Cover v. Taliaferro

⁵⁸⁸ Offutt, J., delivered the opinion of the Court. On August 29th, 1919, Ralph Cover, of Westminster, Carroll County, I. C. Taliaferro and John Coyle, both of Baltimore City, entered into' an agreement for1 the exploitation and development of improved machinery to be used in the manufacture of canned goods in processing, sterilizing and preserving the .contents of containers of fruits, vegetables and other food products, for some of which improvements letters patent had been applied for. That agreement provided that, upon a satisfactory demonstration of the utility and practicability of a machine embodying the inventions referred to1 in those patent applications, a corporation should be organized for the exploitation, manufactore and sale of such machines. It further provided that the wilful failure of any party to the contract to perform the obligations imposed by it should effect a forfeiture of all his right, title and interest therein to the other parties thereto.

On July 30th, 1920, Cover filed the bill of complaint in this case, in which he asked that the right, title and interest of each of the appellees in said contract be forfeited to him on the ground that they had wilfully failed to perform the part of the agreement which they had agreed in it to perform. An answer was filed, testimony was taken and after a hearing a decree was passed by the Circuit Court of Baltimore City, dismissing the bill, and from that decree this appeal was taken. The appeal presents but one question, which is, whether the conduct of the defendants amounted to such a breach of the obligations imposed upon them, by the agreement as to warrant a court of equity in decreeing under its terms a forfeiture of their interests and rights therein to the complainant. In dealing with that question we will inquire (1) what obligations were imposed by the agreement upon the parties to it, (2) what penalty did the agreement exact from the parties for a failure to perform the obligations imposed by ⁵⁸⁹ it, (3) did the defendants wilfully fail to perform such obligations, and (4) if they did, should the court decree a forfeiture of their rights and interests in the contract in consequence thereof ?

The first question depends altogether upon the construction of the contract, for all the rights, duties, and liabilities of the parties in relation to its subject matter are fixed by its terms. The apparent purpose and object of tbe parties to the contract was to agree to make, market and exploit certáin machinery used in the manufacture of canned food, and more particularly a cooker and cooler called the “Submarine,” ■which was believed to embody improvements over any machine then sold for the complete sterilization of canned food. All the provisions of the contract are subsidiary and incidental to the accomplishment of that purpose. And to that end it states clearly and precisely what each party to the agreement is to do, and what part each is, to have in the common plan.

Ralph Cover was to be tbe patent expert, familiar with the law and practice of securing and protecting patents, as well as with the technical and mechanical features, elements, details and functions of machinery used in sterilizing and canning food, and his duty was to investigate the novelty of inventions covered by tbe agreement, and the possibility of infringing existing patents by the manufacture, sale or use of machines, embodying such inventions, to secure data as to the likely profits and hazards of the business, and the conditions under which the machines could bo manufactured most successfully, to keep records of all transactions connected with the work, and in short, to do such practical work as might be required to' perfect the machine and make the manufacture and sale of it a commercial success, so far as he could by the exercise of reasonable diligence do that. His training and experience had fitted him for such work. He was a member of tbe bar; be had been engaged seven years in the development of machinery, principally canning machinery, and had made a special study of patent law and was widely experienced in patent matters. ⁵⁹⁰ John O. Taliaferro was “to defray all expenses incurred up to the date of the commencement of the first full sized machine in the exploiting and development of the machines herein referred to,” and he was to “pay all expenses incurred from the date of the commencement of the first full sized machine to the date of the formation of said corporation."' He was the capitalist who was to supply the funds needed for the perfection and completion of a practicable machine, which could be profitably manufactured and sold, to manufacturers of canned food for the sterilization of their product. He had been widely engaged in the development and exploitation of patented inventions'and had been a director in the Continental Can Company, and one of its founders, and had also been general manager of the American Can Company, and a director in the Rational Bank of Baltimore, and the Calvert Bank.

