and that he proposed that certain of the bearings be installed in some old ships, and Mr. Fast seemed quite satisfied with these arrangements. Captain Lee further testified that the destroyer escort program covered the latter months of 1941, all of 1942 and all of 1943, but due to the overcoming of the submarine menace in the latter months of 1943, the emphasis was taken off the ships as of January, 1944.

Captain Lee further testified that as the bearing was not in existence on September 5, 1942, ³⁰⁰ when the Fast Bearing Company’s final plan for a proposed test bearing was sent to Gibbs and Cox, the Naval architects, it would require approximately three months to produce the bearing and the Navy would have desired at least a six-month test of the bearing at sea, which would make nine or more months before the approval of the bearing could have been given. This would be, certainly, the middle of 1943. He had that length of test in his mind when he discussed the matter with Mr. Fast, and Mr. Fast knew what he was talking about. He was asked whether or not it was the intent of the department to have the facilities wait until the test was made, and he said “No.” He made arrangements for Precision to visit the Kingsbury Thrust Company to see if they could make thrust bearings, which were used on the destroyer escort program, and the facilities furnished Precision were utilized for that purpose; that the Navy would require Precision to use the facilities as directed by the Bureau of Ships.

The facilities were the property of the United States Government and were to be used as directed by the authorized agent of that Government, and that his request to Precision to work with Kingsbury was an order. The facilities were