Petitioners Brief — Patch v. Solar Corp.

10

Supreme Court of the United States

OCTOBER TERM, 1944 3

Tapped acest

ALLEN J. PATCH,

Petitioner and Appellee Below,

vs.

SOLAR CORPORATION,

Respondent and Appellant Below.

BRIEF IN SUPPORT OF PETITION

I.

OPINIONS OF THE COURT BELOW

The opinion of the District Court of the Eastern Dis-

trict of Wisconsin has not yet been reported, and is

printed at R. p. 38. Findings of Fact, Conclusions of Law

appear at R. p. 41. The decree entered in the District

Court is printed at R. p. 44. The opinion of the Circuit

Court of Appeals for the Seventh Circuit appears at

R. p. 56 and has not been reported. The order denying

the Petition for Rehearing made by the Circuit Court of

Appeals appears R. p. 63. No opinion was filed at that

time.

II.

STATEMENT OF THE CASE

This case has been stated in the preceding Petition

under paragraph I which is hereby adopted and made

a part of this brief.

11

III.

SPECIFICATION OF ERRORS

The errors which Petitioner will urge if the Writ of

Certiorari is allowed, are that the Circuit Court of

Appeals for the Seventh Circuit erred:

1. In holding that the Limitation Order of the War

Production Board limiting the manufacture of laundry

equipment, in legal effect suspended the exclusive license

and the right of Plaintiff to the minimum royalties pro-

vided by that agreement, while the Order remained in

effect.

2. In holding that the ‘imitation order of the War

Production Board limiting the manufacture of laundry

equipment frustrated the part of the agreement of the

parties providing for cancellation of the exclusive license

upon failure to pay a certain minimum sum during a

calendar year.

3. In holding that the Plaintiff was not entitled to

judgment as decreed by the District Court of the United

States for the Eastern District of Wisconsin.

4. In holding that the Respondent is entitled to a

judgment and decree that it is the owner of an exclusive

right to make and sell Petitioner’s patent device to chain

store, mail order and rubber tire companies, as prayed

for in its Answer and Counterclaim.

5. In holding that the service of the notice of can-

cellation for failure to pay the minimum stipulated

royalty upon the nonpayment thereof by the Respondent

amounted to a forfeiture, which should be relieved

against by permitting the Respondent to retain the ex-

clusive license without payment of the agreed considera-

tion.

RIGS ee > PRGA NS Ee Or EE FO —

6. In reversing the judgment of the District Court

of the Eastern District of Wisconsin.

IV.

SUMMARY OF THE ARGUMENT

1. That the Circuit Court of Appeals for the Seventh

Circuit, has decided a question of general importance

contrary to the decisions of this Court and to the weight

of authority, in holding that the application of the doc-

trine of frustration suspended the performance of the

contract and cancelled the right of licensor to terminate

the exclusive license upon failure of licensee to pay the

minimum royalty, and in holding that the suspension

created only a temporary impossibility of performance

contrary to the decisions of this Court in the cases of:

The Kronprinzessin Cecile, 244 U. S. 12; Texas v.

Hogarth Shipping Company, 256 U. S. 619 dtyria v.

Morgan, 186 U. S. 1, and to the general applied in

other jurisdictions, Thompson v. Thompson, 315 Illinois

521, 146 N. E. 45; Metropolitan Water Board v. Dick

Kerr, etc., 2 K. B. 1, affirmed 1918, A. C. 11% Fibrosa , .

Spolka Akeyjna v. Fairbairn L. C. Barbour, Limited, 167

L. T. N. S. 101, 144 A. L. R. 1298 (H. of L.); Berg v. *

Erickson (C. C. A. 8), 234 Fed. 817; Edward Maurer

Company, Inc., v. Tubeless Tire Company (D. C. Ohio),

272 Fed. 990, affirmed (C. C. A. 6), 285 Fed. 713; Otto v.

Orange Screen Co. (D.C. D. N. J.), 57 Fed. S. 134; Ohio

Citizens Trust Company v. Airway Electric Appliance

Corporation (D. C. Ohio), 56 Fed. S. 1010.

2. The Circuit Court of Appeals, for the Seventh Cir-

cuit, in holding that the exclusive license in the case at

bar was suspended and the right of cancellation frus-

trated by the Limitation Order of the War Production

13

Board has decided an important question of Federal

Law, which has not been, but should be settled by this

Court, because a different principle has been applied in

the cases of Berg v. Erickson (C. C. A. 8th), 234 Fed.

817; Maurer v. Tubeless Tire Company (C. C. A. 4th),

285 Fed. 713; Otto v. Orange Screen Co. (D.C.D. N. J.),

57 Fed. S. 134; Ohio Citizens Trust Company v. Airway

Electric Appliance Corporation (D. C. Ohio), 56 Fed. S.

1010, and in a way probably in conflict with the prin-

ciples announced in the decisions of this Court, in the

cases of Allanwilde Transport Co. v. Vacuum Oil Co.,

248 U. S. 377; The Styria v. Morgan, 186 U. S. 1; New

York Life Ins. Co. v. Stratham, 93 U. S. 24; Texas Co. v.

Hogarth Shipping Co., 256 U. S. 619; Columbus Railway

& Power Company v. Columbus, 249 U. S. 399.

3. That the Circuit Court of Appeals for the Seventh

Circuit, has decided an important question of local law

in a way probably in conflict with the applicable local

decisions. Wernli v. Collins, 87 Iowa 548, 54 N. W. 365;

District Township of Union v. Smith, 39 Iowa 9, 18 Am.

