Raisler Sprinkler Co. v. Automatic Sprinkler Co. of America

• Decision Date: 04 January 1934
• Citation: 36 Del. 57,171 A. 214
• Court: Delaware Superior Court
• Parties: RAISLER SPRINKLER COMPANY, a corporation of the State of New York, v. AUTOMATIC SPRINKLER COMPANY OF AMERICA, a corporation of the State of Delaware

171 A. 214

36 Del. 57

RAISLER SPRINKLER COMPANY, a corporation of the State of New York, v. AUTOMATIC SPRINKLER COMPANY OF AMERICA, a corporation of the State of Delaware

Superior Court of Delaware, New Castle County

January 4, 1934

[Copyrighted Material Omitted]

Superior Court for New Castle County, No. 19, May Term, 1933.

Case heard on demurrer to plaintiff's declaration.

It appeared from the declaration that the plaintiff was a licensee of the defendant, which was the patentee and sole manufacturer of sprinkler apparatus for protection against fire.

The following facts were also alleged: On or about November 12 1930, the plaintiff and defendant entered into a written contract whereby the plaintiff was granted by the defendant, in consideration of a license fee of $ 12,700, a non-exclusive license to purchase, use, sell and deal in, the sprinkler apparatus of the defendant in seven of the United States and the District of Columbia. This contract was to continue to the end of the term of the patents covering the apparatus. One of the provisions of the contract was:

"If and when the Licensee shall extend its business into sections of the United States other than those mentioned in Section 1 of this agreement and shall establish an organization for the conduct of its business therein, in a manner sufficient, in the opinion of the Licensor, to enable it to efficiently conduct such business, then the Licensor agrees that it will extend the rights and license herein granted to the Licensee to such other sections of the United States upon the payment by the Licensee to the Licensor of such additional license fees with respect to such additional territory as may be determined by the Licensor."

On January 9, 1931, the plaintiff was awarded a large contract to furnish and install the sprinkler systems at or near the city of New Orleans, Louisiana, which state was not one of those states named in the contract.

On the same day the plaintiff telegraphed the defendant:

"With reference to license agreement made between Automatic Sprinkler Company of America and ourselves, dated November 12, 1930, we hereby notify you that we have established an organization for the conduct of our business in a manner sufficient to efficiently conduct same in states of Virginia, North and South Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, Arkansas and Tennessee, and we do hereby exercise the option given us by provisions of paragraph five of Section one of said license agreement to extend same to the additional states herein enumerated STOP Also we request that you advise us of the amount of the license fee you desire to pay in the matter STOP Letter will follow"

The defendant replied by letter, dated January 12, 1931:

"Received your night letter with regard to license for Rate-Of-Rise devices in the following States: Virginia North & South Carolina Georgia Florida Alabama Missippi Louisiana Texas Arkansas Tennessee. Would have replied to this immediately but have been waiting until we received the letter which you said was following, but up to the present time we have received no such letter, and wish to advise you as follows, without further delay.

"Paragraph 5 of Section 1 of license agreement between us does not give you the option of extending license to other territories, but is an agreement on our part to extend the license under certain conditions.

"Before reaching a decision in this matter, it will be necessary for you to send us full information concerning your organization in each of the States above enumerated, including the personnel of your Sales, Engineering and Construction Departments, and the locations of your offices.

"We naturally cannot advise you as to the license fees covering extension of territory, until we have first determined whether or not license can be extended."

The plaintiff replied to this letter on January 16:

"Many thanks for your communication of the 12th inst.

"In answer to that portion of your letter wherein you request information concerning our organization in each of the states above enumerated, including the personnel of our Sales, Engineering and Construction Departments, and the locations of our offices, we beg leave to reply as follows:

"Our office is located at 606 Common Street, New Orleans, and is at the present time in charge of Mr. Helion Dickson who has been representing us in this territory for some time.

