Court Opinion

ID: 4004015
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:05:18.121884+00
Date Added: 2024-06-11T07:44:35.067766
License: Public Domain

I concur in that part of the opinion of the majority which, in effect, restores to the plaintiff below all patents in the field of color pigments, and saves to the United Carbon Company, Inc., its exclusive right to exploit black pigments, under its license of July 31, 1936. I dissent from that part of the said opinion which cancels and rescinds the agreement of the same date, between plaintiff and Microid Process, Inc., subject only to the rights of the United Carbon Company, Inc., to use and exploit black pigments, and which requires the payment of royalties accruing thereunder to the plaintiff rather than Microid Process, Inc. I think Microid should be decreed to be entitled to such royalties, and that the plaintiff's interest therein should be limited to his one-third ownership of Microid, and to such other rights as he may possess under the contract aforesaid. *Page 611 
I approve and adopt the detailed statement of facts contained in the majority opinion, and they will be referred to only briefly and incidentally. References to expenditures for exploitation are intended to include those made by the United Carbon Company, under the option agreement, as well as those thereafter made by Microid, and this also applies to the use of the Charleston laboratory.
The trial in the circuit court was limited to the question of whether there was reasonable exploitation in the field of colors, as distinguished from black pigments. That action was taken under our holding in this case, 121 W. Va. 783,6 S.E.2d 777, wherein we held that "the failure to use a reasonable effort to exploit the inventions in the field of color pigments would render both agreements voidable and subject to be rescinded in a court of equity." It is understood that the agreements referred to were plaintiff's contract with Microid Process, Inc., and the license from Microid to the United Carbon Company, Inc. However, in considering the appeal before us, I do not think we should be so limited. If the contract of July 31, 1936, be held to be entire, the exploitation in the field of black pigments, as well as in the field of color pigments, should be considered together. The fact that black pigments were fully exploited, as seems to be conceded, should, in my opinion, have a bearing upon whether we cancel the contract in its entirety.
There is another matter which should be here mentioned. The relief prayed for in plaintiff's original bill was the rescission of the contract between him and Microid, subject to such licenses as Microid had legally issued thereunder; but by his amended bill he asks for what is, in effect, a forfeiture of the rights of Microid and its licensees, including the United Carbon Company, Inc., and it is assumed that this latter position is based on our former decision herein. We have many times held that equity will not enforce the forfeiture of a vested estate because of the breach of a condition subsequent.Craig v. Hukill, 37 W. Va. 520, 16 S.E. 363; Spies v. RailwayCo., 60 W. Va. 389, 390, 55 S.E. 464; Pheasant v. *Page 612 Hanna, 63 W. Va. 613, 60 S.E. 618; Pyle v. Henderson, 65 W. Va. 39,63 S.E. 762; Horse Creek Coal Land Co. v. Trees, 75 W. Va. 559,84 S.E. 376; Chambers v. Perrine, 81 W. Va. 321,94 S.E. 381; Adkins v. Gas Co., 113 W. Va. 490, 168 S.E. 366. Of course, the distinction between a forfeiture, to which these cases technically relate, and the rescission of a contract, involving a forfeiture of rights, must be recognized, yet, while a contract may be rescinded for good cause, even where a forfeiture is involved, it can only be done where the evidence on which the decision is based is clear and convincing. Fishack
v. Ball, 34 W. Va. 644, 12 S.E. 856; Isner v. Nydegger, 63 W. Va. 677,60 S.E. 793; Knipp v. Myers, 98 W. Va. 151,126 S.E. 575. It requires stronger proof than that required to enforce specific performance. Hagan v. Taylor,110 Va. 9, 65 S.E. 487. Giving weight to these considerations, I do not think the evidence tending to show non-exploitation in all fields of color on the part of Microid, is sufficient to justify a rescission of the contract of July 31, 1936.
