Opinion
January 11, 1955 —
February 8, 1955.
APPEAL from a judgment of the circuit court for Fond du Lac county: RUSSELL E. HANSON, Circuit Judge. Affirmed.
For the appellant there was a brief and oral argument by Jerold E. Murphy of Fond du Lac.
For the respondent there was a brief and oral argument by Nicholas J. Lesselyoung and John P. McGalloway, both of Fond du Lac.
Action begun November 12, 1949, by Lawrence P. Touchett (also known as A.L. Touchett) against E Z Paintr Corporation for breach of an alleged contract under which it is claimed the defendant agreed to purchase from plaintiff all paint rollers and allied products which defendant was to sell under its license from the plaintiff. Such suit is based upon the allegations contained in the third cause of action set forth in plaintiff's complaint.
The plaintiff is the inventor of a device for applying paint, called a paint roller. He secured a patent covering the roller, tray, and cover. In 1945, with his brother and others, he formed a corporation to engage in the manufacture and sale of the products. Sales to jobbers were made in large lots, and difficulty was encountered in getting sufficient funds to keep up with these sales. The outside interests sold out to the Touchetts. Both plaintiff and his brother loaned money to the corporation. In 1947, their capital was exhausted, and the need for more cash was urgent. Financiers known as Stern Company of Chicago were appealed to. After many investigations, Stern Company made an investment on the following terms: A new corporation was to be formed, Stern interests would loan $25,000 and take one half of the stock, being $25,000 par value, the Stern interests to have their representative as chairman of the board of directors, with full control of all corporate affairs until the loan was paid. In August of 1947, all of this was brought about.
In the late summer and fall of 1948, several stockholders' meetings were held, at which there was much discussion as to the sale of shares and stock of the corporation and the rights of the parties to manufacture and sell the products. As a result of these meetings a "memorandum of agreement" was drawn up and signed on October 23, 1948, by E Z Paintr Corporation and A.L. Touchett. This agreement contained the following terms, among others:
"2. Touchett will sell, transfer, and set over, or cause to be sold, transferred, and set over to the corporation, and the corporation will purchase from Touchett and his wife, respectively, the number of shares which each of them has represented and warranted as owned by him or her in section 1 hereof.
"3. The consideration for the purchase and sale contemplated by section 2 hereof shall be the following:
"(a) The assignment to Touchett of all of the corporation's claims against the E Z Paintr Company of Canada;
"(b) The transfer to Touchett of inventory (finished, unfinished, or partly finished) and machinery of the corporation, the net value of which shall be the difference between $5,000 and the book value of the claims assigned pursuant to (a) of this section.
"All items of inventory (finished, unfinished, or partly finished) and all pieces of machinery, shall, for the purposes of this section, be valued at the figure at which the same are carried on the books of the corporation at the time of their transfer. The exact items of inventory and/or the specific pieces of machinery to be assigned and transferred to Touchett pursuant to this section shall be such as may be mutually agreed upon by the parties hereto.
"4. The corporation represents that it is the owner of the following United States letters patent:
"No. 2444096 with respect to paint trays;
"No. 2444584 with respect to paint trays; and
"No. 2427581 with respect to paint rollers.
"At the time of closing, the corporation will assign to Touchett title to the above-described patents and, simultaneously therewith, Touchett will enter into an exclusive license-royalty agreement with the corporation in a form to be mutually satisfactory to the parties.
"5. The exclusive license-royalty agreement provided for in section 4 hereof shall contain, inter alia, the following provisions:
"(a) A provision for the payment to Touchett by the corporation, as a monthly royalty, of a sum equal to two per cent of the corporation's gross sales of patented paint rollers and paint trays, or $250 a month, whichever sum shall be the greater.
"(b) A provision precluding Touchett from manufacturing or selling, or causing the manufacture or sale, of any of the items covered by the patents above referred to, or of any paint rollers or paint trays substantially similar to the items covered by said patents, provided only that Touchett shall be entitled to manufacture such items upon the request and order of the corporation.
"(c) A provision conferring upon the corporation authority to sublicense other persons, firms, corporations, or association for the manufacture or sale of any of the items covered by the aforesaid patents.
"6. From and after the date of closing, and during a period of seven years thereafter, neither Touchett nor any partnership, corporation, person, or firm controlled by him, directly or indirectly, or in which he has a substantial interest, direct or indirect, shall within the `restricted territory' manufacture or sell, or cause the manufacture or sale of, any `exploited product.'"
