Appendix — Singer Co. v. Perma Research & Development Co.

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509:

76° ~ Qt 12 Ws

CLERK

wicHaR RODAK, R.. —_

Supreme Court of the United States

OCTOBER TERM, 1976

No.

Tae Sovazr Company,

Petitioner,

against

Perma Reszaron & Devetopment Company,

Respondent.

APPENDIX TO

PETITION.FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Merrett E. Crark, Jr.

Wourrsnop, Stimson, Putnam & Roserts

40 Wall Street

New York, New York 10005

Attorney for Petitioner

- me ee

INDEX

APPENDICES PAGE

A.

B.

Opinion of Bryan, J., dated March 29,

1968 la

Order and Judgment of Bryan, J., dated

August 11, 1968 15a

Opinion, dated April 25, 1969, of .the

United States Court of Appeals for the

Second Cireuit (410 F.2d 572 (2d Cir.

1969) ) - 18a

Order, dated April 25, 1969, of the United

States Court of Appeals for the Second

Circuit 32a

Opinion and Order of MacMahon, J., dated

January 27, 1970 (308 F. Supp. 743

(S.D.N.Y. 1970) ) 34a

Opinion and Order of Metzner, J., dated

May 14, 1970 dia

Opinion of Duffy, J., with Appendices

“A” and “B”, dated April 11, 1975 (402

F. Supp. 881 (S.D.N.Y. 1975)) cesses... 5la

Judgment after Trial, dated May 29, 1975

and Entered on June 3, 1975 ................ 126a

Amended Judgment after Trial, dated

June 13, 1975 and Entered on June 16,

1975 128a

Opinion, dated July 1, 1976, of the United

States Court of Appeals for the Second

GIT. eepcenciemnernintcentedetnbisetmastinednatisees 130a

Denial of Petition for Rehearing or Re-

hearing In Banc, dated September 2,

1976 166a

la

APPENDIX A

Opinion

United States Bistrict Court

SovutTHern Districr or New York

66 Civ. 665

Perma Research & DeveLopMeNT CoMPANY,

Plaintiff,

against

Tue Srncer Company,

Defendant.

66 Civ. 666

Perma Researcn & DeveLopMENT CoMPANY,

Plaintiff,

against

THe Srncer Company,

Defendant.

OPINION

Bryan, District Judge:

These are companion actions, the first (66 Civil 665,

referred to as Action No. 1), seeking damages for alleged

breach of contract, and the second (66 Civil 666, referred

to as Action No. 2) seeking injunctive relief.

2a

Appendia A

The complaint in Action No. 1 is in two counts.

The first alleges breach of a contract dated June 18, 1964,

between plaintiff, Perma Research & Development Com-

pany (Perma), and defendant, The Singer Company

(Singer), whereby Singer agreed to manufacture and

deliver to Perma’s customers an apparatus known as

“Perma Anti-skid Control,” on which Perma held patents,

for installation on automobiles. It is alleged that units of

this device manufactured under the contract were defective

due to Singer’s failure to exercise adequate quality controls

in the assembly and testing of the product as required by

the contract and that some 500 of these defective units were

delivered to Perma’s distributors over its objection. Perma

alleges that as a result of this breach it was unable to fulfill

its contractual obligations with its distributors and suffered

substantial damages.

The second count in Action No. 1 seeks to set aside a

second agreement between the parties dated December 21,

1964, which, among other things, terminated and cancelled

the earlier June 18, 1964, agreement. The second count

alleges that the December agreement was procured by

fraud and misrepresentation, that it was entered into

without consideration, and that it was illusory and there-

fore void. Judgment is sought (1) declaring that the

December agreement is null and void; (2) for specific

performance of the June agreement; and (3) for damages

of $41,000,000.

The final paragraph of the complaint seeks additional

relief by stating cryptically, “And in the alternative, if it

be determined that the contract of December 21, 1964 be

valid, Plaintiff demands judgment upon this contract for

breach and non-performance thereunder in the amount of

41 million dollars.”

3a

Appendix A

- The answer of Singer generally denies the allegations of

the complaint and interposes a counterclaim for alleged

false and fraudulent representations by Perma which

induced it to spend time and money on the skid control

device to its damage in the sum of $4,000,000.

The complaint in Action No, 2 seeks an injunction against

the further shipping and delivery of units of the Perma

Anti-Skid Control apparatus by Singer. The relief sought

is predicated on the June 18, 1964 agreement under which

Singer manufactured these units and ignores the December

21, 1964 agreement. The answer generally denies the

allegations of the complaint.

Defendant, Singer, has moved pursuant to Rule 56,

F.R.C.P. for summary judgment dismissing the complaints

in both actions and for summary judgment on its counter-

claim in Action No. 1. Plaintiff, Perma, cross-moved for

summary judgment on the second count in Action No. 1.

Perma also has moved for leave to file an amended reply

to the counterclaim in Action No. 1.

The factual background may be briefly summarized as

follows:

The Perma Anti-Skid Control device, designed to prevent

an automobile from skidding, was invented by Perrino,

President of Perma. Perma had been working for some

years and had spent substantial sums to perfect and

market it. The device is a complicated mechanism with

over 100 separate parts.

In June 1964, after Perma had sold a number of the

devices which it had assembled, it entered into a contract

with Singer under which Singer undertook to assemble the

product from an inventory of component parts purchased

from Perma’s former suppliers. Singer agreed to exercise

diligent quality control to determine that the components

complied with specifications.

4a

Appendix A

During six months of operation under this contract a

number of defects in both quality and design were discov-

ered. Various changes in design were made after consulta-

tion between Perma and Singer. During this period some

500 units were shipped by Singer to Perma’s distributor in

Ohio. A number of these units were defective in various

respects. Perma now claims that these defects were due

to Singer’s failure to exercise adequate quality control over

the component parts. Singer, on the other hand, maintains

that its controls were efficient and adequate and that the

defects were due to faults of design in the component parts

which Singer or Perma had discovered and which had to be

replaced or corrected.

In any event, in December 1964 a new contract was

entered into by the parties which cancelled the June con-

tract. Under the December contract the patents for the

device were assigned to Singer by Perma and Singer under-

took to manufacture and market the product, paying

royalties to Perma.

After substantial expenditures under this agreement and

a number of tests and experiments, Singer claims that it

concluded that the device was not fail-safe—that is to say,

was without a feature which would restore the standard

braking system of the automobile in the event of a mechani-

eal failure of the device—and that the device was therefore

unmarketable. A retrieval program was then instituted to

get back all devices delivered to distributors or sold to the

public by Singer and Singer advised Perma it would

deliver no more devices and component parts until the

device was made fail-safe.

After controversy had developed between the parties

over the decision reached by Singer, Perma commenced

the two actions at bar.

5a

Appendiz A

Singer’s motion for summary judgment addressed to the

complaint in Action No, 1 is predicated on two principal

grounds.

The first is that there was in fact no breach of the June

18, 1964 agreement as alleged. The second is that the June

18, 1964 agreement and all obligations thereunder were

fully and finally terminated by the agreement of December

21, 1964, and that there is no basis in fact or law for setting

aside the latter agreement which effectively bars suit upon

the first. However, Singer does not address itself to Per-

ma’s claim of breach of the December agreement set forth

in the final paragraph of the complaint.

Without suggesting that Singer’s first ground is without

merit, it is unnecessary to discuss that ground, since the

second, insofar as it goes to the validity of the December

1964 agreement is dispositive of the motions for summary

judgment addressed to Action No. 2 and to Counts 1 and 2

of Action No. 1.

By the December 21, 1964 agreement all patent rights to

the Perma anti-skid control device were transferred to

Singer and Singer agreed to manufacture and market the

device and to pay royalties to Perma. There is no doubt

that the December agreement effectively terminated the

June agreement. It expressly provided that the June

agreement “should be deemed null and void and of no force

or effect,” and that “all rights and obligations of the parties

thereunder were terminated” with the exception of specified

accrued items not relevant here.

Thus, any rights which Perma might have had to sue on

the June agreement are effectively barred by the December

agreement as long as it remains in force and effect.’ It is

1. See 5A Corbin, Contracts § 1236 (1964).

Ga

Appendix A

plainly for this reason that Perma in the second count of

its complaint seeks a declaratory judgment setting aside

the December agreement and declaring it null and void.

Unless Perma can succeed in setting aside the December

agreement it has no claim for relief on the first count for

breach of the June agreement.

In the second count Perma alleges three grounds for

setting aside the December agreement: (1) that there was

no consideration for the agreement on Singer’s part; (2)

that the agreement was illusory and therefore void; and (3)

that Perma was induced to enter into the agreement by

fraud and misrepresentation on the part of Singer.

1. Atiecep Lack or ConsmpERATION

The December agreement expressly provides that it is

to be governed by New York Law. It was an agreement in

writing to discharge the June agreement signed by Perma,

the party against whom the discharge is sought to be en-

forced. Under New York G.O.L. Section 5-1103, such a

contract “shall not be invalid for lack of consideration.”

Thus, the June agreement was effectively terminated

whether or not there was consideration for the December

agreement.

But quite apart from this there was ample consideration

for the December agreement.

Singer assumed loans and obligations of Perma in the

amount of $209,000 in return for which Perma gave Singer

a five year non-interest bearing promissory note. A cReck

for $24,000 was delivered to Perma at the closing. Singer

assumed Perma’s current liabilities to third parties in the

amount of $85,000 and also Perma’s four principal distribu-

torship contracts. Finally, Singer was required to pay

7a

Appendiz A

Perma royalties. All this is clear from the face of the con-

tract and was admitted by Perrino, Perma’s President, on

deposition. Indeed, it could not well have been denied.

There is no factual or legal basis for the contention

that the December 1964 contract lacked consideration.

2. A.iecep ILLUsorY NATURE OF

THE DecemBeR CONTRACT.

Perma’s theory, as stated in the complaint, is that the

agreement is illusory because “Singer was not bound to per-

form any covenants or agreements and retained complete

discretion as to manufacturing and marketing.” However,

on his deposition Perrino admitted that Singer had per-

formed a number of the covenants and agreements con-

tained in the December contract.

In any event, regardless of specific promises in the agree-

ment, there can be no doubt that there was an obligation

on Singer’s part under the agreement, to use its best

efforts to manufacture and market the product. Sea Wood

v. Lucy, Lady Duff Gordon, 222 N.Y. 88 (1917). See also

Bruce & Co., Ine. v. Simpson & Co., Inc., 40 Mise. 2d 501,

504 (S. Ct. 1963); Franklin Research & Development Corp.

v. Swift Electrical supply Co., 340 F.2d 439, 443, n. 3 (2d

Cir. 1964). Moreover, it appears from the papers before

me that Singer did in fact spend substantial time and money

in manufacturing, testing, research and marketing of the

device.

Finally, Paragraph 10 of the contract provides for a

“reversion right” to Perma under which Perma could

recover the rights to the device if Singer did not spend

more than $100,000 per year in marketing it. Perrino

8a

Appendia A

claimed that this reversion right was still in existence at

the time when his deposition was taken. There is no legal

or factual basis for Perma’s second contention either.

3. Fravup in THE INDUCEMENT.

The only other ground on which Perma relies is that the

December contract was induced by fraud and misrepresen-

tation. This is categorically denied by Singer.

Perma has not only failed to show that there was any

fraud or misrepresentation but in effect admits that there

was none.

Perma alleges in the second count in Action No. 1 that

the December agreement “was procured by fraud and mis-

representation on the part of” Singer “as to its intentions

and ability to market the product.” Perrino, the President

of Perma, on his deposition taken by Singer, was unable to

point to any evidence to support that charge.

When asked what the basis was for the charge Perrino

replied that he had been told that more time and money

would be spent on engineering and marketing, that there

was “less time and money spent after the signing of the

December agreement than there was previously,” that he

did not know how much time and money had been spent

under either agreement, but that “everything else pointed

to the fact that they did not intend to do what they said

they were going to do.”*

Further, Perrino said that “although they (Singer) said

they wuld market the product, they did not. They, in fact,

turned this over to an independent organization which was

2. Deposition of Perrino, p. 420.

3. Deposition of Perrino, p. 420.

9a

Appendiz A

previous [sic] our own distributor, where he stated himself

that he did not have the assets to market the product nation-

ally."* Apart from the hearsay in this statement it may

be noted that under the December agreement Singer had

the right to determine the method of manufacturing, ex-

ploiting and marketing the product “in its absolute discre-

tion.”

Even if Perrino’s claims were taken as true this would

not constitute fraud in the inducement under New York law.

Were there an intention not to perform terms of the Decem-

ber agreement on Singer’s part, followed by non-perform-

ance, this would not give rise to an action for fraud but to

an action for damages for breach of the agreement. As

was said in Briefstein v. Rotondo Co., 8 A.D.2d 349 at 351,

187 N.Y.S.2d 866, at 868 (1st Dept., 1959) :

“To say that a contracting party intends when he

enters into an agreement not to be bound by it is

not to state ‘fraud’ in an actionable area, but to state

a willingness to risk paying damages for breach of

contract.

“If a man makes a contract intending to breach it

he would expect to pay the price which such a course

incurs by the usual rules of law under which con-

tracts are afforded judicial enforcement. An inten-

tion not to perform does not bring on heavier

damages than actual non-performance. The policy

which runs through ‘he fabric of the law of contracts

is to bind a party by what he agrees to do whether or

not he intends to do what he agrees.

4. Id. at 420-21.

10a

Appendix A

“Implicit in the policy sanctioning the formaliza-

tion of contracteal undertakings is precaution

against an existing intention not to be bound by the

agreement as well as a future change of mind about

being bound by it. Actionable relief hangs on

breach; and under the facts here pleaded, relief does

not lie for fraud resting on an intention not to per-

form.”

See also Leventhal v. Martin, 25 A.D.2d 508, 266 N.Y.S.2d

774 (1st Dept. 1966).

The facts in Briefstein were quite different from those in

such cases as Sabo v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d

714 (1957), where it was said that a promise “actually made

with a preconceived and undisc!osed intention of not per-

forming it * * * constitutes a misrepresentation of a material

existing fact upon which an action for rescission may be

predicated.” Id. at 160, 165 N.Y.S.2d at 716. Sabo v.

Delman was concerned with fraudulent promises as to col-

lateral matters not included within and outside the terms

of the contract which were given to induce the party seek-

ing rescission to enter into the contract. In Briefstein, on

the other hand, plaintiff, as the plaintiff here, simply

claimed that defendant never intended to carry out the

promises which he had made under the actual terms of the

contract itself.’

Moreover, Perrino’s testimony on deposition demon-

strates there is no evidence of an intention by Singer not

to perform the contract. When Perrino was asked how he

5. dt may be noted that Briefstein does not conform to either the

Restatement of Contracts or the Restatement of Torts. See Restate-

ment, Torts, § 530 Comment b; Restatement, Contracts, § 473.

lla

Appendia A

knew “that Singer had no intention to market the product”

at the time it negotiated and signed the contract, he replied

“There is no way of me knowing exactly what their inten-

tion was at the time they said it, except that they promised

certain things when everything else points to the fact that

they did not intend to do what they said they were going

to do.”* Perrino was then asked “What points to that fact

that you allege?’” His response resolved itself into noth-

ing more than claims of non-performance by Singer.*

A mere showing of non-performance of a promise without

more is insufficient to support a claim of fraud in the

inducement. See Restatement, Torts, §530 Comment c;

Restatement, Contracts § 473 Comment c; Adams v. Clark,

239 N.Y. 403 at 410 (1925). See also Prosser, Torts, § 90 at

p. 565 (2d ed. 1955). Nothing more than that was shown

here.

The only affidavit in opposition to Singer’s motion for

summary judgment is that of Perrino in support of Perma’s

cross-motion for the same relief on Count 2. It wholly fails

to present any evidence of fraud in the inducement of the

December contract. The conversations which Perrino

claims to have had with various persons connected with

Singer do not support the claim that there was no intention

on Singer’s part to perform when it entered into the

December contract, much less establish any fraudulent

misrepresentations. Perrino’s affidavit is insufficient to

raise any material issues of fact. Nor does it cast any

doubt on his admission at his deposition that Singer and

6. Deposition of Perrino, p. 420.

7. Thid.

8. Id. at 420-22.

l2a

Appendiz A

Perma were engaged in joiut efforts looking toward the

perfection and marketing of the device for some six months

after the December agreement was entered into, and up to

the time that Singer lost confidence in the device.

In any event, it appears that there was a substantial

measure of performance of the December agreement by

Singer. ‘The real issue between the parties is over the

adequacy of such performance under the terms of the

contract. It is plain that this controversy is not as to fraud

in the inducement, but as to whether or not the December

contract was breached.

There are no material issues of fact to be tried with

respect to the claim in the second count in Action No. 1 for

rescission of the December agreement and Singer is entitled

to summary judgment on that claim. Perma’s cross-motion

for summary judgment in the second count in Action No. 1

is wholly without merit and must be denied.

The first count based on alleged breach of the June, 1964

contract therefore automatically falls since any such claim

is barred by the subsisting December 1964 agreement and

Singer is entitled to summary judgment on the first count

of Action No. 1 also. The same result follows with respect

to Action No. 2 for injunctive relief based solely upon the

June agreement. Singer’s motion for summary judgment

dismissing the complaint in Action No. 2 will be granted.