Rep. 39; Mahaska County State Bank v. Brown, 159

3 Iowa 577, 121 N. W. 459; Rhea v. Adder Machine Co.,

1289 Iowa 1085, 178 N. W. 359; Salinger v. General Ex-

change Ins. Corp., 217 Iowa 560, 250 N. W. 13.

PPUFUEUEU Ew ↄ ù ͤ ꝰ²! o ME A I PEF IPE RENO ELEY ROR Bo MEL Se RII RR

14

V.

ARGUMENT

1. THAT THE CIRCUIT COURT OF APPEALS

FOR THE SEVENTH CIRCUIT, HAS DECIDED A

QUESTION OF GENERAL IMPORTANCE CON-

TRARY TO THE DECISIONS OF THIS COURT AND

TO THE WEIGHT OF AUTHORITY, IN HOLDING

THAT THE APPLICATION OF THE DOCTRINE OF

FRUSTRATION SUSPENDED THE PERFORMANCE

OF THE CONTRACT AND CANCELLED THE RIGHT

OF LICENSOR TO TERMINATE THE EXCLUSIVE

LICENSE UPON FAILURE OF LICENSEE TO PAY

THE MINIMUM ROYALTY, AND IN HOLDING THAT

THE SUSPENSION CREATED ONLY A TEMPORARY

IMPOSSIBILITY OF PERFORMANCE CONTRARY TO

THE DECISIONS OF THIS COURT, IN THE CASES

OF: The Kronprinzessin Cecile, 244 U. S. 12; Texas v.

Hogarth Shipping Company, 256 U. S. 619; The Styria v.

Morgan, 186 U. S. 1, and to the general rule applied in

other jurisdictions, Thompson v. Thompson, 315 Illinois

521, 146 N. E. 45, Metropolitan Water Board v. Dick

Kerr, etc., 2 K. B. 1, affirmed 1918, A. C. 119; Fibrosa

Spolka Akeyjna v. Fairbairn L. C. Barbour, Limited,

167 L. T. N. S. 101-144, A. L. R. 1298 (H. of L.); Berg v.

Erickson (C. C. A. 8), 234 Fed. 817; Edward Maurer

Company, Inc., v. Tubeless Tire Company (D. C. Ohio),

272 Fed. 990, affirmed (C. C. A. 6), 285 Fed. 713; Otto v.

Orange Screen Co. (D.C. D. N. J.), 57 Fed. 134, Ohio Citi-

zens Trust Company v. Airway Electric Appliance Cor-

poration (D. C. Ohio), 56 Fed. 1010.

Exceptional circumstances, peculiarly affecting the

public and the state of general law are sometimes deemed

sufficient to warrant the granting of a Writ of Certiorari

BEET TELE EER LE LEA PEN Cat tA SPOILERS * a ——

15

to examine the soundness of a decision of the Circuit

Court of Appeals, even in the absence of a conflicting

decision on the same matter in another Circuit. Such cir-

cumstances are not restricted to those arising from facts

of any particular character; the reason is that it is in the

interest of the law and the need of “securing harmony of

decision and the appropriate settlement of questions of

general importance, so that the system of Federal jus-

tice may be appropriately administered,” to use the

language then Chief Justice Hughes employed in an

address.“ The power of this Court is “co-extensive with

all the possibilities,” Forsyth v. Hammond, 166 U. S.

506, 514.

In the case at bar no question of the title to, or validity

of, the patent is at issue. The real problem is the ques-

tion of the effect of the emergency orders of a Federal

agency issued pursuant to an Act of Congress, upon a

private contract.

The Case at bar presents a situation remarkably free

of other issues, and squarely poses the question as to the

effects of the orders of the War Production Board under

the emergency Acts of Congress upon a contract. It is

apparent that the rule adopted by the Circuit Court of

Appeals of the Seventh Circuit would be held to apply to

all contracts irrespective of their nature. An examina-

tion of the authority cited by that Court in support of

its position indicates chat by its decision, the Circuit

Court of Appeals has adopted a general rule of law

effecting all types of contracts in a field marked by con-

fusion and contrary to the ruling in two other Federal

Courts. District Judge Kloeb of Ohio states in his deci-

sion in Ohio Citizens Trust Company v. Airway Electric

Appliance Corporation, 56 Fed. 1010, at page 1017:

«See 48 Harvard Law Review 262.

7 77727 ³¹i ] Ü³Ü—Ü ſ m ꝗ]ꝗ ꝶ t,“ 8

16

“The doctrine of the dissolution of a contract by

reason of the frustration of its commercial object

arose in England, and was adopted to some extent

in this country. The authorities, however, appear

to be in a state of hopeless confusion both here and

in England in the application of the rule.”

And in the case the District Court refused to apply the

rule adopted by the Circuit Court of Appeals to a situa-

tion which is practically identical to that in the case

at bar.

The same point was before the Court in the case of

Otto v. Orange Screen Company decided in the District

Court of New Jersey, and that Court decided as did the

New Jersey Court. Otto v. Orange Screen Company, 57

Fed. S. 134, 140. The application of the doctrine of frus-

tration has been urged in a great variety of cases noted

in 137 A. L. R. 1199 and subsequent notes, The extent of

commerce is widespread, of which the subject matter is

the use of a patented article, and license agreements con-

cerning their use affect a great portion of the common

articles of trade and gommerce, as was observed by

Justice Black in his dissent in the case of General Pic-

tures Company v. Electric Company, 304 U. S. 175, 186.

Since such license agreements are very common and

numerous, the question of the extension of the doctrine

of frustration to them, altering their terms and their

effect, as is done by the Circuit Court of Appeals in its

decision below, presents a question of the greatest im-

portance in the commercial world, and one peculiarly the

subject of litigation in Federal Courts because of the

nature of the matter involved.