There is nothing in said contract which distinguishes or separates black pigments from the field of colors. When Microid granted an exclusive license to the United Carbon Company, Inc., to commercially exploit the field of black pigments, that action seems to have satisfied the plaintiff. So far as I can observe from the record, there is no complaint on that point. The plaintiff was appointed research director for Microid, and furnished a laboratory which he had previously selected while operating under the option agreement. He seems to have understood that the patent situation, with respect to black pigments, was unsatisfactory, and, therefore, he devoted a great deal of his laboratory work to research along that line. The same situation existed with respect to color pigments, and there was no limitation placed upon him, and nothing to indicate that he would not have been furnished the facilities necessary to improve the patent situation with respect to them. Notwithstanding the contention of the plaintiff that he was not to be held responsible for this research work, and the improvement of the patent situation, I think *Page 613 
a fair interpretation of the agreement, coupled with the plaintiff's conduct over a course of years, clearly indicates that he was expected to participate in the exploitation, at least to the extent of continuing his work in extending his investigations to the end that his processes might be perfected, and new patents secured. Not only was a laboratory furnished for that purpose, but plaintiff's expenses were paid by United Carbon Company, and Microid over a long period of time. Approximately $25,000.00 was advanced by them in paying fees of counsel and other expenses connected with improving the patent situation, and this, as I understand it, covered all fields. The necessity for perfecting plaintiff's inventions, and improving the patent situation with respect thereto, is made manifest by the large expenditures made, and of this the plaintiff must have had full knowledge. Notwithstanding all that was done in relation to improving the patent situation, Smith, the attorney for plaintiff, late in 1938, and only a few months prior to the attempted cancellation of the contract, indicated that the patent situation was not then satisfactory. This, I think, has a bearing upon the fact that what Microid did in exploiting color pigments had not served to bring about their commercial exploitation.
There is nothing in the contract which required their exploitation in all events, and no implied requirement to such effect. All that Microid was required to do, giving its implied duty as broad a scope as possible, was to endeavor to exploit what it then had, or which new investigations would create. If, because of the imperfections in the inventions, or an unsatisfactory patent situation, the inventions could not be exploited, the burden for the failure should not fall on Microid. I do not think it was contemplated that Microid should exploit these inventions commercially. It was organized solely for the purpose of securing licenses of the various inventions, and to exploit them in that way. Microid had no funds with which to commercially exploit any of these inventions, and never attempted to do so, and the plaintiff knew of this fact, because he owned a one-third interest in the stock of that company, *Page 614 
and will be held to have been familiar with its activities. The plaintiff seems never to have demanded any commercial exploitation, his complaint being that Microid was not exerting itself, in a proper way, in the exploitation of his inventions through placing them in the hands of licensees who would exploit them commercially.
I have no inclination to depart from the former decision of this Court in this case, but the application of an abstract statement of law to a state of facts leaves us a good deal of freedom. I think there was an implied covenant on the part of Microid to make a reasonable effort to exploit all pigments, and a clear failure to perform its duty in that regard as to color pigments, would entitle the plaintiff to cancellation of the whole agreement. I think, however, such reasonable effort has been made. It is difficult to separate the efforts made to exploit black pigments from those made in the field of colors. I think the efforts made covered all fields. These efforts included the following: Money advanced to improve the patent situation in the sum of approximately $25,000.00; the expense of establishing a laboratory in Charleston; payment of the plaintiff's expenses in connection with this laboratory and elsewhere; the payment of the sum of $45,710.60 to the plaintiff himself; advancements of money to a total of $318,329.80, in the various efforts to exploit, which covered money advanced in connection with patent improvements; salary to the plaintiff in lieu of dividends on his Microid stock, and money lost in various ventures connected with efforts to exploit. Some returns of this money were had, so that the net outlay is $224,808.35. This, in itself, indicates to me good faith, because business concerns do not risk such large sums of money in idle ventures. There was, in my opinion, a good faith motive back of these expenditures. Furthermore, as is particularly pointed out in the majority opinion, efforts were made to interest some of the largest chemical concerns in this country and abroad, and success in interesting any one of these large concerns would probably, in itself, have amounted to reasonable exploitation. Effort was made in 1936 and 1937 *Page 615 
to interest the Imperial Chemical Industries, a large English concern. In 1936, Coates Brothers  Company, Ltd., another important English concern, was contacted. In this country, contacts were made with Baker-Perkins Company, E. I. du Pont de Nemours  Company, Egyptian Lacquer Company, Pontiac Varnish Company, United States Rubber Company, Goodyear Tire  Rubber Company; and in 1938, the Charles Hellmuth Printing ink Corporation became interested, and at the time of the attempted cancellation of the Microid contract, the option held by Hellmuth Corporation had some months to run. The contacts with all of these large industrial concerns do not indicate that Microid was idle, but, on the contrary, convinces me that an honest effort was being made to exploit plaintiff's inventions.
