Velsicol Corp. v. Hyman

87 N.E.2d 35, 338 Ill. App. 52, 82 U.S.P.Q. (BNA) 384, 1949 Ill. App. LEXIS 323

• Court: Appellate Court of Illinois
• Decided: June 20, 1949
• Docket: Gen. No. 44,593
• Status: Published

Opinions

Mr. Presiding Justice Feinberg

delivered the opinion of the court.

Plaintiff filed its complaint October 15, 1946, against defendant for specific performance, to compel defendant to assign four pending applications for patents and for injunctive relief to restrain him from using or disclosing to others processes, formulas and products covered by said patents. Defendant filed his answer. Upon a reference to a master to report his conclusions of fact and law, the master recommended a decree in favor of complainant, in accordance with the prayer of the complaint, to which exceptions were filed. The court entered a decree approving the master’s report, directing specific performance, and granting the injunctive relief as prayed for in the complaint.

The complaint declared upon a written contract between defendant and plaintiff and alleged that by said contract defendant was obligated to assign to plaintiff any and all inventions, improvements, discoveries, •formulas or processes relating to resins, insecticides, or any other chemical derivative of hydrocarbon oil or catalysts for the conversion of hydrocarbon oil, or any ingredient or product thereof, or to the manufacture or production of the same, invented, discovered or learned by the defendant during the term of his employment by the company; that the same shall he the sole and absolute property of the plaintiff, and the plaintiff to he the sole and absolute owner of all patent or other rights in connection therewith; and that during the term of employment of defendant by plaintiff, and after the termination thereof, defendant will keep all of the same secret from anyone except the company, and will also keep secret all processes, inventions and formulas made known to defendant by the company, or any of its officers or employees, or learned by him while in the employ of plaintiff. Thg complaint alleged “on information and belief” that the defendant signed such an agreement in the form set out in the complaint “or in a substantially similar form”; that whether the defendant signed such an agreement as set forth in the complaint, he was nevertheless bound by the terms thereof by virtue of his employment by plaintiff to invent and carry on experiments and research work, and by virtue of his fiduciary relation to the plaintiff. It is the theory of the plaintiff that the facts alleged in the complaint constitute a fiduciary relation, out of which springs an implied contract on the part of the defendant to assign to the plaintiff the four pending applications, in which defendant is described as the inventor and which are the subject of the dispute in the instant case.

The master specifically found that defendant signed the written contract on January 31, 1931, as alleged in the complaint, and that there also existed an implied contract, by virtue of a fiduciary relation between defendant and plaintiff, to assign the patent rights described in said four pending applications for patents. The chancellor, in a written opinion filed in the cause, found that the defendant signed such a written agreement, and that there also existed an implied contract arising out of a fiduciary relation.

It appears to be the settled rule in Illinois that an implied contract cannot exist where there is a written one covering the same subject matter. It is only where the parties do not expressly agree that the law implies a promise. Siegel v. Borland, 191 Ill. 107, 112.

In Brougham v. Paul, 138 Ill. App. 455, this court followed the rule laid down in Siegel v. Borland, supra, citing a number of other Illinois cases to the same effect, and at page 461 said:

“The same doctrine was announced in Walker v. Brown, the first case cited supra [28 Ill. 378], and has never been departed from in this state. Such also is the law in other jurisdictions in this country and in England. ’ ’

In Booker v. Wolf, 195 Ill. 365 at page 370, the court said:

“It is true that the law will not imply an agreement in the presence of an express contract of the parties . . . ?

Plaintiff has not cited any reported case in Illinois to the contrary. In Rotan v. United States, 43 F. (2d) 232, 236, the court said:

“It is fundamental that an express contract and an implied contract are mutually exclusive of each other.” In Phoenix Lumber Co. v. Houston Water Co., 94 Tex. 456, 61 S. W. 707, the court said:

“If there was an express contract, there could be no implied contract arising out of the acts of performance of it. The one is destructive of the other.”