And not only are license agreements altered, by the

decision below, but the whole field of contract law is

affected because there are a multitude of agreements,

which have in some manner, been affected by the impact

BE EERE ELE LONI IE NN, r WER e

17

of war and the necessary governmental regulation there-

by caused. The importance of this litigation from a

public viewpoint and its general effect has been admitted

by the Respondent in its Brief filed in the District Court

below. In this Brief it states:

“It seems inevitable, however, that there will be

much similar litigation in the not distant future.

For that reason the final decision in this action may

well have far-reaching influence.”

We urge, therefore, that the problem presented is one

of general importance in the field of law and of concern

to the commercial interests of the country as a whole

and to the bar generally, and that these conditions and

the necessity of a final determination of the application

of the principles announced by the Circuit Court of Ap-

peals in its decision below earnestly press—with con-

vincing cogency it is believed—for the granting of the

Writ in the case at bar.

2. THE CIRCUIT COURT OF APPEALS, FOR THE

„ SEVENTH CIRCUIT, IN HOLDING THAT THE Ex-

CLUSIVE LICENSE IN THE CASE AT BAR WAS

SUSPENDED AND THE RIGHT OF CANCELLATION

FRUSTRATED BY THE LIMITATION ORDER OF

THE WAR PRODUCTION BOARD HAS DECIDED AN

IMPORTANT QUESTION OF FEDERAL LAW,

WHICH HAS NOT BEEN BUT SHOULD BE SETTLED

BY THIS COURT BECAUSE A DIFFERENT PRIN-

CIPLE HAS BEEN APPLIED IN THE CASES OF:

Berg v. Erickson (C. C. A. 8th), 234 Fed. 817; Maurer v.

Tubeless Tire Company (C. C. A. 4th), 285 Fed. 713;

Otto v. Orange Screen Co. (D.C.D. N.J.), 57 Fed. S. 134;

Ohio Citizens Trust Company v. Airway Electric Ap-

pliance Corporation (D. C. Ohio), 56 Fed. S. 1010, and in

18

a way probably it conflicts with the principles announced

in the decisions of this Court in the cases of Allanwilde

Transport Co. v. Vacuum Oil Co., 248 U. S. 377; The

Styria v. Morgan, 186 U. S. 1; New York Life Ins. Co. v.

Stratham, 93 U. S. 24; Texas Co. v. Hogarth Shipping

Co., 256 U. S. 619; Columbus Railway & Power Com-

pany v. Columbus, 249 U. S. 399.

The authority of the War Production Board to issue

the limitation order regulating the manufacture of

laundry equipment by imposing preferences and limita-

tions upon the procurement of materials, has its basis in

the Act of Congress of June 28, 1940 (Public Act 671,

54 Stat. 676), as amended by the Act of May 21, 1914

(Chapter 157, 55 Stat. 236), 50 U. S. C. A. Appendix,

Section 1151, et seq., and in the Executive Orders of the

President issued subsequent thereto, delegating the

authority so vested in him to that Board.

Pursuant to such authority the War Production Board

has issued limitation orders affecting almost the entire

field of materials employed in the construction of goods,

war and civilian, including automobiles, trucks, radia-

tors, refrigerators, office furniture and equipment,

vacuum cleaners, tractors, farm machinery, sewing

machines, and many others, to mention just a few of the

great field covered by these orders.’

Because many machines employ a patented device, the

use of which is secured by means of a license, there is

presented in the case at bar a problem, the solution of

which has far-reaching effects. The regulations and

orders issued by W. P. B. and other Federal Agencies

naturally are designed to have and do have effect

throughout the entire United States, and have the force

of a federal law or statute, United States v. Eaton, 144

5See W. P. B., Products and Priorities.” May, 1945.

RAB PE RER, SERRE PL PAE RY bh et NOSE SCI MRR BERTIE OE NEI RENEE RES TOYA ARR EEN NI OS

e

19

U. S. 677, Maryland Casualty Company v. United States,

251 U. S. 342, 349. The situation presented in the case at

bar is one which arises in the area of “judicial decision

within which the policy of the law is so dominated by the

sweep of Federal Statutes, that legal relations which

they affect must be deemed governed by the Federal

Law having its source in those Statutes, rather than by

local law.” Sola Electric Company v. Jefferson Electric

Company, 317 U. S. 173. °

The source of the Federal power in the case at bar is

Chapter 157, 55 Stat. 236, approved May 31, 1941, 50

U. S. Code App., Sec. 1152, which amended Section 2 (A)

of the Act approved June 28, 1940, Chapter 440, 54 Stat.

676. The 1940 Act authorized the establishment of priori-

ties in deliveries upon contract with the Secretary of the

Navy during the National Emergency declared by the

President, The 1941 Act broadened the powers and pro-

vided that whenever the President is satisfied that the

fulfillment of requirements for the defense of the United

States will result in a shortage in the supply of any

material * * * for defense or for private account or for

export, the President may allocate such material * * “.“

And further provided:

“The President may exercise any power, author-

ity or discretion conferred on him by this section

through such Department, agency or officer of the

government as he may direct, and in conformity

with any rules and regulations which he may pre-

scribe.”

The Act of 1940 was amended on March 27, 1942, in

the Second War Powers Act (56 Stat. 177) to cover

shortages of “Any facilities for defense,” as well as

“material,” and the powers of the President to investi-

gate shortages were broadened and defined in detail.

On August 28, 1941, by executive order the President

authorized the Office of Production Management to per-

form the functions of the allocations of material; and

later, by executive order transferred these functions

from the Office of Production Management to the War

Production Board.

