Palmer Electric & Manufacturing Co. v. Underwriters' Laboratories, Inc.

• Decision Date: 09 December 1933
• Citation: 284 Mass. 550
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: THE PALMER ELECTRIC & MANUFACTURING CO. v. UNDERWRITERS' LABORATORIES, INC.

284 Mass. 550

THE PALMER ELECTRIC & MANUFACTURING CO. v. UNDERWRITERS' LABORATORIES, INC.

Supreme Judicial Court of Massachusetts, Suffolk.

December 9, 1933

May 15, 1933.

CROSBY, WAIT FIELD, & LUMMUS, JJ.

Contract, Implied. Damages, In contract.

A corporation established and maintained by a national board of fire underwriters for the purpose of examining, testing and classifying devices and materials used in buildings, with respect to the degree of danger of bodily injury or of fire resulting from their use, and of reporting the results to fire insurance companies and to the manufacturers and producers of such devices and materials, maintained for subscribers a label service, in which devices and materials which met its tests were entitled to carry a label with a certain legend.

Electric switches were within this service, and a classification denominated AA was made to designate switches "enclosed in metal cases operable without opening cases, and so designed and constructed that they cannot be installed or used so as to expose normally current carrying parts to contact by persons replacing or inspecting fuses."

Against the protest of a subscriber who was the sole manufacturer of switches satisfying the AA classification, the corporation gave permission to use that label to a second manufacturer whose product included a device for engaging and disengaging the switch by the moving of a disk outside a closed front of an enclosing metal case in such a way that, when the switch was engaged and the current was on, there was no visible access to the interior of the case, and when the switch was disengaged and the current was off, access both to the view and safely with implements, could be had through holes in the disk corresponding to holes in the cover of the metal case sometimes, however, if the cover of the metal case were not closed tightly enough, a moving of the disk would not disengage the switch and yet would cause the holes to appear, thus leading the user to think that access to the interior was safe when it was not. The switches were intended for the use of ordinary householders, many of whom were not familiar with switches or fuses. The first subscribing manufacturer brought a suit in equity against the corporation maintaining the label service to enjoin it from permitting the second manufacturer further to use the label. While the suit was proceeding, the second manufacturer changed its product so that it complied with the AA classification, and the first manufacturer then sought to maintain the suit for the assessment of damages which he had suffered by reason of unreasonable competition permitted by the defendant through an improper use of its label. Held, that

(1) The switch which competed with the plaintiff's was not entitled to the AA classification because it could be "installed or used," within the wording of that classification, with its cover improperly secured, thus exposing normally current carrying parts to contact by persons replacing or inspecting fuses;

(2) There was at least an implied contract by the defendant to use reasonable care and diligence to secure and maintain a substantial compliance with its own standards applicable to classification AA and to confine the use of AA labels, so far as it might reasonably do so, to devices which did comply with such standards;

(3) Such implied contract was broken by the defendant and, as a result of such breach, the plaintiff unreasonably was subjected during the whole period in question to the competition of substandard switches bearing the defendant's AA label;

(4) The plaintiff was entitled to damages.

In the suit in equity above described the plaintiff was held to be entitled as damages to loss of profits on sales which he would have made had the defendant not permitted competition by the maker of the substandard switches.

The plaintiff in the suit above described was not precluded from recovering damages by the fact that the competition of the second manufacturer did not cause a reduction in the price of the plaintiff's commodity, nor by the fact that a master, who heard the suit on the question of damages, found that, if the defendant had done its duty by withdrawing the AA label from the competing switches, the manufacturer of them would have redesigned them within six months so as to bring them within classification AA, and the plaintiff's monopoly would have been short lived.

BILL IN EQUITY, field in the Superior Court on February 7, 1928, and described in the opinion.

The suit first was heard only on the question of liability by Greenhalge, J., the evidence being fully reported. Afterwards it was referred to a master on the question of damages. Material findings by the judge and by the master are stated in the opinion.

After the filing of reports by the master, the suit was further heard by the judge. His rulings are stated in the opinion. A final decree dismissing the bill was entered. The plaintiff appealed.

R. G. Dodge, (J.

M. Raymond with him,) for the plaintiff.

W. L. Fisher of Illinois, (A.

A. Schaefer with him,) for the defendant.

LUMMUS, J. The defendant is an Illinois corporation, established and maintained by the National Board of Fire Underwriters for the purpose of examining, testing and classifying devices and materials used in buildings, with respect to the degree of danger of bodily injury or of fire resulting from their use and of reporting the results to fire insurance companies and to the manufacturers and producers of such devices and materials. The classification made by the defendant has become of importance to manufacturers and producers of many kinds of devices and materials, because public authorities frequently require the use of a particular class of goods, according to the defendant's classification, and architects, builders and other buyers frequently specify goods of such a class. The insurance companies who maintain the defendant do not expect or receive any direct profit from it. It has never paid a dividend. Its charges to manufacturers and producers for its services are intended merely to defray the cost of operation. Yet there is nothing to show that the function of the defendant is charitable, or that it acts solely in the public service. If through its efforts fire losses are reduced, as is hoped, the insurance companies save money, and there is nothing to show that premiums are reduced to such a degree as to cancel the saving.

One service offered by the defendant is called the label service. Devices and materials which meet the tests of the defendant for a certain class may be marked by means of labels purchased from the defendant so that they may be recognized as of that class wherever found. The manufacturer or producer must buy labels to a certain amount each year. Early in 1917 the defendant adopted and published classifications of electric switches which as modified in 1918 read as follows "Classification A. Switches enclosed in metal cases, operable without opening cases, and so designed ...