American Machine & Metals, Inc. v. De Bothezat Impeller Co.

Brief Fact Summary.

American Machine & Metals, Inc. (Plaintiff) filed suit seeking judicial determination that a termination of Plaintiff’s contract with De Bothezat Impeller Co. (Defendant) would not prevent Plaintiff from continuing to manufacture ventilating equipment.

Synopsis of Rule of Law.

Where there is an actual controversy over a contingent right, declaratory relief may be appropriate. 

Facts.

Plaintiff entered into a contract with Defendant under which it would use Defendant’s patent rights and equipment to manufacture fans and other ventilation products in exchange for a portion of the profit. Plaintiff had a right to terminate under the contract, at which point the patent rights and trade name would once again be held by Defendant. Plaintiff expressed a desire to terminate the contract but to continue to manufacture fans and ventilating equipment. Defendant responded by threatening to sue Plaintiff if Plaintiff terminated the contract and then did not cease to manufacture and sell such equipment. Plaintiff brought an action seeking a declaration that the contract did not prevent Plaintiff from continuing to manufacture ventilating equipment after termination of the contract. Defendant moved to dismiss, claiming that the complaint did not show an actual controversy. The trial court granted the motion and Plaintiff appealed.  

Issue.

Is declaratory relief appropriate before a dispute becomes an actual controversy?

Held.

(Swan, J.) Yes. Where there is an actual controversy over a contingent right, declaratory relief may be appropriate. The Declaratory Judgments Act was enacted in order to prevent a party from incurring avoidable damages. Requiring Plaintiff to terminate the contract and manufacture ventilating equipment to create an actual controversy is contrary to the very purpose of the declaratory judgments procedure. Therefore, although the controversy here is contingent upon actions to be taken by the Plaintiff, this contingency does not preclude declaratory relief. Reversed and remanded.

Discussion.

The Constitution grants courts the authority to assert jurisdiction over a “case or controversy.” In cases subject to declaratory relief, the issues have not ripened into an actual case or controversy yet, but the parties may have enough of an interest in the resolution of the case at that stage to satisfy the purposes of concreteness and adverseness underlying the constitutional requirement.