There remains the claim asserted in Count 2 of Action

No. 1 for breach of the December 1964 contract as distin-

guished from the claim for rescission. It will be recalled

that this claim is alleged in the following language:

“And in the alternative, if it be determined that

the contract of December 21, 1964 be valid, plaintiff

13a

Appendiz A

demands judgment upon this contract for breach of

non-performance thereunder in the amount of 41

million dollars.”

This can scarcely be said to be an artistic way to allege a

substantial claim for breach of contract. However, if the

quoted paragraph be read in conjunction with other allega-

tions of Count 2, it is barely sufficient to withstand a motion

to dismiss and must be held to state a viable claim for relief

for breach of contract. As Professor Moore has stated:

“* * * The courts have ruled again and again that

a motion to dismiss for failure to state a claim should

not be granted unless it appears to a certainty that

plaintiff would be entitled to no relief under any

state of facts which may be proved in support of his

claim.” 2A, Moore’s Federal Practice, ¢ 8.13 at page

1705-07.

See also DioGuardi v. Durning, 139 F.2d 774 (2d Cir. 1944).

Singer has not addressed itself directly to the claim for

breach of the December agreement nor has Perma. In the

present posture of this action and on the papers before me

Singer has not demonstrated that there are no material

issues of fact as to this claim which require trial and

summary judgment on the claim must therefore be denied.

Finally, there are Singer’s motion for summary judgment

on its counterclaim in Action No. 1, and Perma’s motion for

leave to serve an amended reply to that counterclaim.

Singer’s counterclaim alleges a series of fraudulent acts

and representations on the part of Perma which induced

Singer “to spend time and money on the manufacture, dis-

Eo OOeeeeRe—e——eeScaa_

l4a

Appendiz A

tribution and sale, testing, recalling and retrieving” of the

anti-skid device to its damage in the sum of $4,000,000. The

original reply to the counterclaim was. inartistically drawn,

to say the least, and it can be argued with some persuasive-

ness that it is not an effective denial sufficient to place in

issue the material allegations of the counterclaim. How-

ever, Perma has moved for leave to serve an amended reply

which places in issue such material allegations.

Singer urges that service of the proposed amended reply

should not be permitted, net only because it is untimely

but because a number of its allegations are inconsistent with

the record thus far made on the depositions taken by the

parties. However, in view of the liberal policy favoring

amendments, I do not think that Perma should be foreclosed

from filing its amended reply and leave is granted to do so.

In the light of the issues raised by the amended reply

it cannot be said on the record before me that there are

no material issues of fact to be tried with respect either to

Perma’s liability on the counterclaim or to the important

question of Singer’s damages. Singer’s motion for summary

judgment on its counterclaim will therefore be denied.

Settle order on notice embodying the decisions reached in

this opinion.

Dated: New York, N. Y.

March 9, 1968

s/ Freperick V. P. Bryan

United States District Judge

15a

APPENDIX B

Order and Entry of Judgment

UNITED STATES DISTRICT COURT

SourHerN District or New York

66 Civ. 665

Perma Researcu & DeveLopmMent Company,

Plaintiff,

against

Tue Srncer Company,

Defendant.

The following motions having been made,

1. By the defendant, The Singer Company (hereinafter

“Singer”) for summary judgment, pursuant to Rule 56 of

the Federal Rules of Civil Procedure, dismissing the Com-

plaint of plaintiff, Perma Research & Development Com-

pany (hereinafter “Perma”),

2. By Singer for summary judgment on its Counter-

claim against Perma, pursuant to Rule 56 of the Federal

Rules of Civil Procedure,

3. By Perma for summary judgment on the Second

Count of the Complaint, pursuant to Rule 56 of the Federal

Rules of Civil Procedure,

16a

Appendiac B

4. By Perma for leave to file an amended reply to

Singer’s Counterclaim, pursuant to Rule 15 of the Federal

Rules of Civil Procedure, and

The Court having granted Perma’s motion for leave to

file an amended reply to Singer’s counterclaim, and

The Court having considered the pleadings in this action,

the affidavits, memoranda and exhibits in support of and in

opposition to said motions, and having heard counsel for

the respective parties and having had due deliberation, and

having rendered its decision on March 28 and filed its opin-

ion on April 1, 1968, and

Mortons for reargument having been made,

1. By Singer on April 11, 1968, and

2. By Perma on April 23, 1968, and

The Court having granted both of said motions for

reargument and on reargument having adhered to its deci-

sion dated March 28 and filed April 1, 1968, by memoran-

dum of the Court filed on July 15, 1968, it is

Orpvergp that Singer’s motion for summary judgment on

the First Count of the Complaint be and the same hereby is

granted; and it is further

OrpeEreED that Singer’s motion for summary judgment on

the Second Count of the Complaint be and the same hereby

is granted insofar as said Court seeks rescission of the

December 21, 1964 agreement between Perma and Singer;

and it is further

17a

Appendia B

OrperepD that Singer’s motion for summary judgment on

the Second Count of the Complaint be and the same hereby

is denied insofar as said Count seeks damages for the

alleged breach of the December 21, 1964 agreement between

Perma and Singer; and it is further

OrperEeD that Perma’s motion for summary judgment on

the Second Count of the Complaint be and the same hereby

is denied ; and it is further

OrperED that Singer’s motion for summary judgment on

its Counterclaim against Perma be and the same hereby is

denied; and it is further

OrpereD that the Court, expressly determining under

Rule 54(b) of the Federal Rules of Civil Procedure that

there is no just reason for delay, hereby expressly directs

that a final judgment be entered: (1) dismissing with preju-

dice the First Count of the Complaint, and (2) dismissing

with prejudice the Second Count of the Complaint insofar

as said Count seeks rescission of the December 21, 1964

agreement between Perma and Singer; and said judgment

is hereby entered.

Dated: New York, New York

August 11, 1968

s/ Freperick V. P. Bryan

United States District Judge

JUDGMENT ENTERED:

Dated: New York, New York

August 13, 1968

s/ Joun J. Oxear, Jr.

Clerk

18a,

APPENDIX C

Perma ResearcH AND DEVELOPMENT Company, Appellant,

v.

Tue Srncer Company, Appellee.

Nos. 407 and 408, Dockets 32716 and 32754.

UNITED STATES COURT OF APPEALS

Second Circuit.

Argued Jan. 22, 1969.

Decided April 25, 1969.

Before Smit and Hays, Circuit Judges, and Henperson,

District Judge.* ~

J. Josepu Smita, Circuit Judge:

The plaintiff Perma Research & Development Company

(“Perma”), brought this action for breach of contract in

the United States District Court for the Southern District

of New York, alleging that substantial numbers of an auto-

mobile anti-skid braking device assembled by the defendant,

The Singer Company (“Singer”), were “defective due to

inadequate quality control.” Judge Bryan granted partial

summary judgment in favor of Singer in the action for

breach of contract, and dismissed an injunction action

brought the same day to enjoin Singer from shipping any

of the units thus assembled.' For the reasons stated below,

we agree with the disposition of these cases, and affirm.

* Chief Judge of the Western District of New York, sitting by

designation.

1. The complaints in both actions alleged that Singer had shipped

500 defective units to an Ohio distributor over the express objections

of Perma.

19a

Appendia C

L

In June, 1964, Perma and Singer entered into a contract

(the “June contract”) for the manufacture of the “Perma

Anti-Skid Device.” Invented by Frank A. Perrino, the

president of Perma, the product was said to have “a “fail-

safe [sic] feature which will automatically revert to the

standard braking system in case of failure.” By the terms

of the June contract, the parties agreed that Singer would

assemble the product in accordance with specifications and

blueprints provided by Perma, and that Singer would use

“diligent quality control in the production, assembly, test-

ing and packaging” of the product.

As a condition precedent to the June contract, Singer

purchased an inventory of specified component parts at a

cost of $1,000,000.2 During the first few months of at-

tempted production, Singer complained that a large num-

ber of component parts were defective in various ways, and

depending on the parts involved, Perma either arranged

for their correction, waived the deviations, or ordered re-

placements. Singer also suggested modifications in the

basic design of the product, and Perma responded by mak-

ing some twelve design changes.*

In December, 1964, the parties entered into a second

contract (the “December contract”) which terminated the

2. The quoted words are from the sound track of a promotional

film made by Perma somctime prior to the June contract.

3. The component parts were purchased from two companies

which had previously manufactured these same parts for Perma.

4. Under paragraph 9 of the June contract, Singer was forbidden

to make any changes in the basic design of the invention without

the written approval of at least two officers of Perma.

20a

Appendix C

June contract‘ and assigned all patent rights on the product

to Singer. In return Singer agreed to manufacture and

market the product and pay royalties to Perma.’ In addi-

tion Singer paid $24,000 in cash, gave Perma an interest-

free loan of $209,000,’ and assumed contractual obligations

of Perma in the amount of $85,000. Singer also promised

to pay $9,800 a month under a six-month technical services

contract with Perma.

In August, 1965, Singer concluded that the product could

not be made “fail-safe,” and commenced a retrieval pro-

gram to get back those units already on the market. At

the same time Singer advised Perma that it was abandon-

ing the project until the “fail-safe” problem could be

resolved.

Perma then commenced this action for breach of the June

contract. While admitting that the December contract pur-

ported to terminate the June contract, Perma alleged that

Singer entered into the December contract with an intention

not to perform, and asked the court to set aside the De-

cember contract on account of fraud. In the alternative,

Perma asked for damages for breach of the December

contract. Singer, in turn, counterclaimed for $4,000,000 on

the theory that Perma had fraudulently misrepresented the

“fail-safe” features of the product.

5. Paragraph 7 of the December contract provided that the June

contract “shall be deemed null and void and of no force and effect,”

and further provided that “all rights and obligations of the parties

thereunder” shall be terminated with the exception of certain accrued

items not relevant here.

6. In the event Singer did not spend at least $100,000 annually

on “marketing, promoting and advertising” the product, the De-

cember contract gave Perma a “reversion right” on the ent of

$50,000. wit

7. This was done under an arrangement whereby Singer assumed

$209,000 in claims against Perma in return for which Perma gave

Singer a promissory note in that amount.

21a

Appendia C

[1-3] On Singer’s motion for summary judgment, Judge

Bryan dismissed the action to set aside the December con-

tract on account of fraud.* He held that Perma failed to

produce any evidence showing a fraudulent intent on the

part of Singer, and further held that a fraudulent intent,

even if proved, would not give rise to an action for rescis-

sion under New York law.? Having concluded that there

was no actionable fraud, Judge Bryan dismissed the claim

for breach of the June contract on the ground that any

such claim was barred by the valid December contract.

This left the claim for breach of the December contract,

as well as the counterclaim by Singer, and as to these claims

8. Perma also alleged that the December contract was void on

account of lack of consideration and illusoriness. In light of the

statements made in the Perrino deposition, the mind boggles at the

suggestion that the December contract was not supported by ade-

quate consideration. Perrino admitted, for example, that in con-

sideration for the December contract Singer paid $24,000 in cash,

assumed an obligation of a distributor for $40,000, and paid certain

of Perma’s debts or asssumed its liabilities to the sum of $209,967.

He also admitted that Singer and Perma had continued to work to-

gether for at least six months under the technical services contract,

and that Perma was paid at the monthly rate of $9,800. Equally

frivolous is the argument based on illusoriness, since Singer was

obligated to use its best efforts to manufacture and market the

product even if the agreement did not expressly say so. “A promise

may be lacking, and yet the whole writing may be ‘instinct with an

obligation’ imperfectly expressed.” Wood v. Lucy, Lady Duff-

Gordon, 222 N.Y. 88, 91, 118 N.E. 214 (1917) (Cardoza, J.). More-

over, it appears from the depositions that Singer did in fact spend

substantial time and money trying to perfect and market the product.

9. The December contract expressly provided it should be con-

strued in accordance with New York law.

22a

Appendix C

Judge Bryan denied summary judgment. He then certified

that there was “no just reason for delay,” and entered final

judgment on the dismissed claims.'®

On appeal Perma insists that a contractual promise made

without any intention of performing it is fraudulent, and

that Judge Bryan erred in holding that a contract induced

10. Since the injunction action raises the question of whether the

December contract was fraudulently induced, and since dismissal of

that action is unquestionably a “final decision” within the meaning of

28 U.S.C. § 1291, we need not decide whether the dismissed claims

in the breach of contract action are propetly appealable under Rule

54(b), Fed.R.Civ.P. The basic issue in both actions is whether the

June contract was effectively terminated by the December contract,

and under the circumstances, we think that a decision adjudicating

the fraud issue in the injunction action would be res judicata in the

breach of contract action. See generally 1B Moore, Federal Practice

0.405 [1] (2d ed. 1965).

By its very words Rule 54(b) is applicable only “[w]hen more

than one claim for relief is presented,” and thus the partial adjudica-

tion of a single claim is not appealable, regardless of whether there

is a Rule 54(b) certificate. McNellis v. Merchants National Bank

& Trust Company of Syracuse, 385 F.2d 916 (2d Cir. 1967). The

alternative claims for breach of contract do not present multiple

claims within the meaning of Rule 54(b), since Perma would be

limited at best to a single recovery. See Campbell v. Westmoreland

Farm, Inc., 403 F.2d 939, 941 (2d Cir. 1968). “The word ‘claim’

in Rule 54(b) refers to a set of facts giving rise to legal rights in

the claimant, not to legal theories of recovery based upon those

facts.” CMAX, Inc. v. Drewry Photocolor Corp., 295 F.2d 695,

697 (9th Cir. 1961). As to whether the claim-counterclaim situation

presents multiple claims, compare Omark Industries, Inc. v. Lubanko

Tool Co., Inc., 266 F.2d 540 (2d Cir. 1959) (“multiple claims” pre-

sented when the plaintiff sued for goods sold and delivered and

defendant counterclaimed for breach of franchise agreement), with

Seaboard Machinery Corp. of Delaware v. Seaboard Machinery Corp.

of New Jersey, 267 F.2d 178 (2d Cir. 1959) (“single claim” pre-

sented where all counts of complaint and counterclaim arose out of

a single contract). Compare also Bendix Aviation Corp. v. Glass,

195 k. 2d 267, 38 A.L. R.2d 356 (3d Cir. 1952) (en banc) (“multiple

claims” presented where claims for specific performance and counter-

claim for damages arose out of same transaction), with Carter v.

Croswell, 323 F.2d 696 (Sth Cir. 1963) (“single claim” presented

where claim and counterclaim arose out of same automobile accident).

———

23a

Appendiz C

by fraudulent promises could not be rescinded under New

York law. In addition, Perma urges that there was a tri-

able issue of fact on the fraud claim, and that summary

judgment was improperly granted. We need not reach the

summary judgment question, of course, if Judge Bryan

was correct in holding that proof of an intention not to

perform would not give rise to an action for rescission

under New York law.

II.

[4] Since the New York Court of Appeals has specifically

held that “a contractual promise made with the undisclosed

intention not to perform it constitutes fraud,” Sabo v. Del-

man, 3 N.Y.2d 155, 162, 164 N.Y.S.2d 714, 718, 143 N.E.2d

906, 909 (1957), we think that Judge Bryan erred in dis-

missing the fraud claim on the theory that it would not

support an action for rescission. “[I]f a promise was

actually made with a preconceived and undisclosed inten-

tion of not performing it, it constitutes a misrepresentation

of ‘a material existing fact’ upon which an action for rescis-

sion may be predicated.” Id. at 160, 164 N.Y.S.2d at 716,

143 N.E.2d at 908.

In dismissing the fraud claim, Judge Bryan quoted

approvingly from Briefstein v. P. J. Rotondo Co., 8 A.D.2d

349, 351, 187 N.Y.S.2d 866, 868 (1st Dept. 1959), where it

was said: “To say that a contracting party intends when he

enters into an agreement not to be bound by it is not to

state ‘fraud’ in an actionable area, but to state a willing-

ness to risk paying damages for breach of contract.”

Judge Bryan distinguished Sabo on the ground that the

fraud there resulted from misrepresentations as to “col-

lateral matters” which had not been reduced to writing.

24a

Appendiz C

Since Singer did not make any promises “outside the terms

of the contract,” Judge Bryan concluded that Briefstein,

and not Sabo, was controlling. We disagree.

While the contract in Sabo may have been fraudulently

induced by “collateral” promises not reduced to writing,

there is nothing in the Sabo opinion which suggests that

the result would have been any different if the fraudulent

promises had been included within the actual terms of the

contract itself. As a matter of plain logic, we fail to see

why there is any less fraud in the inducement if the false

promises are made a part of the contract itself, and indeed,

Sabo speaks of contractual rather than collateral promises.

Since Briefstein was not decided by the highest appellate

court in New York, and since there is good reason to think

that the New York Court of Appeals would not follow the

somewhat aberrational holding of that case,'! we think that

Sabo is controlling in this diversity action, see Commis-

sioner of Internal Revenue v. Bosch’s Estate, 387 U.S. 456,

87 8.Ct. 1776, 18 L.Ed.2d 886 (1967), and hold that Judge

Bryan erred in dismissing the fraud claim on the basis of

Briefstein.

