Insealator, Inc. v. Wallace

• Decision Date: 12 October 1959
• Docket Number: No. 11,11
• Citation: Insealator, Inc. v. Wallace, 357 Mich. 233, 98 N.W.2d 643 (Mich. 1959)
• Parties: INSEALATOR, INC., a Michigan corporation, Plaintiff and Appellant, v. William P. WALLACE et al., Defendants and Appellees. William P. WALLACE et al., Plaintiffs and Cross-Appellants, v. INSEALATOR, INC., a Michigan corporation, Defendant and Appellee.
• Court: Michigan Supreme Court

Page 643

98 N.W.2d 643

357 Mich. 233

INSEALATOR, INC., a Michigan corporation, Plaintiff and Appellant, v. William P. WALLACE et al., Defendants and Appellees.

William P. WALLACE et al., Plaintiffs and Cross-Appellants, v. INSEALATOR, INC., a Michigan corporation, Defendant and Appellee.

No. 11.

Supreme Court of Michigan.

Oct. 12, 1959.

Butzel, Eaman, Long, Gust & Kennedy, Detroit, for plaintiff and appellant. Percy M. Lovett, James D. Ritchie, Rockwell T. Gust, Jr., Detroit, of counsel.

Roy S. Lasswell, Chicago, Ill., and Gordon E. Gable, Ypsilanti, for appellees and cross-appellants.

Before the Entire Bench.

KAVANAGH, Justice.

William P. Wallace instituted a law action in the circuit court for Wayne county against Insealator, Inc., for claimed commissions allegedly earned as a manufacturer's agent under contracts with Insealator beginning February 9, 1954, and ending subsequent to discharge of Wallace by Insealator on April 7, 1955.

It is Wallace's position that the commissions have been earned but not paid. Such commissions arose out of sales made by Wallace by delivery of a radiator stop-leak product in the form of pellets in large quantities to automobile manufacturers.

The pertinent contracts are three in number and were dated February 9, 1954, June 5, 1954, and December 16, 1954. They are as follows:

'February 9, 1954

'To Whom it May Concern:

'As of February 1st, I have engaged a manufacturers' agent, whose name is W. P. Wallace, who will act as an agent for the Insealator pellets, also all industrial sales of Gasketelper. He will be paid a straight commission of 25% on all gross sales when the money is collected by us, subject to amendment below.

'Bar's Products Supply, Inc.

'Fred D. Barton

'President

'cc: Mr. Fred D. Barton

'Mr. W. P. Wallace

'Mr. James B. Eaman

'Amendment:

'When total commissions earned have reached $25,000, there will be a modification of the 25% basis. The exact adjustment to be agreed upon at a later date.'

'June 5, 1954

'Supplement to Replace Memorandum

Agreement Under Date of

February 9, 1954

'Re: William P. Wallace

'(1) William P. Wallace will act as an agent for the sale of Insealator pellets and also for all industrial sales of Gasketelper.

'(2) Mr. Wallace's territory coincides with that of Bar's Products Supply, Inc., and thus excludes the territory serviced by Bar's Products, Inc. (a California Corporation.

'(3) Mr. Wallace will be paid a straight commission of 25% on all of his gross sales to the automotive and engine manufacturers alone. Engine and/or motor rebuilders are specifically excluded.

'(4) Mr. Wallace will receive a commission of 5% on sales to automotive manufacturers of Bar's Leaks under private label, excepting sales to Buick Motor Division, General Motors Corporation.

'(5) The above commissions will be paid when the money is collected by us, following completion of the sale.

'(6) Total commissions earned will be paid at the rate of 25%, will (sic) the exception as noted in paragraph--4, and with the additional condition that the total commissions paid Mr. Wallace cannot exceed 50% of the total net profit after taxes of Insealator, Incorporated.

'Insealator, Incorporated

'Fred D. Barton,

'President

'Approved:

'William P. Wallace'

'December 16, 1954

'Supplement to replace memo agreements under dates of February 9, 1954 and April 19, 1954, Re: W. P. Wallace

'W. P. Wallace will act as an agent for the Insealator pellets, also all industrial sales of Gasketelper. He will be paid a straight commission of 25% on all gross sales to the automotive manufacturers alone. Rebuilders are specifically excluded. W. P. Wallace will receive a commission of 5% on sale of Bar's Leaks under private label to the automotive manufacturers alone, with the exception of Buick business.

'The above commission will be paid when the money is collected by us. Completed sale only.

'This agreement is applicable to the territory covered in the Continental United States by Bar's Products Supply, Inc. and Insealator, Inc. with the exception of the territory covered by the California corporations, Bar's Products, Inc. and Bar's Leaks Western, both located at 226 South 24th Street, San Jose, California, and W. P. Wallace waives right to commissions on shipments of Insealator pellets made in the territory of the above corporations which covers the Pacific Coast territory only.

