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Perma Research & Development v. Singer Co.

decided: July 1, 1976.

PERMA RESEARCH & DEVELOPMENT, PLAINTIFF-APPELLEE, APPELLANT,
v.
THE SINGER COMPANY, DEFENDANT-APPELLANT, APPELLEE



Appeal in a diversity action for breach of contract from decision of United States District Court for the Southern District Court of New York after trial without a jury and from decision and order of the same court which denied pretrial motions for summary judgment.

Clark, Associate Justice,*fn* Timbers and Van Graafeiland, Circuit Judges. Van Graafeiland, Circuit Judge, dissenting.

Author: Clark

MR. JUSTICE CLARK:

In a diversity action for breach of contract which commenced on March 9, 1966, the Singer Company (Singer) appeals from the judgment recovered by Perma Research and Development Company (Perma). The District Court, sitting without a jury, found that Singer had breached a contractual obligation to use its best efforts to perfect, manufacture, and market an automotive anti-skid device covered by a patent that Perma assigned to Singer on December 21, 1964. The court awarded damages to Perma in the amount of $5,333,423.94, with interest and costs amounting to more than $1.5 million.

Singer raises three points: (1) The District Court erred in holding that a contract between the parties imposed upon Singer an implied obligation to use its best efforts to perfect the anti-skid device and make it fail-safe; (2) The Perma anti-skid device was not perfectible and marketable; (3) The proof of damages was speculative and based on postulated sales that could never actually take place. We find no merit in any of the contentions and affirm the judgment.

1. The Course of the Action

The controversy grew out of two contracts between the parties, the first dated June 18, 1964, and the second, December 21, 1964. The first provided Singer with an exclusive license to manufacture the automotive anti-skid device involved here. The second contract superseded the first and provided for the assignment of Perma's patents on the anti-skid device to Singer and the payment of a royalty thereon. The contract also provided for the furnishing of technical assistance by Perma at the request of Singer "in the continuing design and engineering and improvement of the Product and of the equipment for manufacturing the same" for a 6-month period at a cost to Singer of $9800 per month. Upon Singer's abandonment of the contract, Perma brought this suit to set aside the December 21, 1964 contract and to enforce the earlier one. On motion for summary judgment, the complaint was dismissed save as to the "Wherefore" clause, which alleged that Singer did not use its "best efforts to market and manufacture the invention." On appeal, this judgment was affirmed, 410 F.2d 572 (2d Cir. 1969). On remand the case came before Judge MacMahon, and a second Singer motion for summary judgment was denied. The court found that, under the December 18, 1964 contract, Singer was required to "continue collaborating with Perma for a reasonable length of time in a good faith effort to resolve the problems then preventing the marketing of the product." 308 F. Supp. 743, 748. The principal issue, the court found, was "Did Singer use its best efforts for a reasonable time in collaboration with Perma to perfect the product" in order to prepare it for market. Id. at 749.

Singer then sought dismissal on the ground that it had been induced to enter the December 1964 contract on the misrepresentation by Perma that the anti-skid device was fail-safe. This third motion for summary judgment came before Judge Metzner who denied it, holding that "it is perfectly obvious from the record and the prior opinions that defendant Singer could not have been under any delusions that the product was fail-safe." Thereafter the case came before Judge McLean who agreed that the issue involved was as had been stated by Judge MacMahon. Unfortunately Judge McLean died, and subsequently the case was assigned to Judge Duffy, who entered the judgment here under review on April 11, 1975. 402 F. Supp. 881.

His 59-page opinion reveals the meticulous care and erudition that he gave to the trial and the "extraordinary latitude" he permitted Singer "to prove all that it could and to make any argument it wished" in the hope "that this trial would mark an end to this litigation." The ten-year, tortuous course of this litigation has involved five different trial judges and is here now for the second time, and still Singer insists that the December 18, 1964 contract does not impose upon it the obligation to perfect the antiskid device it obtained from Perma, or if it does, that the abandonment of the contract was justifiable on the ground that the anti-skid device was not sufficiently perfectible to satisfy Singer's standard of "absolute fail-safety". The district court found that this was not only "an impossible standard" but was beyond the agreement of the parties. Finally, Singer claims that "any damage award would nevertheless be speculative", as being based on phantom "sales of a non-skid device which subsequent history has shown could not have been successfully sold."