Certainly, the impact of the order of the War Pro-

duction Board limiting the manufacture of laundry

equipment, or any other product limited by its orders,

should have the same effect upon a license agreement

between the parties to that agreement, whether the agree-

ment is made in one State or the other, or is performed

in one State or the other. The practical question for solu-

tion is not the status or meaning of the terms of the par-

ticular license agreement under the local law, but of the

effect of the Federal Regulation upon the terms of the

agreement, by implication or otherwise. If the effect of

the limitation order upon the license agreement in this

case was to impose by implication “a condition excusing

both parties from performance,” and to suspend the

operation of the cancellation claus*, as was held by the

Circuit Court of Appeals, then all such agreements and

all types of contracts, wherever made and wherever per-

formed in the United States, whose performance was

interfered with by a similar governmental order or regu-

lation, must of necessity have a similar clause ingrafted

into them by the operation of Federal Law. These facts,

we respectfully urge, present a Federal question, of gen-

eral importance.

In Texas Co. v. Hogarth Shipping Company, 256 U. S.

619, this Court held that a shipping contract was dis-

solved in its entirety, by the act of a government in

sequestering a vessel, and that both parties were ex-

cused from further performance of the contract. The

TO ees treet Ge Ng RR ff RETR! ILE YS

21

Circuit Court of Appeals in its decision below cites from

that case and states that it illustrates the rule applicable

to the case at bar, but in its decision the cancellation

clause in the contract was frustrated and that perform-

ance by defendant was suspended. The principle an-

nounced in the Hogarth case finds support in the cases of

Allanwilde Transport Co. v. Vacuum Oil Co., 249 U. S.

377, and The Kronprinzessin Cecile, 244 U. S. 12.

The Circuit Court of Appeals holds that this extension

of the contract, or suspension, is the result of an implied

condition in the contract. To the contrary, this Court

has cited with approval the doctrine of Geipel v. Smith

(1872), L. R. 7 Q. B. 404, to the effect that a state of war

interfering with a shipping contract under orders issued

must be presumed to be likely to continue so long as to

destroy and defeat a commercial venture, in The Styria

v. Morgan, 186 U. S. 117.

The doctrine considered applicable by the Court be-

low had its origin in England in the so-called Coronation

Cases, but in England, orders similar to such as are here

involved are held to end the contract and not to merely

suspend it. Metropolitan Water Board v. Dick Kerr &

Co., 1917 2 K. B. 1, 1918 A. C. 119.

The rule approved in England is that a state of war

must be presumed to be likely to continue so long and to

disturb the commerce of merchants so as to defeat and

destroy the objects of a commercial venture, Fibrosa

Spolka Akeyjna v. Fairbairn L. S. Barbour, Ltd. (H. of

L.), 167 L. T. N. S. 101, 144, A. L. R. 1298.

The English rule holds that the implied term must not

be inconsistent with an express term of the contract

itself, Re Badische Company, 1921 2 Ch. 231. With this

authority the District Courts of Ohio and New Jersey

agree, and to hold contrary to the Circuit Court of Ap-

peals in its decision below. Otto v. Orange, supra, and

Ohio Citizens Trust Company v. Airways Company,

supra.

With this diversity of opinion upon a question of fed-

eral law, it would be of public benefit, of assistance to

the commercial world, and to the bar of the country as

a whole, if a final decision on the merits of the question

could be had from this Court.

III.

THAT THE CIRCUIT COURT OF APPEALS FOR

THE SEVENTH CIRCUIT HAS DECIDED AN IMPOR-

TANT QUESTION OF LOCAL LAV IN A WAY PROB-

ABLY IN CONFLICT WITH APPLICABLE LOCAL

DECISIONS. Wernli v. Collins, 87 Iowa 548, 54 N. W.

365; District Township of Union v. Smith, 39 Iowa 9,

18 Am. Rep. 39; Mahaska County State Bank v. Brown,

159 Iowa 577, 585, 121 N. W. 459, 462; Salinger v. Gen-

eral Exchange Ins. Corp., 217 Iowa 560, 250 N. W. 13.

The license agreement in the case at bar was executed

in the State of Iowa and at that time the Beam Company

manufactured the machines in which the patented device

was used in that State (R. p. 30). Thereafter, Beam

merged with Solar Corporation and that company in-

tends to engage in the manufacture of the machines

probably at the plant in Iowa (R. p. 30), when the ban

on production is lifted and materials are again available.

Petitioner performed the contract by granting the

license in Iowa (R. pp. 42, 5). Should this Court be of the

opinion that the question in this case is one to which the

rule of Erie Railroad Company v. Thompkins, 304 U. S.

64, applies, then the local law governing the question is

the law which would be applied under the doctrine of the

conflict of law rules by the Wisconsin Court, Klaxon

5

1

23

Company v. Stentor Electric Manufacturing Company,

313 U. S. 487, 496, and it was the duty of the Circuit

Court to determine the applicable law, not what it ought

to be.

Under the Wisconsin decisions, the usual rule of con-

flict of laws is enforced—that is, the law of a place of

making the contract governs as to its validity and inter-

pretation, and it will be enforced in the form unless it is

contrary to the public policy of the forum. International

Harvester Company v. McAdam, 142 Wis. 114, 124 N. W.

1042, 26 L. R. A. (N.S.) 774, 20 Anno. Cases 614. An

agreement to pay a royalty for the use of a patent by

license agreement is enforced in Wisconsin, Lauth v.

McKenna Steel Working Company, 160 Wis. 309, 151

N. W. 797.

Consequently, whether the law of the forum is applied,

or that of Iowa, the result should be the same.

The Circuit Court of Appeals cites two Iowa cases in

support of its conclusion in the case at bar, Fritzler v.

Robinson, 70 Iowa 500, 31 N. W. 61, and Carr v. White-

breast Fuel Co., 88 Iowa 136, 55 N. W. 205. We respect-

fully submit that neither of these cases is authority for

the propositions announced by the Circuit Court.