Under our Practice Act, a pleading may allege in the alternative a written contract and an implied contract, but the proof must be of one or the other, and the court must determine which the proof establishes. It cannot, under the authorities cited, hold that a written contract and an implied contract covering the same subject matter exist simultaneously.

It becomes necessary to determine from this record whether the master and the court by its decree were justified in finding that defendant had signed a written contract, as alleged in the complaint. If the defendant signed such a contract, the terms are clear and the obligation is fixed, and there is no need for determining whether a fiduciary relation existed and an implied contract resulted. The sworn complaint alleges only upon information and belief that defendant signed such a contract. The date of such contract is not alleged in the complaint. The defendant denied that he signed such an agreement. He testified that he refused to sign such an agreement, and in this he was corroborated by other witnesses. The evidence is voluminous, and the record contains many exhibits.

Plaintiff introduced in evidence a contract signed by defendant, identified in the record as exhibit 91. The agreement is between the Transo Envelope Company and defendant and is dated January 31,1931. It recites that the undersigned (defendant) has been or is about to be employed by Varnoil Corporation (the original name of plaintiff company), and as a part of his employment will be engaged in discovering and developing and inventing processes, formulas and methods relating to window envelopes; that from time to time there would be imparted and disclosed to the undersigned secret processes and formulas used in connection with such window envelopes; that, therefore, in consideration of said employment and salary from time to time paid to the undersigned, he agrees that any and all inventions, improvements, discoveries, formulas or processes relating to window envelopes, or to the manufacture thereof, will at once be fully disclosed by the undersigned and will be the sole and absolute property of the company, and the company will be the sole and absolute owner of all patent and other rights in connection therewith. Up to this point in the contract it is obvious that his obligation to the Transo company is made definite and clear and refers to the subject of the window envelopes, which the Transo company was manufacturing and producing. The contract then provides in paragraph No. 2:

“The undersigned hereby agrees that at all times, both during his employment and after the termination of his employment he will keep secret all processes, inventions and formulas made known to him by the Company or Yarnoil Corporation, or any of the officers or employees . . . , or learned by him while so employed . . . .”

The absence from this agreement of any provision that inventions discovered should be the property of the Varnoil Company is a very potent fact to support defendant’s position that he never signed a contract with plaintiff, as alleged in the complaint. If it was the intention of the parties that during defendant’s employment his discoveries in plaintiff’s laboratory, and all inventions in connection therewith, should become the sole property of plaintiff, it would have been a comparatively easy matter to include and clearly express such intention in exhibit 91. It was a contract prepared by the attorney for the Arvey and Transo companies, and the same attorney who incorporated plaintiff. It will be remembered that the master found that the contract set up in the complaint was dated January 31, 1931, the same date as exhibit 91. There is no explanation in the record as to why, if defendant actually signed the agreement set up in the complaint, there was any need for the reference to the Varnoil company in exhibit 91.

The proof mainly relied upon by plaintiff, for the establishment of a written contract signed by defendant, appears in the testimony of Eegenstein and Schneider, neither of whom claim to have seen the defendant sign the agreement in-question. They testified that they saw the agreement with his signature on it approximately 15 years previously, and that it was witnessed by two attesting witnesses. At the time of the hearing these attesting witnesses seemed available to plaintiff and could have been called as witnesses, but no effort was made to account for the failure to produce either of them as witnesses. The alleged agreement was not produced upon the hearing. The rule is that where a party to the suit has the burden of proof and has it within his power to produce witnesses present at an occurrence, and he fails to produce the witnesses or explain their absence, the presumption is against him. Hopkins v. Loeber, 332 Ill. App. 140; Tepper v. Campo, 398 Ill. 496, 505.