These contacts and efforts were not successful in the matter of exploitation in the field of colors, but I think it clear that they were unsuccessful because of the fact that plaintiff's inventions were not considered as great improvements over the processes already employed by these concerns. They simply were not interested, because they could not see the advantage to them of casting aside processes already in use, and substituting therefor plaintiff's inventions. This is the practical explanation of the failures. In addition to this, there is the testimony of eminent chemists who do not ascribe to plaintiff's inventions the importance which he attaches thereto. Plaintiff's impatience at what he thought was Microid's dereliction is quite understandable. As referred to in the record, these inventions were the mind children of the plaintiff, and he had great confidence in them. He naturally thought the chemical trade would be eager to take advantage of his work. The other side of it is also understandable. Business men approach a proposition of this kind from a different viewpoint. They want to be sure that what they are getting is an improvement over what they already have, and are not willing to invest large sums of money on uncertainties. All this helps to explain what may be perfectly honest convictions, on the part of both the plaintiff *Page 616 
and Microid, of the correctness of their position. All we can say is that this case should not be decided upon the idea of either as to the correctness of their position, but upon the cold facts of the case. I think the facts, as developed by this record, fail to show, to the extent necessary to justify rescission, that Microid failed in its duty under its contract with the plaintiff.
Logically, this would seem to require the dismissal of the plaintiff's bill, but I do not think complete equity would be done between the parties should such a course be taken. While I think Microid has substantially and reasonably performed its undertakings, it must be held that its efforts to exploit in the field of color pigments have not been successful. There is a wide difference of opinion between it and the plaintiff as to the value of his inventions in that field. Microid, apparently, does not have the same confidence and faith in these inventions as those possessed by the plaintiff. This being true, it is doubtful whether Microid, if allowed to retain these inventions, would ever be able to exploit them to the extent that one having faith therein would be able to do. This does not mean that, for that reason alone, plaintiff is entitled to have these inventions returned to him, but it does create a situation where the equities of the case would be best served by such a step.
Ordinarily, the rescission of a contract must be entire. The rule that "where an agreement is rescinded it must be entirely rescinded," is of general application. Worthington v. Collins'Admr., 39 W. Va. 406, 19 S.E. 527; Silliman v. Gillespie, 48 W. Va. 374,37 S.E. 669; Bruner  McCoach v. Miller, 59 W. Va. 36,52 S.E. 995; Ellison, Son  Co v. Flat Top Grocery Co.,69 W. Va. 380, 71 S.E. 391, 38 L.R.A. (N.S.) 539; Dorr v.Midelburg, 65 W. Va. 778, 65 S.E. 97, 23 L. R.A. (N.S.) 987. However, where a contract is severable, one part alone may be rescinded and the other affirmed. Norman Lumber Co. v. KeystoneMfg. Co., 100 W. Va. 515, 131 S.E. 12; Dorr v.Midelburg, supra; 9 Am. Jur., 403. The rule that rescission must be entire is not an inflexible one. While we have treated the contract of July *Page 617 
31, 1936, as entire, and have considered exploitation as covering all pigment fields, it seems true that, by the act of the parties themselves, they recognized some distinction between the two, and acted on that distinction. For example, plaintiff himself devoted his laboratory work to black pigments alone, and those pigments were satisfactorily exploited. The complaint is as to the color pigments, and, if there be substance in the plaintiff's contentions, they apply more strongly, if not entirely, to the color field. Therefore, I see no reason why, notwithstanding our holding that, taking all fields together, there has been reasonable effort to exploit, we may not, for the purpose of this case, and in an effort to grant complete equity, recognize the practical separation between the two types of pigments, and require the surrender to the plaintiff of the patents covering the color pigments field. This may be done by a direct holding, or by attaching a condition to the court's decree. Equity having power to grant all relief which the case calls for, may attach conditions thereto, and a decree which would save to Microid all of its rights with respect to black pigments could have attached thereto a condition requiring the surrender to the plaintiff all of his inventions in the color field. There is authority for this procedure. In Veazie v. Williams, 8 How. (U.S.), 134,12 L. Ed. 1018, a condition was attached to a decree in that case, and the court said:
    "This court on its equity side, says Chief Justice Marshall, is 'capable of imposing its own terms on the party to whom it grants relief.' (Mar. Ins. Co. v. Hodgson, 7 Cranch, 336, 337.) And it will not grant relief even in fraud, unless the party 'wishing it will do complete justice.' (Payne
v. Dudly, 1 Wn. (Va.) 196; 1 Johns. Ch. 478) * * * Here, then, in the decree, we can set aside the whole sale and contract; but, instead of doing it unconditionally, the plaintiff should be required first to do equity, and to allow any countervailing equities on the part of the respondents, — which are, to let the sale itself stand at what was fairly bid for the property, and require only the residue of the consideration, being entirely fraudulent, to be restored." *Page 618
That was a case where the plaintiff had been fraudulently induced to make an extravagant bid at a sale of real estate, and in a suit to rescind the sale, he was permitted to retain the property by paying the fair value of the same. See also,McGhee v. Bell, 170 Mo. 121, 70 S.W. 493, 59 L.R.A. 761, 9 Am. Jur. 403. I see no reason why the same rule should not be applied where a defendant is decreed to be entitled to certain rights. Ordinarily, terms are imposed where relief is granted to a plaintiff, but in this instance we are, by decree, vesting in the defendant, Microid, certain rights, and I know of no reason why we cannot attach to such decree conditions dictated by equitable considerations. I quite agree that the logic of the situation would be to dismiss the plaintiff's bill, but I am of the opinion that a decree that dismisses the plaintiff's bill as to the black pigments, and requires the surrender to him of his inventions in the field of colors, can be justified upon broad equitable principles.