Fritzler v. Robinson, supra, involved a lease of coal

mining lands, the defense in a suit to recover a minimum

royalty was that by mutual mistake of fact there was no

coal to be mined in the land. The Iowa Court held that

the evidence was not sufficient to sustain the claim that

a condition for non-payment was intended to be inserted

in the lease in the event no coal was found, but held

that because there was in fact no coal at all in the land

there was a total failure of consideration and there was

therefore no contract. Here the District Court found as

a fact that the plaintiff had fully performed (R. p. 42).

—

24

Could there be here a total failure of consideration mak-

ing the contract nudum pactum from its very inception?

In Carr v. Whitebreast Fuel Co., supra, the facts are

somewhat different, since in that there was not an entire

lack of coal to be mined, but the amount was insufficient.

The basis of the decision is not frustration, but depends

on the construction of the meaning of the terms of the

lease involved. Construction is not in the present case,

the basis of the decision of the Circuit Court of Appeals

below, as is evident from a reading of the opinion.

The rule of law in Iowa on the doctrine of impossi-

bility of performance is the one generally followed. It is

clearly announced in District Township of Union v.

Smith, 39 Iowa 9, 18 Am. Rep. 39:

“When one binds himself by his solemn agree-

ment to do an act he is held liable for its nonper-

formance, though it is rendered impossible by events

over which he had no control. If performance is ren-

dered impossible by the destruction of the subject

matter of the contract or by death of the person

upon whose life performance depends and the like,

the obligor will be discharged, but the law holds

that events against which parties could have pro-

vided in their agreement, shall never be alleged as

an excuse for the nonperformance of obligations

into which they have entered.“

This language is approved in the case of Salinger v.

General Exchange Ins. Corp., 217 Iowa 560, 250 N. W. 13.

The doctrine of impossibility of performance is recog-

nized by the Iowa Court in Mahaska County Savings

Bank v. Brown, 159 Iowa 577, 585, 121 N. W. 459, 462,

where the Court said:

“The parties contracted on the basis that the

assets of the estate would continue in the hands of

the assignee and necessarily there was to be implied

therefrom the condition that if these were certainly

i Bae eS 3 SEE A RE ee ee eh ER EES SR. RR age eT SRT IMS 2

25

removed therefrom without the fault of either party

as by the institution of bankruptcy proceedings,

performance would be excused. This was not à con-

dition against which the exercise of ordinary pru-

dence the parties could be expected to have pro-

vided. Ordinarily a contingency which reasonably

can be anticipated must be provided for by the

terms of the contract, else the impossibility of per-

formance resulting therefrom will not excuse either

party from carrying out the contract.”

From these decisions by the Iowa Court, it is apparent

that the ordinary common law rules on impossibility of

performance are applied there. No case is found in which

that Court has held that this doctrine has the effect of

suspending the obligation of a contract to pay a stipu-

lated license fee and the right to cancel upon nonper-

formance.

The Circuit Court below cites the case of Mutual Bene-

fit Life Insurance Company v. Henrietta Hillyard, 37

N. J. L. 444, to sustain its position that the contract is

suspended. That case involved an insurance policy, the

suit on which arose shortly after the Civil War. The New

Jersey Court held that the war or rebellion made the

transmission of money between citizens of the North

and the South illegal, because of the state of war, and

that upon the end of the hostilities the insured would

have the right to reinstate the policy by payment of the

premium due plus interest thereon. The Circuit Court

below has misapplied the rule of that case, since in the

case at bar the order of the Federal Government did not

prevent the payment of money and it was a legal act for

the licensee to pay. Further, the contract in the case at

bar is not between subjects of belligerent nations. The

rule of the Hillyard case is not followed in this Court,

New York Life Insurance Company v. Stratham, 93 U. S.

24, decided three years later.

26

The Circuit Court below also cites as authority Hess

Bros. v. Great Northern Pail Co., 175 Wis. 465, 468, 185

N. W. 542. The language referred to is obiter dicta, and

the decision itself does not in any way conflict with the

general rule applicable to a case of the indefinite suspen-

sion of the possibility of performance of a commercial

contract.

The rule applicable in Wisconsin appears in Lauth v.

McKenna Steel Working Co., 116 Wis. 309, 151 N. W. 797,

where the Wisconsin Court said:

“The Plaintiff (licensor) is thereby (by the license

granted) deprived of his use of his patent and the

defendant has the right to use the device covered by

them or keep them off the market. It is a right

which the defendant acquired to use or not to use

at its pleasure for which it is paying and not for the

use of the particular device.”

The Court below also cites and relies on 6 Williston,

Contracts, Section 1957, p. 5490, where that author deals

with “temporary impossibility.” In the next section of

the same text, that is, 1958, the author treats of Impos-

sibility of uncertain duration” and refers to the case of

Allanwilde Transport Co. v. Vacuum Oil Co., 248 U. S.

377, where this Court said, p. 386:

“* * * and it is further urged that such embargo

was at most but a temporary impediment, and the

cargo should have been retgined until the impedi-

ment was removed, or ported in a vessel not

subject to it. We cannot concur in either contention.

The duration was of indéfinite extent. Necessarily,

the embargo would be continued as long as the

cause of its imposition—that is, the submarine

menace—and that, as far as could be inferred, would

be for the duration of the war, of which there could

be no estimate or reliable speculation. The condition

was therefore, so far permanent as naturally and

justifiably to determine business judgment and ac-

vo N .

7 ene Reer

27

tion depending upon it. The Kronprinzessin Cecile,

244 U. S. 12.”

The general rule as applied in Federal Courts appears

to be that governmental action because of war will not

be held to frustrate a contract. Luchenback S. S. Co. v.

