deStubner v. United Carbon Co.

I can find no basis in the record for the recovery allowed by this Court in favor of the plaintiff.

It is perfectly clear and apparently conceded by all, that the three written agreements of July 31, 1936, do not obligate the defendants, or either of them, to pay the plaintiff anything. These contracts merely stipulate that unless the plaintiff shall be paid, by way of dividends or otherwise, the amount of $7,500 for the first year and $12,000 for each year thereafter, he may, at his election, terminate the license for his patents. The books indicate that similar provisions in patent license agreements are common. No case is found, however, holding that such a provision makes such payments obligatory on the licensee. In this State we have long been familiar with a precisely parallel provision common in oil and gas leases, providing for the termination of the lease at a fixed time if a well is not then completed, unless a stipulated sum be paid to the lessor. This provision we have held to create no obligation upon the lessee to make these payments. Smith v. South Penn OilCompany, 59 W. Va. 204, 53 S.E. 152; Lowther Oil Company v.Guffey, 52 W. Va. 88, 43 S.E. 101; Snodgrass v. South Penn OilCompany, 47 W. Va. 509, 35 S.E. 820. Therefore, if the plaintiff has any right of recovery against these defendants, or either of them, we must find it, not in these three formal agreements but elsewhere. The plaintiff claims that this right can be extracted from the resolution adopted by the board of directors of the defendant Microid Process, Inc., on the 18th day of August, 1936.

It is perfectly obvious, however, that this resolution, standing alone, creates no actionable right in the plaintiff. He is not a party thereto; he neither gives nor promises anything in consideration thereof; the resolution in no manner binds him to do or refrain from doing anything. The resolution, in itself, is nothing but an ex parte act of the corporation. It merely directs the proper officers of the corporation to make certain payments "as per" a certain contract. This at most is a mere routine internal and private proceeding of the corporation, which in no manner purports to create any new contractual relation with any person, but only directs performance of an act which can, or must be done under a contract already in existence. The plaintiff apparently does not contend that the resolution in and of itself would vest in him any right of action. His theory of recovery is that this resolution is a part of a more comprehensive contract between himself and the defendants by which a right of action in him against the defendants is created. This claim would seem to fail for four distinct reasons.

(1) The resolution of the directors of Microid Process, Inc., to pay "as per contract" does not, in itself, create a contract on which payments are to be made. The contract on which these payments are to apply must still be ascertained, and the character and effect of the payments when made, or when bound to be made, will be determined by that contract. International Finance Corp. v.Calvert Drug Company, 144 Md. 303, 124 A. 891; Culbreath v.Guiterman, Rosenfield Company, 217 Ala. 259, 115 So. 303;Continental Bank Trust Company v. Times Publishing Company,142 La. 209, 76 So. 612; Gisborn v. Milner,28 Utah 438, 79 P. 556; Close v. Burlington C. R. N. RailwayCompany, 64 Io. 149, 19 N.W. 886.

On what contract were the payments directed by the resolution to be paid? There is only one contract discoverable in the record, any provision of which mentions payments to which the payments stipulated in the resolution will in any wise conform. That is that part of the agreement by which the license is made revocable at the plaintiff's election unless dividends or payments in lieu thereof to the amount of $7,500 are made for the year ending August 1, 1937. Indeed, the odd amount of the monthly payments would seem to have been determined by resolving the payment of $7,500 into twelve equal parts. That agreement does not state when, or in what amounts, this sum shall be paid. The monthly payments stipulated for in the resolution, however, will in the year precisely equal this sum. It must be concluded, therefore, that these payments were intended to make up the said sum of $7,500 and nothing else, and that when that sum is paid the monthly payment should cease. After the expiration of this year there are no payments, either binding or optional, which will be discharged by the monthly payment of $625. After August 1, 1937, to prevent cancellation of the license the sum of $12,000 must be paid each year. The payment of $625 per month after that date will be utterly futile. Such payments, if made, would procure the payor nothing, and will in no way bind the payee. The payments mentioned in the resolution were to be made not as a gratuity, but "as per" some contract under which they would be effective for some purpose. No such contract, or portion of any contract, can be found except that covering the year from August 1, 1936, to August 1, 1937. The defendants having made all the $625 payments which can be made "as per" any contract, their obligation to pay further like sums ended.

It is true that certain payments of $625 per month were made to deStubner after the expiration of the first year, but these were promptly suspended when it became apparent that the parties were not agreed as to the liability for, and effect of, these payments. They were not resumed until the execution of the contract of July 12, 1938. It is also true that Nelson, in his correspondence with the Hellmuth Company, refers to payments which his company was obligated to make to deStubner, but this indicates nothing as to whether these payments were optional or obligatory. In either case, certain payments had to be made to deStubner in order to preserve the general license alive until the option to the Hellmuth Company might be exercised.