'When the total commission earned have reached $25,000.00 per year there will be a nodification (sic) of the 25% basis on Gasketelper and and (sic) Insealator pellets by mutual agreement.

'Under no circumstances can the total commission exceed 50% of the total net profit before taxes of Insealator, Incorporated.

'Bar's Products Supply, Inc.

'Fred D. Barton,

'President.

'Approved

'W. P. Wallace'

It is to be noted that under the February 9, 1954, contract Wallace's total commissions were limited by the following factors: (1) 25% of gross sales when money is collected, subject to an amendment as follows: When total commissions earned reach $25,000, there will be a modification of the 25% basis. Under the June 5, 1954, contract the limitations were as follows: (1) Commissions of 25% on all gross sales to automotive and engine manufacturers alone. (2) Commission of 5% on sales of Bar's Leaks, with a certain designated exception. (3) Money must first be collected and sale completed. (4) Total commissions cannot exceed 50% of the total net profit of Insealator after taxes. The December 16, 1954, contract contained the following commission limitations: (1) 25% on all gross sales to automotive manufacturers alone; 5% on sale of Bar's Leaks to automotive manufacturers alone, with one exception. (2) Money must first be collected and sale completed. (3) Agreement does not cover sales in the Pacific Coast territory covered by Insealator's California corporations. (4) When total commissions reach $25,000 there will be a mutually agreed upon modification of the 25% basis. (5) Total commissions cannot exceed 50% of the total net profit of Insealator before taxes.

Fred D. Barton executed the required contracts on behalf of Insealator, Inc., a Michigan corporation, whose stock he controlled. Insealator manufactured the pellets under license granted to it by another corporation whose stock was also controlled by Mr. Barton.

In this action for claimed commissions, defense is made by Insealator that Wallace has forfeited his right to commissions because of his activity while a manufacturer's agent for Insealator in helping organize a competitive corporation, American Waterlock Corporation, and using the information gained as trade secrets for his own benefit as a stockholder of the rival in the field of stop-leakage products.

Subsequent to the filing of Wallace's action for commissions, Insealator filed a bill in chancery seeking injunctive relief and damages against Wallace and the American Waterlock Corporation. The chancery action was predicated upon an alleged confidential relationship between Wallace and Barton, breached by Wallace's appropriation to his own benefit of information of trade secrets entrusted to Wallace. It is claimed circumstances show bad faith in said use, calling forth equitable jurisdiction to declare an implied trust for the benefit of Insealator in the unjust enrichment and gains made by Wallace.

It is the contention of Wallace, as defendant in the chancery action, that no trade secrets were involved; that no confidential relationship existed between Wallace, Insealator, and Barton; that the alleged trade secrets were all available to the public through the registering of Barton's patent, and the source of the material used and the combination of it had been used in the trade for years; that the claimed development of an extruding machine attachment was nothing unusual and was known to all manufacturers and agents of extruding equipment; that since there was no confidential relationship and no trade secrets involved, plaintiff in the chancery case was not entitled to injunctive relief or damages.

The 2 cases were combined for trial in the Wayne circuit court.

The trial judge, at the conclusion of proofs, rendered a written opinion in which he dismissed the law action for commissions with a one-paragraph statement in a twenty-page opinion to the effect that Wallace had failed by a preponderance of the evidence to substantiate his claim. He entered a judgment of no cause of action in the law case. Likewise, in the chancery case, the trial court held Insealator failed to substantiate its claims for damages or injunctive relief and dismissed plaintiff's bill of complaint. In dismissing the bill of complaint, the trial judge in his opinion held that the alleged secrets were not trade secrets in the legal sense from which could arise a confidence reposed by Barton in Wallace and breached by him in the competitive field of stop-leakage devices; that the relationship was one for mutual benefit; that there was no misappropriation of information upon which to claim bad faith; that there was no intent by Wallace to wreck Barton's Buick business; that the admitted dealings of the parties negative any possible showing of advantage taken by one at the expense of the other requiring compensation; that with a patent background, Barton cannot impose on Wallace a relationship based on bad faith in departing from the purpose in giving the information, since the purpose was to use the information for a common benefit.

From the order dismising the bill of complaint and the entry of a judgment of no cause for action in the law case, both parties have appealed.

Appellant Insealator presents 13 individual claims of error by the trial court. Seven of these claims relate directly to the alleged theft of trade secrets. These are 3 through 9, and can be stated in 1 question: Were the use and source of supply, method of mixing, and proportions of materials used in the manufacture of the pellets,...