Barnett v. Q. & C. Co.

226 F. 935 | 7th Cir. | 1915

Lead Opinion

MACK, Circuit Judge

(after stating the facts as above). While the parties have presented, both in briefs and in oral arguments, their respective contentions as to the true construction of the several agreements, we deem it unnecessary for the purposes of this case to determine whether the minimum royalty and termination provisions of the anti-creeper contract became a part of the Vaughan contract and license, or whether either by reason of the express incorporation therein of certain other parts of tire earlier contract or because of the M. W. Supply Company’s interest in having the Q. & C. Company act as licensee under the Vaughan patents, these provisions must be deemed to be excluded therefrom. Nor do we find it necessary to consider whether or not the forfeiture provisions of the 1913 agreement, to which Vaughan and the M. W. Supply Company were not parties, are null and void in so far as they attempt thus to regulate appellee’s rights under the Vaughan contract and the license issued pursuant thereto, or whether or not, in view of the further provision that the 1913 agreement should be considered solely as a modification of the 1907 agreement and license, the forfeiture provisions are to be limited to the optional rights under new inventions and to those conferred under the 1907 license, and in that event whether or not the 1909 license would enable appellee to sell the Vaughan device if it infringed any of the basic patents transferred to Barnett as trustee in 1907. Nor do we determine whether or not the royalties payable by appellee to the M. W. Supply'Company can be added to the moneys payable to Barnett as trustee, in making up the $25,000 minimum.

[1] For,.assuming the contentions of appellants as to each of these matters to be sound, and that as a result thereof and but for the promotion contract of 1914, Barnett as trustee would have had the right to terminate all of appellee’s licenses under the notices of 'December 31, 1914, inasmuch as Barnett’s total earnings on appellee’s sales in the year 1914 were less than $15,000, we are of the opinion that the promotion contract operated either by implied agreement or by waiver to modify the earlier contracts, so as to suspend the right of forfeiture thereunder for failure to earn the minimum royalty until the 2,000,000 devices should have been sold.

That this is the true intent and meaning of the promotion contract is apparent from its provisions whereby, while appellee was bound to make the advances up to $25,000, its right of reimbursement to the extent of $10,000 from the other beneficiaries was dependent upon the sales of the second million devices. On December 31, 1914, the first million had not been sold; if appellee could then have been deprived of its selling rights, it would have been completely at the mercy of the other parties for the amount advanced by it on their purely conditional obligation to repay; if they should thereafter confine the sale of the Vaughan device to the Pennsylvania road or push the P. & M. Company’s or any,other anchor, the contingent obligation might never become absolute; appellee -would be disabled not only from reaping the fruits of its own share of the promotion expenses, but also from assisting the others to earn the fund out of which alone its claim was payable. Nor can the other parties to the promotion contract now urge that appellee was obligated under the Vaughan contract and li-cease to advertise and push the sale of this device. No breach of this provision has ever been charged against appellee. The parties evidently believed that, notwithstanding appellee’s full performance of this duty, further and costlier promotion schemes than could have been demanded from appellee alone would be to their joint advantage.

It is clear that, in view of -the heavy competition of the P. & M, Company’s device for several years past, the parties had in mind the possibility of decreased sales in 1914 and were endeavoring by the extra expenditure to obviate this and to build a better foundation for large future profits. While the promotion contract does not in express terms waive the minimum sales reqxiirement, the fact that contrary to the first draft thereof, under which the 2,000,000 devices were to be sold within one year, the final agreement fixes no time limit whatever for their sale, clearly evidences an intent and purpose, on which ap-pellee had a right to> rely, that it could continue the sale of the Vaughan devices exclusively, except only as to the M. W. Supply Company and, in any event, until the 2,000,000 should have been sold.

[2] A reserved right of forfeiture for breach of an obligation may be waived before breach by an act or declaration inducing the licensee to continue in the performance of its obligations and upon which it vas reasonably justified in relying as showing an intent to- suspend the exercise of the right. Whether, therefore, the promotion contract implicitly, hut by agreement, and on the considerations therein expressed, modified the earlier agreements, or merely waived: the beneficiaries’ right, if any, thereunder, to direct the termination of the licenses, it sufficed to prevent a forfeiture for failure to make the minimum sales during the year 1914 and until the 2,000,000 devices should have been sold.