We too have examined the record and find that substantial evidence supports the findings of the trial judge and that they are not clearly erroneous.

2. The Obligation of Singer

We need not belabor the point that Singer was obligated under the December 1964 contract to use its best efforts to perfect the anti-skid device covered by the Perma patents that were assigned to it. As the trial court found: "Both parties recognized the need for engineering on the device." In fact before the contract was signed, Singer employed William E. Hill and Company, Inc. to do a market survey on the anti-skid device, and the results thereof were reported to Singer prior to its purchase of the patents. The report's principal findings and conclusions included an evaluation of the anti-skid device:

The Perma anti-skid control falls short of meeting requirements of automotive engineers and does not provide the improvement possible in theory. The consensus of many engineering tests that had been run on the unit indicates that the Perma control as compared to a panic or locked wheel stop, gives improved steering control but requires a greater stop distance to come to a complete stop.

The General Motors Research Center, the Ford Advance Design Corporation and the Chrysler Brake Laboratory are against use of the control.

Based on evaluation by major automobile manufacturers, the Perma anti-skid control did not meet established requirements. In the contract of December 1964, Singer specifically recognized its obligation for the effectiveness of the anti-skid device by providing therein that Perma, in consideration of the payment of $9800 monthly, would furnish assistance to Singer in the "continuing design and engineering and improvement of the Product and of the equipment for manufacturing the same."

It is significant also that two days after Singer signed the contract, it ordered a long list of engineering services from Perma, advising "we must find a design which will yield consistent and higher results." Singer was aware of the firms with which it was doing business and who had found defects in the anti-skid device. Singer knew that some problems had arisen regarding the finishing of the product. Nevertheless it said: "We have taken hold of the problem and resolved it. We feel that we have a product worthy of offering to the public and plan a full marketing campaign." Letter to C.G. Morehouse, Portland, Oregon, July 7, 1965.

Despite this representation, as early as July 22, 1965, Singer had decided to restrict extensive experimentation to short range projects. An internal managerial task force on August 10, 1965 recommended to Singer that marketing of the anti-skid device be suspended. The explanation was that the device's future was uncertain as a product item for Singer because it would place "us in the automotive parts industry dominated by the purchasing power and engineering skills of the Big 3". Suspension was recommended although Denville Special Report No. 62, which was charged with the technical evaluation of the anti-skid device, reported on August 10, 1965 that the device was not fail-safe, but estimated that the problem could be overcome at a cost to Singer of around $30,000. Rather than proceed further to improve the anti-skid device as it had agreed to do, Singer decided to abandon the project. On December 22, 1965, Singer advised Mr. Frank Perrino, the top official of Perma, "Very bluntly, Frank, we do not want to be in the brake business - our people at Elizabeth should not have gotten into the brake business." At the same time, Singer rejected Perrino's suggestion of improvements that might make the anti-skid device fail-safe. On January 26, 1966, Singer finally abandoned all efforts to perfect the anti-skid device.

3. The Record as to Perfectibility of the Anti-Skid Device

When Alfred DiScipio became Vice President of Singer in charge of consumer products, he visited the Elizabeth plant. While there, tests of the anti-skid device were made, and every one proved to be disastrous. Mr. DiScipio characterized the device as being not "fail-safe" and asserted that Singer would not market a product which "could leave the purchaser . . . less safe than if he hadn't elected to purchase it . . ." While Perma had represented that its anti-skid device had "fail-safe features", we find no representations that it ever claimed that the device was "absolutely fail-safe." In fact, Singer's own brake expert testified that he knew of no anti-skid device marketed in the United States that was completely fail-safe and that such perfection was not obtainable. In any event, Singer has no ground for complaint in this regard since it knew before buying the Perma patents and making the December contract that the device suffered operating failures and was not fail-safe. It was for this reason that the District Court found this defense "to be totally a sham", and dismissed Singer's counterclaim. We approve this action.