W. R. Grace & Co. (C. C. A. 4), 267 Fed. 676; Maurer Co.

v. Tubeless Tire Company, 272 Fed. 990; Columbus Rail-

way & Power Company v. Columbus, 249 U. S. 399; Otto

v. Orange Screen Company, 57 Fed. S. 134; Ohio Citizens

Trust Company v. Airways Co., 56 Fed. S. 1010.

We submit that whether the matter be treated as one

of the effect of a federal rule upon the rights of parties

to a contract or as one concerning the applicability of

the law of the place of making the contract, the decision

below is against the overwhelming weight of authority.

CONCLUSION

Because of its importance and the general applica-

bility of the rule of law announced, in the field of con-

tract law, this case is one calling for the exercise by this

Court of its supervisory powers by granting a Writ of

Certiorari and thereafter reviewing and reversing said

decision.

Dated July 27th, 1945.

JAMES G. NYE,

Attorney for Petitioner,

Alworth Building,

Duluth 2, Minnesota.

THOMAS M. McCABE,

ARTHUR M. CLURE,

Of Counsel,

700 Torrey Building,

Duluth, Minnesota.

28

MEMORANDUM OF AGREEMENT

This Agreement, made and entered into this 19th day

of June, 1937, by and between Beam Manufacturing

Company, an Iowa corporation, of Webster City, Iowa,

hereinafter referred to as “Licensee,” and Allen J. Patch,

of South Bend, Indiana, and Ripon, Wisconsin, herein-

after referred to as “Licensor,” Witnesseth;

Whereas, Licensor is the owner of United States

patent No. 1,964,440, subject to a shop right in the Bar-

low & Seelig Company of Ripon, Wisconsin, and of cer-

tain ideas for washing machine transmissions, and

Licensee desires to avail itself of said patent and ideas

and to acquire certain rights thereunder: and whereas

this agreement is a culmination of the option agreement

of March 4, 1937, signed by Licensor and the extension

thereof by Licensee’s letter of April 30, 1937, said option

agreement being merged herein without limiting the

scope or application of this agreement;

Now, Therefore, the parties hereto, each in considera-

tion of the covenants and agreements hereinafter con-

tained on the part of the other, agree as follows:

1. The transmissions covered by this agreement are

the so-called “link” transmission covered by said patent

No. 1,964,440 and as used by said Barlow & Seelig Com-

pany, and any other modified forms of same or improve-

ments thereon, as developed by Licensor, whether cov-

ered by patents or otherwise.

2. Subject to the terms and conditions hereof,

Licensor grants to Licensee a non-exclusive license to

make or to have made, use and sell said transmissions in

and throughout the United States of America, its terri-

tories and possessions, for sale or use anywhere in the

world: and, subject to any shop rights of said Barlow &

Seelig Company, Licensor grants to Licensee the sole

and exclusive right and license for the manufacture and

sale of said transmissions to the chain store, mail order

and rubber tire companies. To carry out the intent of

this exclusive feature of this license, Licensor agrees to

grant no future license during the continuance of this

exclusive feature of the present license, except to a

29

manufacturer or manufacturers selling only to inde-

pendent jobbers or dealers: and the Licensor further

covenants that he will require any such future Licensee

to agree that it will not sell devices embodying said

transmissions to chain store, mail order or rubber tire

companies, in so far as his property rights therein per-

mit him to so require. Any dispute as to whether a given

sale does nor does not come within the above classifica-

tion shall be submitted to an arbitration committee of

three members, one to be appointed by the Licensee, one

by the Licensor, and the two so selected to choose the

third member. If the decision of the arbitration com-

mittee be that such future licensee be selling to a chain

store, mail order or rubber tire company, then Licensor

agrees to institute suit immediately against such future

licensee, if the patent laws or the terms of such future

license so permit.

3. Unless and until the exclusive feature of this

license be terminated as hereinafter provided, Licensee

agrees to pay Licensor a royalty of twenty cents (20¢)

for each transmission made and sold under this agree-

ment. A transmission is understood to consist of the

three links next adjacent the oscillator shaft of a wash-

ing machine for connecting the oscillator shaft with the

pitman of a rotary member. On and after July 1, 1939,

by sixty (60) days written notice to Licensor, Licensee

shall have the right to surrender the exclusive feature of

this license to the chain store, mail order and rubber tire

companies, in which event the license shall revert to a

non-exclusive basis and the royalty for any said trans-

missions sold after the expiration of said sixty days

shall be fifteen cents (15¢) per transmission, or not

higher than the royalty due to Licensor from any other

than non-exclusive licensee other than Barlow & Seelig

Company.

4. If, during the calendar year 1939, Licensee do not

pay Licensor a total royalty of at least Twenty Five

Hundred Dollars ($2500.00), then Licensor, upon sixty

(60) days notice in writing to Licensee, shall have the

right to cancel the exclusive feature of this license with

30

respect to the chain store, mail order and rubber tire

companies; and similarly on and after January 1, 1941,

Licensor may terminate the exclusive feature of this

license if Licensee shall not have paid Licensor a total

royalty, in any calendar year immediately preceding the

giving of such notice, of at least Five Thousand Dollars

($5,000.00) but Licensee shall not be thereby relieved

from liability to pay the royalty accrued and unpaid at

the twenty-cent (20¢) rate prior to the giving of said

notice.