Ii.

Having concluded that the fraud alleged here, if true,

would support an action for rescission, we must decide

whether Judge Bryan was correct in holding that there

11. The Briefstein rationale is not supported, for example, by

either the Restatement of Contracts or the Restatement of Torts.

See Restatement, Contracts § 473: “A contractual promise made

with the undisclosed intention of not performing it is fraud.” See

also Restatement, Torts § 530, comment c, which provides in perti-

nent part: “One who fraudulently misrepresents himself as intend-

ing to perform an agreement which he makes with the recipient of

the misrepresentation, is subject to liability * * * whether the agree-

ment is enforceable or unenforceable as a contract.”

25a

Appendiz C

were no triable issues of fact on the fraud claim. We

agree that the fraud claim is without any substance, and

affirm on this ground.

[5,6] The only allegation of fraud in the entire Perma

complaint is the statement that the December contract “was

procured by fraud and misrepresentations on the part of

[Singer] and its agents as to its intentions and ability to

market said product.” By itself this allegation is plainly

insufficient to state a claim for fraud under Rule 9(b), Fed.

R.Civ.P.'2 Nor does the deposition of Perrino, the presi-

dent of Perma, provide any factual basis for the fraud

alleged in the complaint. Except for repeated references

to Singer’s unsatisfactory performance under the Decem-

ber contract, Perrino was unable to point to any evidence

of an intention not to perform, and as Judge Bryan prop-

erly observed, actionable fraud depends on more than a

showing of non-performance. See Restatement, Torts

§ 530, comment c; Restatement, Contracts § 470, comment

e; Adams v. Clark, 239 N.Y. 403, 410, 146 N.E. 642 (1925).

Moreover, it appears from the deposition that there was

substantial performance under the December contract, at

least until Singer concluded that the product was not “fail-

safe” and hence unmarketable. Indeed, Perrino admitted

in his deposition that the parties were engaged in joint

efforts to solve the “fail-safe” problem as late as six

months after the December contract was negotiated.

12. Rule 9(b) provides that the circumstances constituting the

alleged fraud must be stated with particularity. Failure to comply

with Rule 9(b) will render the pleadings vulnerable to a motion te

dismiss for failure to state a claim, see, for example, Robison v.

Caster, 356 F.2d 924 (7th Cir. 1966), or a motion for a more definite

statement. See:-for example, Trussell v. United Underwriters, Ltd.,

228 F.Supp. 757, 774 (D.Col.1964); Lynn v. Valentine, 19 F.R.D.

250 (S.D.N.Y., 1956).

26a

Appendiz C

The only difficult question is whether any of the state-

ments made by Perrino in an affidavit opposing summary

judgment are sufficient to raise material issues of fact. In

that affidavit Perrino said:

At the time I entered into the contract of Decem-

ber 21, 1964 on behalf of Perma with Singer, Perma

was in desperate financial straits because of the

delays in deliveries of the product under the June

contract. Mr. Kloby of Singer told me that Singer

was waiting for Perma to become insolvent so that

they could take over the rights to manufacture and

market the product under the most satisfactory con-

ditions or get out of their obligations to Perma

entirely. Mr. Peacock, of counsel for Singer, told

me, at the time of the negotiations for the December

contract, in the presence of Mr. Kloby, that Singer

had every intention to manufacture and market the

product and pay royalties to Perma. The Singer

name was of great importance to Perma, but I have

since learned that the same Mr. Peacock had already

drawn a draft agreement to sell the marketing rights

to Monitor Enterprises of Long Island, New York,

under an agreement whereby Perma would receive

no royalties. Also, subsequent to the signing of the

December contract J had a conversation with Mr.

Person of Singer at the Biltmore Hotel in Provi-

dence, Rhode Island, at which time Mr. Person told

me that Singer never had any intention of perform-

ing the December contract, that Singer’s New York

management was now afraid of product liability

and Singer did not want to be in the brake business,

and would allow the contract to expire on the rever-

sion date. [Italics added. ]

27a

Appendiz C

Since Perma has fully performed all of its obligations

under the December contract, Singer would be obligated to

make royalty payments even if Perma became insolvent,

and thus we fail to see how the statement attributed to

Kloby raises any triable issue of fraud. We also note that

Kloby was deposed for over 300 pages by plaintiff’s coun-

sel and was never asked about the statement which Perrino

now attributes to him.

Similarly, there is no substance to the suggestion that

Perma would be cheated out of royalties due under

the December contract if Singer sold its marketing rights

to Monitor Enterprises, Inc. The December contract

expressly provides that Singer shall have “absolute discre-

tion” in determining “the method of manufacturing,

exploiting and marketing the product,” and thus it would

seem that Singer is obligated to pay royalties regardless

of how it markets the product. Assuming that Singer did

in fact arrange to sell the marketing rights to Monitor, we

simply cannot say that raises any triable issue of fraud.

Finally, Perrino states that he was told by Person of

Singer that “Singer never had any intention of performing

the December contract.”’ This statement is alleged to have

been made sometime after the parties entered into the

December contract. While it would appear to raise a

triable issue as to fraudulent intent, we think that Judge

Bryan could properly conclude that the statement made in

the affidavit was less reliable than the contradictory state-

ments in the deposition, see 6 Moore, Federal Practice

7 56.22[1] at 2814 (2d ed. 1965), and that it did not raise a

triable issue of fraud.

28a

Appendiz C

At the time of his deposition Perrino was able to point

only to Singer’s alleged failure to perform as evidence of

its supposed intention not to perform. At one point in the

deposition he said: “There is no way of me knowing

exactly what their intention was at the time they said it,

except that they promised certain things when everything

else points to the fact that they did not intend to do what

they said they were going to do.” Moreover, Perrino

admitted in his deposition that there had been substantial

performance under the December contract, and this is not

contradicted by the affidavit. If there is any dispute as to

the material facts, it is only because of inconsistent state-

ments made by Perrino the deponent and Perrino the

affiant. “The deposition of a witness will usually be more

reliable than his affidavit, since the deponent was either

cross-examined by opposing counsel, or at least available

to opposing counsel for cross-examination. Nevertheless,

if a witness has made an affidavit and his deposition has

also been taken, and the two in some way conflict, the court

may not exclude the affidavit from consideration in the

determination of the question whether there is any genuine

issue as to any material fact.” 6 Moore, Federal Practice

7 56.22[1] at 2814 (2d ed. 1965).

[7] During four days of deposition-taking Perrino was

repeatedly asked to specify the basis of the fraud he

alleged, and we think it is significant that he made no refer-

ence to the alleged conversation with Person when Singer

might have had an opportunity to cross-examine him about

it. We think it is also significant that Perma’s lawyers

failed to question Person about the alleged conversation

when they examined him on deposition. Since Perrino was

29a

Appendiz C

admittedly a party to that conversation, this is plainly not

a case where the party opposing summary judgment can

complain of non-access to material facts. See Rule 56(f),

Fed.R.Civ.P. Nor is this a case where the contradicting

affidavit can fairly be said to contain evidence “newly dis-

covered.” If a party who has been examined at length on

deposition could raise an issue of fact simply by submitting

an affidavit contradicting his own prior testimony, this

would greatly diminish the utility of summary judgment

as a procedure for screening out sham issues of fact. Cf.

Dressler v. MV Sandpiper, 331 F.2d 130 (2d Cir. 1964).

Compare Engl. v. Aetna Life Insurance Co., 139 F.2d 469

(2d Cir. 1943), where Judge Clark observed that a party

who resists summary judgment cannot hold back his evi-

dence until the time of trial.

[8] The object of summary judgment is “to discover

whether one side has no real support for its version of the

facts,” Community of Roquefort v. William Faehndrich,

Inc., 303 F.2d 494, 498 (2d Cir. 1962), and thereby to avoid

unnecessary trials. We recognize that summary judgment

was never intended to be a substitute for trial by jury

where the parties “really have issues to try.” Sartor v.

Arkansas Natural Gas Corp., 321 U.S. 620, 621, 627, 64

S.Ct. 724, 88 L.Ed. 967 (1944). We recognize also that

there may be some instances where summary judgment is

too blunt a procedural device for deciding difficult cases.

See, for example, Miller v. General Outdoor Advertising

Co., 337 F.2d 944 (2d Cir. 1964). Nonetheless, summary

judgment canrut be defeated by the vague hope that some-

thing may tun up at trial. Radio City Music Hall Corp.

v. United States, 135 F.2d 715 (2d Cir. 1943). Since

neither the Perrino deposition nor the Perrino affidavit

30a

Appendix C

raises any issue which we can call genuine, and since the

allegations of fraud amount to little more than allegations

on non-performance, we hold that Judge Bryan properly

granted summary judgment dismissing the fraud claims.

IV.

As a separate ground for reversal Perma urges that

Judge Bryan erred in admitting the affidavit of Singer’s

counsel in support of its motion for summary judgment.

The affidavit was made by William C. Chanler, and it was

basically an attempt to summarize over 1,000 pages of

depositions, as well as numerous documentary exhibits.

Perma now insists that the affidavit contains “a substantial

number of important misstatements and misconstructions,”

that it was based on hearsay as to which Chanler was not

competent to testify, and that it was not made on personal

knowledge as required under Rule 56(e), Fed.R.Civ.P.

[9] While it is true that there are certain statements

which do not appear to be made on personal knowledge and

which are hence inadmissible,’ see Union Insurance Soci-

ety of Canton, Ltd. v. William Gluckin & Co., 353 F.2d 946,

952 (2d Cir. 1965), we think that Judge Bryan could have

properly disregarded these statements, especially since

none is relevant to the question of whether the December

contract was obtained by fraud. “Even if an affidavit does

contain some inadmissible matter, the whole affidavit need

13. ‘At one point, for example, Chanler stated in his affidavit that

there was O-ring leakage in a pressure switch component and that

this resulted from “a basic design defect in the angle of the cylinder

entrance through which the ee were inserted.” From the

depositions it is somewhat unclear whether this malfunction could

properly be called “a basic design defect.”

3la

Appendiz C

not be stricken or disregarded; the court may disregard the

inadmissible parts and consider the rest of the affidavit.”

6 Moore, Federal Practice J 56.22 [1] at 2817 (2d ed. 1965).

[10] We also note that the motion to strike was much

too general in that it did not specify which parts of the

Chanler affidavit should be stricken and why. Many of the

statements made in the Chanler affidavit were amply sup-~

ported by the record, and we think that the plaintiff was

required to do more than swing its bludgeon wildly. As

Prof. Moore has said, the motion to strike must be precise.

“TTjt should state specifically the portions of the affidavit

to which objection is being made, and the grounds there-

for.” 6 Moore, Federal Practice { 56.22[1] at 2818 (2d ed.

1965).

The judgments are affirmed.

32a

APPENDIX D

UNITED STATES COURT OF APPEALS

For THe Seconp Circuit

At a Stated Term of the United States Court of Appeals,

in and for the Second Circuit, held at the United States

Courthouse in the City of New York, on the twenty-fifth

day of April, one thousand nine hundred and sixty-nine.

Present: Hon. J. JosepH SmirtH,

Hon. Paut R. Hays,

Circuit Judges.

Hon. Joun O. HENDERSON,

District Judge.

PerMA RESEARCH AND DEVELOPMENT COMPANY,

Plaintiff-Appellant,

v.

Tue Srncer Company,

Defendant-A ppellee.

Appeal from the United States District Court for the

Southern District of New York.

33a

Appendiz D

This cause came on to be heard on the transcript of

record from the United States District Court for the South-

ern District of New York, and was argued by counsel.

On ConsmDERATION WHEREOF, it is now hereby ordered,

adjudged, and decreed that the orders of said District Court

be and they hereby are affirmed with costs to be taxed

against the appellant.

A. Dante, Fvsaro,

Clerk.

Judgment entered a true copy.

A. Dante, Fusaro Joun LivinesTon

Clerk Clerk

No Bill or Statement Attached.

Sha

APPENDIX E

Perma Researcu & DEVELOPMENT

Company, Plaintiff,

v.

THe Srycer Company, Defendant.

No. 66 Civ. 665.

UNITED STATES DISTRICT COURT

S. D. New York.

Jan. 27, 1970.

OPINION

MacManoy, District Judge.

This is a motion by defendant, The Singer Company

(“Singer”), for summary judgment dismissing the com-

plaint, pursuant to Rule 56, Fed.R.Civ.P. Plaintiff, Perma

Research & Development Company (“Perma”), contends

that the motion should be denied both because of the doc-

trine of “law of the case” and because there are many issues

of material fact in dispute.

The complaint, far from a model of clarity, asserts three

claims. The first seeks damages of $41,000,000 for breach

of a June 1964 contract between the parties, alleging that

substantial numbers of an automobile anti-skid braking

device invented by Frank A. Perrino, the president of

Perma, and assembled by Singer under the contract were

“defective as a result of inadequate quality control.” The

35a

Appendiz E

second seeks to set aside a superseding contract made in

December 1964 and to recover damages of $41,000,000 for

fraud in the inducement. Both of these counts were dis-

missed by this court (Bryan, J.) and summary judgment

granted in favor of Singer. The Court of Appeals affirmed.

410 F.2d 572 (2d Cir. 1969). '

We are concerned here with the third claim, which is

buried in the “Wuererore” clause of the complaint under

the prayer for other relief. It alleges in the alternative

that “if it be determined that the contract of December 21,

1964 be valid, Plaintiff demands judgment upon this con-

tract for breach and non-performance thereunder in the

amount of 41 million dollars.”

There was extensive discovery, but neither party sought

evidence concerning this alternative claim. Rather, it was

either overlooked or intentionally ignored. Not surpris-

ingly, therefore, on the earlier motion for summary judg-

ment, Singer did not address itself directly to the alterna-

tive claim, nor did Perma. Despite this, it did not escape

the notice of Judge Bryan, who, after noting the neglect of

the parties, held that “in the present posture of this action

and on the papers before me Singer has not demonstrated

that there are no material issues of fact as to this claim

which require trial and summary judgment on the claim

must therefore be denied.”

Had the matter stopped there, we would not feel con-

strained to follow Judge Bryan, for it is plain that because

of the parties’ neglect the court lacked sufficient informa-

tion in proper form to consider the merits of the alterna-

tive claim and in such circumstances the doctrine of law

of the case is not a strait jacket.! However, the matter did

1. Johnson v. Cadillac Motor Car Co., 261 F. 878, 882-883, 8

A.L.R. 1023 (2d Cir. 1919); Zdanok v. Glidden Co., Durkee Famous

Foods Div., 327 F.2d 944, 952-953 (2d Cir.), cert. denied, 377 U.S.

934, 84 S.Ct. 1338, 12 L.Ed. 2d 298 (1964).

36a

Appendix E

not stop there. Instead, Singer moved successfully for

reargument asserting that “this claim of breach must be

dismissed because as a matter of law the contract provided

the exclusive remedy of termination for any alleged inade-

quacy of performance (Point I), or, alternatively, because

on the basis of undisputed facts now before the Court, there

has been no breach (Point II).”

Singer then made the precise argument, cited the same

authorities and presented the identical facts now urged on

this second attempt for summary judgment in its favor.

There is no suggestion that there are any newly discovered

facts or that there has been a change in the applicable law.

In short, the very points now made were all made and

rejected by this court when Judge Bryan granted reargu-

ment and adhered to his original decision. This squarely

raises the question of whether this motion is barred by the

doctrine of law of the case.

[1, 2] As Judge Learned Hand said, “the ‘law of the

case’ does not readily bind a court to its former decisions,

but is only addressed to its good sense.’? Since the doc-

trine is addressed to the court’s “good sense,” it ought not

be imposed on a mechanical basis.’ Rather, its applica-

bility turns upon a number of considerations.‘ One is judi-

cial economy and another is the unseemliness of a court’s

altering a legal ruling as to the same litigants. A decision

2. Higgins v. California Prune & Apricot Grower, Inc., 3 F.2d

896, 898 (2d Cir. 1924).

, one United States v. Russell Mfg. Co., 349 F.2d 13, 19 (2d Cir.

).

4. Zdanok v. Glidden Co., Durkee Famous Foods Div., supra,

327 F.2d at 953.

37a

Appendiz E

in a given case is, therefore, said to be the law of the case,

and no question previously decided will be decided again

unless there is some compelling reason.°

[3] The balance of considerations here argues strongly

against overruling Judge Bryan, for, although we are not

compelled to follow his decision, in all “good sense” we are

unable to find any convincing reason for refusing to do so.°

We rest on his opinion both because it is the law of the case

and because we are satisfied with it.’

Singer contends that the alternative claim for breach of

the December agreement must be dismissed because as a

matter of law Singer was not required under the contract

to do anything until January 1966 and because the contract

provides the exclusive remedy of termination for any

alleged inadequacy of performance. Singer’s contentions

are based on paragraph 10 of the contract, which, in per-

tinent part, provides:

“Reversion Right. In the event * * * [Singer]

does not incur direct and indirect costs of at least

$100,000 for marketing, promoting and advertising

the Product * * * in any calendar year between Janu-

ary 1, 1966 and the December 31st preceding the

time of expiration of * * * [Singer’s] duty to pay

royalties hereunder * * * [Perma] upon written

notice * * * may notify * * * [Singer] of its exercise

of its rights * * * [to reversion of its patents, tools,

ete.].”

