EBUSH-SWAN ELECTRIC.t;.cO.Op; lUl:WENGLAN'D'f.·UUSH ELECTRIC
of a special aQtof'congressjcanieoiilltiUitea 'valuabIeoonsiderlition, such as will support the conveyance ,I:>f real estate, it is sufficient,for the purposes of this case, to find, as I do, from the proof, that the paper transby Felton to the complainant not a;; claim' against ,the United States, and ga:ve complainant no right, or equita.. bIe, to the money purporting to be represented complainant 'hl1:s received no consideration for the C911veyanoe <;>f his land to the Felton, and the. deed should be set and the defendant bya decree of this. court, to reconvey the land to the compl,ainant. '1'he case standssubstantially as it would if the pro()f had shown that, defendant to pay for the llj,nd in money, but in fact passed upon the, co,mplainant, as genuine,counterfeited money. Story,.Eq. Jur. §§ 19,3,246; Warner v. Daniels, 1 Woodb. &:M. 90·.
OF NEW ENGLAND
(Oircuit Oourt, S. D. New York.
CONTRACT-MODE OF PAYMENT-MODIFICATION.
On a bill for specific parformanoeof a oontract granting cot;nplainant the exclusive a,ttenoy for tbe sale of patented articles and apparatus to be furnished by defendant· the oomplatnant'sbook-keeper testified that he was o:fJ1cially informed by defendant's president that defendant had agreed W w.ait for its pay for apparatusful'nished until complainant's customers had paid therefor. It appeared that' business was conducted in that way thereafter, and that shortly before, the contract complainant the territory, and agreeing to supply it with apparatus, had been continued thOugh it was known to be Virtually insolvent. Held suffiCIent to show a modification of the contract as to mode of payment, though some, correspondence between the parties seemed contradictory. By ,making, after the known virtual insolvency of complainant, an reoognizing and continuing,the original contractt a provision of the origInal authorizing abrogation of the contract, after an arbItration showing that complainant's financial reSpOnsibility has become so impaired that defendant oannot safely do through it, is waived, uJ;lless complainant's oredit becdmes further im· , ' As the contract gave no to security, refusal to furnish it was no ground for demand of arbitration as to IlOmplainant's financial responsibility·
SAME-EII'FECT OF MODIFICATION-WAIVER OF CONDITION.
SA..Joffi-ABBITRATION AND AWARD-CONTRACTOR'S FINANCIAL RESPONSIllILITY.
having terminated the contract, and demanded arbitration as to comFlainant's1inancia:1 responsibility becaulje of its refusal to furnish llElcUl,"ity, cannot Justify"its breach on the ground that other caUBes existed which might have been made grounds for terminating the contract.
,. SAME-ExTENDING TIME OF PAYMENT-VALIDITY.
A promise bytbe patentee to extend the time of payment bya liceneee for the articles robe furnished according to oontract until the licensee's customers shall have paid therefor, which is,maqe when the licensee is finanoiall,yembarrassed, is valid. Where specific performance of an .agreement giving a license and exclusive agency within certain territory for sale. of a patented article cannot be enforced, the bill may be retained, and an injunotion and accounting ordered; the defendant being by the contract prohibited from selling in the specified territory.
PATENTS FOB!NvBNTION-LIClI:NSE-SPECIII'IO PEBII'OBMANCB-INJUNCTION AND AcCOUNTING. '
In Equity. Bill for
,:.'Joseph' H. (Jhoate and William G. WilBon, for complainant. Albert Stickney and GilbertH. OrawJord, for defendant.