(2) By this new contract the whole matter of the payments to deStubner was covered. First, Microid Process, Inc., agreed to pay, and deStubner agreed to accept, instead of the $12,000 by way of dividends, or other payments in lieu thereof, the sum of $625 per month for the period between August 1, 1937, and the expiration or exercise of the Hellmuth option which extended one year from May 27, 1938. All these monthly payments have been made except those for March, April and May, 1939, and clearly the plaintiff would be entitled to a recovery for these installments, with interest, were it not that he pleads and proves sets-off aggregating a much larger amount.

Second, the contract of July 12, 1938, states, with equal definiteness, the right of deStubner to payments after the expiration of the Hellmuth option. It says that "upon the exercise or termination of said option agreement, the schedule of payments specified in paragraph 3b of the said agreement of July 31, 1936, shall be reinstated as of the date of the exercise or termination of said option agreement." That section reads as follows:

"deStubner shall receive no salary for his services as such director of technical research, but when and if the dividends paid on the "A" stock of Microid shall not amount to Twelve Thousand Dollars ($12,000) per year, deStubner shall be at liberty to terminate said employment unless some one on behalf of Microid shall pay to the holders of "A" the difference between the dividends actually declared and paid in such year on said "A" stock and said sum of Twelve Thousand Dollars ($12,000), provided that during the period of one (1) year following the date hereof the amount of dividends, to be so paid, shall be Seven Thousand Five Hundred Dollars ($7,500) instead of Twelve Thousand Dollars ($12,000)."

It is suggested that the expression "schedule of payments" means only the amount of payments. But a schedule of payments, to mean anything, must include also, time of payments, conditions and contingencies, affecting either time or amounts if there be such, and their character as optional or obligatory, otherwise the payments are not adequately described. See Hutton v. Gill, 212 Ind. 164, 8 N.E.2d 818. The terms and conditions of payment are absolutely essential to determine when, how, and under what circumstances payments shall be made.

But, whether this in the correct construction of the phrase "schedule of payments" standing alone, it is made so by the following provision in the same contract:

"3. Except as above provided, the terms and conditions of said agreement of July 31, 1936, shall remain in full force and effect."

By this express language all the terms and conditions of the agreement of July 31, 1936, including section 3b, in regard to payments are directly and positively reaffirmed and continued in effect. No allusion is made to any rights arising under any other agreement, or the resolution of the defendant Microid Process, Inc. Not only the "schedule of payments" in section 3b of the agreement of July 31, 1936, but all the terms and conditions of that agreement must henceforth prevail and control the problem of payments to deStubner. All the provisions of all other agreements in relation thereto are abrogated. All questions arising by prior dealings, arrangements and understandings between the parties are eliminated and all payments thereafter to be made are in accordance with section 3b of the agreement of July 31, 1936. Thus, any possible survival of the resolution of Microid Process, Inc., disappears. The payments in lieu of dividends thus assume their original character and again become wholly optional regardless of what they may have been in the interim, and will not sustain this or any other action on behalf of the plaintiff.

(3) The notice of cancellation with which he began his efforts to terminate his license to Microid Process, Inc., assigns eight grounds for the termination thereof, but not one of these is made a basis for cancellation by the license agreement. Even the insolvency of the licensee, assigned as one ground, is insufficient for that purpose. It is not insolvency alone but an "adjudication of insolvency" that creates the right of termination of the license. There had been no such adjudication. The notice, therefore, was nothing but a notification by deStubner of his intention to institute a suit for cancellation on the grounds mentioned, coupled with an invitation to negotiate for termination of the license by agreement. This invitation is in the notice itself and is as follows:

"I have hoped that this license could be cancelled by mutual consent * * *. While I will not waive any rights exercised by this notice, I am not so unreasonable as to be unwilling to arrange for a mutual cancellation provided that this is done within the next ten days. If you are in accord with this suggestion please let me know promptly."

To this notice the defendant Microid Process, Inc., replied by letter, saying, inter alia:

"In your notice you invite us to join with you in terminating the license agreement by mutual consent. This proposition is very attractive to us, inasmuch as it justifies us in ceasing to pay money to you for which we are getting no adequate return and in limiting a relationship which, because of your defects of temperament, has been extremely unsatisfactory.

"We have, however, certain commitments to other people involving the entire field of your inventions, which we cannot terminate abruptly without their consent. One of these commitments is to the Charles Hellmuth Printing Ink Corporation, to which commitment you also are a party. Hence, for a short time, we shall hold under advisement your suggestion of cancellation by mutual consent, leaving you free to prosecute your legal remedies, if you think best to do so."