It seems strange, indeed, that plaintiff, relying upon a written agreement alleged to have been signed by defendant, and knowing at the time it filed its complaint that it did not have possession of the written instrument, made no reference by appropriate allegation to the fact of a lost instrument, if it was lost, or that it was destroyed, or was not accessible to it. Section 36 of the Practice Act [Ill. Rev. Stat. 1947, ch. 110, par. 160; Jones Ill. Stats. Ann. 104.036] provides that whenever an action, defense or counterclaim is founded upon a written instrument, a copy thereof, or of so much of the same as is relevant, must be attached to the pleading as an exhibit or recited therein, unless the pleader shall attach to his pleading “an affidavit stating facts showing that such instrument is not accessible to him.” It would logically follow that the absence of such an affidavit, required by this section, should militate against plaintiff’s position upon the hearing, that it could not produce the written instrument declared upon, when it knew at the time it filed its complaint that the same was not accessible to it. Under these circumstances and in the state of the evidence as we find it, we are compelled to hold that the finding of the master and the decree of the court, that a written agreement was signed by defendant, as alleged in the complaint, are against the manifest weight of the evidence. Whipple v. Carrico, 305 Ill. 164, 169; Mould v. Rohm, 274 Ill. 547, 555. The fact that the master and the court found that there existed a written agreement as alleged in the complaint, as well as an implied contract, contrary to the rule in Siegel v. Borland, Brougham v. Paul, Rotan v. United States, and Phoenix Lumber Co. v. Houston Water Co., supra, suggests an uncertainty in the minds of the master and the court as to which of the two the evidence established. When such an uncertainty exists, there is not that clear proof as to the existence of the written contract which the rule in specific performance requires. Lindberg Machine Works v. Lindberg, 305 Ill. App. 543, 551; Joliet Mfg. Co. v. Dice, 105 Ill. 649.

In support of its position as to an implied contract, plaintiff earnestly argues that it was organized to do special research work in chemistry and maintained a laboratory for that purpose; that defendant was employed for the specific purpose of making discoveries and developing formulas; that he knew that every employee of plaintiff company working in the laboratory, having anything to do with the discoveries and formulas, was required to sign a so-called secrecy agreement by which he obligated himself to assign to the company all inventions and discoveries and to keep secret what knowledge he obtained in connection therewith; that during the course of conduct over a period óf 15 years between plaintiff and defendant, in the prosecution of the work in said laboratory and in the development of plaintiff’s business, defendant had assigned over 39 patents and pending applications for patents developed by him alone or in conjunction with other employees in the laboratory; that defendant being an officer and director of the company, as well as stockholder and employee, there arose from that course of conduct and practice between the parties a fiduciary relation and an implied agreement on the part of defendant, to assign to plaintiff any and all patents and patent rights discovered and developed in the laboratory of plaintiff, in connection with which the facilities and material of plaintiff were used, and the discoveries, formulas and patents perfected at the expense of plaintiff.

Plaintiff emphasizes, that all other employees were required to sign secrecy agreements and execute assignments when applications for patents were made, therefore the defendant, being also an employee and having followed the practice in assigning 39 patents, must be regarded in the same class or category as the other employees. There must be considered in opposition to this contention, that defendant’s initial employment, as shown by the minutes of the board of directors, was at a salary of $40 per week, to be in full compensation for all services rendered by him as vice president or otherwise. There was no formal contract of employment shown. The by-laws prescribed the usual duties of a vice president and such additional duties and powers as the directors may prescribe. No other provision was made by the board of directors. Regenstein testified that defendant was one of the executive heads of the company, in charge of the operations of the company as well as its office, and that Schneider, the president of the company, had substantially the same duties. It is significant that Regenstein and Schneider, who occupied executive positions, signed no secrecy agreements prior to defendant’s resignation. Defendant, who occupied an executive position and worked under no specific contract of employment, signed no such alleged secrecy agreement. That fact furnishes considerable basis for the position taken by defendant that he was not regarded as an employee and, therefore, signed no such alleged secrecy agreement.

