General Finance Corporation v. Dillon

• Decision Date: 16 March 1949
• Docket Number: No. 3666.,3666.
• Citation: 172 F.2d 924
• Parties: GENERAL FINANCE CORPORATION et al. v. DILLON.
• Court: U.S. Court of Appeals — Tenth Circuit

172 F.2d 924 (1949)

GENERAL FINANCE CORPORATION et al. v. DILLON.

No. 3666.

United States Court of Appeals Tenth Circuit.

February 2, 1949.

Rehearing Denied March 16, 1949.

W. E. Green and Robert J. Woolsey, both of Tulsa, Okl. (J. C. Farmer, of Tulsa, Okl., on the brief), for appellants.

Richard B. McDermott, of Tulsa, Okl. (Bradford J. Williams, Fenelon Boesche, and Thomas H. Trower, all of Tulsa, Okl., on the brief), for appellee.

Before PHILLIPS, Chief Judge, and HUXMAN and MURRAH, Circuit Judges.

HUXMAN, Circuit Judge.

This was an action by Stephen V. Dillon against General Finance Corporation and its subsidiary Climax Industries Inc., a successor of Hanlon-Waters, Inc., to recover damages for an alleged breach of contract.

Prior to May 10, 1944, Dillon was engaged in business at Tulsa, Oklahoma, through the Dillon Company, a corporation, wholly owned by him, in the manufacturing and selling of grooved end pipe couplings, under patent inventions of his own. He had completed experimental work and tests for several other types of couplings referred to as the plain end and bayonet type, as well as others. His capital was limited and this in turn limited the amount of production he was able to turn out.

On May 10, 1944, Dillon entered into a contract with Hanlon-Waters of General Finance Corporation, in which it was agreed that Dillon and the Dillon Company would assign all rights in eleven patents and one pending application for a patent to Hanlon-Waters; that any improvement on the devices or new inventions relating to pipe couplings discovered or developed by Dillon during the term of the contract would be disclosed to Hanlon-Waters and Hanlon-Waters should have an option to accept or reject the same within a specified time; that in addition to assigning his patents, Dillon would also transfer all trade-marks, good will, customer lists, tools, molds, dies, drawings, and patents to Hanlon-Waters, and would sell at cost all couplings and parts on hand and would dissolve Dillon Company, the corporation, and would himself, refrain from manufacturing pipe couplings during the existence of the contract.

In return, Hanlon-Waters agreed to enter upon the development and sale of pipe couplings covered by the agreement as promptly as it was practical to do so under existing circumstances, and that it would undertake to manufacture such couplings and appliances on a quantity scale. In effect, it agreed to do all things necessary to promote the business of selling couplings to its fullest extent.

Paragraph 7 of the contract, in part, provided that:

"* * * Hanlon-Waters will have the right to determine for itself whether the competitive conditions and costs are suitanle for the manufacture of any particular device at a given time, will not be bound to manufacture all of the said devices at the same time, and will not be bound to do the marketing of any devices which in its judgment have become obsolete or do not meet market requirements."

The contract also provided for royalty payments to Dillon, for the return of Dillon's tools, molds, and special equipment on termination of the contract, and for the manner in which the contract might be terminated by either party thereto. Although it was not a part of the contract agreement, Dillon was subsequently employed by Hanlon-Waters as an engineer.

The parties operated under the contract until June 13, 1946, when Dillon terminated it in conformity with its provisions because of an alleged breach by Hanlon-Waters, and demanded the return of his equipment and the reassignment of all his patents and patent rights. In September, Hanlon-Waters offered to reassign the patents but did not offer to return the equipment and tools which it had received from Dillon. Dillon, thereafter, instituted this action for breach of contract, seeking to recover damages for failure to return his tools and special equipment, for loss of royalties by reason of failure to diligently exploit the market for the sale of his devices, for loss of profits during the period his patents were withheld after the termination of the contract, and for failure to develop and protect new devices accepted and withheld from him under contract.

