Bump Pump Co. v. Waukesha Foundry Co.

• Citation: 300 N.W. 500,238 Wis. 643
• Parties: BUMP PUMP CO. v. WAUKESHA FOUNDRY CO. et al.
• Decision Date: 04 November 1941
• Court: Wisconsin Supreme Court

238 Wis. 643

300 N.W. 500

BUMP PUMP CO.

v.WAUKESHA FOUNDRY CO. et al.

Supreme Court of Wisconsin.

Nov. 4, 1941.

Appeal from a judgment of the Circuit Court for Waukesha County; Edward Gehl, Judge.

Affirmed.

Action by the Bump Pump Company against Waukesha Foundry Company and C. C. Smith commenced October 15, 1938. From a judgment entered January 6, 1941, dismissing the complaint, the plaintiff appeals.

The case was tried to the court. The court found in substance as follows: The plaintiff is a corporation manufacturing pumps since its organization in 1932. The Waukesha Foundry Company, hereinafter referred to as the Foundry Company, is a corporation located at Waukesha, engaged among other things in operating a foundry. The Foundry Company through a secret process developed a metal alloy which it manufactured and sold under the tradename of “Waukesha Metal.” It began in 1914 to manufacture and sell castings of this metal. The alloy is corrosion resistant and is used extensively in metal equipment used in the handling and processing of food products. In 1930 such use of Waukesha Metal fittings and castings was well established throughout the United States and the Foundry Company was well known in the dairy industry because of the successful and general use in such industry of its equipment.

In 1930 the Foundry Company and the Waukesha Specialty Company, which were both engaged in selling to the dairy industry equipment made of Waukesha Metal, began by personal calls on the trade, exhibitions at dairy and others shows and advertisements to acquaint the dairy and carbonated beverage industries with a rotary pump of Waukesha Metal manufactured for these companies by the Bump Manufacturing Company of La Crosse, predecessor of the plaintiff and hereinafter referred to as the Pump Company. These companies through 1930, 1931 and 1932 continued diligently to follow this course and to develop a pump which would met the demands of these industries.

The Foundry Company manufactured the Waukesha Metal castings used in the Pump Company's pumps, and both the Foundry Company and the Specialty Company ordered the pumps they sold to these industries from the Pump Company and sold them at prices they themselves fixed. The pumps were manufactured by the Pump Company only as ordered by the Foundry Company and Specialty Company. The Pump Company billed the pumps ordered and the bills were paid by these respective companies and these companies stood all losses resulting from defaults of customers.

In 1932 the Pump Company made an assignment to a trustee for the benefit of its creditors. The trustee continued the business for a time and the Foundry Company and Specialty Company continued to order from the trustee and the trustee to manufacture and fill orders as theretofore. The assets of the Pump Company were thereafter sold to certain persons for $4,000. The plaintiff corporation was then organized and purchased these assets and the assets were transferred to the plaintiff for forty shares of its stock. The Foundry and Specialty Companies continued to deal with the plaintiff as they had theretofore dealt with the Pump Company and its trustee. The Foundry Company from its contacts with users of the pumps learned the different capacities of pumps suitable for use in the dairy and food industries and designated the various capacities and sizes to be manufactured for it. Each such capacity was designated by a number established by the Foundry Company, and the Foundry Company from time to time designated changes in the various numbers to improve them for use in the dairy and food industries.

In 1933 the Foundry Company had calls for high pressure pumps for homogenizing. The Foundry Company made plans, specifications and blueprints for such pumps for such purpose and sent them to the plaintiff for the manufacture of high pressure pumps in accordance therewith. The plaintiff was unable to manufacture high pressure pumps that would operate successfully. The Foundry Company paid the plaintiff for its work done in this behalf and the plaintiff returned the plans, blueprints and specifications and the castings sent to it by the Foundry Company for the manufacture of the high pressure pump. The Foundry Company then engaged an engineer named Hanson owning a plant at Cedarburg to make a high pressure pump for it. Hanson did not succeed in making such a pump to work successfully, but in prosecuting his efforts in that behalf developed a split shaft and rotary seal to be used in connection therewith suitable for use on the pumps the plaintiff was making for the Foundry Company. Hanson at direction of the Foundry Company applied for a patent on these devices. An application therefor was made in October, 1935, and granted in December, 1937, and the patent was assigned to the Foundry Company. The Foundry Company notified the plaintiff of the doings in this behalf in February, 1936. Neither plaintiff nor the Foundry Company has manufactured or sold high pressure pumps.

