Thorn Wire Hedge Company v. Washburn & Moen Manufacturing Company/Opinion of the Court

This record contains nearly 1,300 pages, consisting chiefly of evidence. There were no findings of facts, nor did the court below file any opinion. It has hence been necessary to make a long statement, of no interest except to the parties, which will occupy many pages of the Reports.

The Thorn Wire Hedge Company sought by its bill of complaint to compel the Washburn & Moen Company to account for moneys claimed to be due under certain contracts subsisting between the companies.

It was one of the provisions of those contracts that the Washburn & Moen Company should pay, at a stipulated rate, a royalty upon all barbed fence wire which should be manufactured and sold by third parties under licenses granted them by said company; and one of the complaints in the bill is that the Washburn & Moen Company had not correctly reported to the complainant, from time to time, the issuing of licenses, and the amount of moneys collected, or of settlements made. Further complaints are that the Washburn & Moen Company had in some instances accepted notes from its licensees, and refused to account to complainant for its proper share thereof; that the Washburn & Moen Company had received moneys from infringers for damages and certain bonuses, which had not been accounted for; and that, after the making of the supplemental agreement of August 7, 1879, whereby the rate of royalties to be paid by the licensees was reduced, the Washburn & Moen Company did not, in point of fact, in some cases, reduce said royalties, but continued to collect at the old rate, and had failed to account therefor. To meet these charges, the Washburn & Moen Company put in evidence the agreement and release dated July 27, 1881. Thereupon the complainant amended its bill by adding allegations respecting the said release, seeking to have it declared void because executed in ignorance of all the facts, and because the complainant was fearful that legal proceedings against the Washburn & Moen Company would imperil complainant's royalties for the remaining four years of the term of contract. The Washburn & Moen Company, by amendments to its answer, denied the allegations attacking the release and settlement, and averred that the complainant had executed the same with full knowledge.

Did this agreement of July 27, 1881, legally import a settlement and release of the claims in question, and, if so, were the facts and circumstances attending its execution such as to relieve the complainant from its operation? The complainant's contention is that the release was, when drawn and executed, intended only to apply to the bonuses and damages received by and unaccounted for by the Washburn & Moen Company prior to the date of said release; that it does not purport to release that company from back damages received subsequent to its date, or for royalty due upon the product of the Washburn & Moen Company, or upon the product of its licensees previously sold under licenses granted by said company.

We are unable to accept this view of the scope and effect of the release. Its language plainly was that, in consideration of the payment of $10,000 and of a release by the Washburn & Moen Company of certain specified claims made by said company against the company complainant, the latter would and did 'release and discharge the said Washburn and Moen Manufacturing Company from all claims and demands of every kind and nature whatsoever which it has or can have against said company for and on account of any moneys, properties, or valuable things which the said Washburn and Moen Manufacturing Company has received from any persons in settlement for damages or profits accruing to it, of to it and I. L. Ellwood, on account of infringements committed upon any letters patent for barbed-wire fence or machinery for making the same, and also for and on account of any moneys which it has received by way of bonuses or premiums paid to it by parties receiving licenses from it and from I. L. Ellwood to manufacture barbed fence wire; and does also discharge and release the said Washburn and Moen Manufacturing Company from any obligation to account to the Thorn Wire Hedge Company for any sums of money or valuable things which it shall or may hereafter receive or acquire from any parties in settlement of suits or claims for damages for the infringements, prior to the date of this agreement, of letters patent owned by the said Washburn and Moen Manufacturing Company, or by it and I. L. Ellwood, or for moneys which it shall hereafter receive for bonuses or premiums paid for licenses.'

It is, indeed, true, as argued by complainant's counsel, that general expressions in a release may not carry its effect beyond the particular matters which the parties had in view; but the language in the present instance seems to us to be clear and explicit, and to be unmistakably applicable to the matters complained of in the bill.

But it is claimed that, in the circumstances disclosed by this record, a court of equity should not permit the release to stand.

