Meurer Steel Barrel Co. v. Martin

• Decision Date: 01 October 1924
• Docket Number: No. 3110.,3110.
• Citation: 1 F.2d 687
• Parties: MEURER STEEL BARREL CO., Inc., v. MARTIN.
• Court: U.S. Court of Appeals — Third Circuit

1 F.2d 687 (1924)

MEURER STEEL BARREL CO., Inc., v. MARTIN.

No. 3110.

Circuit Court of Appeals, Third Circuit.

October 1, 1924.

William F. Knox, and Moorhead & Knox, all of Pittsburgh, Pa., for plaintiff in error.

Thorp, Bostwick, Stewart & Reed, of Pittsburgh, Pa. (Charles M. Thorp, Jr., and W. D. Stewart, both of Pittsburgh, Pa., of counsel), for defendant in error.

Before WOOLLEY and DAVIS, Circuit Judges, and RELLSTAB, District Judge.

WOOLLEY, Circuit Judge.

The plaintiff brought this action in assumpsit to recover damages from the defendant for breach of a contract wherein the plaintiff, owner of Letters Patent No. 891,895, had granted the defendant a non-exclusive licence to practice the invention for the life of the patent upon payment of royalties of not less than $5,000 a year, terminable by the plaintiff upon sixty days' written notice. The parties stipulated the facts, waived a jury and tried the case to the court. It appears from the stipulation that the defendant manufactured under the contract, paid some royalties, and, on going into the hands of a receiver, defaulted for the balance; that the plaintiff claimed royalties for two years aggregating $10,000 against which it credited payments of $445 and admitted a counterclaim of $5,135, leaving $4,419.50 as the balance due. The court found the license agreement void for want of mutuality of obligation because terminable on notice at the will of the plaintiff, and, under Pennsylvania practice, entered judgment for the defendant in the amount of its counterclaim. The plaintiff sued out this writ of error, raising the single question whether the court erred in so construing the contract.

In discussing this question it should be noted that it arose in an action at law, not in an action in equity, and that the thing sought by this action is damages for a breach of contract, not equitable relief by specific performance. With this in mind we feel that the court fell into error in failing for the moment to distinguish between want of mutuality as a ground for invalidating a contract and want of mutuality as a ground for denying the equitable remedy of specific performance.

There is a recognized difference in law between the validity of a contract containing a provision for its termination by notice and the enforcement of such a contract in equity. The cases hold generally that a contract terminable on notice (if otherwise valid) is not for that reason void for want of mutuality of obligation, and for breach thereof an action will lie at law although the same contract may not, because of such provision, be enforcible in equity. Realty Advertising & Supply Co. v. Englebert Tyre Co., 89 Misc. Rep. 371, 151 N. Y. S. 885; McCall v. Wright, 198 N. Y. 143, 91 N. E. 516, 31 L. R. A. (N. S.) 249; Philadelphia Ball Club v. Lajoie, 202 Pa. 210, 51 A. 973, 58 L. R. A. 227, 90 Am. St. Rep. 627; Cincinnati Exhibition Co. v. Marsans (D. C.) 216 F. 269; Brooklyn Baseball Club v. McGuire (C. C.) 116 F. 782.

As affecting the validity of a contract the distinction is based not upon equality of obligation but upon mutuality of consideration. As an unilateral contract is not founded on mutual promises, the doctrine of mutuality of obligation is inapplicable to such a contract. It is applicable, however, to a bilateral contract containing mutual executory promises because there both parties are bound by reciprocal obligations and the promise of one is the consideration for the promise of the other. If for any reason the promise of one party is not binding upon him, it is not a sufficient consideration for the promise of the other and the contract is void for want of consideration. Velie Motor Car Co. v. Kopmeier, 194 F. 324, 114 C. C. A. 284; Bernstein v. W. B. Mfg. Co., 238 Mass. 589, 131 N. E. 200. The terms "consideration" and "mutuality of obligation" are sometimes confused. "Consideration is essential; mutuality of obligation is not unless the want of mutuality would leave one party without a valid or available consideration for his promise. The doctrine of mutuality of obligation appears therefore to be merely one aspect of the rule that mutual promises constitute considerations for each other. Where there is no other consideration for a contract, mutual promises must be binding on both parties. But where there is any other consideration for the contract, mutuality of obligation is not essential." Moreover, a contract does not lack mutuality merely because its terms are harsh or its obligations unequal, or because every obligation of one party is not met by an equivalent counter obligation of the other party. 6 R. C. L. 686-692.

So, as we have said, where the obligation of each party is supported by a consideration moving from the other, mutuality of obligation is not wanting and such a contract, otherwise valid, is enforcible at law. Such a contract, though valid, is not, however, always enforcible in equity. If, for instance, an entirely valid contract contain a provision for its termination by one party on notice to the other, though enforcible at law, courts of equity will not, because of such provision, enforce it by granting equitable relief, as specific performance, but will leave the aggrieved party to his remedy at law. This is because the court will not grant equitable relief on a contract where one party can nullify its action by exercising his reserved power to terminate it. Rust v. Conrad, 47 Mich. 449, 11 N. W. 265, 41 Am. Rep. 720. And this extends to both parties on the principle that when from any cause "a contract is incapable of being enforced against one party, that party is equally incapable of enforcing it specifically against the other." Marble Co. v. Ripley, 77 U. S. (10 Wall.) 339, 359, 19 L. Ed. 955; Southern Express Co. v. Western N. C. R. Co., 99 U. S. 191, 200, 25 L. Ed. 319. In the latter case the very strong assertion is made that "a court of equity never interferes when the power of revocation exists." The fact that equity will deny relief in...