5. Licensor covenants that he is the owner of said

patent No. 1,964,440 issued in his name on June 26, 1934,

and in the event of any litigation in regard to the owner-

ship or validity of said patent or of any other patent or

patent applications for Licensee’s modifications of said

link transmission, Licensor agrees to hold Licensee

harmless from judgment damages and defense expenses

so far as he is able. In the event of any such suit against

Licensee, any and all royalties due to Licensor may be

withheld by Licensee pending the outcome of such litiga-

tion and if such litigation be concluded in favor of

Licensor, said royalties shall be immediately reinstated,

and the amount of royalties withheld shall immediately

be turned over to Licensor less whatever reasonable and

proper expense the Licensee may have been put to in

connection with such suit.

6. Licensee shall keep accurate books of account of

its manufacture and sale of said transmissions, and shall

make the Licensor true statements thereof, duly attested

before a notary public, not less frequently than after the

end of each and every quarter and within fifteen (15)

days thereafter, it being understood that the quarters

end on the 31st day of March, the 30th day of June and

September, and the 31st day of December, of each and

every year, and shall mail to Licensor a check payable

at face value in lawful money of the United States, for

the royalty due as shown by said statement. Said state-

ments and checks shall be mailed to Licensor at his last

known address. Licensor shall be entitled to have an

audit made of the books of Licensee upon which said

N

—

31

statements are based, during usual business hours and

at reasonable intervals. In preparing such statements,

Licensee shall be entitled to take credit for royalties

previously paid on returned merchandise and merchan-

dise wherefor Licensee has been unable to secure pay-

ment because of bankruptcy of the purchaser.

7. It shall be the duty of Licensor primarily to

prosecute and to pay the expenses of prosecuting any

and all infringers of any patent to which this agreement

relates. If during the life of this agreement Licensee

shall call upon Licensor, while the said exclusive feature

hereof be still in effect, to prosecute any such infringer

and Licensor shall fail for ninety (90) days so to do,

Licensee may proceed against such infringer in the

name of the Licensor, and shall have the right to deduct

the necessary and reasonable expenses of such litigation

from the royalties accruing to Licensor hereunder. Any

recovery over and above the bona fide expenses of such

suit shall be divided one-half (%) to Licensor and one-

half (44) to Licensee.

8. Licensee agrees to work with Licensor to provide

transmissions for other licensees as much as its facilities

within its plant, or without, will permit, and so long as

in its judgment it will not be jeopardizing its own de-

liveries or facilities.

9. Licensor agrees to render reasonable assistance to

Licensee in preparing equipment to produce said trans-

missions, either in its own plant or other plants.

10. Licensee agrees that it will mark said transmis-

sions with notice of patent or patents covered by this

agreement by showing the patent number thereon, or

other marking in accordance with United States patent

statutes, and that it will also mark said products with a

notice “Patent Applied For” or “Patent Pending,” where

proper so to do.

11. Unless sooner terminated in accordance with the

provisions hereof, or by mutual consent, this agreement

shall remain in force for the life of the patents referred

32

to in Paragraph 1 hereof, unless said transmissions be

declared unpatentable, or ownership of said patent

structure shall be held to be in others than Licensor by

a court of competent jurisdiction from which no appeal

has or can be taken.

12. Upon any material breach of this agreement by

Licensee, which it is understood shall be a failure to

make true statements, or royalty payments thereon, in

accordance with paragraph numbered 6 hereof, Licensor

on sixty (60) days notice in writing to Licensee shall be

entitled to terminate the license herein granted, if dur-

ing said period the breach complained of be not remedied,

but Licensee shall not thereby be relieved from obliga-

tion to pay the royalties due hereunder up to the date of

said notice and during the period thereof.

13. This agreement shall be assignable by Licensee

to a successor to the entire business and good will of

Licensee but shall not be assignable or transferable

otherwise by the Licensee, or by operation of law, except

on written approval of the Licensor.

14. Except as herein provided, this agreement shall

inure to the benefit of and be binding upon the successor

or assign of Licensee and the personal representatives,

heirs and assigns of Licensor.

In Witness Whereof, the parties hereto have affixed

their names and seals as of the day and year first above

written.

Beam Manufacturing Company

George P. Castner

By G. P. Castner

Vice-President and General Manager

Allen J. Patch

Allen J. Patch

State of Iowa,

88.

County of Hamilton.

On this 19th day of June, 1937, before me personally

came George P. Castner, to me known, who, being, by me

duly sworn, did depose and say that he is the Vice-

—

ae

33

President and General Manager of Beam Manufacturing

Company, the corporation described in and which exe-

cuted the foregoing instrument: that he knows the seal

of said corporation; that the seal affixed to said instru-

ment is such corporate seal; that it was so affixed by

order of the Board of Directors of said corporation and

that he signed his name thereto by like order.

Elizabeth Kemplay,

(Notarial Seal) Notary Public.

State of Iowa,

88.

County of Hamilton.

I, Elizabeth Kemplay, a notary public, within and for

the county and state aforesaid, do hereby certify that

Allen J. Patch of South Bend, Indiana, and Ripon, Wis-

consin, personally known to me and also known to me to

be the person whose name is subscribed to the foregoing

instrument appeared before me this day in person, and,

being by me duly sworn, acknowledged his signing, seal-

ing and delivering the said instrument as his free and

voluntary act and deed, for the consideration and pur-

poses therein set forth.

In witness whereof I have set my hand and official seal

hereto this 19th day of June, 1937.

Elizabeth Kemplay,

(Notarial Seal) Notary Public.

LIMITATION ORDER OF WAR

PRODUCTION BOARD

War Production Board

Part 922—Laundry Equipment

(Limitation Order L-6-c, as Amended March 12, 1943)

In accordance with the provisions of § 992.1, General

Lmitation Order L-6, which the following order supple-

ments, It is hereby ordered, That:

§ 992.4 Supplementary General Limitation Order L-6-c.

