Gillette v. Metzgar Register Co.

• Decision Date: 04 June 1928
• Docket Number: No. 61.,61.
• Citation: 219 N.W. 644,243 Mich. 48
• Parties: GILLETTE v. METZGAR REGISTER CO.
• Court: Michigan Supreme Court

243 Mich. 48

219 N.W. 644

GILLETTE

v.METZGAR REGISTER CO.

No. 61.

Supreme Court of Michigan.

June 4, 1928.

Appeal from Superior Court of Grand Rapids, in Chancery; Leonard D. Verdier, Judge.

Suit by Herbert B. Gillette against the Metzgar Register Company. Decree for defendant, and plaintiff appeals. Reversed and rendered.

Argued before the Entire Bench.

Phelps & Paley, of Grand Rapids, for appellant.

Laurence W. Smith, of Grand Rapids, for appellee.

POTTER, J.

Plaintiff filed his bill of complaint against defendant alleging ownership of a patent on end-grained wheels for trucks, dynamos, and machinery, and that he made a contract with defendant, as follows:

‘An agreement entered into by and between H. B. Gillette, party of the first part, and the Metzgar Register Company, party of the second part, both of Grand Rapids, Mich., U. S. A.

‘Whereas, the said party of the first part has invented a certain new and useful, end-grained wheel for trucks, dynamos, etc., and does hereby agree to transfer and assign to the said party of the second part all patents or patents pending covering same or any new improvements he may evolve pertaining to same or to any device or article kindred to it for and in consideration of certain provisions hereinafter specified; and

‘Whereas, the said Metzgar Register Company, party of the second part, purchases all rights and title to said device along with all improvements on this or any kindred line that may be made in the future by the said party of the first part, with the understanding that all patents relating to said device that are to be assigned to the Metzgar Register Company shall remain their property as long as they are in operation, but that in case of insolvency or bankruptcy all patents assigned by the said H. B. Gillette shall revert back to him; and

‘Further, it is agreed that should the Metzgar Register Company fail to supply the necessary machinery for at least one unit to manufacture said wheel this contract shall become null and void:

‘Now, therefore, it is agreed that the party of the second part shall pay to the party of the first part a royalty of 5 cents per wheel on all wheels sold and paid for. All royalties are to be credited to the account of the said H. B. Gillette upon settlement of accounts by purchasers of same, and remittances are to be made to the party of the first part either in periods of 30, 60, or 90 days.

‘Further, it is agreed that the said party of the second part shall give to the said H. B. Gillette $5,000 of common stock in the company to be put in escrow and delivered to him as soon as the earnings are sufficient to warrant the payment of a 6 per cent. dividend on stock outstanding.

‘This contract becomes effective as soon as it is signed by the interested parties and two witnesses. Party of the First Part: Herbert B. Gillette. Party of the Second Part: Metzgar Register Co., by Leroy Metzgar, President, by ________. [Seal of Metzgar Register Co.] Witnesses: M. L. Cockran. Phoebe J. Neve. Date May 16, 1922.’

Plaintiff alleges ‘one unit of machinery,’ as mentioned in the contract, was understood to mean one single machine or its equivalent, together with necessary appliances, tools, and machinery to operate the shingle machine at full capacity, to assemble and furnish the wedges or parts of the end-grained wheels to the full capacity of the shingle machine; that defendant failed and refused to perform its agreement and install one unit of machinery, is insolvent and unable to carry out the contract, has failed and refused to pay plaintiff royalties, as provided in the contract, and has informed him it does not intend to carry out the contract; that the patent and inventions are of no value to defendant; the contract is without legal effect, without consideration, unilateral, and void, but causes doubt and uncertainty as to plaintiff's right and title to said invention and patent. The bill of complaint was amended to allege that at the time the contract was made defendant did not have authority to make it, that it was ultra vires. Plaintiff asks for rescission and cancellation of the contract. Defendant, by its answers, denied all plaintiff's allegations of wrongdoing and asked for specific performance of the contract to assign and transfer the plaintiff's patents to it. The trial court dismissed plaintiff's bill of complaint, decreed specific performance on defendant's answer in the nature of a cross bill, and plaintiff appeals.