"With reference to the personnel of the Sales Engineering and Construction Departments, beg leave to advise that the personnel of these departments would be along the same lines as at the present time under our existing license, and we will in due time add to this said personnel, as our contemplated work progresses and conditions require. As you are aware, the engineering is conducted from our home office in New York City except where extensive installations are required this engineering personnel is augmented by additional engineering staff in the field. This also covers the personnel of our Construction Department. With reference to our Sales Force, this is covered by Mr. Helion Dickson who represents us in the matter of sales at this particular time in the southern territory. As is usual, approval of this home office is always required in connection with all contracts.

"In general, we will follow the usual lines that have been followed in the past in the territory in which we have been and are now operating, giving the work the same care and attention we have always given it for the past seventeen years.

"May we suggest an early conference for the purpose of determining the fee to be paid in this matter?"

On January 19 the defendant, in reply, wrote:

"I have your January 16 letter in reply to mine of the 12th, and after giving the matter serious consideration we have come to the conclusion that your organization for the States mentioned is not satisfactory to us, and for that reason cannot extend our license arrangement to you for these States at this time."

Thereafter the plaintiff tried to induce the defendant to extend the license, with no success.

The declaration also averred that the plaintiff's organization at New Orleans "was eminently fitted and entirely sufficient to enable the said plaintiff to efficiently conduct its business * * * in the aforementioned southern states;" that it was "ready, able and willing to pay such a reasonable additional license fee * * * as might be fixed by the said defendant * * *" and that the defendant "arbitrarily, capriciously, illegally, and without any fair or reasonable cause, excuse or justification therefor, refused to extend the aforesaid rights or license. * * *"

The defendant demurred generally, to the second and third counts of the declaration, and based its argument upon two grounds:

(1) That the language of the said written agreement, to-wit: "and shall establish an organization for the conduct of its business therein, in a manner sufficient, in the opinion of the licensor, to enable it to efficiently conduct such business," made the opinion of the defendant, as to the sufficiency and efficiency of the plaintiff's organization in new territory, conclusive on the plaintiff.

(2) That the plaintiff's alleged right to have its license extended to new territory was too indefinite, to be legally enforceable, because it was left to the parties to agree later as to the sum of money to be paid defendant as a fee for the granting of such extension.

The demurrer to the second and third counts sustained.

John J. Morris, Jr. (of Hering and Morris), for plaintiff.

Charles F. Curley for defendant.

LAYTON, C. J., RICHARDS and REINHARDT, J. J., sitting.

OPINION

LAYTON, C. J.

With respect to the first ground of demurrer, the plaintiff contends that the contract should be so construed as to give a reasonable meaning to all its parts, and not to leave a part of it useless and inexplicable. 2 Williston, Contr., § 619.

Wherefore it argues two questions arise for determination by jury, (1) was the defendant's refusal to extend the license in good faith, (2) was there reasonable ground for the defendant's dissatisfaction.

The defendant contends that the subject matter is one involving opinion and judgment, which when announced is final, and, even if good faith is material, the declaration does not aver bad faith on its part.

Contracts providing for performance to the satisfaction of a party are classified generally thus, (1) where the subject matter involves fancy, taste, sensibility or judgment, (2) where the subject matter has to do with mere operative fitness, mechanical utility, or commercial value.

To which class does this contract belong? Obviously it is a matter for construction; and consideration must be given to the subject matter, the language of the contract, the relationship of the parties, the objects to be accomplished and the inducements for contracting. Nash v. Towne, 72 U.S. 689, 5 Wall. 689, 18 L.Ed. 527.

The defendant is the patentee and sole manufacturer of the apparatus. By the contract it had granted a non-exclusive license to the plaintiff to buy, use, sell and deal in the apparatus in certain defined territory at a fixed license fee. It agreed to extend the license to cover additional states upon an expressed condition, that the defendant's organization in such additional territory should be sufficient in its, the defendant's opinion.

It is we think, clear that mere success in making sales of the apparatus was not the sole object of the defendant in granting the license. The volume of sales in the licensed territory was only one factor. Another, and important factor, involved its good will, the handling and servicing of the apparatus when...