5. Wharton v. Hirsch, 348 F.2d 906, 907 (2d Cir. 1965).

6. Banco Nacional de Cuba v. Farr, 383 F.2d 166, 183 (2d Cir.

1967).

7. See, United States v. Certain Property, etc., 344 F.2d 142,

144 (2d Cir. 1965).

38a

Appendix E

It was further provided that upon receipt of such notice,

Singer “shall assign and convey to * * * [Perma] the pa-

tents and patent application assigned and conveyed here-

under” in consideration of Perma’s payment to Singer of

all its debts, plus $50,000 in cash, whereupon the December

agreement would terminate.

Relying on the above provision and its tender of the

patents and waiver of the $50,000 cash payment, Singer

argues that paragraph 10 defines not only the sole measure

of the performance required of Singer, but also specifies

Perma’s exclusive remedy for breach. We think, however,

that paragraph 10 simply gives Perma an option to recover

its patents and terminate the contract upon specified con-

ditions. The option rests not with Singer but with Perma.

[4, 5] An option to terminate is not an exclusive

remedy, and a party is not obligated to exercise such an

option but may stand on his rights. There is, thus, no

basis in the agreement for Singer’s contention that “under

any conceivable version of the facts, as a matter of law

Perma’s sole remedy would be to reacquire its patents.”

Nor do we find support in the cases urged by Singer® for

all of them, as Singer concedes, are predicated on the fact

that patents were assigned without an express agreement

by the assignee to pay any specified amount or to perform

8. Patents, 43 N.Y. Jurisprudence § 47; Bernard v. Golden Gate

Mfg. Co., 187 App.Div. 542, 175 N.Y.S. 741, 744 (1st Dep’t 1919),

aff'd, 231 N.Y. 591, 132 N.E. 900 (1921).

9. Corbet v. Manhattan Brass Co., 93 App. Div. 217, 87 N.Y.S.

577 (1st Dep’t 1904), modified, 183 N.Y. 548, 70 N.E. 1092 (1905);

Ebert v. Loewenstein, 42 App.Div. 109, 58 N.Y.S. 889 (1st Dep't

1899), aff'd, 167 N.Y. 577, 60 N.E. 1110 (1901); Born v. Schren-

keisen, 110 N.Y. 55, 17 N.E. 339 (1888); Wing v. Ansonia Clock

Co., 102 N.Y. 531, 7 N.E. 621 (1886); Rose v. Imbrey, 37 N.Y.S.2d

793 (Sup.Ct., Bronx Co. 1942).

39a

Appendiz E

any particular act. That premise is absent here. It is not

supplied by reiteration of the complaint’s erroneous con-

clusion that the contract is illusory because Singer “was

not bound to perform any covenants or agreements.”

That construction of the agreement is frivolous, and it was

expressly and correctly rejected by both Judge Bryan and

the Court of Appeals

[6] Nor is the premise found in paragraph 13 of the

contract, which, under the heading “Marketing,” states that

the “Buyer in its absolute discretion shall determine the

method of manufacturing, exploiting and marketing the

Product.” We think it perfectly plain that paragraph 13

merely specifies that control of the means and methods of

performance rests in Singer’s discretion. The clause cannot

be stretched to give Singer an absolute right unilaterally to

abandon the contract or to terminate it at will.

Nor do we find merit in Singer’s contention that as a

matter of law Perma is limited to a claim for rescission.

The Neenan, Crowe and Matzka cases’® each involved suits

by a licensor seeking not damages but rescission. None

holds that the plaintiff may not recover damages but simply

ground equity jurisdiction on the proposition that the legal

remedy was inadequate because damages were of a specu-

lative nature. Indeed, the Crowe case specifically recog-

nized the right of the plaintiff “first to hold the contract

rescinded or second to sue on the breach for damages.” Our

rejection of these authorities should not be understood as a

holding either that the fact of, or the amount of, plaintiff’s

damages, if any, is certain. It may well be that there are

10. Neenan v. Otis Elevator Co., 194 F. 414 (2d Cir. 1912);

Crowe v. Oscar Barnett Foundry Co., 213 F. 864 Brg yl?

Matzka Corp. v. Kelley Dry-Pure Juice Corp., 19 Del.Ch. 359, 168

A. 70 (1933).

40a

Appendix E

no damages or that, if there are, they are of a speculative

nature."’ We simply hold that that question cannot be

determined on the record before us but must await develop-

ments at the trial.

[7,8] Equally without merit is Perma’s contention that

Singer breached the December agreement by not shipping

the product at once and throughout 1965. Perma claims

support for this contention in the fact that Singer assumed

five contracts previously made by Perma with various dis-

tributors which called for delivery of the product either in

1964 or in 1965. It is apparent, however, that the product

never was perfected during 1965. Concededly, the parties

were engaged in joint efforts to correct the defects at least

until the end of July, and the product is still not fail-safe.

Perrino admitted on his deposition that a malfunction will

lead to a complete loss of braking power even today. Yet,

in promotional material shown to Singer before the June

agreement, Perma represented that the device had a “fail-

safe feature which will automatically revert to the standard

braking system in case of failure.” Thus, the device was

not fail-safe as that term is defined in impartial diction-

aries” and by Perma before there was any motive to create

11. See Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251,

264, 66 S.Ct. 574, 90 L.Ed. 652 (1946); Story Parchment Co. v.

Paterson Parchment Paper Co., 282 U.S. 555, 562, 51 S.Ct. 248, 75

L.Ed. 544 (1931); Eastman Kodak Co. of New York v. Southern

Penns Materials Co., 273 U.S. 359, 378, 47 S.Ct. 400, 71 L.Ed. 684

(1927).

12. Perma’s pre-litigation definition conforms to the one given

in the dictionary: “fail-safe (fal’saf’), adj. 1. Electronics. pertain-

ing to or noting a mechanism built into a system, as in an early

warning system or a nuclear reactor, for insuring safety sliould the

system fail to operate properly. 2. equipped with a secondary sys-

tem that insures continued operation even if the primary system

fails. * * * [adj., n. use of v. phrase fail safe].” Random House

Dictionary of the English Language (Unabridged Ed. 1969).

4la

Appendix E

an issue of fact. We think that in view of these immutable

admissions by plaintiff there can be no genuine issue that

the device was not fail-safe when Singer decided to aban-

don the contract.

It is nothing short of preposterous, in view of the mod-

ern doctrine of strict liability,‘ to suggest that Singer was

under a duty to ship a product concededly defective.

Indeed, Perrino, as a deponent, admitted as much,’ and

as a litigant based his rejected claim for breach of the June

contract on Singer’s alleged shipment of defective product.

[9] More significantly, we find no merit in the forego-

ing contentions of either party because the contract, as

construed correctly by Judge Bryan and the Court of

Appeals, neither permits Singer to sit idly until 1966 nor

requires it to start manufacturing or shipping at once.

13. Perrino the affiant asserts that whether the device was fail-

safe when Singer decided not to market it is the core of the present

dispute between Perma and Singer. The assertion, of course, is an

argumentative conclusion and we reject it. Perrino attempts, in his

affidavit, to extricate himself from his admissions in his deposition

by tailoring the definition of “fail-safe” and coloring his testimony

with the lame explanation that when he said a malfunction can lead

to a loss of brakes he merely meant that a mechanical product not

correctly built may not function and that the loss of brakes does not

demonstrate an ce of a fail-safe feature. Material issues of

fact, however, cannot be created simply by contradictory or “incon-

sistent statements made by Perrino the deponent and Perrino the

affiant.” 410 F.2d at 578.

14. Gold v. Kollsman Instrument Corp., 12 N.Y.2d 432, 240

N.Y.S.2d 592 (1963).

15. 2 That’s because you wouldn’t ship 500 replacement units

or wouldn’t permit the shipment of 500 replacement units if you

believed them to be defective, is that right?

“A That's right. But that doesn’t mean that these 500 units may

not be part of the units which were shipped over my objection to

Mr. Romel that defective units should not be shipped.” Deposition

of Perrino, p. 190.

42a

Appendia E

Rather, it obligates Singer to use its best efforts to manu-

facture and market the product.'®

“Best efforts,” like “reasonable care,” is a term which

necessarily takes its meaning from the circumstances. Set

against the background of defects in both the quality and

design of the product, which the parties had experienced

over a six-month period while operating under the June

1964 contract, we think that “best efforts” here means that

Singer was required to continue collaborating with Perma

for a reasonable length of time in a good faith effort to

solve the problems then preventing marketing of the

product. Clearly, that is what the parties intended, for

that is what they started doing immediately. Singer spent

substantial time and money and the parties engaged in

joint efforts for over six months to solve the problems.

Their intention to keep trying is also revealed in the fact

that simultaneously with the December contract, they

entered into an agreement whereby Perma undertook to

furnish know-how and technical assistance to Singer for

16. The complaint alleges in Count II that the December agree-

ment was illusory because Singer was not bound to perform any

covenants or agreements and retained complete discretion as to

manufacturing and marketing. Urged by Singer, Judge Bryan

rejected the contention by reading the Duff-Gordon rule into the

agreement and thus found an obligation on defendant’s part to use

its best efforts to manufacture and market the product.

‘The Duff-Gordon rule is that “a promise may be lacking, and yet

the whole writing may be ‘instinct with an obligation’ imperfectl

expressed.” Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 91,

118 N.E. 214 (1917). Under the rule, the implication to use “best

efforts” is clearly predicated on the lack of an express promise.

While it is true that the December agreement did contain an

express promise of the performance required by Singer after Janu-

ary 1, 1966, it was silent as to what Singer was supposed to do from

December 1964 until then. We, therefore, think that Judge Bryan

was correct in filling the void with an implied promise.

43a

Appendiz E

the next six months in consideration of Singer’s payment

of $9,800 per month. The intention is further manifested

in the main agreement’s postponement of Singer’s obliga-

tion to spend money on marketing and promotion until

January 1, 1966. That, we think, shows an understanding

that further experimental work would be necessary to per-

fect the product before Singer could be expected to put it

on the market. |

Singer’s obligation to continue making the collaborative

effort to correct the defects arose immediately upon enter-

ing into the December agreement. The obligation, how-

ever, was not perpetual. Rather, we think, since no time

was stated for performance, Singer was obliged to keep

trying for a reasonable length of time.’”

Our construction of the contract is consistent with Judge

Bryan’s and compels us to reject Singer’s contentions that

its only duty was to market and promote the product after

January 1, 1966, as specified in paragraph 10 of the con-

tract, and that Perma’s sole remedy for an inadequate per-

formance both under the contract and as a matter of law

was to terminate the agreement and recover its patents.

We conclude, therefore, that Judge Bryan was correct

in rejecting Singer’s contention that on any conceivable

state of facts Singer is entitled to judgment dismissing the

alternative claim as a matter of law.

[10} We turn, then, to whether there are any genuine

issues of fact requiring trial. The factual issue, if any,

posed by the contract as construed by the court, is whether

Singer did use its best efforts for a reasonable length of

time in collaboration with Perma to perfect the product in

order to be in a position to market it.

17. 1 Williston, Contracts § 38, pp. 112-113 (3d ed. 1957).

da

Appendix E

There is no question that Singer did spend considerable

time and money in an effort to perfect the product. Indeed,

the Court of Appeals noted “there was substantial perform-

ance under the December contract, at least until Singer

concluded that the product was not ‘fail-safe’ and hence

unmarketable. * * * Perrino admitted in his deposition

that the parties were engaged in joint efforts to solve the

‘fail-safe’ problem as late as six months after the December

contract was negotiated.” 410 F.2d at 576-577.

The issue, however, is not whether there was substantial

performance, as Singer contends, or whether the product

was “fail-safe,” as Perma contends, but whether, as Judge

Bryan stated, Singer’s performance was adequate. For

example: (1) Did Singer use its best efforts for a reason-

able time in collaboration with Perma to perfect the

product under all of the circumstances? (2) In view of the

fact that the device was not “fail-safe,” was Singer justified

in abandoning the contract either because it was impossible

to make the device “fail-safe” or because it could not be

made “fail-safe” without unreasonable, unwarranted or

impractical efforts and expenditures of time and money

out of all proportion to engineering and economic realities?

Such questions could not be answered definitively on the

basis of the record before Judge Bryan, nor can we answer

them on the refurbished record before us. -

In the first place, the voluminous depositions were di-

rected not to breach or performance of the December agree-

ment but to breach or performance of the June contract, to

fraud or the lack of it as to the December agreement, and to

Singer’s counterclaim for fraud. This is understandable

because no one paid any attention to the alternative claim

for breach of the December agreement and, even if the claim

had been noticed, there was no suggestion at that time of

45a

Appendiz E

an implicit promise by Singer to use its best efforts. That

promise did not come into the case until Judge Bryan’s

decision long after the depositions were closed. As a result,

only a few of the thousands of questions asked have any

relevance whatever to the issues now before the court.

In the second place, Singer’s papers on this motion are

directed not to a demonstration of the absence of a genuine

factual issue respecting its use of its best efforts but to the

rejected proposition that the claim is moot as a matter of

law because Singer had a right to terminate the contract

upon tendering the patents to Perma. Likewise, Perma’s

papers are not addressed to the issue. Rather, they contain

a mass of irrelevancies, arguments, opinions and conclu-

sions. The burden, however, of demonstrating the absence

of any genuine issue of fact is upon Singer, and it has failed

to do so.

[11] Finally, a motion for summary judgment is always

addressed to the discretion of the court."®

The device which is the subject matter of this litigation

has over 100 separate parts and is an extremely complicated

mechanism. Much of the voluminous deposition is involved

with engineering technicalities, and, as we have seen, there

is little in the depositions of relevance to the present issue.

The affidavits, exhibits and memoranda are extensive. The

sheer quantity of the material to be analyzed cautions

against the expenditure of judicial time in an effort to sift

out and piece together the undisputed facts essential to a

summary judgment. The issue are further obscured by

argumentative statements and counter-assertions, conclu-

18. Rockefeller Center Luncheon Club v. Johnson, 116 F.Supp.

437 (S.D.N.Y. 1953); 6 Moore, Federal Practice J 56.15 [6], at

2421 (2d ed. 1966).

46a

Appendix E

sions and conflicting inferences which the parties attempt

to draw from an incomplete record. Too much is left open.

Plainly, there is a genuine issue as to whether Singer, in

collaboration with Perma, did use its best efforts for a rea-

sonable length of time to correct the defects in order to

make the product marketable.'? When we add the fact that

summary judgment has already been once denied, it is read-

ily apparent that on the record here summary judgment

would rest on quicksand. The cumulative weight of the

obstacles is too heavy for so frail a vehicle as summary

judgment.”

We are convinced under the circumstances that sound

judicial administration dictates that the court withhold

judgment on the involved questions of law and fact pre-

sented here until the whole structure stands on a solid

foundation established on a trial where the evidence can be

directed to the relevant issue, the proof more deeply devel-

oped, the ultimate facts definitively found and the issues

put into clear focus. Summary procedures, however salu-

tary, where issues are clear-cut and simple present a treach-

erous record for deciding complex litigation. Good judicial

administration demands that judgment of the ultimate

questions involve in this case be withheld until there is a

solid basis for findings by a court or jury based on litiga-

tion or a comprehensive statement of agreed facts.”"

Accordingly, the motion for summary judgment is denied.

So ordered.

19. There may be other issues of fact, and we do not wish te

foreclose the parties or the pre-trial or trial judge in that regard.

20. Boston & M. R.R. v. Lehigh & N. E. R.R., 188 F.Supp. 486,

491 (S.D.N.Y. 1960), appeal dismissed per curiam, 287 F.2d 678

(2d Cir. 1961).

21. Kennedy v. Silas Mason Co., 334 U.S. 249, 256-257, 68 S.Ct.

1031, 92 L.Ed. 1347 (1948).

UNITED STATES DISTRICT COURT

SouTHERN District or New York

66 Civ. 665

Perma Researcu & DevELOPMENT CoMPANY,

Plaintiff,

against

Tue Sincer Company,

Defendant.

66 Civ. 666

Perma Reseancu & DeveLOPpMENT CoMPaNY,

Plaintiff,

against

Tue Stncer Company,

Defendant.

Metzner, D. J.:

Defendant moves for summary judgment dismissing the

complaint on the ground that the contract sued upon was

induced by material misrepresentations.

This is defendant’s third motion for summary judgment.

The first motion was disposed of by Judge Bryan. The

pertinent part of that opinion, which is applicable to the

present motion, held that the complaint alleged a substan-

48a

Appendia F

tial claim for breach of the December 21, 1964 contract.

Since neither of the parties had addressed themselves to

that claim, the defendant had not demonstrated that there

were no material issues of fact. Therefore, the motion for

summary judgment was denied. Judge Bryan’s order was

affirmed on appeal. 410 F.2d 572 (2d Cir. 1969).