The first reason urged is that the payment of $10,000 was not a sufficient consideration for the release. It has often been held that where the party executing the release, by reason of youth or advanced age, was incapacitated to act judiciously, or where the release was executed during the existence of fiduciary relations, calculated to beget unquestioning confidence, courts of equity will grant relief where the consideration was plainly inadequate. It is enough to say that the present is not such a case. The parties, in respect to their capacity to act, stood upon an equal footing. We are scarcely prepared to extend a doctrine, devised in equity to protect those who are disabled by age or inexperience, to cover the case of a business corporation, whose affairs are managed by a president and board of directors. Moreover, it is not clear that the consideration, in the present case, was inadequate. While it is true that the evidence tends to show that, upon the theory of the complainant's bill, a much larger sum than $10,000 was due, yet the release discloses that, in addition to the payment of that amount, and as a further consideration, the Washburn & Moen Company released the complainant from claims theretofore made by the former, and also agreed to protect the complainant from any suit for infringement of the patents held by Jacob Haish.

The validity of the release is also assailed because neither the complainant nor its counsel were fully advised as to the facts, and because the Washburn & Moen Company falsely misrepresented and fraudulently concealed the facts from the complainant.

This contention presents an issue of facts under the allegations of the amended bill and answer. Although an oath to the answer was waived, and thereby the force of the latter as evidence was prevented, still the burden of proof to set aside a settlement deliberately executed is upon the complainant, and that burden is greatly increased by the fact that eight years had elapsed before the complainant attempted to avoid the operation of such settlement by the allegations of its amended bill.

We do not think it necessary to extend this opinion by a minute analysis of the evidence adduced under this issue. That evidence consists of a large amount of testimony and of a correspondence by letter between the parties for a period of several years. We have examined and considered this evidence, and the full and able discussion of it found in the briefs of the counsel. Our conclusion is that the complainant has failed to show such a state of facts as would warrant a court of equity in holding the release and settlement of July 27, 1881, to be void, either for gross inadequacy of consideration or by reason of any false statements or fraudulent concealment on the part of the Washburn & Moen Manufacturing Company. Not only is there a failure of convincing affirmative evidence on the part of the complainant, but the long period during which the settlement was allowed to stand is, of itself, almost enough to estop the complainant. The effort made to explain and extenuate such delay does not help the complainant's case. It is said that complainant was constrained to execute the release, and rest under it, because if feared that litigation to recover its demands would imperil its receipt of future royalties under the contract. Courts of equity, it has often been said, will not assist one who has slept upon his rights, and shows no excuse for his laches in asserting them. The complainant's excuse, in this instance, that it preferred for prudential reasons to receive money and an acquittance of claims from the Washburn & Moen Company, and to abide by the settlement for a period of several years, rather than to assert its existing demands, is entitled to a less favorable consideration by a court of equity than if its conduct had been that of mere inaction. Lane v. Locke, 150 U.S. 201, 14 Sup. Ct. 78; Hager v. Thompson, 1 Black, 80.

Besides the claims covered by the settlement of July 27, 1881, there were certain other demands made by the complainant, which shall now receive our attention.