By the contract defendant did not agree and undertake to manufacture any endgrained wheels of any kind, any time, anywhere. It did not undertake and agree to sell or attempt to sell any end-grained wheels, manufactured under plaintiff's patent or otherwise, of any kind, any time, anywhere. The contract provides it is to become effective when signed by the parties. The clause in the contract effective against the plaintiff was the assignment and transfer by him to defendant of his patent for end-grained wheels. After signature of this contract, defendant was under obligation ‘to install one unit to manufacture said wheel,’ which might be new or old, owned or unowned by defendant, at the time the contract was made. If this ‘one unit to manufacture said wheel’ was installed, it was the property of defendant and not plaintiff, and continued to be defendant's property. Defendant did not agree to operate this unit when installed, the manufacture the patented end-grained wheels. There is nothing to show what ‘one unit to manufacture said wheel’ was or was intended to be. The term is not defined in the contract. The parties are in dispute as to what was meant by the expression, as used in the contract, ‘one unit to manufacture said wheel.’ They were in dispute at the trial. There is no evidence the minds of the parties met-that each party to the contract understood the expression ‘one unit to manufacturer said wheel’ in the same way, when the contract was signed. The expression meant different things to each of the contracting parties. The proof is practically undisputed, if we credit the testimony of both the plaintiff and Mr. Metzgar, that the minds of the parties never met as to what was meant by the only term of the contract that expressed any obligation on the part of defendant. The contract was ambiguous. Where a contract contains an ambiguous expression, the court will refuse to enforce it in a sense in which one of the parties did not understand it. In such case there is no real meeting of the minds of the parties. 36 Cyc. 605. A court of equity will refuse specific performance of a binding contract ‘if not clearly satisfied that it embodies the real understanding of the parties.’ Chambers v. Livermore, 15 Mich. 381.

Defendant agreed to escrow $5,000 in par amount of its common capital stock and to deliver such stock to plaintiff when the earnings of defendant became sufficient to warrant payment of a dividend of 6 per cent. on the defendant's outstanding capital stock. No limit was placed by the contract on the amount of capital stock that was to be outstanding. There is nothing to indicate what ratio the possible prospective holdings of the plaintiff were to bear to the total capital stock of defendant. No time limit was fixed by the contract in which the 6 per cent. stock dividend was to be paid. No limit was placed in the contract as to when the stock would become the property of plaintiff. Defendant might pay 5.99 per cent. dividend annually indefinitely, and plaintiff would not be entitled to the stock escrowed or the dividends thereon. Mr. Metzgar was in control of defendant. It rested with Mr. Metzgar to determine whether plaintiff ever received any stock or dividends. The defendant evidently did not intend to manufacture the wheel patented by the plaintiff after it obtained the assignment of plaintiff's patent. Plaintiff entered the employ of defendant. A few wheels were manufactured and sold. Defendant then began to manufacture a wheel of its own, not covered by the patent of plaintiff; and defendant's president, Mr. Metzgar, applied for a patent in his own name on end-grained wheels, ceased to manufacture plaintiff's wheels, and discharged the plaintiff from defendant's employ. Defendant continued to manufacture and sell wheels covered by Mr. Metzgar's patent, and now insists the plaintiff is not only not entitled to a reassignment of his patent, but that defendant owns the patent and is entitled to a decree of the court placing the seal of approval upon the contract, in so far as it attempts to assign and transfer the title of plaintiff's patent to defendant. If defendant does own plaintiff's patent, it has parted with nothing to obtain the title to it. It did pay plaintiff some royalties on the basis of 5 cents a wheel, but in so doing it obtained payment for its wheels at the price fixed by it. Defendant's president did not prepare a license contract with plaintiff under which defendant could manufacture and sell end-grained wheels covered by plaintiff's patent on a royalty basis. Instead of so doing, he prepared a contract operative on its execution by which plaintiff assigned and transferred his patent to defendant, along with all improvements on this or any kindred line that may be made by plaintiff.

The contract provides, in case defendant shall become insolvent or bankrupt, plaintiff's patent assigned to defendant shall revert to him. It is not claimed defendant is bankrupt. If defendant owes more than it can presently pay, if its liabilities exceed its assets, it is, in the ordinary acceptation of the term, insolvent. The bill herein was filed July 1, 1925. The January 1, 1924, financial statement of defendant showed assets of $174,361.68 and liabilities of $180,872.21. Among the assets listed are ‘patents and good will’ valued at $47,486.87. Defendant's statement of January 1, 1925, showed the items ‘patents and good will’ placed in the financial statement at $47,668.52. Def...