Disagreements between parties arose, and an action was begun November 12, 1949, by Lawrence P. Touchett, and in his complaint he set forth four causes of action. The first, second, and fourth causes of action were settled by stipulation. The third cause of action here set forth is for breach of contract. Plaintiff alleges:
"1. That he was the owner of common stock of this corporation of the value of $14,900 and was a director and president of the defendant corporation and that in consideration of his surrendering his stock to said corporation and resigning as an officer and director said corporation was to go out of business of manufacturing, and was to become a sales agency only for the products then manufactured and sold by the defendant.
"2. This plaintiff further alleges that it was further agreed that this plaintiff was to continue the manufacture of said items and articles which were to be sold to this defendant at a price which was then established and further this defendant was to sell to this plaintiff certain machinery and raw materials so that he might make all of the articles to be sold by this defendant.
"3. This plaintiff further alleges that this defendant corporation owned, conducted, and operated a business at Sarnia, Canada, known as E Z Paintr of Sarnia, Canada, and this business was to be sold to this plaintiff free and clear of all claims or obligations or the rights which this defendant had against or to E Z Paintr of Sarnia and said selling price was to be $935.
"4. This plaintiff further alleges that the agreed value of the machinery, raw materials, and goods in process which were to be delivered to this plaintiff by this defendant was to be of the agreed value of $4,065 and to consist of items listed in Exhibit `B' made a part of this complaint and that machinery and items were to be left in a building then occupied by this defendant in such condition that this plaintiff could immediately start to manufacture said items to be sold by this defendant.
"5. This plaintiff further alleges that while president of the defendant corporation he had trained and employed a number of people who were qualified to continue the manufacturing of these items and that this plaintiff had available a building suitable for the manufacture of said articles.
"6. This plaintiff further alleges that without warning or notice of any nature this defendant did cause all of said machinery, goods in process, and other items referred to in Exhibit `B' to be removed from the city of Fond du Lac, Wisconsin, in the nighttime and said machinery, goods in process, and materials were taken from the city of Fond du Lac to Butler, Wisconsin, and that at said place the defendant did install said machinery during the early part of January, 1949, and immediately commenced the manufacture of paint rollers, trays, and other similar items and that the sale of these items thus far in 1949 have been approximately $350,000.
"7. This plaintiff further alleges that because of the breach of contract between these parties by this defendant, as set forth herein, this plaintiff has been deprived of the manufacturing business of these items for the year 1949 and future years and this plaintiff has been damaged by the acts of this defendant in the sum of $2,256,383.35."
Thereafter and before trial plaintiff amended his complaint by adding a fifth cause of action, the allegations of which were to the effect that by mutual mistake the contracts in question do not exactly set forth in their terms as reduced to writing the actual agreements entered into between the plaintiff and the defendant corporation. No suggestion is contained in the fifth cause of action that such contracts were reduced to written form in which they appear in evidence by reason of any fraud on the part of the defendant corporation.
The specific points upon which plaintiff sought reformation were with reference to paragraph 3 (a) of the memorandum of agreement of October 23, 1948, amending it so as to read: "The assignment to Touchett of all of the corporation's claim to E Z Paintr Corporation of Canada," and further to reform paragraph 3 (b) so as to read: "The transfer to Touchett of inventory (finished, unfinished, or partly finished) and machinery of the corporation, the net value of which shall be the difference between $5,000 and the net worth of the business known as E Z Paintr of Canada," and further to reform paragraph 5 (b) of the contract of October 23, 1948, and paragraph 3 of the contract of January 5, 1949, so as to read:
"Touchett shall be precluded from manufacturing the products referred to except that he may manufacture such products only for the E Z Paintr Corporation (defendant herein) and said corporation will purchase all of said products which it sells from Touchett (plaintiff herein) unless said Touchett shall be unable to do so and that Touchett agreed to manufacture the items referred to as ordered,"
and certain other amendments which were treated with in the decision in the equitable chapter of the case.
Upon separate trial of the cause of action for reformation of the contract, the circuit court entered a judgment dismissing the fifth cause of action upon its merits and made findings of fact and conclusions of law, among which were the following:
Finding 29:
"That there was no meeting of the minds between plaintiff and defendant to the effect that plaintiff was to do all of the manufacturing of the patented articles which defendant might require in order to fulfil its sales requirements and needs,"
and concluded as a matter of law that there was no evidence to show "that any agreement was ever reached between the parties that the plaintiff was to do all of the manufacturing for the defendant corporation in its requirements of the articles covered by the latter patent in question and therefore the third prayer for relief must be denied and the fifth cause of action in that regard must be dismissed."