The opinion of the majority is necessarily based upon the theory that plaintiff is not entitled to relief on the grounds of non-exploitation. If the contrary were held, then we would be forced to cancel the contract in its entirety which would carry with it the cancellation of the license executed by Microid to United Carbon Company, Inc. The majority opinion saves to the United Carbon Company, Inc., the use of patents in the field of black pigments, but under the terms of the contract between the plaintiff and Microid, cancellation on the grounds of insolvency would leave the Carbon Company protected in its rights under its license, but would substitute the plaintiff for Microid as the licensor and require royalties to be paid to him.
The technical insolvency of Microid may be admitted. In fact, it is not even contended by Microid that it is solvent. It is indebted in a sum in excess of two hundred thousand dollars. The value of the patents held by it, under its contract with plaintiff, is not shown, and possibly, cannot be shown; but it is apparently conceded that they are not of sufficient value to equal the large indebtedness. *Page 619 
I think, however, the solvency contemplated by the contract, and for which the same might be cancelled, should be interpreted as that character of insolvency which would prevent any further exploitation of plaintiff's patents. That situation never did arise in this case. United Carbon Company, Inc., was continually advancing money to Microid to aid in exploitation. Microid was controlled by the United Carbon Company, Inc., and the corporate set-up may be more or less ignored. The financial backing of this exploitation was furnished by the United Carbon Company, Inc., through its instrumentality, Microid Process, Inc., and there is no question of the solvency of the Carbon Company.
But if this position be not tenable, I think it clear that the plaintiff is estopped to set up this insolvency, and have his agreement cancelled on that ground alone. The insolvency of Microid developed immediately after the contract of July 31, 1936, yet the plaintiff stood by and acquiesced in continuous increases in Microid's indebtedness, accepted from it personally large sums of money, permitted approximately $25,000.00 to be expended for his benefit in improving his patent situation, and allowed other large expenditures, making up the total of Microid's indebtedness. The contract is, of course, explicit on this point. The plaintiff was originally entitled to have the contract cancelled on the ground of insolvency; but parties are not always entitled to have the plainest of contract provisions enforced. Events may occur, after a contract is executed, which give rise, as in this case, to a situation where a party will not be permitted to insist upon the carrying out of some plain provision of a contract. I think this is such a case. I do not believe that a court of equity should enforce the forfeiture of Microid's rights in this instance, on the ground of its insolvency, where that insolvency was developed by the expenditure of money in the interest of the plaintiff's inventions, and when he knew of such expenditures, acquiesced therein, and personally received a substantial share of the money borrowed, and which made Microid insolvent. *Page 620 
I find no fault with the ruling of the majority which saves to United Carbon Company, Inc., the use of patents in the field of black pigments, but I do question the equity of the further holding, that, applying the insolvency provision of the contract strictly, the plaintiff will become entitled to the incomes from license held by the Carbon Company, rather than Microid. Of course, after debts are paid, the plaintiff would be entitled to his share of the subsequent dividends derived from royalties or otherwise, and it may be that the plaintiff is entitled to some consideration with respect to the salary to be paid to him in lieu of dividends on his stock in Microid.
When we take into consideration the large expenditures made by Microid, some of which must have inured to plaintiff's benefit in the improvement of the color pigment situation, a decree which releases to him the unincumbered use of such pigments, is, I think, as much as he can reasonably demand. I would, therefore, remand the cause with instructions to enter a decree upholding the right of Microid to exploit the black pigments covered by its original contract with the plaintiff, conditioned upon the surrender by it to the plaintiff of all patents in the field of color pigments, and with such adjustment of compensation to the plaintiff for salary in lieu of dividends on his stock in Microid as the court may deem just and right.