It appears that on June 12, 1883, the parties entered into a supplementary agreement, whereby the royalty which the Washburn & Moen Company was to pay to complainant on barbed wire made by itself or its licensees was reduced from 15 cents to 5 cents per 100 pounds from June 1, 1883, to February 12, 1885; and it is now clalimed that complainant did not pay for royalties payable by its licensees at the rate of 15, but at the rate of 5, cents per 100 pounds for the month of May, 1883, and that hence the Washburn & Moen Company owes complainant for barbed wire made by the licensees of the former during said month the difference between 5 and 15 cents per 100 pounds. As against this claim, the Washburn & Moen Company point to a clause of said agreement which provides that said company 'shall not be under obligation to pay said royalty on the barbed wire manufactured and sold by its licensees until after it shall have collected the same from its said licensees,' and gave evidence tending to show that they only collected from their licensees, for the complainant, royalties at the rate of 5 cents per 100 pounds for the month of May, 1883. It is plausibly contended on behalf of the complainant that the clause cited did not relieve the Washburn & Moen Company from accounting for the higher rate of license until and after June 1, 1883; and if, indeed, the Washburn & Moen Company had actually received from its licensees royalties at the rate of 15 cents per 100 pounds for the month of May, 1883, it would apparently be accountable therefor. As, however, that company only received royalties for said month for the complainant at the rate of 5 cents, and so reported to the complainant, which receipted for the royalties so collected, and as the matter stood unchallenged for so long a period, we think no injustice is done by leaving the settlement undisturbed. It is permissible to infer from the conduct of the complainant that it acquiesced in the construction put by the Washburn & Moen Company on the clause in question,-as exonerating it from liability for license fees which were not actually paid to and received by it for the month of May, 1883.

The fourth, fifth, and seventh assignments claim error in the failure of the court below to decree that complainant was entitled to recover from the Washburn & Moen Company royalty upon barbed fencing made and sold by divers licensees of said company prior to February 12, 1885, the royalty accruing on which was abated, released, or compromised by the said company. To dispose of these errors we must turn our attention to a settlement or agreement made by the Washburn & Moen Company with one Jacob Haish.

Haish was the owner of certain patents relating to barb wire and barb-wire machinery. Litigation had arisen between him and the Washburn & Moen Company, as the owner of the Kelly and other patents, on questions of infringement. Ultimately the Washburn & Moen Company deemed a settlement with Haish to be for the benefit of all concerned, and hence, on July 26, 1881, such settlement was effected, whereby the Washburn & Moen Company and Ellwood purchased from Haish his patents, and he took a license from them authorizing him to manufacture 10,000 tons of barb wire per annum. As a condition of this settlement the Thorn Wire Hedge Company executed a collateral agreement, authorizing the Washburn & Moen Company to make said settlement with Haish, and releasing said company from all obligation under its agreements with the Thorn Wire Hedge Company 'to account for any proportion of the moneys received from the said Jacob Haish, whether in settlement of past infringements or for royalties hereafter paid under the said license, which may be required to be expended or remitted in the settlement with said Jacob Haish, or in payment of the consideration money for the transfer and conveyance of all the patents, rights to letters patent, and inventions which are or shall be conveyed by the said Haish to the said Washburn and Moen Manufacturing Company and Isaac L. Ellwood, as provided in said proposed agreement.'

Subsequently certain other licensees of the Washburn & Moen Company refused to pay their royalties because of the settlement made by that company with Haish. They claimed that the agreement with Haish in effect gave him a free license for 4,000 tons annually, and a license at 50 cents per 100 ponds for 4,000 tons more. Owing to this contention, the Washburn & Moen Company was disabled from collecting royalty from some of their licensees until new arrangements were made with them, and the claims of the Thorn Wire Hedge Company we are now considering are for its proportion of the royalties made uncollectible or released by the Haish settlement. The complainant construes the release whcih it had given to the Washburn & Moen Company as extending only to the royalty accruing to it on Haish's own manufacture, and not to the royalty upon wire manufactured and sold by any other licensee, and as not releasing the Washburn & Moen Company from its duty to 'use due diligence and lawful means' to collect such royalties.

That the settlement with Haish was made with the full knowledge and approval, as to substance and terms, of the Thorn Wire Hedge Company, cannot be denied. That such settlement would operate to release any other licensees in whose royalties both the Washburn & Moen Company and the Thorn Wire Hedge Company had interests was probably not foreseen by either party. When it was subsequently determined by the supreme court of Illinois, in the case of Washburn & Moen Manuf'g Co. v. Chicago Galvanized Wire Fence Co., 109 Ill. 71, and 119 Ill. 30, 6 N. E. 191, that the other non-assenting licensees of the latter company had a right to object to those terms of the settlement with Haish which, to some extent, relieved him from license fees, and it hence became necessary for the Washburn & Moen Company to make new terms with such licensees, we think it by no means follows that the Washburn & Moen Company became liable to the Thorn Wire Hedge Company to make good the loss thereby occasioned. On the contrary, such a result of the settlement with Haish must be deemed to have been an incident thereof, and to have been, in a legal sense, within the contemplation of the Thorn Wire Hedge Company.

