Farwell v. Pyle-Nat'l Elec. Headlight Co.

• Decision Date: 24 October 1919
• Docket Number: No. 12571.,12571.
• Citation: 289 Ill. 157,124 N.E. 449
• Parties: FARWELL v. PYLE-NATIONAL ELECTRIC HEADLIGHT CO.
• Court: Illinois Supreme Court

289 Ill. 157

124 N.E. 449

FARWELL

v.PYLE-NATIONAL ELECTRIC HEADLIGHT CO.

No. 12571.

Supreme Court of Illinois.

June 18, 1919.

Rehearing Denied Oct. 24, 1919.

Error to Appellate Court, First District, on Appeal from Superior Court, Cook County; Martin M. Gridley, Judge.

Bill by Granger Farwell against the Pyle-National Electric Headlight Company. Judgment for complainant was reversed by the Appellate Court (212 Ill. App. 450), and complainant brings certiorari. Affirmed.Jones, Addington, Ames & Seibold, of Chicago (S. S. Gregory, W. Clyde Jones, Keene H. Addington, Robert Lewis Ames, Morris St. P. Thomas, and Walter Hamilton, all of Chicago, of counsel), for plaintiff in error.

Butz, Von Ammon & Johnston, Miller, Gorham & Wales, Parker & Carter, and Rector, Hibben, Davis & Macauley, all of Chicago (Francis Lockner, Frederic E. Von Ammon, Amos C. Miller, Edward Rector, Francis W. Parker, and Donald M. Carter, all of Chicago, of counsel), for defendant in error.

DUNN, C. J.

On a bill filed against the Pyle-National Electric Headlight Company in the superior court of Cook county by Granger Farwell, in his own behalf and as trustee, the court rendered a decree for an accounting, from which the complainant, being dissatisfied with the basis fixed for taking the account, appealed to the Appellate Court for the First District. The defendant assigned cross-errors, which were sustained. The decree was reversed, and the cause was remanded, with directions to dismiss the bill. Upon the petition of the complainant a writ of certiorari was awarded to bring up the record for review.

The Pyle-National Electric Headlight Company was incorporated in 1897 under the laws of New Jersey to manufacture and deal in electric headlights, and on February 9, 1897, George C. Pyle and Frank H. Ewers, who were the owners of four patents for steam turbines and three patents for electric lamps, of which Pyle was the inventor, entered into a written contract whereby they granted to the company an exclusive license to manufacture and sell patented articles and devices for all purposes for which such patented articles or devices, or parts thereof, could be utilized under the patents so assigned, or any patents or improvements that might thereafter be made to accomplish the same or similar purposes. The consideration for this agreement was $500 cash, $4,500 to be paid February 1, 1898, the issue to the owners of the patents of all capital stock of the corporation, of the par value of $700,000, except 10 shares, and the agreement of the corporation to pay monthly a royalty of 5 per cent. of the gross receipts derived from sales made under the license, such royalty to be not less than $150 for each calendar month from January 1, 1898. The president of the corporation was Royal C. Vilas, and the secretary Perry Trumbull.

The record does not show to whom the 6,990 shares of the capital stock which the contract provided should be issued to Pyle and Ewers were transferred, but it appears that Vilas and members of his family have during the entire existence of the corporation owned a majority of the stock, though the number of shares so owned by them, or by any of them, is not disclosed. Neither does the evidence show the names of the stockholders outside the Vilas family, or the number of their shares, except in a few instances. In January, 1898, an extension of a year on the $4,500 payment was agreed on and evidenced in writing, the contract of February 9, 1897, being in all other respects confirmed. The company was then manufacturing and selling the headlights, and paid royalties until March 1, 1898, but soon afterward began a suit in the superior court of Cook county, charging that Pyle and Ewers had procured the agreement of February 9, 1897, by fraudulent representations or concealments. This suit was settled in October, 1898, the royalties due October 1, 1898, were paid, and a written agreement was entered into for the dismissal of the suit at the complainant's costs, for a further extension of the $4,500 payment to January 1, 1900, and for the extension of the time of payment of royalties accruing for the period from October 1, 1898, to the end of December, 1899, to January 1, 1900.