That Barnett was not a party to the promotion contract is immaterial. While he had certain active duties as trustee, he had no beneficial interest in the matter, and was at all times expressly subject to the control and direction of the beneficiaries. His termination notices state that they were given, as under the contract they needs must have been given, pursuant to the directions of his beneficiaries. Inasmuch, however, as they had waived the right of termination, their direction and his notices pursuant thereto must be deemed to be of no- legal effect.

ft is contended that inasmuch as the Vaughan contract of 1909, while providing for an exclusive selling license to appellee, not only also provides for a selling license to M. W. Supply Company, but refers to Barnett’s power to grant other licenses, and inasmuch as the 1909 license from Barnett to appellee is not expressed to be exclusive, the license of April 1, 1915, to P. & M. Company was properly issued. The several clauses of the 1909 agreement are, however, readily reconcilable on the only fair and reasonable interpretation that appellee’s license was to be exclusive except only as to Vaughan’s prior licensee, M. W. Supply Company, and that Barnett’s power to grant other licenses is exercisable only if appellee’s license should revert to him as provided in the agreement; that is, on appellee’s bankruptcy or cessation of business. The new license to P. & M. Company must therefore be held to have been wrongfully issued.

[3] The remedy at law for damages is entirely inadequate. The modified exclusive license under a patent is a unique property right, against the destruction of which a court of equity will give protection by injunctive relief. That appellee had an option under the 1913 agreement to surrender its license does not bar its remedy in equity. As was said by the Supreme Court in Guffey v. Smith, 237 U. S. 101, 35 Sup. Ct. 526, 59 L. Ed. 856, in reference to a similar defense interposed to a suit in equity by an oil and gas lessee against his lessor and a subsequent lessee with notice:

“This is not a suit for specific performance. Its purpose is not to enforce an executory contract to give a lease, or even to enforce an executory promise in a lease already given, but to protect a present vested leasehold. * * * We think this option, which has not been exercised and may never be, is not an obstacle to the relief sought.”

The decree must therefore be affirmed.

---

Rehearing

On .Petition for Rehearing and Modification of Decision.

On this motion, attention is for the first time directed to the fact that the decree expressly continues the temporary injunction in force. Inasmuch as the permanent decree gives the complainant all of the in-junctive relief to which it is now entitled, the broader temporary injunction should not have been continued but dissolved.

The ambiguity which counsel find in the statement that the promotion contract operated to suspend the right of forfeiture for failure to earn the minimum royalty until the 2,000,000 devices should have been sold will be avoided, and .our views more clearly expressed, by substituting therefor fhe following:

“We are of tbe opinion that the promotion contract operated, either by implied agreement or by waiver, to modify the earlier contracts, so as to annul the right of forfeiture thereunder for failure to earn the minimum royalty in the year 1914, or in any succeeding year while the 2,000,000 devices remain unsold.”

In other words; the promotion contract did not merely suspend the right of forfeiture temporarily. So far as the claimed right is based on the failure to earn the minimum annual royalty during the year or years in question, it ended it. The court, therefore, properly enjoined Barnett permanently from in any manner treating appellee’s rights as terminated by or under the notices of December 31, 1914.

The only danger, other than that resulting from the license to P. & M. Compány, alleged in the bill as threatening complainant’s right, is that arising out of the claimed forfeiture of the license under the December 31, 1914, notices, in which the sole ground of forfeiture asserted is the failure to earn the minimum royalty in the year 1914. There -is no charge that the defendants claim any other breach or default by complainant and no such possible claim is involved in this litigation. Defendants, therefore, should not be debarred by the decree from hereafter making such a claim if they should deem it to be well founded. The decree, in addition to annulling the P. & M. Company license, should be limited to restraining the defendants from giving effect to these notices.

That portion of paragraph numbered “3” of the decree which, after enjoining the defendants from treating complainant’s license as terminated by the December 31, 1914, notices, adds, “or in any manner cancel ed or terminated for any default or claimed default upon the pari of said complainant which' has heretofore occurred,” should be stricken out.

The opinion heretofore hied will be amended as indicated. The decree of the District Court will be modified, by substituting the word “dissolved” for the word “continued” iti reference to the preliminary in] une iions, and by striking out that part, of paragraph numbered “3” hereinabove quoted.

The petition for rehearing is overruled, and the decree, as modified, is affirmed.