COXE,J. '.[1his is an equity action for the specific performance of con· tracts between the parties, and also for an injunction and an accounting. On the 1878, the defendatlt, under the name, at that time, of the Telegraph Supply Company of Cleveland, Ohio, entered into an agreement with Charles M; Rowley and Tftomas J. Montgoniery, of Boston, Mass., the predecessors onhe complainant, whereby they were given an exclusive agency and license for the sale, in New England, of dynamo-eleotric machines, and apparatus made by the Cleveland Company undervaridus patents covering what was known as the "Brush System of , Electric 'Lighting." This agreement was to continue in foree for 17 years from April 24, 1877, unless sooner abrogated by mutual agreement, or by a decision of a board of arbitration,' The ninth clause of the agreement is as follows: "If at any time the pecuniary responsibility of the party of the second part becomes so impaired as not to be sufficient to enable the party of the first part to safely transact their business in said territory through them then this contract may be abrogated, provided that the qu!!stion of the aforesaid pecuniary responsibility of'the party of the second part must firatbe determined by the board of arbitration hereinafter named." This board wos to consist of a member chosen by each of the parties to the agreement and a third to be chosen by the two so selected. Any matter indispqtewas to be formally presented and tried, and the decision of the board, in writing, was to be binding upon the parties. In the autu.mnof 1878 this contract, with. the approbation of the defendant, was assigned by Rowley and Montgomery to the Brush Electric Light Company of New England. In December, 1879, the territory co\;ered byUle May, 1878, agreement was largely extended, and, in June, contract, substantially like the first, but embraejp.g the e;tWJi4ed territory, ,was entered into between the parties. On the 23d of'February. 1882, a supplemental agreement waS entered into between the Brush Electric Light Company of New England and the fendant, under its present name, by which the prior agreement was changed in certain matters of detail, the principal modification being the .insertion·of a clause prohibiting the defendant from selling in the licensed terJ:i;torv without the 'consent of the New England Company. On the 31st May, 1882, all contracts were assigned to the comp]ainallt-the,:!3rush-Swan Electric Light Company of New England, and this company was accepted by the di:lfendant having succeeded to all the rightsnnder the previous agreements. In ,the spring of 1885, for the reason; inter alia,that the storage battery, which the defendant expected tofur.uish in connection with the Swan incandescent lamp, had not proved, a'!rtI;cc,ess, the pnancial condition of the complainant was seriously embail'assed. In these circumstances the complainant and defendant entered into an agreement, dated June 15, 1885, whereby the transferred to the defendant all its property, of every name
BBUSH-8WAN ELECTRIC L. CO. OF NEW ENGLAND 1'. BRUSH ELECTRIC CO.
and nature,except its franchise, office furniture and contracts with defendant and with the Swan Incandescent Electric Light Company of New York. At the same time it executed its promissory notes for $17,500, payable one year from date, and delivered them to the defendant in discharge of a balance found due. There was also a mutual release of all claims and matters growing out of the dealings between the parties prior to June 10, 1885. After this settlement the relations between the parties, under the original contracts, continued for over two years. In the summer of 1887 various propositions, looking to the assumption and control of the business by the defendant, were made and declined. The defendant thereupon began demanding security before filling orders, and declined to fill them without it. The complainant having refused to give security, the relations between the parties were severed by the defendant in the autumn of 1887. In determining .who is to blame for this condition of affairs it is not necessary to go back of the agreement of June, 1885. At that time all differences were settled and each party obtained a clear bill from the other. Former misunderstandings were obliterated. The future was to. be untrammeled by the past. The lowing propositions may be regarded as established: First. The prior contracts were recognized by the agreement of June, 1885, and were con.. tinued thereafter. Second. If itscontraets and franchises are left out of view, the complainant, in June, 1885, was insolvent and remained so until the end. Third. The complainant did not perform the conditions of the original contracts as to payments, if those conditions remained unmodified. Fourth. If, by a subsequent modification, the ant was not required to pay until it collected of its customers, it was guilty of no breach which justified the defendant in repudiating the contracts. It, therefore, becomes important at the outset to ascertain whether the contracts were modified. The bill alleges "that the provisions of the original contract ,vith said Brush Eledric Company in regard to the mode of payment by your orator had been modified to this extent, that in cases of the installation of new plants your orator should make payments to said Brush Electrio Company when and as it received payments from its customers. This modification was made in the year 1885, and was observed and remained in force until the time in 1887,when, as above stated, said Brush Elec.. tric Company violated said contracts." The answer denies the foregoing allegation, "except to this extent that such a modification of the modes of payment as is therein stated was allowed in a few specified cases for special reasons, but the general rule was not changed, and all of thespecial arrangements had canceled and withdrawn by the defendant a considerable time before the said demand for arbitration." There is no dispute,either in the pleadings or in the proof, that in December, 1885, the president of the defendant met the president, and other officers, of the complainant in the latter',soffice and there entered into an agreement with them upon the subject of special discounts and credits. There is, however, a controversy as to the terms of the agreement. The only witness .who te,stit,ies on the subject is Charles W. Spear, the complainant's