Considerable stress is laid by plaintiff upon the fact that defendant had, in the course of his employment, over a period of 15 years, assigned 39 or more patents in the prosecution of his work and the superintendence of the laboratory of plaintiff, and that such fact is definite evidence of the intention of the parties that all discoveries and inventions by defendant should be the property of plaintiff. This fact, stressed, is satisfactorily explained in the position of defendant, disclosed by the testimony, that he had salary increases during that period from $40 a week to $600 a week; that he had a 20 per cent stock interest in the company, the value of which he was anxious to increase and, therefore, voluntarily assigned such 39 patents to plaintiff; that when defendant on a number of occasions demanded of Begenstein, who was in control, that he adjust and increase defendant’s stockholdings in plaintiff company, and when Begenstein failed to keep his promise to do so, it was then that defendant refused to assign the four pending applications for patent in question and resigned as an officer of plaintiff. Furthermore, the rule seems clearly established by many cases that prior assignments by an employee are not controlling and do not necessarily establish an agreement, implied, to- assign present or future inventions. Pressed Steel Car Co. v. Hansen, 137 Fed. 403; Bowers v. Woodman, 59 F. (2d) 797; Lambert Tire & Rubber Co. v. Brubaker Tire Co., 5 F. (2d) 414; Fuller & Johnson Mfg. Co. v. Bartlett, 68 Wis. 73.

To us it seems clear from this record that defendant came to Begenstein with the two “polymer” discoveries for which patents were obtained, and which were expressly, referred to in the resolution adopted by plaintiff’s board of directors on January,29,. 1931; that the 39 patents assigned by defendant to plaintiff company, over the period of 15 years of his association with plaintiff, did not relate to insecticides covered by the four pending applications in question, which claim a wholly new discovery relating to insecticides; that the “polymer” discoveries assigned to plaintiff had no reference to insecticides discovered and perfected many years later.

We have no quarrel with the rule laid down in the cases cited by plaintiff that where one is specially employed to discover and develop a specific invention, using the facilities and material of his employer, and the invention is ultimately perfected at the expense of the employer, in equity and good conscience it becomes the property of the employer; that there is an implied contract on the part of such employee to assign the patent or patent rights to the employer, and he can he compelled to do so by specific performance.

It was for the development and further research in connection with the “polymer” discoveries, having to do with drying oils in the manufacture of paint and varnish (which the original name of plaintiff company, Yarnoil, connoted), that defendant was employed. His subsequent chemical discovery and development relating to insecticides was not in the contemplation of the parties when the defendant assigned his polymer inventions to plaintiff and was given stock in payment therefor. The instant case, we think, is governed by the holding in Joliet Mfg. Co. v. Dice, 105 Ill. 649, followed in Lindberg Machine Works v. Lindberg, supra. Plaintiff argues there is a clear distinction upon the facts between the Joliet case and the instant one. We cannot agree with its reasoning. In the case cited the complaint was for specific performance to compel an assignment by the defendant of an invention for a device in the construction of what were called “check rowers,” of which the defendant was the original inventor. Upon a final hearing the trial court granted the relief. The Appellate Court (11 Ill. App. 109) reversed with directions to dismiss the complaint, from which an appeal was taken to the Supreme Court. The agreement in that case was in writing and contained the following language:

“The said Andrew F. Dice agrees to work for the company named for the term of five years, from the 1st to the 15th of November next, in such capacity pertaining to the manufacturing of shellers and powers, and disposing of the same, as the company may consider for their best interest, as may be assigned by the president of the company; that he will work for the best interest of the company in every way that he can, and in whatever way such aid can be given shall belong to the company, — that is, improvements . . . that he may make or cause to be made.”

The complaint alleged that shortly after the agreement the complainant added to its business and the manufacturing of “check rowers” (an attachment to a machine for planting corn), and that defendant was assigned to the superintendence of the manufacture of “check rowers” and entered upon this employment “as part of and in performance of” the above agreement, and so continued for some months; that during this service defendant made known to complainant that he had conceived an improvement in “check rowers,” and upon defendant’s suggestion complainant directed him to employ his time in the interests of the company in perfecting the invention for its benefit, complainant furnishing the materials and mechanical labor in experimenting and perfecting the improvement, and that this was done; that defendant was receiving full pay for his time and services, according to the terms of the written contract; and that the invention was perfected and developed and the proper subject for a patent.