In the latter part of 1898 or beginning of 1899 Granger Farwell became a director of the Pyle-National Electric Headlight Company at the request of Royal C. Vilas, who gave Farwell 10 shares of stock to qualify him for that position. Farwell afterward purchased more stock and continued to be a director until January, 1912, except for the period from February 7 to May 2, 1900, during which time no directors' meeting was held. On June 5, 1899, he obtained from Pyle and Ewers an assignment of their contract of February 9, 1897, with the Pyle-National Electric Headlight Company as well as of the legal title to the patents mentioned in that contract, and an agreement for the assignment of two other patents when issued upon applications then on file in the Patent Office-one for a rotary engine governor and the other for an arc lamp-of which patents the Pyle-National Electric Headlight Company would become the exclusive licensee by virtue of the agreement of February 9, 1897. These patents were subsequentlyissued and duly assigned to Farwell. The consideration of these assignments was $14,473.10, which Farwell paid. At the time of the assignment the payment of $4,500, which had been extended to January 1, 1900, and the royalties accruing since October 1, 1898, the payment of which had been extended to the same date, were unpaid, and they were afterward paid to Farwell. The purchase of the patents and all the contracts was made by Farwell for the joint benefit of Vilas and himself. Vilas soon after sold to Perry Trumbull one-third of his one-half interest.

Vilas was president, Trumbull secretary, and Vilas, Trumbull, and Farwell, directors, of the corporation, and the three were a majority of the board of directors. They continued to be such majority until February, 1901, when the number of directors was increased to seven, but at the same time Vilas and Farwell were appointed an executive committee, to which the board of directors delegated all its powers. Vilas died in 1904, and was succeeded as president by his brother, William Vilas, who died in 1908. Carrie A. Vilas, the widow of Royal C. Vilas, was then president until her death, in 1910, when her son, Royal C. Vilas, Jr., became president. He continued to hold that office when this suit was brought. After the assignment of the patents and contract to Farwell, the $4,500 payment and the deferred royalties, which were accumulating at the rate of more than $3,000 a year, payment of which had been postponed to January 1, 1900, were paid to him, and the monthly payment of royalties under the contract continued to be made in increasing amounts until 1912; the total amount of royalties so paid exceeding $144,000. After the death of Vilas and Trumbull, the monthly payments were made, one-half to Farwell, one-third of one-half to Trumbull's executor, and two-thirds of one-half to Vilas' heirs.

On May 14, 1912, Farwell filed this bill for himself, the heirs of Vilas, and the executor of Trumbull's will, alleging that the company had manufactured and sold large quantitiesof the articles mentioned in the contract under the patents and by virtue of its license, and had built up a large, lucrative, and prosperous business, but that for large quantities of the articles so made and sold it had not paid the royalties provided in the agreement. The defendant filed an answer, which was afterward amended, admitting the execution of the agreements and assignments alleged in the bill, averring that it had for many years paid royalties on the basis of the total sales of the electric headlight equipments embodying the inventions covered by the patents, insisting that upon a proper construction of the agreement it was not liable to pay royalties on the basis claimed by the complainant, alleging that it had discontinued the use of all the inventions covered by the patents in the construction of its electric headlight equipments, and denying that any royalties were due under the terms of the contract.

After the cause had been referred to the master and the evidence taken, the defendant, at the hearing of exceptions to the master's report, obtained leave to file, and filed, an amendment to its amended answer, alleging that Farwell, Vilas, and Trumbull were directors of the corporation at the various times which have been mentioned, and stated their relation to the management of the corporation, stating that it would have been for the best interest of the corporation for Farwell to have bought the rights of Pyle and Ewers for the company at the price paid, which was much less than their real value, and that Farwell, having obtained knowledge of their real value by reason of his position as a director, should have bought them for the company, which could have paid for them, but that Farwell did not consult the other stockholders and directors, and disclose to them...