,'::' 'FEDER:&JJ REPORTER
"bbal;;'keaper. ,He 'says positively that ,the. terms agreed upon were (( that ',the ,Brpsh' ElJectric Compa;hy; to' be paid 'for all apparatUs'manufactured and furriiShed the erection of new plants, dmmedmtelyupon slich plantSi"being:,paid for by the 'customers of the 'The 'Brush' Electric Company were to wait until the,pustomer actually paid, efen,thou'gh a term of credit had been fixed, whiohexpired. The Brush Company were to wait indefinitely for payuntil the customer had actually paid." No witness contradicts 'this testimony. It is asserted however, by the defendant that it is inthe correspondence between the parties;· that the 'alleged agreement is ullilateral, arid; in view of the admitted financial condition 'of the, complainant,it is 'Qeyondthe limits of credulity to suppose that .f!uch:Cbnditions could have, 'agreed to. by intelligent business men'which the ,complainant's officers certainly were. The.dplprudenceof the defendant dates back of the modification. The exooJ;lsion of the contracts in 'June, 1885 j ,was an unwise proceeding,unless,the defendant had implicit:faithiti the integrity and business ability .of the, 'officers of the complainant. The extension: being once made, 'SOmething very like the modifieationoCDecember would seem to follow as a logical conclusion. From what possible source could the complainant,concededly,insolvent, have drawn for remittances, except 'the paymentsreceived from its customers?' The probabilities are not all, therefore, with the defendant. . 1 But it is not a question requiring the court to indulge in guesswork and conjecture.. An unimpeachecl witness has testified to the agreement innnqualified language. He says :that its terms were officially communicated to him,by GeorgeW.Stockly,the defendant'l'l president. Mr· . Stockly, thus challenged, remains silent. When, in addition to the perlIuasive presumption thus created is added the fact that the business was transacted in accordance with: this modification, it is entirely clear that it would be an unprecedented, plldceeding, arbitrarily to reject Mr. Spear's testimony, because expressions in the correspondence may seem inconsistent with it. Besides" taking the correspondence in its entirety'. it cannot be ,said that the defendant; after December; 1885,ever refused to :fill an order, or at any time asserted 'its right to terminate the contract on the sale ground that the stipulated credit had been exceeded. After that date the defendant did not draw,'and the complainant did nQt aocapt,drafts payable in 75 days.' The modification of December, 1885, must, therefore, be taken as afi,xed fact. The terms of the original contracts, which related to the submission of thequestion of pecuniarY responsibility, were necessarily changed by the agreement of June, 1885. .The parties contracted in the light of ascertained facts. The agreemeut cannot be arrived at withQut a reference to the then existingicitcutrlstances. The defendant knew that the complainant was insolvent. The evidence of this was in the defendant's ,hands. It knew that the complainant owed $17,500 and had absolutely nothing with which to pay,but some unsalable machinery and furniture, valued at $4)298. ., To assert that the defendant extended
L.OO; Oll' -NEW
P. BRUSH ELECTRIC CO.
the contracts intending presently to enforce the' insolvency clause is to impute bad faith to the defendant. It did not intend, surely, to lure the complainant on tornillo If the originalcontracta had been made at this time this clause would not have appeared at all in its present form. With the changed conditions and relations this clause was changed, necessarily. It was superseded for a time, and its drastic features were modified by the trend of events. The parties needed no arbitration to inform them of the complainant's insolvency. They knew it, and knowing it, the defendant elected to continue its business dealings with the complainant. If the clause was operative at all after that, it was so only when the defendant had done some act which still further weakened its responsibility. The language of the clause in question is: "If at any time the pecuniary responsibility of the party of the second part becomes so impnired," etc. This is (jnly another way of saying that an arbitration may be asked if the responsibility of the complainant deteriorates,becomes worse, or is diminished in value. Acredit which remains the same from year to year is not weakened or impaired. If the complainant remained as 1'e" sponsible thereafter, as it was on the 15th of June, 1885, the defendant had no.right to complain. 'It chose to trust an insolvent, and should not be released because a board of arbitl'll-tion certified to a fact which the defendant at all times! knew and which the comt:llainant at all times admitted. With the contracts thus modified, first by the Spear agreement, and second by the suspension and qualification of the responsibility clauses, the question remains, "Did the complainant perform them?" Ihppears from the correspondence that the fault charged by the defendant was, not that the complainant was behind in payment for past sales, but that it declined to giveaecurify for future sales. If the complainant were in default for past sales the defendant could have insisted that these debts should be paid or secured. This it did not do. It insisted upon security before filling new orders, and based its right to do so, not upon past defaultil but upon the fact, the existence of which had been known' from the inception of the June agreement, that the complainant was not "fully solvent." The defendant, on the 3d of October, 1887, wrote as follows: "We understand from all that has passed hitherto that you decline to give wi the security we are justly entitled to, and we therefore ask that an tration. be immediately had in exact accordance with. the ninth and clauses in our contract with you, to which we refer you." As then,i:nth clause is understood by the court 1 the right to an arbitration·existed irrespective of the non-performance of the contracts. In other 'words,'if, prior to June 15, 1885, the complainant's credit ,had become 'impaired, the defendant could have demanded an arbitration even though every'eprovision of the contract had been performed to letter.. On the other hand if every provision had been violated the tract could not have been abrogated under this clause without proof of financial impairment. A clearly defined failure to perform on the part of the' complainant would have. made proceedinga under this clauae wholly unnooessary,as' the contracts could then have been termin!LtE!d