Nor do we find any satisfactory evidence that in the litigation or in the settlements made with the other licensees the Washburn & Moen Company was guilty of negligence, passive or active, which would create any liability on its part to the complainant company. To occasionally take promissory notes from licensees in lieu of cash for accrued royalties would, if done in good faith, not be so far out of the course of ordinary business transactions as to render the Washburn & Moen Company liable for losses occurring through the insolvency of any of the licensees. The contract was to pay quarterly to the Thorn Wire Hedge Company its share of royalties that had been collected and received by the Washburn & Moen Company, obviously showing that the parties contemplated that the royalties would not necessarily be paid as they accrued.

Upon this part of the case our conclusion is that the contracts between these parties did not import that the Washburn & Moen Company should guaranty the payment by the licensees of the royalties, but should exercise reasonable diligence in their collection; and that the evidence does not disclose any such want of diligence or of good faith as to create the liability asserted in the bill.

The tenth assignment avers error in the court below in not decreeing that appellant was entitled to have and recover of and from the appellee royalty upon the barbed fencing manufactured and sold by defendant under the designation of 'Brinkerhoff Barbed Fencing.'

The allegation of the bill touching this ground of complaint was as follows: 'There was manufactured and dealt in by the defendant a certain patented barbed wire, known as the 'Brinkerhoff Patent'; that the form or construction of such wire was slightly different from the barbed wire made under the Kelly patent, heretofore mentioned, but orator claims that the same was and is barbed wire within the meaning of said contracts.'

In respect to this the defendant, in its answer, stated: 'It admits that there was manufactured and sold by it a certain patented article known as the 'Brinkerhoff Fencing,' but says that the form and construction of such fencing was widely different from the barbed wire made under the Kelly patent, heretofore mentioned; and says that the same was not and is not barbed wire within the meaning of said contracts.'

The evidence discloses that the Washburn & Moen Company manufactured and sold, prior to February 19, 1885, upwards of 4,000 tons of Brinkerhoff barb wire, upon which it paid no royalty to appellant. The contract provided that the Washburn & Moen Company should enter upon the manufacture of barbed fence wire under the Kelly patents aforesaid, and use reasonable and diligent efforts to supply the demand for this article throughout the country, and also should use proper and reasonable diligence in prosecuting infringers of the several letters patent as aforesaid, or any of them, to the end that said patents might be fully enforced and sustained.

If the issue thus raised under the pleadings presented the question whether the Washburn & Moen Company should account for royalty received by it from the sale of Brinkerhoff barb fencing because such fencing was an infringement of the Kelly patents, and thus within the terms of the contract, it would be necessary for us to investigate the state of the art at the time the patents were granted, as well as to compare the several claims of the respective patents; and our inspection of this record has not disclosed to us the materials necessary to enable us to do this intelligently.

We do not, however, perceive that such an issue or question was raised by the pleadings, or was intended by the parties. That the complainant did not intend to raise an issue under the patent laws of the United States is seen in the fact that it filed its bill of complaint in a state court. Nor did the defendant, in its petition for removal, place the right to remove upon any allegation that the subject-matter of the suit belonged exclusively to the federal court, but upon the diverse citizenship of the parties. But any doubt upon this subject is removed by the admission of the appellant's counsel, who, in his careful brief, says: 'The question of infringement upon the Kelly letters patent is not raised by the pleadings in this case. The bill is not drawn in the form of, nor does if contain, the usual allegations requisite to a bill for infringement of letters patent. The answer does not aver that the Brinkerhoff patent does not infringe the Kelly patents, or any of them. This issue is not presented.'