The only "commitments to other people" disclosed by the record were sub-licenses and outstanding options. These by the very terms of the license itself were protected against cancellation of the principal license for adjudication of insolvency or bankruptcy or failure to pay dividends or money in lieu thereof. This Court in the chancery cause so determined.deStubner v. Microid Process, Inc., et al, 124 W. Va. 591,21 S.E.2d 154. Thus Microid Process, Inc., clearly indicated to deStubner on March 14, 1939, that he could have, with its consent, everything to which he was entitled, and which he eventually obtained. On the same day the defendant United Carbon Company, Inc., replied to deStubner's invitation saying, "So far as we know, Microid Process, Inc., has done nothing to justify your attempted cancellation of your license to it and until the validity of the attempted cancellation is put beyond controversy by judicial decree or otherwise, we shall continue to recognize Microid Process, Inc., as our licensor." This position taken by United Carbon Company, Inc., was precisely correct. The notice given by deStubner did not, and could not, cancel the license. That could only be done by a decree of court, pending which United Carbon Company, Inc., had no power to substitute deStubner for Microid Process, Inc., in its sub-license. United Carbon Company, Inc., therefore, simply stood upon its exact legal rights and offered no obstruction whatever to deStubner in the cancellation of his license to Microid Process, Inc. It thus appears that as early as March 14, 1939, deStubner was offered all that he eventually got by his suit for cancellation.

Nevertheless he proceeded with that suit. By his original bill therein he expressly eliminated from the cancellation sought all sub-licenses; but by an amendment made before the defendants had answered, he struck out this exception and henceforth claimed total cancellation of the license and all sub-licenses. The defendants' answers admitted the insolvency of Microid Process, Inc., but denied all other charges in the notice and bill. Therefore, on the pleadings as they then stood, the plaintiff was entitled to everything which he claimed except the cancellation of the sub-licenses. This degree of relief he refused to accept, although it would not have affected his right to litigate further over the cancellation of sub-licenses, and the relief thus tendered by the answers is all he ever obtained. All delay by the litigation ensuing, after the answers were filed, was occasioned solely by deStubner's attempt to procure cancellation of the sub-licenses. In this he totally failed. He got in the end exactly what these defendants indicated a willingness to give March 14, 1939, and what by their answers they conceded he was entitled to. Neither of these defendants ever withheld from, or refused to yield to, deStubner anything to which he was entitled or ever got. They could not cancel deStubner's license nor thrust a cancellation on him, except by agreement with him. They could only consent to a proper cancellation demanded by him. The defendants never thereafter exercised or attempted to exercise any rights under the license as distinguished from the sub-license, except those which United Carbon Company, Inc., was adjudged entitled to keep. In no sense did Microid Process, Inc., retain its license from deStubner. The offer contained in the Microid letter of March 14, 1939, was never withdrawn or modified. The plaintiff had only to accept then what he ultimately got. By no conceivable theory of law, equity or justice can the plaintiff be considered as entitled to collect from the defendants, or either of them, any of the sums provided in any of the contracts during this period.

(4) Another aspect of the case is equally potent to defeat the plaintiff's action. By his contract with the defendant Microid Process, Inc., the plaintiff not only licensed his patents to that corporation but was required to act as "director of technical research". He was required to serve as such without salary but with the provision that if the dividends or payments in lieu of dividends did not amount to the sum of $7,500 for the first year and $12,000 for the years thereafter he should be "at liberty to terminate said employment". The dividends or money to be paid in lieu thereof were, therefore, also compensation for his services. These services he was bound to render. His performance under the license agreement was not complete unless he acted as director of technical research. The letter from the defendant Microid Process, Inc., to the plaintiff, dated August 18, 1936, being the date of the Microid Process, Inc., resolution and the date of the execution of the three agreements which bore date July 31, 1936, reads as follows:

"This letter is to evidence our understanding that the sums payable to you as or in lieu of prior dividends on the Class "A" stock of this Corporation, heretofore issued to you as set forth in the written agreement between us dated July 31, 1936, are to be paid to you in equal monthly amounts on or before the last day of each month beginning in August, 1936. The understanding as evidenced by this letter shall not affect or modify in any manner the other provisions of said agreement. Should your employment as director of technical research for this Corporation terminate, for any reasons, any dividends payable on the Class "A" stock are to be paid as authorized by our Board of Directors in accordance with said agreement."

This clearly and expressly says that when deStubner shall cease to be director of technical research the monthly payments of $625 shall terminate, and that further payments to him shall be made only in accordance with the agreement between Microid Process, Inc., and deStubner dated July 31, 1936. The plaintiff made no protest thereto, nor to any statement or condition therein contained. On the contrary he treats this letter as part of the total contract between himself and the defendants. He introduced it in evidence at the trial, relies upon it and is thereby bound by it. It is perfectly clear, therefore, that the monthly payments of $625 could only be claimed by him so long as he acted as director of research. Certainly he did not so act after March 1, 1939. He not only did not act as such, but put himself in a position where it was impossible for him so to do. Unquestionably his "employment as director of technical research" terminated upon his notice for cancellation of his contract. He certainly could claim nothing under the Microid resolution thereafter. If, therefore, any vestige of the plaintiff's right to the monthly payments of $625 mentioned in the resolution of Microid Process, Inc., survived it was wholly eliminated and extinguished by the plaintiff's notice of cancellation and suit pursuant thereto. This result followed the cessation of his employment as director of technical research "for any reason."

I would reverse the judgment of the trial court, enter here a judgment of nil capiat against the plaintiff and award to these defendants costs both in this Court and the court below.

Judge Fox directs me to say that he concurs in this note.