by reason of the complainant's brea(lh,.ra)though its financial cemdition at the time might have been good beyond all question. The failure to assert and maintain a breach of the contracts, and the deman<i tl'ai,ion, give rise to the inference that there was no breach on which the defendant deemed it prudent to rely, and, that in dema,nding an arbitration it had taken the strongest position possible. If,under the contracts,'the right to demand security in advance existed, the refusal to give it would have warranted the defendailt in ending the contract instantly. Nothing else was needed. But as the contracts gave no such right the complainant's refusal furnished no basis for th\7demand for an arbitration. The evidence is quite clear that, if the complainant had made no money, it was certainly no WOrse off in September, 1887, than in June, 1885. It had been engaged during the interval in vigorously pnsl1ing its goods and the proofs show that it was doing a large and increasing business. There was nothing, therefore, upon Which to found for arbitration even if the demand had been made before the right; was forfeited, by the defendant's own breach of the contracts. At may havo been somethiul/; due from this the complainant, but, from the manner in which remittances were nlade, it is not easy to say, positively, whether this was so or not. It is howeVer quite certain that failure to remit was not one of the accusationsadvanced' by, the defeildant. should it appear that some amount was due at that time, there was nothing in the relations between' the parties which gave the defendant the right to terminate the contracts,suddenly, and without a word of warning or complaint in this regard,'The power to abrogate the contracts was not pitched upon this' ground. . It may be, Hmoney'had been due, that the defendant oould have notified the complainant that it would cease to do business unless the amount \vete· imrnediately paid, and could have terminated the oontraots if it were not paid. But in view of the manner in which remittances were made and accepted, -something of this kind was necessary.For nearly two; )'ears the complainant remitted in round sums from time to time as itreceived money from its customers. The defendant accepted these remittances and at no time intimated that this mode of doing business was unsatisfactory. Without any, change in the situation, the defendant refused to fill orders, unless security was given in advance, and, upon failure to receive it, repudiated the contracts. It seems that the defendant' must stand or fall upon its right to take this course. It is too late now to justify its acts by asserting that there were other faults of the complainant which might have been made available. If such faults existed they were venial in character and were waived or condoned. The'complainant's insolvency and refusal to give securityl'were the reasons and ,the only,reoJjons whiclided the defendant to ask for an arbitration." If the defendant founded its right to terminate thec0ntracts upon'an untenable groundit cannot justify its course upon the theory thatcofi'1plainant was guilty of other acts which might have been used as the basis of a complaint, if defendant had thought of them in time'. It iSisaid that the complainant did nat furnish the in-
TIMKEN ". OLiN.
formation demanded by the defendant, but here, again, the defendant never at any time insisted that it had a right to abrogate the contracts for this reason. It did insist, and the complainant appears to have conceded its right to do so, that it was entitled to all information relating to the sale of its property which the complainant possessed. Several orders were delayed until this information was forthcoming. There is no evidence that the defendant ever refused to fill an order on this ground alone. The information seems to have satisfied the defendant sufficiently to induce it to accept the orders. After the letter of September, 1886, whieh was agreed to by the complainant, and so settled definitely certain matters previously in dispute, it is thought that there was no romp for complaint against the complainant upon this ground. The agreement of 1885 being a mere extension of the time in which payments were to be made was not void under the statute of frauds or otherwise. Such agreements have frequently beell upheld. Canal. Co. v. Ra.y, 101 U. S. 527; Homer v. Insurance Co., 67 N. Y.478. A number of matters now involved in doubt might have been IIl'ade clear if the court had had the benefit of the testimony of the chief actors in this' Ml1troversy, but they ha.ve not been called on either side. Upon the record 9.S presented the court is forced to the conclusion that thb originltl oontracts were modified in 1885 and, as so modified, have been performEld by the complainant in all material matters. The opinion was formed at :the hearing that the argument of the defendant's counsel that these contracts are of such a character that they cannot be specifically enforced, was unanswerable. This opinion is still entertained, but it is thought that the bilI may be retained for the purposes of an injunction and an account. Sewing-Machtine Co. v. Firrir broidery Co., 1 Holmes, 253. By the terms of the contracts the defendant is especially prohibited from selling in the designated territory any of the machinery in question. The exclusive right to do this is given to the complainant. If, from the nature of the agreement, the court cannot give the profits of this business to the complainant, it should, at least, restrain the defendant from reaping them, particularly where. as in this cause, the remedy at law is wholly inadequate. There should be a decree for the complainant for an injunction and an accounting.
OLIN et al.
(Circuit Cowrt, S. D. Ohio. W. D·. January 15,1890.)
A master's report that there was an established license fee for the useot a pat. ented, article is sufficient to sustain a finding of damages to the amount of anoh lee,
though the evidence was oral, and no license was introduced.
. .. ,
Parol evidence as to the existence of an established license for a patent is. Qllt. hearsay.' , . , . ,