The learned counsel then proceeds to state and discuss the question as he claims it to be, and that is, that the terms of the contract import a covenant on the part of the Washburn & Moen Company not to manufacture and sell barb wire under any other letters patent than the Kelly patent, and to use reasonable diligence to supply the demand for the article made under the Kelly patents, and not made under patents in competition with them.

Our reading of the contract between the parties fails to reveal any express covenant to the effect claimed, nor do we perceive that such a covenant can be fairly implied from the language used, even when read in the light of all the facts and circumstances.

The provision of the contract is that the Washburn & Moen Company shall pay royalty on all barb fence wire which shall be made and sold 'under said several letters patent, or any of them.' The letters patent referred to are expressly mentioned, and do not include the Brinkerhoff patent, which indeed was subsequently granted. Nor does the history of the case show any reason for the contention that the Washburn & Moen Company was disabled, by the contract, from buying the Brinkerhoff patent, and making wire under it. If that company had not purchased the Brinkerhoff patent, the owner could have made and sold wire outside of the Kelly patents, and such competition would plainly have been more largely detrimental to the common interests of the parties to this controversy than that which arose under the purchase as made.

It is true that in 1881 the Thorn Wire Hedge Company claimed that the Brinkerhoff wire strip was covered by the agreement, and demanded an account of royalty thereon. But this claim was then rejected by the Washburn & Moen Company, which, while admitting that no sales under the Brinkerhoff patent had been reported, asserted that it was in no sense subject to the Kelly patents.

No further claim in this behalf was made by the appellant for five years, during which period reports were duly made by the Washburn & Moen Company, without including any statement of sales made by it of wire made under the Brinkerhoff patent, and monthly settlements were made, and differences adjusted. So long a period of acquiescence discredits any renewal of the demand.

In the absence, then, of any express covenant, and in view of the long course of dealing between the parties, in which this claim sunk out of sight, we think the complainant's claim for an account of royalty for wire made under the Brinkerhoff patent cannot be sustained. We therefore find no error in the decree of the court below dismissing the original and amended bill of complaint.

This brings us to a consideration of the cross appeal of the Washburn & Moen Manufacturing Company, wherein complaint is made of the court below in dismissing the defendant's cross bill.

The Washburn & Moen Company seeks by its cross bill to recover from the Thorn Wire Hedge Company its alleged proportion of moneys which the Washburn & Moen Company had been compelled to refund to certain licensees by reason of its purchase of the Haish patents. But the Thorn Wire Hedge Company was not a party to the purchase. True, as we have seen, it assented to the purchase, and released the Washburn & Moen Company from any obligation arising out of it; but we are unable to see that the relation between the parties justifies the demand that the Thorn Wire Hedge Company should return any part of the moneys theretofore or thereafter paid to it. The payments to it were of moneys due to it, and which it had a right to receive. The subsequent disclosure that by its settlement with Haish the Washburn & Moen Company became responsible to its own licensees for damages arising out of the transaction with Haish did not, in our judgment, operate to affect the payments previously made to the Thorn Wire Hedge Company. Besides, the record discloses that the latter company continued to pay over royalty, month by month, to the Thorn Wire Hedge Company, after the date of the filing of the bill by the Chicago Galvanized wire Fence Company in September, 1881, down to the time of filing the cross bill in July, 1889, without abating or diminishing such payments by setting off the moneys now demanded. Moreover, the moneys now sought to be recovered in this cross bill were for royalties accruing to the Thorn Wire Hedge Company prior to the amendment or supplement of June, 12, 1883, and no claim or suggestion was then made on account of the demands of the other licensees, although the adverse decision in favor of the Chicago Galvanized Wire Company had been rendered eight months before. These payments were, therefore, voluntarily made with full knowledge of the facts.

Without pursuing the subject further, our conclusion is that the court below committed no error in dismissing as well the cross bill as the original and amended bill, and its decree is accordingly affirmed; the costs in this court to be paid by the appellant in each case.