We have considered Singer's objection to the expert testimony by Daniel Goor and Andre L. DeVilliers. The particular objection made to the use of the results of computer simulation was directed to the basis for this expert testimony. While it might have been better practice for opposing counsel to arrange for the delivery of all details of the underlying data and theorems employed in these simulations in advance of trial in order to avoid unnecessarily belabored discussion of highly technical, tangential issues at trial, Fed. R. Civ. P. 26(b)(4)(A), the trial judge did not abuse his discretion in allowing the experts to testify as to this particular basis for their ultimate conclusion that the Perma device was indeed perfectible. While delivery of the actual computer programs would not appear to serve much purpose apart from delivery of the data and scientific formulae employed, the production of such programs in advance of trial with suitable protective orders to protect truly proprietary aspects of the programs also would have been better practice. On the record before us, however, we hold that Singer has not shown that it did not have an adequate basis on which to cross-examine plaintiff's experts.

4. The Damages Are Not Speculative

Since we hold that the anti-skid device was perfectible, Singer's argument that no market exists must necessarily fail. The argument is that since the anti-skid device was not ready for the market, it could not be sold. But as we have found, its obligation was to perfect the device, and the finding of its own people was that the device was perfectible. This is a complete answer to Singer's defense. Nor will the bare fact that no other manufacturer sold such a device in the aftermarket prove that such a market did not exist. Indeed the record includes proof to the contrary. Prior to the December 1964 contract, Perma itself had contracted for the sale of 139,000 units of the device. Within one month of the December 1964 contract, Singer itself had made a contract with its distributor, Motor Enterprises, to take a minimum of 56,000 units in the first year, and 100,000 units annually thereafter. Motor Enterprises further agreed to spend $250,000 annually on the promotion of the device. Moreover, the Singer-held report found that "with its strong emotional appeal to safety and with demonstrable characteristics (the device) lends itself to a consumer-directed merchandising effort. Typical of products of this type, sales volume will depend largely on the amount of promotional efforts." Furthermore, as of 1966, Singer would have the only anti-skid device on the market and could have enjoyed a monopoly for a period of two to three years. Finally, Singer never relinquished the patents and the patents' very existence in Singer hands might well have discouraged other development.

It ill behooves Singer to cry "no market" when it actively sought to exploit the operation before it decided that the anti-skid device was not the item for Singer. The fact of damage and the measure of its proof turn on the particular facts of each case. One is entitled to the reasonable damage flowing from the breach of a contract. For Children Inc. v. Graphics Int'l, Inc., 352 F. Supp. 1280 (S.D.N.Y. 1972).

In simple terms, the measure of the damage is the amount necessary to put the injured party in exact position as he would have been if the contract had not been breached. If Singer had put its resources and ingenuity to the anti-skid device, it probably would have been successful in the marketing of the same. Nor are the damages too speculative to assess. At the outset, since Singer produced the damage, it must bear the uncertainty of proof. Autowest Inc. v. Peugeot, Inc., 434 F.2d 556, 565 (2d Cir. 1970). Thus the reasonable basis for damages that the law requires is a precise one, barring only those damages which "are not the certain result of the wrong, not . . . those damages which are definitely attributable to the wrong and only uncertain in respect of their amount." (emphasis supplied). Story Parchment Company v. Paterson Parchment Paper Company, 282 U.S. 555, 562, 75 L. Ed. 544, 51 S. Ct. 248 (1931).

We have carefully considered the damage calculations of the parties and the amount awarded by the trial court, and we cannot say that the award is either unreasonable or unsupportable.

The judgment is therefore affirmed.

Disposit ...


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