Defendant then brought on a second motion for summary

judgment which was denied by Judge MacMahon on Jan-

uary 27, 1970. In the papers submitted on that motion,

defendant argued:

“That Singer was justified in abandoning the proj-

ect because of the fail-safe problem would seem clear

from the fact that Perrino admitted on his deposi-

tion, even as of today, any malfunction of the device

might result in a total loss of braking power.”

It further argued:

“Thus it is plain that the dispute between the parties

is not as to whether a failure in the Perma device

might produce a total loss of brakes, but whether

that conceded fact shows that the device is not fail-

safe... But in any event, we think it is plain that

Singer was amply justified in the exercise of its abso-

Jute discretion in taking the same view as Governor

Rockefeller and determining that under those cireum-

stances, the device was not fail-safe and, therefore,

in abandoning the project.

“We submit that this disposes of the entire litiga-

tion.”

In those papers defendant also referred to reports on

the operations of the product which it claims it received

49a

Appendiz F

for the first time in January 1965. It stated that it was

disturbed by these reports “since Singer had entered into

the agreement in June 1964 largely on the basis of a movie

shown them by Perma which stated categorically that the

device had a ‘fail-safe feature which will automatically

revert to the standard braking system in case of failure.’ ”

Judge MacMahon discussed defendant’s obligations under

the contract. He found that there was a genuine issue as

to whether the defendant, in collaborating with the plain-

tiff, used its best efforts for a reasonable length of time

to correct the defects in order to make the product market-

able. He said:

“For example: (1) Did Singer use its best efforts

for a reasonable time in collaboration with Perma to

perfect the product under all of the circumstances?

(2) In view of the fact that the device was not ‘fail-

safe,’ was Singer justified in abandoning the con-

tract either because it was impossible to make the

device ‘fail-safe’ or because it could not be made

‘fail-safe’ without unreasonable, unwarranted or

impractical efforts and expenditures of time and

money out of all proportion to engineering and eco-

nomic realities?”

On this third motion, defendant now argues that since

Judge MacMahon found as of fact that the product was

not fail-safe, it should succeed on this motion because of

its affirmative defense that it entered into the contract

because of the false representation that the product was

fail-safe. In essence this is a reiteration of defendant’s

position before Judge MacMahon, quoted above, buttressed

by Judge MacMahon’s finding that the product was not

fail-safe.

50a

Appendiz F

Whatever effect the representation in the film may have

had prior to June 1964, it is perfectly obvious from the

record and the prior opinions that defendant could not have

been under any delusion that the product was fail-safe

because of events and transactions between the parties sub-

sequent to the viewing of that film. The contract in

issue was entered into in December 1964.

Defendant argues that in view of Judge MacMahon’s

finding that the product was not fail-safe, there no longer

exists a controverted issue as to Singer’s affirmative defense

that the contract was entered into on reliance on a material

misrepresentation. This position overlooks the above-

quoted portion of Judge MacMahon’s opinion indicating

that issues for a trial do exist despite the fact that the

product was not fail-safe.

Motion is denied. So ordered.

Dated: New York, N. Y.

May 14, 1970

/s/ CuHartes M. Metzner

U.S. D. J.

Sla

APPENDIX G

Perma Researcu & DeveLopMeNtT CoMPANY,

Plaintiff ,

v.

Tue Srxcer Company,

Defendant.

No. 66 Crv. 665 KTD.

United States District Court,

S. D. New York.

April 11, 1975.

OPINION

KEVIN THOMAS DUFFY, District Judge.

This case has had a long and tortured history. It was

instituted on March 9, 1966, and the operative facts go back

several years prior to that time. The trial spanned eight

months and included many thousands of pages of exhibits.

Basically, it is a breach of contract action, plaintiff and

defendant having entered into two contracts, one on June

18, 1964, the other on December 21, 1964. By judicial

curtailment of the issues, only the breach of the December

21, 1964 contract was the subject of the trial but in order

to put into perspective all of the claims, counterclaims and

defenses of the parties it is necessary to review the nego-

tiations leading to the June 18, 1964 contract, the relation-

ship of the parties while operating thereunder, and partic-

ularly the knowledge gained by the defendant during the

period starting with the negotiations leading to the June

18, 1964 contract and ending with the December 21, 1964

52a

Appendix G

contract; and also the performance by the defendant under

the December 21, 1964 contract.

Both contracts' involve an anti-skid device for automo-

biles invented by the president of the plaintiff, Frank Per-

rino (hereinafter “Perrino”); patented by him and the

patents assigned first to the plaintiff corporation and

thereafter pursuant to the December 21, 1964 contract to

the defendant. It should be remembered that anti-skid

devices for automobiles were not generally marketed prior

to 1964, and that there is no attack whatsoever on the

patents which underlie this suit.

This action started as one to set aside the December

21, 1964 contract and to enforce certain provisions of the

June 18, 1964, contract. That complaint was dismissed by

Judge Frederick vanPelt Bryan of this Court except that

Judge Bryan found that cause of action lay in the “Where-

fore” clause of the complaint that the defendant may have

not used its “best efforts to market and manufacture” the

invention assigned to it under the December 21, 1964 con-

tract. Civil No. 66-665.(S.D.N.Y., filed March 29, 1968),

aff’d 410 F.2d 572 (2d Cir. 1969).

Thereafter, Judge MacMahon of this Court, in denying

another motion for summary judgment, further delineated

the issue of “best efforts” as follows:

“. . . we think that ‘best efforts’ here means that

Singer was required to continue collaborating with

Perma for a reasonable length of time in a good

faith effort to solve the problems then preventing

marketing of the product.”

1. A third contract was entered into by the parties which is

referred to herein as the “Technical Services Contract”. No breach

has ever been claimed of this contract although it will be referred

to from time to time throughout this opinion.

—— ee ae —

° 53a

Appendix G

“For example: (1) Did Singer use its best efforts

for a reasonable time . . . to perfect the product

under all the circumstances? (2) In view of the fact

that the device was not ‘fail-safe,’ was Singer justi-

fied in abandoning the contract either because it was

impossible to make the device ‘fail-safe’ or because

it could not be made ‘fail-safe’ without unreasonable,

unwarranted or impractical efforts and expenditures

of time and money out of all proportion to engi-

neering and economic realities?” 308 F.Supp. 743,

748-49 (S.D.N.Y. 1970)

While I defined the issues at the start of trial in a some-

what similar manner to that of Judge MacMahon, I per-

mitted extraordinary latitude to the defense to prove all

that it could and to make any arguments it wished as to

its defenses and its counterclaim. Since the case was tried

without a jury I permitted certain evidence to be received

which is of questionable probative value. All of this was

done with a view that this trial would mark an end to this

litigation.

In summary, I find for the plaintiff on the claim that was

tried. I also find that the counterclaim advanced by defend-

ant was totally sham as a matter of fact.

This opinion is to be considered findings and conclusions

as required by Rule 52 of the Federal Rules of Civil Pro-

cedure.

IL

BACKGROUND OF THE PARTIES

Frank Perrino, although a person without formal engi-

neering training, has been a “tinkerer” all his adult life.

54a

Appendix G

After being discharged from the Air Force, where he

received training as an airplane mechanic, he returned to

his native New England where he invented an accelerator

brake and filed for a patent in 1959. An anti-skid control

was part of this accelerator brake patent application. In

1962, a separate patent application was filed for the anti-

skid invention. Thereafter, the anti-skid was separated

into five patent applications representing different aspects

of the device. These applications matured into five sepa-

rate patents between 1966 and 1969 after the assignment

of them to the defendant.

Perrino founded the plaintiff corporation, Perma

Research & Development Company (hereinafter “Perma”)

under Delaware law and has been its president at all relevant

times. Perma has its principal place of business in North

Attleboro, Mass.

The Singer Company (hereinafter “Singer”) is a New

Jersey corporation with its headquarters in Rockefeller

Center, New York, N. Y. While originally started as a

manufacturer of sewing machines, it has become a widely

diversified manufacturing concern. The 1965 annual report

for the Singer Corporation shows sales of $980 million

from manufacturing and sale of heating and air condition-

ing equipment, technical products, business machines and

computers, and a variety of other devices, of course includ-

ing sewing machines. During 1965 alone, Singer spent $18

million on its various research and development activities.

Both parties acknowledge that this Court has jurisdic-

tion over this action based on diversity of citizenship. 28

U.S.C. § 1332.

55a

Appendiz G

I.

BACKGROUND TO THE

NEGOTIATIONS LEADING TO

THE JUNE 18, 1964 CONTRACT

After the invention of the accelerator brake and the

recognition that the anti-skid control could be separated

from it, Perrino tried to interest various people in the

automotive industry in the devices. Of particular note is

the fact that he took the anti-skid device to the Bendix

Corporation in 1960, where it was considered by Stanley I.

MacDuff, who tested it once by driving it home and who

recommended that Bendix decline any interest in the

device. (As we will see later, this was the same Stanley

I. MacDuff whom the defendant Singer employed as an

expert when it became apparent that this case would go to

trial and who was permitted to give “expert” testimony

at trial.) Perrino, on behalf of Perma, was apparently

unable to interest anyone in the anti-skid device but con-

tinued working on it at North Attleboro, Mass.

Perma also arranged to have tests made of its anti-skid

device by certain automotive companies and by the Motor

Vehicle Research of New Hampshire (hereinafter

“M.V.R.N.H.”), apparently a private organization owned

by one Andrew White. M.V.R.N.H. agreed to do the test-

ing for a portion of the capital stock of Perma and White

became a member of the Board of Directors of Perma.

M.V.R.N.H., thereafter, issued a glowing report on the

Perma anti-skid device. Much of the report, however,

only hints at conclusions and little firm test data is con-

tained therein. Armed with this report and a promotional

firm, Perrino, on behalf of Perma, set out again to sell

56a

Appendix G

some manufacturer on the anti-skid control device. Appar-

ently this effort was again unsuccessful although Perma

had put together a number of hand-tooled, hand-finished

prototypes.

Apparently in late 1963 or early 1964, Perma had ar-

ranged for a distribution agreement of the anti-skid device

with a small number of automotive equipment distributors

and new car dealers and had entered into a contract for

the manufacture of the device by the Worcester Stamped

Metal Company of Worcester, Mass., which in turn had sub-

contracted with others for the manufacture and assembly

of some of the components of the device.

Perma, through Perrino, continued to try to interest

safety officials, highway patrols, insurance companies and

others in the device. Apparently some officials of the

Singer Company (Canada) Ltd. saw the promotional film,

the M.V.R.N.H. bulletin and advised the management of

the Elizabeth, N. J., Singer plant of the device.

During the period of the early 1960s, imports of cheaper

sewing machines (particularly Japanese made models) had

cut into Singer’s share of the sewing machine market.

Singer had already started to diversify its product line and

yet much of Singer’s Elizabeth plant, which had been en-

gaged principally in the manufacture of sewing machines,

stood idle.

Til.

THE NEGOTIATIONS FOR

THE JUNE 18, 1964

CONTRACT

In February 1964, representatives of Singer’s Elizabeth,

N. J., plant travelled to North Attleboro, Mass., to meet

57a

Appendix G

with Perrino and other representatives of Perma. Perrino

apparently told the Singer people at that time that the

Perma anti-skid device was “fail-safe” (or in plaintiff’s

version, “had fail-safe features”) and “that in case of a

failure, that the car would revert back to its normal brak-

ing”. The Singer representatives were also assured that in

the event of some internal failure “the unit in effect de-

activated and reverted back to the original brake system

on the car”. The Singer people were also shown the Perma

promotional film which stated “The Perma anti-skid

control . . . includes a fail-safe feature which will auto-

matically revert to the standard braking system in case of

failure.” These statements or ones similar to them alleg-

edly were reiterated by Perma officials in the months lead-

ing to the June contract.

Similarly, Singer was told that the device was “per-

fected” and that Perma had “had testing done by an in-

dependent laboratory.” In connection with this latter

assertion Perma supplied the Singer officials with copies of

the M.V. R.N.H. report.

It is on the basis of these asserted “false misrepresents.

tions” that the defendant asserts its counterclaim and its

affirmative defense since the device was neither perfected

nor fail-safe.

At the initial meeting in North Attleboro, the Singer

personnel present were Messrs. Kloby, Morris and

Sprague. Kloby was to be the man in charge of the Per-

ma anti-skid program for Singer. He admitted that he had

no background in engineering. Morris at the time was the

assistant general manager of the Elizabeth facility and

after June 1964, became the general manager of the facil-

ity. Sprague was the chief engineer of the Elizabeth plant.

58a

Appendix G

Each was a witness to a demonstration of the Perma

product at this February meeting. First a Perma employee

drove a car equipped with the anti-skid device on a test

tract behind the Perma offices. Then the representatives of

Singer were given a demonstration ride in a car equipped

with a Perma anti-skid device over country roads. A num-

ber of stops were made under panic conditions. Some of

these were made while the car was driven with two wheels

on dry road and the other two on the wet, snow-covered

shoulder.

Singer had immediately after the initial meeting in Feb-

ruary been given a set of plans and specifications, along

with three anti-skid controls and a cutaway of the device.

These were necessary for Singer to work out the cost to

build the anti-skid control. In return, the Singer officials

left with Perma a brochure which was boastful about the

engineering and quality control expertise of Singer.

While it is clear that Singer sought out Perma to beef up

production in its Elizabeth, N. J., plant, it is similarly clear

that Perma was anxious to have Singer take over the manu-

facturing of its anti-skid device since the Worcester

Stamped Metal plant was on strike and Perma was dis-

satisfied with the quality control of the units being deliv-

ered by Worcester.

Prior to signing the June 18, 1964 contract, Perrino and

his cohorts from Perma visited the Elizabeth plant and dis-

played to the top Singer officials the entire device with all

of its components spread out on conference tables. The

promotional film was shown and the M.V.R.N.H. report

was distributed. Among the many Singer representatives

present at the presentation were the top officials of the

Elizabeth plant along with the top engineers assigned to

59a

Appendiz G

that facility. This fact becomes important as we will see

because one of the “experts” who testified on behalf of the

defendant at trial indicated that any engineer worth his

salt would, on inspection, have rejected the Perma device

as totally unmarketable. I must assume that this was a

damning of the Singer engineering capabilities, which is a

strange defense and one which I will not rule on.

IV.

THE JUNE 18, 1964 CONTRACT AND THE EXPERI-

ENCE OF THE PARTIES THEREUNDER

On June 18, 1964, the parties entered into a Patent

Licensing Agreement by which Perma granted Singer the

exclusive right to manufacture the device in the United

States. In order to oust the Worcester Stamped Metal

Company, Singer agreed to buy the inventory then being

held by Worcester. This cost over a million dollars.

It is undisputed that, after the Elizabeth plant acquired

the inventory and started production, many defects were

found in the mass-produced device. During this period

from mid June to December 1964, officials from Perma

visited the Elizabeth plant quite often and the parties rede-

signed a number of the components of the device, including

many of the so-called “fail-safe features”.

Rather than attempt to describe the entire device, I am

appending hereto a copy of one of the patents which most

fully discloses its configuration and operation. (Appendix

A) From this the reader should note that anti-skid control

consists of a flexible cable attached to the speedometer

cable, which drives a set of weights in the sensor; the

weights spin in a centrifugal fashion which, when suddenly

60a

Appendix G

slowed or stopped, collapse in such a fashion or. one side to

force a cam gear to actuate a micro switch which permits

electricity to pull back a solenoid on the other side of the

sensor; which in turn permits a rotary valve to introduce

vacuum into the system. This vacuum draws back a dia-

phragm in the “Perma-Vac”, which in turn pulls back a

plunger which takes hydraulic fluid from the brake system

and thus relieves pressure on the brakes. A pressure switch

is included in the device at this point so that when pressure

is reduced the electricity flowing to the solenoid is cut off

and the vacuum stopped at the diaphragm, thus permitting

full brake pressure to be exerted. In this manner the

brakes are “pumped” in a “panic stop”, thus lessening the

chance for a locked wheel skid.

During the period of June through December 1964, the

pressure switch was redesigned with Singer’s chief engi-

neer on the project so deeply involved in the redesign that

he made some of the parts by himself in the tool room at >

the Elizabeth plant.

Similarly, it was discovered that the cam gear which

activated the micro switch was not operating properly.

Singer’s chief engineer on the project concluded that this

feature was “marginal” and suggested that it be rede-

signed. Instead, a temporary solution was worked out

whereby the cam gear was polished.

Other difficulties with the device were recognized by the

Singer staff. They noted that the sensing unit could become

packed with contaminants in ordinary usage; that the

rotary valve could and did “bind” on occasion; and that the

Perma-Vac spring should be strengthened.

On September 17, 1964, Singer’s chief project engineer

confided his fears about the reliability of the anti-skid con-

trol to management in a memorandum which reads in part:

6la

Appendix G

“I am deeply concerned about the reliability of this

device in general. My cause for alarm stems from

the fact that the performance testing does not detect

some defects which could cause malfunction of the

unit during operation on a car... I feel it would be

advisable to get a detailed specification from Perma

listing all the possible causes for failure so we may

incorporate tests to detect deficiencies before send-

ing units out of the plant. I strongly recommend

that the legal aspects of responsibilities be thor-

oughly investigated so that we may be fully covered

for what is sold before the confidence level is deter-

mined to be satisfactory.”