The case was tried to the court. Detailed findings of fact and conclusions of law were made. In substance, the court found that Dillon had suffered damages for the following infractions of the contract by the defendants, and in the following amounts. Loss of royalties and interest for failing to promote the sale of defendant's devices, $87,091.87; value of molds and testing equipment at the time of the termination of the contract, $30,627.50; interest on value of tools and equipment from July 13, 1946, to date of judgment, $2506.30; failure to initiate and/or prosecute patent applications, $2600.00; loss of profits after termination of the contract, $3,000.00; general damages, $5,000.00. Based on these findings, the court entered judgment against the defendants for $130,825.67, and interest thereon from date of rendition, and for costs. This appeal challenges the correctness of this judgment, and the findings and conclusions of law upon which it is based.

Appellants challenge the correctness of the court's interpretation of the applicable part of paragraph 7 set out above. The court interpreted this provision of the contract to mean that thereby the parties intended to provide that General Finance and its successors should manufacture, produce, and market pipe coupling devices which Dillon then had in production or which were covered by letters patent, or improvements thereto subsequently discovered, on a quantity basis; that by the words "quantity scale" the parties intended a scale or rate of production sufficient to exploit with diligence the market then or thereafter available, and especially including the military market for grooved end pipe couplings to the fair extent of General Finance's ability to produce them, subject only to the limitation that General Finance could decline to manufacture any device when it determined that the manufacturing or marketing thereof would be unprofitable because of cost or competitive conditions; that General Finance could also decline to manufacture and sell all devices at the same time; and that General Finance could decline to manufacture any device that became obsolete or inadequate to fill the physical or mechanical demands of the market.

General Finance, on the other hand, contends that Paragraph 7 is to be interpreted as giving to it the sole and absolute right to determine whether it would manufacture any of the devices covered by the contract so long as it did not act arbitrarily in its decision and that it would become liable for failure to manufacture the devices only in the event that it acted arbitrarily or capriciously.

We agree with the interpretation of the trial court. From extensive evidence offered by the parties, the court found that Dillon had an established business in which he regularly sold these pipe couplings; that as of May, 1944, he had gross monthly sales of $4750.00 per month which netted him a profit of more than $1500.00 per month; that his financial resources were inadequate to permit him to satisfy the available market demands; that there was an extraordinary market demand for grooved end couplings of the type Dillon was then manufacturing; that especially there was in existence and in prospect an expanding military demand by the United States for such couplings, far in excess of either Dillon's or appellants' available facilities to meet. The court found that the contract of May 10, 1944, was executed by the parties with the military market for such couplings in specific contemplation and that both parties thereto intended, under the contract, to effect expanded production of the products covered thereby.

The evidence amply sustains these findings and conclusions. Not only do we conclude that the language of the contract lends itself to such a construction, but all the surrounding facts and circumstances negative an intent of the parties to transfer to appellants Dillon's entire business, cause him to disband his corporation, divest himself of the ability to carry on such business, and yet vest in appellants the sole and absolute discretion of determining whether thereafter it would proceed with the marketing of such devices, limited only by the requirement that its discretion must not be exercised arbitrarily or capriciously.

Surely Dillon did not intend to give up a business that was netting him $1500.00 per month, dissolve his corporation, transfer all his patents, tools, equipment, patterns, discs, molds and testing equipment, and turn over his customer lists and advertising matter to appellants, and further agree that any new inventions or improvements to existing inventions should be offered to appellants and made available to them without getting something in return other than an agreement that appellants would develop and promote the business if they chose to do so.

In construing a contract, it is not sufficient to look to the cold language alone. Words in a contract are used to convey the meaning and intent of the parties. Such intent is gleaned not only from what is expressly stated therein but also from what is of necessity implied from the language used.¹ Thus considered, it is clear to us that the parties intended that appellants should develop the available market for Dillon's products to the full extent of their production capacity. They could only refuse to manufacture or sell such products as could not be marketed at a profit or had become obsolete and did not meet the demands of the market.

The trial court found that appellants arbitrarily failed to produce couplings for the military market and awarded damages for such breach totaling $87,091.87. This finding is challenged by appellants as not supported by facts. It is argued that the failure to sell...