## Facts

- In 1934, American Machine & Metals, Inc. and De Bothezat Impeller Co., Inc. entered a contract under which De Bothezat transferred certain patents and equipment for making fans and related products.
- American Machine agreed to pay fees based on “net sales,” subject to a $5,000 annual minimum, for as long as the contract continued.
- The agreement required fee payments during the contract term even if products were not covered by the patents or the patents had expired.
- The contract had no fixed end date and was terminable by American Machine on six months’ notice; upon termination, American Machine had to transfer the patents back and stop using the “De Bothezat” name.
- By February 1946, American Machine had stopped making or selling products for which possession of the patents was essential.
- American Machine alleged it intended to terminate the contract but wanted to continue manufacturing and selling ventilating equipment not requiring the patents.
- De Bothezat asserted that if American Machine terminated and continued that business, De Bothezat would sue.
- American Machine sought a declaratory judgment to determine its post-termination rights before giving termination notice.

## Issues

1. Whether an “actual controversy” exists under the Declaratory Judgment Act when requested relief depends on the plaintiff’s planned future termination of a contract.
2. Whether a stated intention to terminate, coupled with the other party’s definite adverse position and threat of suit, is sufficient to support declaratory-judgment jurisdiction.

## Decision

- The Second Circuit reversed the dismissal and remanded.
- The court held that an actual controversy existed despite the fact that termination had not yet occurred.
- The court concluded declaratory relief was available because the dispute over the legal consequences of termination was concrete and adversarial, and litigation had been threatened.

## Legal Principles

- Declaratory relief may be granted where there is an actual controversy over a contingent right.
- A controversy can be sufficiently immediate when the plaintiff alleges a present intention to take the contingent action and the defendant has taken a definite adverse legal position, including a threat of enforcement or suit.
- The Declaratory Judgment Act permits adjudication before a party undertakes conduct that would expose it to threatened liability and avoidable damages.

## Conclusion

The Second Circuit held that a concrete dispute over the contractual consequences of a planned termination, combined with a threat of suit, satisfies the “actual controversy” requirement and permits declaratory adjudication before the plaintiff takes the triggering action.


American Machine & Metals, Inc. v. De Bothezat Impeller Co., 166 F.2d 535 (2d Cir. 1948)