John Coyle was to act as a supervising expert and critic, and was to “act in an advisory capacity in the development, designing, construction and testing of any machines embraced by this agreement.” He was the assistant general manager of the Baltimore plant of the Continental Can Company, and familiar with the operation of machinery of the character covered by the agreement. In addition to this specific designation of the duties of the several parties to it, the agreement provides that they “shall use and employ their ideas and inventive skill and ability in the arts embraced by this agreement and in the betterment thereof, and each by sketches and where necessary, by written description, will promptly disclose to the others any new invention therein.” After thus stating the duties of its several parties in relation. to the exploitation and development of the machines referred to in it, the agreement provides “that forthwith upon the satisfactory demonstration under service conditions of the utility and practicability of the machine embodying the inventions specifically referred to by patent application serial ⁵⁹¹ numbers in the preamble hereto, a corporation shall be organized under the laws of the State of Maryland, hearing the name ‘United Corporation’ for1 the purpose of exploiting, manufacturing, securing the manufacture of, selling, etc., of the machines embraced by this agreement,” and after providing for the issue of 2,000 shares of common stock, and for the form of the charter, it further provides, “that forthwith upon the formation of said corporation, the parties hereto shall assign all their rights accruing under this agreement to said United Corporation, and they shall receive common stock of said United Corporation in the following proportions immediately after the execution of such assignment: J. O. Taliaferro shall receive 800 shares; John C'oyle shall receive 300 shares, and Ralph Cover shall receive 900 shares,” and that “the said J. O. Taliaferro, upon the formation of said corporation, will diligently and in good faith undertake and exercise every reasonable effort to secure such sum of money as shall be decided by the parties hereto at that time to be necessary to successfully exploit the company’s assets, and for which the parties advancing same shall receive preferred stock in the corporation of a par value iu an amount equal to the amount actually secured for and received by the corporation.” And until the formation of the corporation and the making of such assignments, it provides that the rights of the parties “in all machines, inventions, patents, monies and 'other subject matter of this agreement, shall be in the same proportion as that provided” in the paragraph dealing with the distribution of the common stock. Having in this manner enumerated the respective duties of the several parties, the agreement, for the protection of innocent parties against the wilful default of either or both of the other parties, contained this provision: “It is further agreed that the wilful failure of any party hereto to comply with the terms hereof shall effect a forfeiture of his title, 'rights, and interests herein to the other parties hereto, in ⁵⁹² proportion to their respective interests, and this contract still shall be effective against such defaulting party with respect to his obligations hereunder. It is further agreed that if such default shall be due to circumstances unforeseen at the time of the execution of this agreement, or to circumstances beyond his reasonable control, then, by mutual agreement, or by submission of the question to arbitration, the rights of the parties shall be adjusted according, to the justice and equities of the parties, under the circumstances.” This agreement therefore provided in specific terms1 (1) wh'at the several parties to it were required to do and (2) for the penalty to be imposed upon any one of them who wilfully failed to carry out its terms.

The next question then is, did the defendants wilfully fail to perform any duty imposed upon them by the contract ? In dealing with that question we will revert to the pleadings and look at the bill to learn the particular breach of which the appellant complains, and which is the basis of his suit. The crux of his complaint as stated in his bill is this: “That, thus, the demonstration under service conditions of the utility and practicability of said machine was satisfactory to the said Taliaferro, one of the defendants, and it was equally satisfactory to the said John Coyle, the other defendant, who1, as acting assistant general manager of the Baltimore branch of said Continental Can. Co., was under the said Taliaferro, and was one of the mechanical engineers whom the plaintiff consulted in the performance of his, the plaintiff’s, part of said agreement; that accordingly, the next step under said agreement was to organize under the laws of the 'State of Maryland a corporation bearing the name ‘United.

Corporation,’ for the purpose of exploiting, manufacturing, securing the manufacture of, selling, etc., of the machines embraced by said agreement, as provided by paragraph five thereof; and- to assign to said corporation all the rights of said parties under said agreement, and to issue to said parties the common stock as provided in paragraph six; that in pur ⁵⁹³ snance of said provisions, * * * the plaintiff proposed * * ■" that a formal meeting be held for said purposes; that then, for the first time, was there exhibited by said parties a spirit other than one of hearty co-operation; that, to the great surprise and disappointment of the plaintiff, who had devoted his entire time to the enterprise, to the exclusion of other matters, the defendants refused to attend such a meeting, the said Taliaferro stating in so many words that he.would not co-operate to organize said corporation; that he would not pay the expenses of organizing it; that he would not make any effort to get money further to exploit said assets; and that, if the matter were referred to arbitrators, he would not abide by an adverse decision; that, in effect, lie would not perform the part of said agreement to he performed by him ‘upon the satisfactory demonstration under service conditions of the utility and practicability of the machine,’ as provided in paragraph five;” and in another paragraph of his bill, in referring to the forfeiture clause, he says “that, without said paragraph, the plaintiff would be helpless; that he would have no adequate remedy at law because of the speculative nature of the damages, nor in a court of equity because, even though lie were entitled to the specific performance of said agreement, a decree so providing would have little, if any, real value against unwilling and reluctant associates.” That, is, briefly stated, he charges that the defendants were guilty of these wilful breaches of the contract, (1) that they failed to attend a formal meeting called hv Cover to incorporate the company, and that Taliaferro would neither pay the expenses incident thereto, nor endeavor to secure money to exploit its prospective assets, nor would he consent to arbitration, and (23 that such conduct constituted a “wilful failure” to comply with the terms of the contract. That contention appears to he predicated on the theory (1 ) that the defendants agreed to personally aid in the organization of the proposed corporation, and (2) that Taliaferro agreed to get money to exploit the1 assets of the partner ⁵⁹⁴ ship and to proceed with the incorporation of the company, immediately upon the successful demonstration of the machine upon which they were at work, regardless of whether it was likely to he a commercial success or not, and regardless of any opinion which Taliaferro may have had on that point; and (3) to supply the money for the organization of the corporation, and that his failure to do these things was wilful. Taking up the first proposition, we cannot accept the construction which the complainant places on the contract in respect to it. Under the literal terms of that contract no one of the parties to it is obliged to form the corporation hut any one of them may do so, for the agreement is “that a corporation shall be organized,” not that all of the parties to the contract shall he required to organize it.

It may of course be inferred from the purpose of the whole instrument that it was the intention of the parties