Whether, in fact, Singer asked Perma for such “detailed

specification” is unclear but it is clear that none was forth-

coming.

During the period from June through December 1964,

Singer conducted a number of tests on the anti-skid con-

trols that it was producing. These were done on test stands

acquired from Perma. A device was also installed on a

Singer vehicle. These tests, however, were not exhaustive,

but that was a choice by Singer management and in no way

now bolsters its counterclaim and affirmative defense.

Because of the problems recognized by Singer, few of

the anti-skid controls were marketed prior to the December

contract, thus leaving Perma financially distressed. Both

parties recognized the need for further engineering on the

device and this situation led to the negotiations for the

December 21, 1964 contract.

62a

Appendiz G

V.

NEGOTIATIONS FOR DECEMBER 21,

1964 CONTRACT BETWEEN

THE PARTIES

The exact genesis of the negotiations leading to the

December 21, 1964 contract between the parties is unclear

but it is clear that Perma entered the negotiations with a

negative balance sheet and the recognition that it could not

perfect the anti-skid device for market on its own. Singer

offered to Perma its engineering skills and purported

expertise.

But, before entering the December 21, 1964 contract,

Singer, although it had done its own marketing surveys

and had seen Perma’s estimates, commissioned William E.

Hill & Co., Inc. to do another market survey. The report

of the Hill organization delivered to Singer management

at least a week prior to the December 21, 1964 contract with

Perma totally demolishes the counterclaim and affirmative

defense advanced by Singer. It so dramatically proves

that the management of Singer could not have relied on

any alleged false representation by Perma that it is set

forth in full in Appendix B hereto.?

Among the “Principal findings and conclusions” of the

report are the following:

“The Perma anti-skid control falls short of meet-

ing requirements of automotive engineers and does

not provide the improvement possible in theory.

The consensus of many engineering tests that have

2. It is astounding to me that in the hundreds of pages of pre

posed findings and conclusions and briefs submitted by the

tatives of Singer there is not one mention of the Hill report, except

to serve as a crutch on the question of damages.

63a

Appendiz G

been run on the unit indicate that the Perma control,

as compared to a panic or locked wheel stop, gives

improved steering control but requires a greater

stopping distance to come to a complete stop. The

automotive brake and safety engineers who have

reviewed its performance do not agree on the value

of the Perma anti-skid control . . .”

“The General Motors Research Center, the Ford

Advanced Design Group and the Chrysler Brake

Laboratory are against the use of the control.”

“Based on evaluation by major automobile manu-

facturers the Perma anti-skid control does not meet

established requirements.”

In an appendix to the Hill report is a summary of the

results of tests which representatives of Singer, at trial,

claimed were concealed from Singer by Perma prior to ‘he

December 21, 1964 contract. Apparently this claim has

now been abandoned.

[1] Singer, however, still presses its claim that Perma

falsely misrepresented that the device was “fail-safe” and

that it was fully “perfected” and “tested” and that Singer

relied upon these representations in entering the December

21, 1964 contract. I hold as a matter of fact that there was

no such reliance. Without reliance any misrepresentation

is not cognizable at law either as a counterclaim or as an

affirmative defense. In the situation presented only an

ostrich could make the claim defendant does. It is clear to

me that both the counterclaim and the affirmative defense

raised by Singer are sham.

64a

Appendiz G

VL

THE DECEMBER 21, 1964 CONTRACT

BETWEEN THE PARTIES

On December 21, 1964, the parties entered into a contract

whereby Perma assigned its patent applications to Singer.

It is clear that the parties knew at that time that the anti-

skid device was not fully perfected and that Singer would

have to do work to make the device a marketable one. In

consideration for the assignment of these rights Singer

paid off all the outstanding debts of Perma and agreed to

pay royalties on each Perma anti-skid control marketed.

No minimum royalty was agreed to in the contract, a some-

what unusual arrangement.

It is true that both parties to the contract were looking

for the anti-skid control to be quickly marketed, for both

had expectations of deriving profits from it, but these

expectations do not give credence to Singer’s argument

that the contract did not call for any engineering work by

Singer on the device. That promised engineering work is

the total foundation upon which the December 21, 1964

contract is based. It is true that the expected engineering

work is not spelled out in the contract. And it is for that

reason that we must consider whether Singer made its best

efforts in collaboration with Perma for a reasonable length

of time in a good faith effort to solve the problems then

preventing the marketing of the product.

In this connection it must be noted that the December 21,

1964 assignment of Perma’s patent rights to Singer was

accompanied by a Technical Services Contract of the same

date. This Technical Services Contract required Perma to

collaborate with Singer in any engineering efforts which

65a

Appendiz G

Singer required the inventor to do to make the device

marketable. The very existence of the Technical Services

Contract gives the lie to Singer’s contention that no fur-

ther engineering work was contemplated by the parties as

of December 21, 1964, the date they entered the patent

assignment contract.

3 Vil.

SINGER’S PERFORMANCE UNDER THE CONTRACT

To properly evaluate Singer’s performance under the

patent assignment contract it is necessary to look first at

Singer’s capability. In 1965, Singer had 15 research and

development laboratories and employed more than 2,200

scientists, engineers and technicians. Singer’s net earn-

ings in 1965 were $44 million.

Singer chose to leave in charge of the Perma project

after December 21, 1964, those who had worked on produc-

tion under the prior June contract: Robert Kloby and

Albert Romel. Kloby was given the title Manager, Perma

Anti-Skid Program. His education and experience were

concentrated in marketing, market evaluations and sales

projections. He had no engineering background whatso-

ever. Albert Romel was an engineer graduated from the

Newark College of Engineering in June 1964, which he

attended while working for Singer at the Elizabeth plant.

Virtually for his entire adult life Romel had been employed

at the Elizabeth plant where he had been engaged in the

manufacture of sewing machines. Prior to working on the

Perma device, he had no employment experience in automo-

tive or brake industries. Until he started to work on the

Perma device he had never worked on brake systems.

66a

Appendix G

Both Kloby and Romel testified at trial. Romei, the

engineer in charge assigned to the project by Singer, took

22 minutes on the witness stand to compute the relative pro-

portion of one circle to another after being given pencil and

paper and the relevant equations which require merely

squaring one number. At the point this exercise was called

for, Romel had been on the stand for a number of days.

He did not appear nervous. Yet his computations were

totally wrong. The history of the project shows that

Romel was not an innovator but merely followed his in-

structions. He testified that although he had worked on the

Perma device starting in June 1964, and had been exposed

to it in February 1964, he had not analyzed the invention

prior to the contract of December 21, 1964.

Romel’s staff consisted of three graduate engineers, one

engineering student and various others who were given

grandiose titles which seem to have been invented solely for

this litigation. One engineer from Singer’s Denville re-

search laboratory was also assigned to the project for a

period of about one month.

Kloby and Romel were under orders to keep expenses

down. The manager of the Elizabeth plant received a

memorandum from corporate headquarters dated January

7, 1965, which stated in part:

“It is of the utmost importance that we spend no

additional moneys and generate cash flow as quickly

as possible .. .”

To this the following response was made:

“Every additional expenditure for the Perma pro-

duct line is being scrutinized thoroughly by this office.

67a

Appendiz G

No additional moneys are being spent unless abso-

lutely necessary in order to control our total invest-

ment.”

One Singer official estimated that during the year

1965, the project cost $190,000 including salaries of all

assigned to the project, allocation of normal expenses to

run the Elizabeth plant, ete. This figure appears inflated

although Singer at trial tried to prove an even more bloated

figure. In this attempt the witnesses for the defendant

contradicted themselves and each other in many respects.

For example, Kloby testified that in September 1965, he was

removed from the Perma project and returned to “Forward

Planning” at the Elizabeth plant; yet his salary for the

entire year is attributed to the Perma project.

In any event, it is clear that Singer gave inadequate fund-

ing to the entire program and staffed it with inept and

inexperienced people who were unable to even understand

the problems, much less cope with them. At one point

Singer advertised for an automotive engineer who special-

ized in brake systems. He was not hired.

Shortly after undertaking the December 21, 1964 contract,

Singer attempted to set up “liaison” with automotive and

brake manufacturers. This consisted of one trip for Kloby

and Romel to the Detroit area early in 1965, and conversa-

tions with various people there. It is astounding that

Kelsey-Hayes, a well-known brake manufacturer, at that

time offered to analyze and do tests on the device (appar-

ently without cost to Singer), but that the offer was rejected

out of hand, at least until Singer recognized that this litiga-

tion was impending.

In March 1965, Singer received from E. I. duPont de-

Nemours & Co. (hereinafter “duPont”) an analysis of a

68a

Appendix G

1963 vintage Perma device. This analysis set forth a num-

ber of potential failure modes in the device which could

cause an unsafe condition and loss of brakes. No indepen-

dent analysis of the device was made at this time by Singer.

Romel thereafter concentrated the efforts of his staff in

attempting to resolve the problems posed by the duPont

report and those obviously required by the changes made

in braking systems introduced by the automotive manu-

facturers.

Some of the 1965 model automobiles had for the first time

self-adjusting brakes and dise brakes. For the Perma

device to work with these new features required greater

fluid displacement and higher hydraulic pressure. Pur-

suant to the Technical Services Contract, Perma proposed

to change the device by changing the piston bore and the

spring in the Perma-Vac. This, however, would have ren-

dered worthless much of Singer’s inventory and in Febru-

ary 1965, Perrino, at Romel’s direction, designed a transfer

valve whereby vacuum would be introduced to the front of

the Perma-Vac diaphragm to assist in pumping the brakes.

The device thus became totally vacuum dependent with this

change and introduced more failure modes into its opera-

tion. If there was a loss of vacuum for any reason (e. g. an

engine stall), the brakes might not be fully reapplied.

In order to meet the demands of the new braking systems

Singer also experimented with a “restrictor valve” which

was devised by Romel and those working for him. The

“restrictor valve” is a simple device which permits hydrau-

lie fluid to run more freely in one direction than in the

other. It appears that there are serious questions as to the

efficacy of this addition and these questions are of real

substance.

69a

Appendix G

It is clear to me that Romel and his staff did not have

a full understanding of the dynamics of the device or of an

automobile to which it was to be attached.

Romel tested various models of the Perma anti-skid

throughout the period from June 1964 through December

1965, on test stands basically supplied by Perma at the

Elizabeth Singer plant. He also arranged for road tests

at the Linden, N. J., airport.

It is of some interest that the officials of Singer spurned

Perrino and the other officials of Perma during most of the

period after the December 21, 1964 contract. While the

Perma people were at the Elizabeth plant, conferring with

Singer at least two or three times a week under the June 18,

1964 contract, this liaison almost totally ceased after Singer

entered the December 21, 1964 contract even though under

the Technical Services Contract Perrino and Perma re-

mained obligated (at no extra cost) to confer with Singer

about the development of the anti-skid unit. When the

Technical Services contract expired it was not renewed but

thereafter Perrino continued to make technical suggestions

to Singer.

In June 1965, Singer through Romel and his staff were

conducting road tests on the Perma device. These tests

were conducted on a completed but unused section of Inter-

state Highway 295.

VIII.

SINGER’S DECISION TO ABANDON

THE CONTRACT

At about this time, corporate politics inside Singer

called fcr a shakeup in management. Apparently there had

also been some grumbling from corporate headquarters

70a

Appendix G

about the non-profitability of the Perma project. Finally,

Alfred DiScipio was named as corporate vice-president in

charge of Consumer Products. Among the many product

lines under Mr. DiScipio’s direction was the Perma Anti-

Skid Device program.

DiSeipio, with some of his staff, visited the Elizabeth

plant to review production of all product lines manufac-

tured there. In connection with the review the group from

corporate headquarters went to view the road tests of the

Perma device being conducted at the Interstate Highway.

A car was driven down the highway and subjected to a

“panic” stop, first with the Perma device inactivated and

then allegedly twice with the anti-skid control in operation.

On all three runs the car swerved and skidded danger-

ously out of control.

DiScipio and his group immediately got into their own

vehicles and drove away, surprisingly without even check-

ing to see if the anti-skid had been operative or ascertain-

ing what caused its failure.

At a meeting following the abortive demonstration,

DiScipio announced that the anti-skid control was not fail-

safe. He told the group that Singer would not market a

product which “could leave the purchaser . . . less safe

than if he hadn’t elected to purchase it...” It must have

been as clear to DiScipio’s subordinates as it was to me on

trial that DiScipio was enunciating an impossible standard

yet apparently none of his subordinates dared to question

their boss. It is my belief that DiScipio had determined

to get rid of the Project on the very day he first saw it

demonstrated and that he communicated this decision to his

subordinates although not in so many words.

In any event, a few days later DiScipio set up a “Task

Force” to study the Perma project which was chaired by

71a.

Appendix G

Burton Person, DiScipio’s assistant, and, significantly,

included an attorney from the staff of house counsel. Per-

son thereafter circulated a memorandum setting out the

guidelines for the work of the Task Force. The memoran-

dum questions whether manufacturing and marketing an

anti-skid device for automobiles was the type of business

which was appropriate for Singer and outlined certain

areas for study, including Singer’s legal exposure and pos-

sible costs if the project was terminated. Technical evalu-

ation of the device was first sought from Kloby and Romel.

Romel’s report dated July 22, 1965, declares “due to cost

and limited personnel available, it was decided to restrict

extensive experimentation to short range projects.” This

admission in and of itself gives a fair insight into the real

efforts used by Singer under the December contract with

Perma.

Within days after getting the Romel report, Person, on

August 10, 1965, circulated the first report of the Task

Force. Basically, it recommended the withdrawal of the

device from the market; the retrieval of units already sold

and in use; the termination of distributorship contracts;

and an approach to Perma to “provide flexibility for Singer

in regard to divestiture”. Significantly, the report also

directed that all letters and strategy were to be reviewed

by outside counsel to Singer. At the time of the prepara-

tion and circulation of this first report, no outside engi-

neering evaluation of the device was considered by the

Task Force although it is clear that the members of the

group had at the outset contemplated getting such an evalu-

ation from the Cornell Aeronautical Laboratories and at

least from Singer’s own Denville Research and Develop-

ment Laboratories.

‘

72a

Appendix G

The August 10, 1965 First Report of the Task Force

sounded the death knell of any real effort by Singer to

perfect and market the Perma anti-skid device. Much of

what occurred thereafter was merely a charade staged in

contemplation of the possibility of litigation.

On August 30, 1965, Person and Singer’s attorney Boriss

went to North Attleboro to meet with Perrino and other

representatives of Perma. Person announced that the

Perma program had been stopped since the device was not

“fail-safe”, which he defined as being so designed and made

“so that no matter what, it must revert to the conventional

braking system”. Person also stated Perma had to solve

the problems.

On September 9, 1965, Person wrote a letter to Perrino

asserting that Singer had legal claims against Perma.

This letter also stated that Singer proposed “to procure

the evaluation of a qualified, independent laboratory and

have in fact initiated discussion with the Cornell Aeronau-

tical Laboratory”. The letter failed to state that Singer

had decided against having Cornell do such an evaluation.

In fact, Person had, on September 3, 1965, requested

from Singer’s own Denville Research and Development

Laboratory a report on whether the anti-skid device was

fail-safe. The device as submitted to the Denville scien-

tists and engineers contained the transfer valve. The

Denville report as finally submitted is dated November 9,

1965. The contents of that report are extremely significant

but they will be outlined below.

Meanwhile, Romel and his staff at the Elizabeth Singer

plant kept searching for a quick solution to the problems of

the anti-skid device. I can characterize these efforts only

as being abysmally inept. The proposals generally ignored

73a

Appendix G

fundamental engineering concepts. For example, to mini-

mize hysteresis (sticking) in the rotary valve, Romel

experimented with a larger rotary valve, thus increasing

the area where friction would occur with concomitant

aggravation of the fundamental sticking problem.

At the same time, Perrino had also attacked the “fail-

safe” problem and by early November had come up with a

set of proposals including a bleeder hole to the back of the

Perma-Vac which would restore brakes if vacuum was

present longer than a pre-determined time; a variable dis-

placement piston to increase output pressure; and a

vacuum time delay device which would turn off the device

after a pre-determined time. Perrino called the last pro-

posal a fail-safe for the fail-safe.

On November 4, 1965, Perrino called Person and gave

him a brief description of his proposals and agreed to send

him a schematic of the devices. He also called Romel and

described the proposals to him and likewise agreed to send

Romel a schematic.

Without seeing the drawings, Romel, in a conversation

with Person, stated his opinion that the proposals

advanced by Perrino would not work.

Rome! did not get the drawings until November 10, 1965,

although Person, who could not judge the devices on his

own, did receive the schematics on November 9, 1965. On

November 9, 1965, Person also received the report of the

engineering analysis from Singer’s Denville Research and

Development Laboratory. This report described the work

by Singer at Elizabeth as “modest”, and concluded that the

device was not fail-safe because of its vacuum dependence

caused by the transfer valve (induced by Romel to save

inventory). The report further stated that a redesign pro-

74a

Appendix G

gram estimated to cost $30,000 could overcome this prob-

lem. The defendant did nothing to implement this pro-

posed redesign program.