Defendant answered that complaint claiming to own the invention. The Supreme Court said, “the proofs tend to sustain the allegations of the hill, and also to show that Dice, while at work in making experimental structures in the shops of complainant, said that the improvement in the ‘check rowers’ was being wrought out for the benefit of the complainant”; that there was some dispute in the testimony as to this statement. The Supreme Court further said at p. 651:

“Assuming the facts to be as claimed in the hill, we think the decree of the circuit court was properly reversed. The general rule is, that where a mechanic, in laboring for an employer in the construction of a machine, invents a valuable improvement, the invention is the property of the inventor, and not that of his employer. It may he true that where the employer hires a man of supposed inventive mind to invent for the employer an improvement in a given machine, under a special contract that the employer shall own the invention when made, and under such employment such improvement is invented by the person so employed, such invention may, in equity, become the property of the employer. But the law inclines so strongly to the rule that the invention shall he the property of its inventor, that nothing short of a clear and specific contract to that effect will vest the property of the invention in the employer, to the exclusion of the inventor. (Italics ours.) . . . The only specific contract set up is the written contract. That provides, in substance, that future improvements in the manufacture of ‘shelters and powers’ to be made by Dice, ‘ shall belong to ’ complainant.

“It is said that the provision of the written contract, ‘that he will work for the best interests of the company in every way that he can,’ and that such aid, in whatever was given, ‘ shall belong to the company, — that is, future improvements that he may cause to he made, ’ —is broad enough to include the invention of the improved ‘check rowers.’ Taken in connection with the context, — the preceding provisions, — these words clearly have reference only to improvements to be made in ‘shelters and powers,’ and have no reference to ‘check rowers.’

“Nor do we think that when Dice consented to devote part of his time in superintending the manufacture of ‘ check rowers, ’ and also to devote part of his time to the making of an improved ‘check rower,’ he thereby necessarily contracted that the invention, when perfected, should be the exclusive property of the complainant.”

Though the evidence in the case cited, heard by the chancellor, tended to prove that defendant was directed and entrusted by his employer, as a part of his employment, to superintend the work of perfecting an invention in “cheek rowers” and to employ his time in the interests of the company in perfecting it for its benefit, and paying him therefor, and though the proofs tended to sustain the allegations of the complaint that defendant, while at work in making experimental structures in the shops of complainant, said that the improvement in the ‘ ‘ check rowers ’ ’ was being wrought out for the benefit of the complainant, yet the Supreme Court in the case cited held that neither the complaint nor the evidence established a “specific contract” that defendant should invent an improved “check rower,” the invention of which should he the property of the complainant, and that the only specific contract was the written contract set up in the complaint. There is a definite parallel between the facts and claims of a written contract and a fiduciary relation made in the case cited and those in the instant case. The reasoning in Dalzell v. Dueber Watch-Case Mfg. Co., 149 U. S. 315, also supports our views expressed. To the same effect is Pressed Steel Car Co. v. Hansen, 137 Fed. 403, and Fleischman v. Moore, 79 Ill. 539.

The “shop rights” doctrine declared in a number of cases would be the one applicable in the instant case. That doctrine is to the effect that where an employee, who finds and improves a method of, or instrument for, doing his work, using the property or labor of his employer to develop, his invention into practical form, by assenting to the use of such improvement by his employer grants to him an irrevocable license, without royalty, to use the invention. Lindberg Machine Works v. Lindberg, supra, at page 551; Chicago Daily News, Inc. v. Kohler, 360 Ill. 351.

It would unduly extend this opinion were we to discuss in detail the testimony of the various witnesses. We have examined the evidence carefully and have concluded that upon the state of the record plaintiff has failed to sustain its burden of proof that there either was a written or implied contract, as alleged in the complaint.

It follows from what we have said that the findings of the master and the decree of the court are against the manifest weight of the evidence, and that the chancellor should have entered a decree dismissing the complaint for want of equity.

Accordingly, the decree is reversed and the cause remanded with directions to dismiss the complaint for want of equity.

Reversed and remanded with directions.

Tuohy, J., concurs.