Fairchild v. Dement

• Decision Date: 04 August 1908
• Docket Number: 27,857.
• Citation: 164 F. 200
• Parties: FAIRCHILD v. DEMENT et al.
• Court: U.S. District Court — Northern District of Illinois

164 F. 200

FAIRCHILD v. DEMENT et al.

No. 27,857.

United States Circuit Court, N.D. Illinois, Eastern Division.

August 4, 1908

Selden Bacon and Arthur W. Underwood, for complainant.

L. W James and Charles Turner Brown, for defendant Dement.

Walter Ayer, for defendant American Mechanical Cashier Company.

KOHLSAAT Circuit Judge.

This is a bill for specific performance of certain contracts by which, it is alleged, defendant Isaac S. Dement became bound to assign to complainant, Fairchild, certain inventions and improvements in the device of patent No. 618,932, granted February 7, 1899, for mechanical cashier. Defendant denies complainant's right to the relief prayed, and files a cross-bill, alleging want of consideration, fraud imposition, and misrepresentation in the procurement of said contracts, and prays for their rescission and cancellation and that the court may decree the reconveyance of certain patents and inventions transferred by him thereunder to Fairchild, and through Fairchild to the American Mechanical Cashier Company, codefendant.

Although the main issues are simple, the case is somewhat complicated and the record voluminous, owing to the number of contracts and dealings of the parties covering a period of several years. The following facts are uncontroverted:

In 1895 defendant and cross-complainant, Isaac S. Dement, with one Charles F. Bassett, having invented a mechanical cashier, applied for a patent, and while their application was pending, in order to handle their invention commercially, caused to be organized the Mechanical Cashier Company (of Michigan), to which they assigned all their rights to the application and invention, covenanting by the same instrument to sell and transfer to said company any and all further, other, and different improvements and devices of or in regard to mechanical cashiers which they or either of them might from time to time invent or devise. In consideration of this assignment and contract Dement and Bassett each received $48,000 of the stock of the Michigan Company, and Messrs. Tower, Sinclair, and McGarry, who had organized the company, received $32,000 of stock, making a total issue of that company's stock of $128,000.

Nearly four years afterward, in the spring of 1899, negotiations were entered into by Dement and his associates, through a broker by the name of W. C. johnson, for the sale of the rights of the Michigan Company under its assignment and contracts, and on June 20, 1899, these negotiations culminated in a contract for the purchase of the patent by Fairchild, and a collateral agreement for the employment of Dement to work on the production of a perfected machine under the patent as an employe of complainant. By this contract Fairchild simply stepped into the shoes of the Michigan Company, succeeding to all its rights in the patent; it being provided in the contract that the assignment to be made to Fairchild should--

'Cover and include all the right, title, and interest of (the Michigan Company) in and to any other, further, or different improvements, extensions, or reissues relating to mechanical cashiers which it has acquired or may hereafter acquire.'

The purchase price agreed to be paid by Fairchild was $135,500 and a royalty of $10 on each machine manufactured. During negotiations which led up to this sale, the broker, Johnson, exhibited to Fairchild what purported to be a contract between himself and the Michigan Company, by which the Michigan Company authorized Johnson to sell the patent for $125,000 net to the company, Johnson to receive as his compensation everything obtained for the patent above the $125,000, and this contract with Johnson was annexed as an exhibit to the contract of sale to Fairchild of June 20, 1899. It now appears that this supposed contract with Johnson was not the true agreement between the parties, but that it was one prepared to show to Fairchild. The real agreement was that Johnson should have everything above $75,000, instead of $125,000. About this time it appears that McGarry and Dement, then president and secretary of the Michigan Company, entered into an agreement with Johnson by which the price paid by Fairchild was to be divided as follows: $75,000 to the Michigan Company; $10,500 to A. L. Barber, in satisfaction of certain claims asserted by him; $10,000 to Johnson; and some small amounts to Foster and Lynn. The rest of the cash was to be divided as follows: One half to Johnson, one fourth to McGarry, and one fourth to Dement; and the royalty reserved in the contract was to be given one third to Johnson, one third to McGarry, and one third to Dement.

The collateral agreement between Fairchild and Dement, made at this time, provided for the employment of Dement by Fairchild at a salary of $100 per week during the construction of the sample machines, and also during the further construction of 1,000 machines by Fairchild, and for the further employment of Dement for 10 years at a salary of $6,000 per year. Dement, besides agreeing to perform the required services, agreed to pay the entire expense of constructing the sample machines above his own salary and $2,500, which he undertook to do within four months, and it was also agreed by him that he--

'would give to said Fairchild or his assigns in the construction of said sample machines, and said 1,000 machines, the benefit of all improvements, inventions, and discoveries made by said Dement of recording and registering devices for use in connection with said mechanical cashiers' and 'that all improvements, inventions, and discoveries made by him during every period of such employment upon or relating to mechanical cashiers or attachments thereto, or upon or relating to machinery for their manufacture or construction, shall be the property of his employer at the time of making such improvement, invention, or discovery, and that he will upon demand of his employer, but at such employer's expense and cost, take out patents thereon, which patents shall be duly assigned to and be the property of such employer.'

Dement thereupon entered upon the manufacture of the 10 sample machines. He was not able to put together a satisfactory machine in 4 months as agreed by him; in fact, at the expiration of 21 months there was no such machine. About this time Mr. Bacon, counsel for Mr. Fairchild, had an interview with Dement on Fairchild's behalf, which resulted in a modification of the provision for a 10-year employment of Dement. This contract is in writing, dated April 6, 1901, and was signed by Dement. Fairchild paid in the neighborhood of...