On the same day as Person received the Denville report

and Perrino’s proposal, he submitted a Task Force report

to DiScipio which formally recommended the divestiture

of the Perma program. That night DiScipio and Person

met and DiScipio orally agreed to the divestiture. Two

days later, DiScipio gave formal approval to the Task

Force Report but noted that a reserve of $2,000,000 should

be set up instead of the $1,500,000 recommended in the

report.

Person then set up a meeting with Perrino on November

22, 1965, in Providence, R. I. There he handed Perrino a

letter dated the same day which basically rejected Perrino’s

ideas to make the anti-skid device more “fail-safe”. Person,

when questioned about Singer’s real purpose, told Perrino,

“Very bluntly, Frank, we do not want to be in the brake

business—our people at Elizabethport should not have

gotten into the brake business.” Person tried to get Per-

rino to change the December 21, 1964 contract »ut Perrino

refused and threatened to bring this lawsuit.

After the November 22, 1965 meeting, this litigation

loomed and nothing much of what was done by Singer is of

much import. Of course, Singer tried to cut its losses by

attempting to sell the device. For some reason, perhaps

as an attempt to cloak what Singer recognized was a breach

of its contractual obligations, Romel continued working on

the Perma project with his curtailed staff. He spent most

of his time until January 26, 1966, prototyping the device

for new model cars, i.e., measuring the lengths of vacuum

hose, speedometer cable, ete., for the changed models.

75a

Appendia G

On January 26, 1966, Singer finally abandoned all pre-

tense and abandoned any effort to perfect the device.

IX.

THE COUNTERCLAIM AND AFFIRMATIVE

DEFENSE OF FRAUDULENT

MISREPRESENTATION

Although the Post Trial Brief submitted by the defendant

lacks definition of exactly what it relies on in support of its

counterclaim and affirmative defense, it is clear that the

claims may be broker into the following three categories:

(1) perfection and testing; (2) performance; and (3) fail-

safety.

Singer claims that Perma and its representatives misrep-

resented each of these areas in inducing the defendant to

enter the December 21, 1964 contract.

[2] Before turning to the specific allegations, it may be

well to set out the elements required to prove fraudulent

misrepresentation. Basically they are: (1) that material

representations were made by one party to a contract; (2)

which representations were false; (3) and were made with

the requisite degree of scienter (or knowledge of their fal-

sity); and (4) which were relied upon at the time of entry

into the contract by the other party thereto. Daly v. Wise,

132 N.Y. 306, 30 N.E. 837 (1892); Becker v. Colonial Life

Insurance Company, 153 App.Div. 382, 138 N.Y.S. 491 (2d

Dept. 1912).

(1) Perfection and Testing

It cannot be disputed that the promotional movie shown

to Singer executives at the Perma plant in February 1964

76a

Appendix G

and then again at the Singer Elizabeth facility in April

1964 represented that the Perma anti-skid device was a

“perfected, patented device”. Such representations were

apparently repeated by Perrino to Romel during the period

from June 1964 to December 21, 1964, the date of the con-

tract.

Perrino, on the other hand, claims that he meant that the

device was “workable, useable and marketable”,

[3] It is clear to me that the statement in the movie war

mere “puffing” and was accepted as such by the executives

of Singer. Singer, by its experience manufacturing and

testing the device under the June 18, 1964 contract, cer-

tainly cannot claim reliance on this statement nor on the

representations by Perrino. I have already detailed that

changes were made in the device by Romel prior to the

December 21, 1964 contract.

[4] I find that it is totally incredible to believe that

Singer relied on these statements when it entered the

December 21 contract. If it had, then certainly Singer

would never have entered the Technical Services Contract

with Perma which looked to perfection of the device.

[5] As to the contention that Singer considered the anti-

skid device as “fully tested” and relied on the plaintiff’s

alleged statements to that effect in entering the December

contract, we need look to only two Singer documents to give

the lie to this. The first is Romel’s memorandum of Sep-

tember 17, 1964 (set out above at page 888), which calls for

further testing. The second is the Hill Report which re.

cites in Exhibit 1 thereto the “Results of Engineering Tests

of the Perma Anti-Skid Control” where 6 out of 7 tests show

that “Reliability of Unit” was not tested and where 5 out

of 7 show that the device was not totally acceptable.

77a,

Appendiz G

The lack of any scintilla of proof of reliance on the part

of Singer on any of the alleged misrepresentations must

doom this allegation.

(2) Performance of the Anti-Skid Device

It is interesting to note that Singer abandoned many of

its claims of misrepresentation but has half-heartedly con-

signed to footnotes in its Post Trial Brief (pp. 6 and 17)

certain allegations of fraudulent misrepresentation, the

chief among which are that the device provided “shorter

stopping distances” and “modulated in accordance with a

graph on page 4 of Report No. 13 of Motor Vehicle Research

of New Hampshire”.

[6] Again, even if these statements were made by plain-

tiff (which I doubt), there is positive evidence that Singer

could not have relied on them. Once again, this evidence

is found in the Hill Report where Exhibit 1 shows that

longer stopping distances occurred with the Perma anti-

skid device and that the device “cycled through this lock-

roll-lock-roll condition about four times a second . . .” and

thus could not be said to modulate.

In the face of the Hill Report, which was supplied to

Singer management at least one week prior to entering the

December 21 contract, how the defendant can claim reliance

on these alleged misrepresentations is beyond my ken.

The other allegations about misrepresentation of perfor-

mance are so without merit as to preclude any discussion

of them in this opinion.

(3) Fail-safety

Singer has defined “fail-safety” as follows:

“We do not regard a device as failsafe unless failure

of the device regardless of cause or probable fre-

78a

Appendiz G

quency of a particular type of failure, does not im-

pair the utility of the underlying system to which it

is connected.”

Its own expert has totally rebuffed Singer’s definition of

“failsafe”, stating that such a standard is almost impossible

of attainment. I admit that I can think of only one mechan-

ical device which might meet this test: a wedge—the sim-

plest tool known to man. It is important to note that,

according to Singer’s own expert, there has never been an

anti-skid system marketed in the United States that satis-

fied the definition of failsafe advanced by Singer.

[7] It is uncontroverted that Perma represented to Sin-

ger that the “anti-skid” device in question had “fail-safe

features” which, if the device malfunctioned, would return

a car equipped with the device to its underlying braking

system. But to torture this into the absolute “failsafe”

advocated by Singer is to warp the words used by Perma

representatives and to wrench a new meaning from them

heretofore unknown to semantics. I find that there was no

misrepresentation by Perma in this respect.

[8] And even if there was a misrepresentation, there was

no reliance on it by Singer. During the period from June

through December 1974, the personnel at the Elizabeth

Singer plant encountered any number of failure modes in

the Perma device. They knew on December 21, 1974 that

the anti-skid control could not meet the standard now ad-

vanced by Singer.

Indeed, it appears clear to me that these issues were

really a smoke screen to needlessly delay the resolution of

this litigation and to harass the plaintiff and this Court.

Thus, I find the counter-claim and affirmative defense to be

totally sham as a matter of fact.

79a

Appendiz G

x.

THE DECEMBER 21, 1964 AGREEMENT

WAS A “BEST EFFORTS” CONTRACT

WHICH SINGER BREACHED

Singer contends that the contract in question was merely

an assignment of patents, which contract would not re-

quire auy effort on the part of the assignee to perfect the

device, citing Eclipse Bicycle Co. v. Farrow, 199 U.S. 581,

26 S.Ct. 150, 50 L.Ed. 317 (1905) and other such cases.

In so doing, the defendant completely ignores the facts.

This Court will not follow Singer down such a totally igno-

minious path. ’

[9] The contract before this Court is not merely an

assignment of patents. Rather, clearly implied in the con-

tract is the intention that Singer would use its best efforts

to perfect and market the device.

Though the words of the contract do not spell out this

obligation, the circumstances leading to the signing of the

contract mandate such an implied obligation. See Wood v.

Lucy, Lady Duff Gordon, 222 N.Y. 88, 118 N.E. 214 (1917) ;

Eastern Electric, Inc. v. Seeburg Corp., 427 F.2d 23, 26-27

(2d Cir. 1970); 3A Corbin, Contracts § 562 (1960). It is

true that Perrino testified that he “did not discuss any-

thing about perfecting the device” at the time he entered

the contract. But it is clear that the perfection and market-

ing of the device was the heart of the December 21, 1964

contract.

To reiterate what is said in Section V of this opinion:

Perma at the time it entered the contract had a negative

80a.

Appendix G

balance sheet with a number of large outstanding debts,

since few of the anti-skid devices were sold between June

and December 1964. The reason that there were so few

sales was that imperfections had been discovered in the

device. Singer and Perma had been working to resolve

these imperfections. Singer offered its purported en-

gineering expertise to perfect the device in return for a

contract which did not even guarantee a minimum patent

royalty.

Singer knew that the device was still to be perfected for

why else would it have entered into the Technical Services

Contract with Perma? The Singer personnel discovered all

of the difficulties which prevented any meaningful sales of

the device under the June contract. They knew of the prob-

lems with the anti-skid and necessarily knew that it had

to be perfected.

Since the December 21, 1964 contract which Singer

foisted on Perma does not disclose the efforts Singer was

to expend on perfecting the device, it must be assumed that

it was a “best efforts” contract, i. e., as Judge MacMahon

indicated, that: “Singer use its best efforts for a reason-

able time . . . to perfect the product under all the cireum.

stances.” 308 F.Supp. at 749.

[10] Did Singer use its “best efforts” to perfect the

device? Clearly, as I set out above, its efforts were at best

inept and certainly not “best efforts”. There is no doubt

Singer could have accepted Kelsey-Hayes’ offer to an-

alyze and test the device. It did not do so. There is no

Sla

Appendix G

doubt that Singer could have turned the program over to

its Research and Development Laboratories. It did not do

so. There is no doubt that it could have hired an engineer

with experience in the automotive or brake field. It did

not do so.

There are any number of reasonable things which Singer

could have done to perfect the device without unreasonable

cost or effort. It did not do so.

Did Singer use its best efforts to perfect the Perma Anti-

Skid device? It did not do so.

XI.

SINGER’S CLAIM THAT THE PERMA ANTI-SKID

DEVICE WAS WORTHLESS AND COULD NOT

BE PERFECTED AND MARKETED

Singer clearly set forth in the Pre-Trial Order that it

considered the Perma Anti-Skid was worthless since it

could not be perfected. As part of its main case to rebut

this contention, Perma offered the testimony of Daniel Goor

and Andre L. DeVilliers.

Both Mr. Goor and Mr. DeVilliers were deeply involved

in the development and perfection of the Kelsey-Hayes

anti-skid device. Goor, although a consultant, was in charge

of the preject for a considerable period of time. DeVilliers

was an engineer who ran a number of computer simulations

on the Kelsey-Hayes device to assist in its perfection to the

point that it became marketable.

Since Funds were not available to plaintiff to run empir-

ical tests of the Perma Anti-Skid Device, with alterations

of the various components, the plaintiff retained DeVilliers

to do computer simulations of the device with the possible

82a

Appendix G

changes in components. DeVilliers, using the LaGrange

equations (which are readily available in standard univer-

sity textbooks—so much so that the equations were not

totally foreign groand to me) produced certain computer

simulations. For those unfamiliar with computers, it must

be noted that in this context, simply put, a computer is but

calculators with a giant “memory” and the simulations the

computer produces are but the solution to mathematical

equations in a “logical” order.

[11] On the basis of the computer simulations produced

by DeVilliers, Goor testified that the Perma Anti-Skid De-

vice could be made into a marketable product. Given the

state of the art in 1964 and 1965, and even considering the

electronic improvements in the anti-skid devices commer-

cially sold today, I find as a fact that the Perma Anti-Skid

Device could have been perfected and made marketable

with the proper engineering work done.

To counter this evidence, The Singer Company produced

two main witnesses. Professor Rabins of Polytechnic Insti-

tute of New York, testified, on a theoretical plane, that the

Perma Anti-Skid Device was worthless. Professor Rabins

also testified that he based his opinion on a sample given

to him, which sample was not even offered in evidence.

Under questioning by me, he admitted that he had never

seen the plans and specifications for the device nor any of

the models introduced into evidence.

What Professor Rabins saw, measured and based his

calculations on is totally unknown to this Court. Conse-

quently, most of his testimony must be disregarded.

[12] Stanley I. MacDuff also testified for the defendant

Singer as an “expert”. An expert witness is produced by a

83a

Appendiz G

party to give the Court some insight into a technical area.

As such, his testimony is most useful if it is impartial. An

expert’s testimony, like that of ariy other witness, can and

should be tested for credibility by the trier of fact. See

generally Fortunato v. Ford Motor Co., 464 F.2d 962 (2d

Cir.), cert. denied, 409 U.S. 1038, 93 S.Ct. 517, 34 L.Ed.2d

487 (1972) ; Manning v. New York Telephone Co., 388 F.2d

910 (2d Cir. 1968); Scott v. Spanjer Bros., Inc., 298 F.2d

928 (2d Cir. 1962).

Stanley I. MacDuff was far from impartial and his advo-

cacy (he is a lawyer) of his client’s position was such that

any statement emanating from him was immediately sus-

pect. The suspicion of MacDuff’s opinion is compounded

when we realize that he, while employed by the Bendix Cor-

poration, had totally turned down the Perma device. Not

only were his views slanted by his present employment by

the defendant, but they were also slanted by his prior rejec-

tion of the device on behalf of his former employer who

now pays his pension.

MacDuff testified on direct that a mechanical (as opposed

to an electronic) sensor on anti-skid devices made them

worthless. Yet MacDuff admitted that at least one anti-

skid [device] had been marketed which had a mechanical

sensor. MacDuff’s judgment regarding the perfectibility

and marketability of the Perma device becomes even more

suspect when viewed in the light of his admission that he

personally tried to sell to various car manufacturers a

totally mechanical anti-skid device produced by a foreign

subsidiary of his former employer.

Viewing all of the evidence, I am convinced that the

Perma Anti-Skid control was perfectible and could have

been marketed. This leads me then to the question of dam-

ages.

84a

Appendix G

XIL

PERMA’S DAMAGES

Singer cites case law for the proposition that a patent

assignor cannot recover for the assignee’s failure to ful-

fill an implied “best efforts” obligation where the patented

device is not commercially useful. In Kraus v. General Mo-

tors Corp., 120 F.2d 109 (2d Cir. 1941) commercial use-

ability was actually made a part of the licensing contract.

Tn Peck v. Shell Oil Co., 142 F.2d 141 (9th Cir. 1946), the

defendant’s inability to develop a marketable product con-

stituted failure of consideration such that the licensing

agreement was rendered unenforceable. The Perma device,

defendant continues, is not useful by reason of its imper-

fectability as a matter of engineering principle. Even if

the cited cases stood for the broad proposition of law urged

by the defendant, the argument would fail since I have

found the device to be perfectible.

[13, 14] A plaintiff is entitled to the reasonable dam-

ages naturally flowing from the defendant’s breach of con-

tract. For Children, Inc. v. Graphics Int'l, Inc., 352 F.Supp.

1280 (S.D.N.Y.1972). The measure of damages to which a

plaintiff is entitled as a result of such a breach has also been

described as the amount necessary to put the plaintiff in

as good a position as he would have been if the defendant

had abided by the contract. Hutchins v. Bethel Methodist

Home, 370 F.Supp. 954 (S.D.N.Y.1974).

[15, 16] Although lost profits in a new venture are not

ordinarily recoverable (Cramer v. Grand Rapids Show Case

Co., 223 N.Y. 63, 119 N.E. 227 (1918) ), they may be awarded

where: the loss of prospective profits are the direct and

85a

Appendiz G

proximate result of the breach; profits were contemplated

by the parties when they entered the contract; and there is

a rational basis on which to calculate the lost profits. For

Children, Inc. v. Graphics Int'l, Inc., 352 F.Supp. 1280, 1284

n. 16 (S.D.N.Y.1972) ; ef. Flexitized Inc. v. National Flezi-

tized Corp., 335 F.2d 774 (2d Cir.), cert. denied, 380 U.S.

913, 85 S.Ct. 899, 13 L.Ed.2d 799 (1964).

In For Children, Inc. v. Graphics Int’l, Inc., swpra, the

plaintiff contracted with the defendant for the manufacture

of books with a pop-up feature. In placing its order the

plaintiff relied on defendant’s expertise as a pop-up printer

and designer. A large percentage of the books actually

supplied to the plaintiff for marketing were defective and

the plaintiff properly rejected them despite the defendant’s

protestations that a 15 per cent margin of error was neces-

sary. Judge Weinfeld rejected defendant’s claims since

under the contract the defendant had taken responsibility

for the design and engineering of the books without quali-

fying this responsibility with any provision for a margin of

error. Although the plaintiff’s venture was a new one, the

court found that: the parties had contracted with an eye to

plaintiff’s marketing the product; the product was ready to

be marketed; and there was a reasonable probability that,

considering all the circumstances, 75 per cent of the books

would have been successfully marketed.

In the case at hand the defendant assumed a greater

responsibility in the new venture. Nevertheless, Singer’s

claim of imperfectability of the device is analogous to the

defense raised in For Children, Inc. (that a 15 percent

margin of error was insurmountable) and has been simi-

larly rejected. Moreover, had Singer fulfilled its obliga-

tions under the December contract, the anti-skid device

would have proceeded to market as anticipated.