The plaintiff appealed from said judgment dismissing the fifth cause of action to this court, and upon the appeal, as appears in Touchett v. E Z Paintr Corp. 263 Wis. 626, 58 N.W.2d 448, 59 N.W.2d 433, the judgment of the trial court was affirmed. There was a motion for rehearing, which was denied June 3, 1953. Upon remittitur to the circuit court, the third cause of action, set out in the statement of facts, was then placed on the November, 1953, term for trial. Before trial the defendant obtained an order from the circuit court permitting it to file a supplemental answer.
In the supplemental answer it is alleged that all material issues involved in the third cause of action were present in the fifth, and said issues were covered by the findings of fact and conclusions of law duly entered in the proceeding appearing in the case of Touchett v. E Z Paintr Corp. 263 Wis. 626, 58 N.W.2d 448, 59 N.W.2d 433, and that the said findings of fact, conclusions of law, and judgment are an adjudication of all material issues between the parties raised in plaintiff's third cause of action.
The defendant thereafter sought summary judgment of dismissal of this cause of action on the ground that all issues between the parties had been adjudicated. Judgment was granted below dismissing the complaint as to this particular cause of action. And at the same time the court granted the plaintiff the right to file two separate amended causes of action, one arising out of the sale of the business known as the E Z Paintr Corporation of Sarnia, Canada, for the selling price of $935; and one arising out of damages for defendant's failure to deliver raw materials, machinery, and goods in process. It is from the judgment entered February 5, 1954, dismissing the plaintiff's cause of action for breach of contract that this appeal has been taken.
This appeal brings us two issues or questions. The problems to be solved are first whether or not parol evidence is admissible on the part of the plaintiff to show that there was an agreement between him and the defendant whereby he was to have the exclusive right to manufacture the articles covered by his patents which he had licensed to the defendant to sell. The second question is: Are the findings, conclusions of law, and judgment entered in the suit for reformation of the contract res judicata (Touchett v. E Z Paintr Corp. 263 Wis. 626, 58 N.W.2d 448, 59 N.W.2d 433) as to plaintiff's presently claimed cause of action for damages for breach of contract.
The first two allegations of plaintiff's third cause of action for breach of contract are to the effect that it is part of the contract that the defendant was to go out of the manufacturing business and become a sales agency only. Plainly the written agreement does not so provide, and that claim is inconsistent with and contrary to the stipulation in the contract. Paragraph 5 b) of the written agreement, set forth in the statement of facts, provides that there shall be a provision in the royalty agreement "precluding Touchett from manufacturing or selling, or causing the manufacture or sale, of any of the items covered by the patents . . . provided only that Touchett shall be entitled to manufacture such items upon the request and order of the corporation." There is in the record of the trial upon the question of reformation of the contract a submission of the same terms and items, and they were there passed upon and denied.
The rule as to when parol testimony is admissible to establish that a written agreement does not contain an entire contract between the parties, and that the essential portion thereof rests in parol is pointed out in the case of Scarne's Challenge, Inc., v. M.D. Orum Co. 267 Wis. 134, 142, 64 N.W.2d 836. In that case, the rule recognized as controlling is that if the particular element of the contract which is claimed to rest in parol is mentioned in the writing itself, "`then presumably the writing was meant to represent all of the transaction on that element; if it is not, then probably the writing was not intended to embody that element of the negotiation. 5 Wigmore, Evidence 2d ed.), sec. 2430,'" quoting from Danielson v. Bank of Scandinavia, 201 Wis. 392, 399, 230 N.W. 83, 70 A.L.R. 746. Here the agreement of October 23, 1948, touches upon the subject of manufacturing, but it provides that plaintiff was to license the defendant corporation to manufacture under the patents, and it provides that the plaintiff is prohibited from manufacturing any of the items covered by the patents except upon the request and order of the defendant corporation. Because of the rule with relation to integration of contracts, parol evidence would not be admissible to show that there was a verbal agreement between these parties under which plaintiff was to have the exclusive rights of manufacturing, and he is without grounds on which to base his claim.
It becomes unnecessary to treat with the question of res judicata.
The matters of the sale to plaintiff of E Z Paintr of Sarnia, Canada, by defendant, and of the failure of defendant to deliver to him the machinery, raw materials, and goods in process are matters which were not adjudicated by the judgment in the reformation action. They are matters in which the trial court properly recognized the plaintiff's right to press separate causes of action as to them.
By the Court. — Judgment affirmed.