Both the Foundry Company and the Specialty Company continued to order pumps from the plaintiff until June 26, 1936, when the Specialty Company ceased to and thereafter the Foundry Company alone so ordered, and alone paid all expenses of exhibiting and advertising the pumps and circulating the catalogues and other sales material used in selling. It also paid all expenses of selling, fixed its own sale prices, assumed all credit risks, and from time to time had changes made in the pumps ordered from plaintiff to improve them for use in the dairy and food industries.

The defendant Smith on solicitation by the plaintiff became a director of the plaintiff corporation in 1935 by reason of his being an officer in the Foundry Company, which owned stock of the plaintiff corporation. Smith owned no stock in the plaintiff. He was one of the principal stockholders of the Foundry Company, president thereof and one of its directors. He was actively in charge of the Foundry Company's business and affairs and conducted a large part of the negotiations and correspondence of the Foundry Company with the plaintiff. All this was known to the plaintiff when Smith became one of its directors. Smith attended a number of meetings of the plaintiff's board of directors for the purpose mainly of informing the plaintiff of defects in the pumps it was buying from it, of improvements that could be made upon it and of complaints of the trade relating to it, all which Smith as president of the Foundry Company rather than as director of the plaintiff, had discovered. Smith's participation in the general affairs of the plaintiff company was minor. Its general affairs were managed by the other directors.

The Foundry Company repeatedly endeavored to get the plaintiff to manufacture for it a rotary seal and split shaft with which to equip the pumps ordered by the Foundry Company because such equipment was insisted on by many of its customers and because the use of pumps without such equipment in the dairy and good industries was prohibited by the health departments in various cities. The rotary seal of the Foundry Company is a seal on the pump shaft which prevents leakage when the pump is operating. It uses packing superior to the fiber packing ordinarily used and renders the pump more sanitary. The split shaft can be pulled apart and removed from the pump and the bearings in the rotary seal on which it operates can thereby be more readily claned and rendered sanitary.

From 1933 to 1937 the Foundry Company repeatedly requested of the plaintiff a written contract covering its relations with it. The plaintiff refused to enter into a written contract. In January, 1937, defendant Smith, representing the Foundry Company at a directors' meeting of the Pump Company, demanded a written contract covering the manufacture of pumps by the plaintiff for the Foundry Company. During the discussion Smith was told that the plaintiff was contemplating selling pumps directly to the dairy and food industries, and although this had not been decided upon the plaintiff for this reason did not wish a written contract. Because of this statement Smith feared that if plaintiff sold direct to these industries the Foundry Company would lose the trade with these industries that it had developed at great expense. To prevent this the Foundry Company decided to develop a pump for itself so as to be able to supply its trade in case the plaintiff should refuse to manufacture pumps for it. Therefore in February, 1937, the Foundry Company began experimental work on a pump with a rotary seal and split shaft which it could sell if plaintiff refused to supply it. This fear was justified because the plaintiff during 1937 made plans to sell pumps directly to the dairy and food industries in competition with the Foundry Company.

The Foundry Company continued the experimental work stated until a meeting of the directors of the plaintiff on November 12, 1937. Defendant C. C. Smith and R. F. Smith attended this meeting representing the Foundry Company. They told the directors of plaintiff that the Foundry Company had developed a new pump in which a split shaft and rotary seal were used which were covered by a patent held by the Foundry Company. They also informed the directors that the Foundry Company did not want to go into the business of manufacturing pumps, but did want to continue in the business of selling pumps manufactured for it by the plaintiff, and wanted the plaintiff to manufacture the rotary seal and split shaft it had developed because these were required by a large number of its customers and certain health authorities. The Smiths then submitted to the directors of plaintiff a form of written contract which they proposed. The directors requested to submit this proposed contract to their attorney who was then out of the city. During November arrangement was made to have some of the old style pumps changed to use the defendant...