34

(a) Prohibition of production of domestic

equipment. (1) Effective April 16, 1942, no Class A

or Class B manufacturer shall produce any domestic

laundry equipment except upon specific authorization of

the Director General for Operations. Effective May 16,

1942, no Class C or Class D manufacturer shall produce

any domestic laundry equipment except upon specific

authorization of the Director General for Operations.

(2) The Director General for Operations may from

time to time specifically authorize one or more manu-

facturers of any class or combination of classes to pro-

duce specified quantities of domestic laundry equipment.

(b) Restrictions until dates of prohibition of pro-

duction, (1) During the period beginning March 16, 1942,

and ending April 15, 1942, inclusive:

(i) No Class A manufacturer shall produce more do-

mestic laundry equipment than the greater of the fol-

lowing two limits:

(a) 11,700 units of such equipment, or

(b) 90% of the monthly average of his factory sales

of such equipment for the twelve months ending June

30, 1941.

(ii) No Class B manufacturer shall produce more

domestic laundry equipment than the greater of the fol-

lowing two limits:

(a) 5,625 units of such equipment, or

(b) 97½ % of the monthly average of his factory

sales of such equipment for the twelve months ending

June 30, 1941.

(2) During the period beginning March 16, 1942, and

ending May 15, 1942:

(i) No Class C manufacturer shall produce more do-

mestic laundry equipment than the greater of the follow-

ing two limits:

(a) 3,420 units of such equipment, or

—

35

(b) Two times 112½ % of the monthly average of

factory sales of such equipment for the 12 months end-

ing June 30, 1941.

(ii) No Class D manufacturer shall produce more

than two times 142½ % of the monthly average of his

factory sales of such equipment for the twelve months

ending June 30, 1941.

(c) Replacement parts. Nothing in this order shall

be construed to prohibit or limit the production of re-

placement parts for domestic laundry equipment.

(d) Restrictions on inventory. (1) Until otherwise

ordered by the Director General for Operations no manu-

facturer shall sell, deliver, or otherwise transfer any

part of the inventory of raw materials, semi-processed

parts or finished parts which he holds for use in the pro-

duction of domestic laundry equipment to any cther per-

son, or to any other department, division, or section of

his concern not engaged in the production of domestic

laundry equipment, except on the following conditions:

(i) Raw materials, semi-processed parts, and

finished parts may be sold, delivered or otherwise trans-

ferred to other manufacturers of domestic laundry

equipment for their use in the production of such equip-

ment pursuant to the provisions of paragraph (b);

(ii) Raw materials, semi-processed parts, and

finished parts may be sold, delivered or otherwise trans-

ferred in connection with the manufacture and sale of

repair and maintenance parts for domestic laundry

equipment;

(iii) Raw materials, semi-processed parts, and

finished parts may be sold, delivered, or otherwise trans-

ferred to any person (including any other department,

division, or section of a manufacturer's concern not en-

gaged in the production of domestic laundry equipment )

who is able to supply a preference rating of A-9 or

higher;

(iv) Raw materials, semi- processed parts, and

finished parts may be sold, delivered, or otherwise trans-

Fe Ae de a de ee eee es BR aie ak oe ee Cd ek ~~ 8

36

ferred to the Defense Supplies Corporation or other cor-

poration, affiliate, or other form of enterprise under the

control of the Reconstruction Finance Corporation:

Provided however, That nothing in this paragraph (d)

shall be construed to permit any manufacturer to sell,

deliver, or otherwise transfer, or any person to purchase,

receive delivery of, or otherwise acquire any raw mate-

rials, semi-processed parts, or finished parts in contra-

vention of the terms of any L or M order including

amendments or supplements thereto, or other regulation

of the War Production Board, now effective or effective

prior to the date of any such sale, delivery, or other

transfer.

(2) Each manufacturer shall file with the War Pro-

duction Board on or before April 1, 1942, an estimate of

the inventory of raw materials, by classes of materials,

semi-processed parts, and finished parts, which will re-

main in his hands pursuant to this paragraph after he

has completed his production of domestic laundry equi;-

ment pursuant to paragraph (b).

(e) No interference with ordnance production. No

manufacturer shall divert materials, labor, or equipment

from the production of war material to enable him to

produce his production quota under paragraph (b)

hereof.

(f) Prohibition of acquisition of materials. No manu-

facturer of domestic laundry equipment shall purchase,

receive delivery of, or otherwise acquire any raw mate-

rials, semi-processed parts, or finished parts intended for

the production of domestic laundry equipment in excess

of quantities required to fulfill the production quotas

specified in paragraph (b) hereof; no person shall sell,

deliver, or otherwise transfer any such raw materials,

semi-processed parts, or finished parts except as so per-

mitted: Provided however, That deliveries of raw mate-

rials, semi-processad parts, or finished parts actually in

transit to the manufacturer on the date of issue of this

order may be delivered to the manufacturer.

37

(g) contracts. Fulfillment of contracts in

violation of this order is prohibited regardless of

whether such order is entered into before or after the

effective date of this order. No person shall be held liable

for damages or penalties for any default under any con-

tract or order, which shall result directly or indirectly

from his compliance with the terms of this order.

(h) Appeal. Any manufacturer who considers that

compliance with this order would work an exceptional

or unreasonable hardship upon him, or would disrupt or

impair a program of conversion to war production may

appeal for relief to the Director General for Operations

by means of a letter addressed to the Director General

for Operations, Ref.: L-6-c, setting forth in such letter

all facts pertinent to the appeal. The Director General

for Operations may thereupon take such action as he

deems appropriate.

Issued this 12th day of March, 1943.

Curtis E. Calder,

Director General for Operations.

GPO—War Board 4352—p. 1.