86a

Appendix G

[17] The remaining determination then is whether

damages here are altogether too speculative to assess, or

whether there is some reasonable basis on which damages

can be computed, It has been held repeatedly that where

the defendant renders the determination of damages diffi-

cult, he must bear the risk of uncertainty created by his

own conduct. Story Parchment Co. v. Paterson Parchment

Paper Co., 282 U.S. 555, 563, 51 S. Ct. 248, 75 L.Ed. 544

(1931); Eastman Kodak Co. v. Southern Photo Co., 273

U.S. 359, 379, 47 S.Ct. 400, 71 L.Ed. 684 (1929); Autowest,

Inc. vy. Peugot, Inc., 434 F.2d 556, 565 (2d Cir. 1970); For

Children, Inc. v. Graphics Int'l, Inc., 352 F.Supp. 1280, 1284

(S.D.N.Y.1972). Furthermore, the Court in Story Parch-

ment defined the prohibition against an award of specula-

tive damages as barring 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.” 282 U.S. at 562, 51 S.Ct. at

250. As was said in the Flewxitized case, swpra, the evi-

dence need not establish lost profits precisely to the penny

as long as the evidence provides a reasonable basis for

concluding that lost profits were occasioned by the defend-

ant’s breach.

The parties have suggested various alternative figures

upon which damages should be computed.

Tt is conceded by both parties that the market for auto-

mobile parts and accessories is divided into the ORM

(original equipment manufacturers) and the aftermarket

(manufacturers and retailers of accessories for auto-

mobiles). The defendant offers numerous proposed find-

ings of fact to demonstrate that the Perma device would

not have sueceeded in either of these markets. Numerous

87a

Appendia G

proposed findings are also offered to demonstrate the rela-

tive failure of the major automobile manufacturers to mar-

ket anti-skid devices as part of the original equipment on

their 1969-1974 models.

Not only have such devices been unsuccessful in the

OEM, but Singer also argues that the Perma device would

not have been selected by the major automobile manufac-

turer. Singer relies on the testimony of its witness Bech-

told that there is a three year development period from

the year in which automotive manufacturers accept an ac-

cessory until the time they offer it as original equipment.

Thus they argue that the Kelsey-Hayes device which Ford

offered in 1968 was necessarily in the Ford product devel-

opment cycle in 1966, when the Perma device was first to

have been marketed. Singer argues that the Perma device

could not have been placed on Ford cars until 1969. In any

case, they contend that the Perma device would have re-

quired extensive and expensive modification in order to

ready it for use on a 1967 model car. Thus they conclude

that the retail price of the Perma device would have been

greater than or equal to the price of the allegedly superior

device which was selected by Ford.

The essence of this line of argument is that in the un-

likely event that the Perma device was selected by the

major car manufacturers, it would have enjoyed only lim-

ited success.

Plaintiff meets these contentions with the observation

that Bechtold, on cross-examination, retreated from his

testimony that the three year Jevelopmental cycle is invari-

able. Thus the Perma device might well have been avail

able to and selected by the major automobile manufacturers

prior to the other comparable devices. Moreover, they

88a

Appendiaz G

point out that the unimpressive sales record of those de-

vices that have been offered as original equipment reflects

the self-evident observation made in the Hill Report that

“sales volume will depend on the amount of promotional

efforts.”

The defendant also argues that there have been virtually

no sales in the aftermarket of the comparable anti-skid

devices which have been available for almost five years.

Plaintiff concurs in that observation which they view as in-

uring to their benefit since the Perma device would have

encountered no competition in the automobile after-

market, admittedly the principal market in which the par-

ties planned to sell the device.

Defendant’s additional proposed findings that Perma had

no marketing experience in the OEM or aftermarket; that

Perma had responsibility under the June contract for mar-

keting the device; and that Perma had not validly assessed

the probable success of the anti-skid device in either the

OEM or aftermarket are equally unavailing to defendant

in its attempt to minimize damages. The first two points

are irrelevant since it was Singer, not Perma, which had

the responsibility of marketing the device under the

December 21, 1964 contract, the relevant contract in this

action. Nor was Perma obligated to assess the probability

of success of the device in the OEM or aftermarket.

Defendant urges a finding that its sales projections were

based totally on Perma’s marketing forecasts. Under the

June contract, Patten, Singer’s sales manager at Elizabeth,

received marketing forecasts from Perma which, when

requested, he would incorporate into internal Singer memo-

randa. In evaluating the merits of what was to become

the December contract, Kloby relied, it is urged, on the

89a

Appendiz G

same sales projections which Perma had supplied under

the June contract. Kloby’s failure to evaluate potential

sales independently can, however, be interpreted as an

endorsement of Perma’s sales projections.

In any case, these figures were accorded sufficient weight

by the defendant to form a basis upon which Singer

decided to take over marketing of the device. Similarly, the

Hill Report to Kloby, discussed supra at pp. 888-889, 895,

cited by the defendant to show the lack of interest in the

device among major automobile manufacturers, also noted

a large potential for sales of the device in the aftermarket.

At the same time that it relies on this report to substantiate

the bleak prospects for the device in the OEM, the defend-

ant challenges the foundation for the report, rendered at

its own request, in an attempt to diminish the impact of

the report’s enthusiastic evaluation of the device’s sales

potential in the aftermarket.

In view of the fact that this report is dated December 14,

1964, only a week before the defendant entered the Decem-

ber 21, 1964 contract in which Singer undertook marketing

responsibility for the device, it is a fair conclusion that

the aftermarket sales projections were perceived by the

defendant as justifying the undertaking despite the limited

sales potential in the OEM.

In Autowest, Inc. v. Peugot, Inc., 434 F.2d 556 (2d Cir.

1970), the evidence admitted on damages for the defen-

ant’s wrongful termination of an automobile distribution

franchise consisted of sales projections prepared by plain-

tiff’s witnesses, both of whom had had years of experience

in the industry. The figures were “the product of delibera-

tion by experienced businessmen charting their future

90a

Appendix G

course.” 434 F.2d at 566. The fact that the projections

were prepared by defendant’s employees in deciding

whether or not to proceed with a course of business was

found to increase their reliability since they were not

“mere ‘interested guess[es]’ prepared with an eye on liti-

gation.” 434 F.2d at 566.

[18] These same indicia of reliability are present in

the figures prepared by Kloby based upon which Singer

entered the December 21, 1964 contract. Kloby, experienced

in market evaluation and surveys, compiled a report at Mr.

Morris’ request evaluating the proposal that Singer take

over marketing responsibility for the device. The defend-

ant relied upon this report in deciding to enter the Decem-

ber contract. Clearly these projections, prepared by the

defendant’s market expert, were not put together with an

eye to litigation. The argument that the figures merely

parrot the reports of Perma to the Elizabeth staff has been

dealt with above. If Singer’s experts judged them suffi-

ciently reliable to justify entering a contract without

further market analyses, then I have no reason to chal-

lenge their accuracy.

For the reasons recited, I find that the so-called Kloby

figures, which projected sales for the first five years of the

ten year contract, provide the best basis on which to com-

pute damages. According to these figures 150,000 units

were to be sold in the first two years that the device was

marketed with 200,000 units being sold in each of the next

five years. These figures are variously substantiated by:

(1) Kloby’s report to Morris on the feasibility of taking

over marketing of the device, which report Morris for-

warded to Mr. Murphy in Singer’s New York office, who, in

9la

Appendix G

turn, reported to his superior Mr. Hough; (2) Hough’s

December 11, 1964 memorandum to his superior, Mr.

Kircher, recommending favorable action on the marketing

proposal; (3) a December 21, 1964 internal Singer memo-

randum for Mr. Torello to Mr. Marsden; and (4) a Janu-

ary 18, 1965 distribution contract between Singer and

Monitor Enterprises, Inc. It is eminently rational to pro-

ject that the 200,000 units per year level which Singer

expected to attain after the first two years would at least

have been maintained for the second five years of the ten

year contract.

Alternative bases for the computation of damages have

been offered by the parties and are rejected. The higher

figure of 250,000 units for the first two years, which is sug-

gested by the plaintiff, is derived from (1) March 13, 1964

minutes of a Singer meeting on the feasibility of entering

the June contract for manufacture of the device and (2)

the June 18, 1964 contract itself. The figures relied on by

Singer in entering the manufacturing contract were out of

date by the time of the December contract and cannot bind

the defendant.

Nor will I base damages on the number of units (approxi-

mately 139,000) which Perma had contracted to sell to dis-

tributors prior to the December contract. The defendant

disputes the reliability of these contracts on the grounds

that the plaintiff failed to prove the size, financial position,

and market experience of the various distributors. Plaintiff

meets this argument with the observation that in 1965

Patten and Kloby undertook negotiations with several of

the distributors in order to induce them to relinquish their

contract rights so that Monitor Enterprises, Inc. (one of

the distributors) could become the exclusive distributor for

92a

Appendix G

the device in the United States. In any case, at the time it

entered the December contract Singer was aware of these

agreements and necessarily considered them as a factor in

formulating the sales projections on which I have deter-

mined to base the damages.

[19] The defendant’s suggested lower figures of 100,000

units for the first two years and none thereafter is equally

unpersuasive. The 100,000 figure is derived from the Hill

Report* of December 14, 1964 which predated several of

the documents listed above which demonstrate that Singer

entered the December contract with the higher figures in

mind. Similarly, limiting damages to two years ending in

the fall of 1968 when the Kelsey-Hayes device became avail-

able is unacceptable since according to the defendant’s own

proposed findings of fact the Kelsey-Hayes device was

never promoted in the aftermarket and would, therefore,

have posed no threat to the Perma device which was to have

been sold predominantly in the aftermarket.

[20] The royalties were to be paid, according to the

terms of the December 21, 1964 contract, as follows: (1) as

to sales in the aftermarket, none on the first 36,700 units,

10% of the factory invoice price for a period of 5 years,

and 5% of the factory invoice price for an additional 5

years; (2) as to sales in the OEM, 5% of the factory invoice

price for a period of 10 years from the date of the contract;

(3) as to royalties received by Singer on the manufacture

and use of the device by licensees in the OEM, 25% of such

royalties for a period of 10 years from the date of the con-

_ ™ Apparently the defendant views this document as a mixed bless-

ing which it will endorse when favorable, but will ignore when

damaging.

93a

Appendix G

tract. Since damages on this last basis would be too specu-

lative, no such licensing contracts having been negotiated,

damages will be computed solely on the first two provisions

for direct sales of the device.

[21] The parties agree that the device was first to have

been marketed in 1966, thus damages will be assessed be-

ginning in that year. It is clear from the proof that the

projected sales for the first two years were to be made

solely in the aftermarket, therefore the 10% royalty is appro-

priate for that period. As to the remaining years in the

first five year portion of the December 1964 contract, it

would be equitable to apportion the damages for sales in

both the aftermarket and the OFM. There being no ade-

quate proof on which to make such an apportionment, a

compromise royalty of 744% will be applied to sales for

those 2 years.

According to Singer’s January 18, 1965 contract with

Monitor, the factory invoice price was to be $51. Addi-

tional factors which should be taken into account are simple

interest (New York CPLR § 5001) as fixed by New York

CPLR §5004 and market expansion as reflected in the

increased auto registration for each of the relevant years.

[22] The damages will not reflect a factory invoice price

adjustment based on inflation. Such an adjustment could

only be made after similarly adjusting manufacturing costs

upon which there is inadequate proof. Moreover, after all

the necessary adjustments were made it is unlikely that the

result would be significantly altered.

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

94a

Appendix G

Computation of Damages Exclusive of Interest to be

Computed by the Parties in the Proposed Judgment

50,000

— 36,700

13,300

x $5.10

$67,830

102,600

_X$5.10

$523,260

210,907

X$3.83

$807,773.81

218,921

X $3.83

$838,467.43

226,583

$2.55

$577,786.65

232,248

$2.55

$592,232.40

243,164

$2.55

$620,068.20

251,675

$2.55

$641,771.25

260,484

$2.55

$664,234.20

(units )

( units )

(units)

(units )

(units )

(units)

(units )

(units)

( units)

(10% of invoice price)

(including market growth

based on increased registra-

tion)

(74% of invoice price)

(5% of invoice price)

(based on projected market

increase derived from the

average market increase

from 1966-1972)

(based on projected market

increase )

95a

Appendix G

CONCLUSION

Judgment will enter for the plaintiff in accordance with

this opinion along with interest to be calculated at the legal

rate on a monthly basis from the date of the incurrence of

the damages awarded. ‘The defendant is to bear the entire

costs.

Settle judgment on notice.

96a 97a

Appendix G Appendiz G

APPENDIX “A” APPENDIX “A"—Continued

Nov. 11, 1969 F. A. PERRINO 3,477,765 Nov. 11, 1969 F. A. PERRINO 3,477,765

ACCELERATION RESPONSIVE DCVICES FOR ANTI-SKID UNITS ACCELERATION RESPONSIVE DEVICES FOR ANTI-SKID UNITS

Original Filed Nov, 2, 1964 @ Sheets-Sheet 1 Original Filed Nov. 2, 1964 7 Shects-Shoot 2

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Appendix G

Appendix G

APPENDIX “A”—Continued

APPENDIX “A"—Continued

765

3,477,

F. A. PERRINO

ACCELERATION RESPONSIVE DEVICES FOR ANTI-SKID UNITS

Original Filed Nov. 2, 1964

Nov. 11, 1969

F. A. PERRINO 3,477,765

ACCELERATION NCSPONSIVE DEVICES FOR ANTI-SKID UNITS

Nov. 11, 1969

Original Filed Nov. 2, 1964

7 Sheels-Sheet

7 Sheets-Shect 3

FRANK A PERRINO

Poem eter

100a 101a

Appendix G Appendix G

APPENDIX “A"—Continued APPENDIX “A"—Continued

Nov. 11, 1969 F. A. PERRINO 3,477,765 Nov. 11, 1969 F. A-PCRRINO 3,477,765

ACCELERATION RESTONSIVE DEVICES FOR. ANTI-SKID UNITS ACCELERATION RESPONSIVE OCVICES FOR ANTI-SKIO UNITS

Original Filed Nov, 2, 1964 7 Sheets-Sheot § Original Filed Nov. 2, 1964 T Sheete-Sheot 6

FIG 8

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D eee A. PERRINO

Moh), Seton

102a

Appendix G

APPENDIX “A”—Continued

Nov. 11, 1969 F. A. PERRINO 3,477,765

o

ACCELERATION RESPONSIVE DEVICES FOR ANTI-SKID UNITS

Original Filed Nor, 2, 1964 7 Sheets-Sncet ?

108a

Appendix G

APPENDIX “B”

Wim FE. Hirt & Company, Ivo.

Management Consultants

New York London Brussels

640 Fifth Avenue

New York 19

Judson 2-5959

Cable: Hillwamao New York

December 14, 1964

Mr. Robert A. Kloby

Director of Forward Planning

The Singer Company

Elizabeth Plant

321 First Street

Elizabeth, New Jersey

Dear Mr. Kloby:

In accordance with your assignment, a preliminary sur-

vey of short-term prospects for the Perma anti-skid control

has been completed. The following report summarizes the

findings and conclusions of this survey, which were re-

viewed with you November 11 in Elizabeth.

Sincerely yours,

William E. Hill & Company

104a

Appendix G

APPENDIX “B”—Continued

The Singer Company

PRELIMINARY MARKET SURVEY

PERMA ANTI-SKID CONTROL

The objective of this project has been to assist manage-

ment in determining the short-term market prospects for

the Perma anti-skid control. Although determination of

sales potential was the principal objective, the issue of

product performance arose during the course of the project

as an important consideration, and the subject has been

covered in the report.

Following orientation meetings with Singer and Perma

management, the conduct of the survey included meetings

with key industry sources such as automotive brake and

safety engineers, auto manufacturer marketing personnel,

fleet operators and safety engineers, a fleet operation con-

sultant, specialty automotive part distributors, new-car

dealers, and several Perma distributors.

The principal findings and conclusions resulting from

this preliminary study are summarized below.

1. Automotive engineers have recognized for many

years that it is possible and highly desirable to im-

prove the braking operation by adding to the vehicle

braking system a mechanism that would sense an im-

pending locked-wheel condition and prevent the brakes

from coming to a completely locked condition. A sys-

tem which could do this would allow the car to be

stopped somewhat faster and give greater steering

control in a panic stop situation. The Perma control

105a

Appendix G

APPENDIX “B”—Continued

is one of several systems that automotive engineers

have evaluated in recent years in their search for a

system which will give the desired improvement in

braking performance at a reasonable price.

2. The Perma anti-skid control falls short of meet-

ing requirements of automotive engineers, and does

not provide the improvement possible in theory. The

consensus of the many engineering tests that have been

run on the unit indicate that the Perma control, as

compared to a panic or locked-wheel stop, gives

improved steering control, but requires a greater dis-

tance to come to a complete stop. The automotive

brake and safety engineers who have reviewed its

performance do not agree on the value of the Perma

anti-skid control, and are about evenly divided on

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