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Flanigan v. Ditto Inc.

June 15, 1936

FLANIGAN
v.
DITTO, INC.



Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; Walter C. Lindley, Judge.

Author: Alschuler

Before EVANS, SPARKS, and ALSCHULER, Circuit Judges.

ALSCHULER, Circuit Judge.

The judgment from which Flanigan appeals was rendered on a verdict which, at the close of all the evidence, the court directed in favor of the Ditto corporation on all the counts of the declaration save count 6, as to which a verdict for Flanigan for one dollar was directed.

Flanigan was an inventor and builder of duplicating machines. For several years before 1910 he had worked with or for a certain concern known as Billograph Co. In 1910 he was granted a United States patent on a duplicating machine, and had pending an application for another patent for improvements thereon. In the same year Ditto (then named Billograph Duplicator Company) was organized to take over the assets of the Billograph Co. and the interest therein of Flanigan, including his granted patent and the application. As a part of, or growing out of, this transaction, Flanigan and Ditto entered into a contract, under date of October 19, 1910, whereby Ditto agreed to pay Flanigan a graduated percentage of its gross sales of Billograph duplicators and other named items during the life of the issued patent, as well as of any patent which might issue on the pending application. The application resulted in a patent issued March 5, 1912.

Upon the execution of the contract Flanigan went to work for Ditto at a small salary. The business grew rapidly, and under date of July 28, 1915, the parties entered into a supplementary contract whereby during its term (which was for the life of the patents) Flanigan was to work exclusively for Ditto, and Ditto was to employ him at largely increased salary. It was provided that Ditto should have the assignment of any improvements Flanigan might make on the duplicating machines, and that Flanigan should receive an additional percentage of gross receipts up to 3 per cent. from sales of Billograph duplicators and rolls, provided that, if the annual net profits of the business were less than 15 per cent., his additional percentage was to be reduced in a specified proportion. It was further provided that this contract might be terminated by either party on six months' notice.

Under date of January 15, 1924, the parties entered into a third contract supplementary to the other two. By its terms Flanigan agreed to design a new duplicator at his own expense which would not be a mere improvement on his other machines, and within one year to submit it to Ditto, together with terms on which he would convey it to Ditto; and if the terms were not accepted by Ditto the new machine was to belong to Flanigan, who agreed that in such case he would not market it or use it, or permit this to be done, prior to January 1, 1928. The new machine was completed and tendered to Ditto within the time specified, with terms of sale, but was not accepted. Flanigan filed his application for a patent on the machine in 1925, and a patent thereon was issued to him in 1929.

In 1927 Ditto wrote Flanigan demanding assignment of the application for this patent upon the ground that it was a mere improvement of the original machine and, under the second contract, belonged to Ditto. Flanigan refused to make the assignment, and Ditto brought suit in the District Court for specific performance. In this suit final decree was entered June 5, 1931, dismissing the bill for want of equity.

The instant cause was begun July 31, 1931. The declaration contains counts upon each of the three contracts, alleging breaches thereof. Generally speaking, recovery is sought for the stipulated percentage upon gross sales of various items alleged to be covered by the first and second contracts for which Ditto had not made payment as therein agreed. We will consider such of the several items which Flanigan claims as we deem worthy of attention.

The first contract specified that commissions were to be paid "upon the annual gross sales of the party of the first part of Billograph Duplicating machines, machine parts (other than for repairs) and duplicating rolls." Flanigan maintains that "machine parts," of which many were sold during the term of the contract, were not included by Ditto in reckoning Flanigan's commissions. The contract specifies that such parts as were for repairs were not subject to commission. What of the machine parts which were sold were not for repairs in no manner appears. There is no evidence in the record which shows for what purposes such parts would be sold if not for repairs on machines. At any rate, there is no evidence to show that any parts were sold for any use other than for repairs.

Another contention is that no commission was paid on the sale of "roll racks" sold by Ditto. These "roll racks" are conveniences for depositing thereon the gelatinous rolls employed on the duplicating machine. The racks are in no sense a part of the duplicator itself, but are a sort of shelving or device for supporting or storing the rolls when they are not in use. Under the contracts no claim for commission upon sales of "roll racks" is sustainable.

A very considerable item contended for is that of stands whereon to rest the machines. In 1918 Flanigan designed such stands of tubular metal, and they went into very considerable use. The stand was not patented, nor was there any application for patent thereon. Thereafter many sales of duplicators were made with the stand, and many without it. It was optional with the buyer. It was testified that at least 40 per cent. of the duplicators were sold without stands. In our view of the undisputed evidence the stand was no part of the duplicator, but was just a convenience upon which it might rest, as any other support might be. The stands were not by the contracts a subject-matter of the commission.

There is some evidence bearing on the stands which should be considered. Flanigan testified that about the time he designed the stands he told the president of Ditto that the sales of them should be included in those whereon he was entitled to a percentage and that the president agreed this should be so.This the president denied. If, as to the stands, the rights of the parties rested upon where the truth lay as between these witnesses, a jury question might thereby be raised under proper pleading. But if we are correct in our view that stands did not fall within the purview of the contracts for percentage to Flanigan, then any promise to pay commission on such sales would constitute another contract, which has not been sued upon and was not an issue in this cause.

Another considerable item is that of "roll coupons." It seems that the gelatinous rolls for these duplicators, which must frequently be renewed, were in large measure supplied through orders for a considerable number of them, which orders were given and paid for in advance at a reduced rate, the rolls to be delivered in the future as the customer called for them.It appears that in the very large business which the Ditto concern developed many such coupon books were paid for on which deliveries of rolls were never called for nor made, and that, for the many years in question, there now remains in the hands of Ditto over $50,000 for uncalled for and undelivered rolls whereon Flanigan has not been paid commission. Most, if not all, of this is of such long standing that there is little or no likelihood that deliveries of them will ever be called for or made. It seems that from 1918, when this plan of selling was inaugurated, to 1922, Ditto included the total amount of sales of these coupon books in the Flanigan account for commissions; but in 1922, under a new auditor, a change was made, and thereafter only such commissions on roll sales were credited or paid Flanigan as represented actual deliveries. We are satisfied on this record that, in strictness, this plan of selling coupon books did not of itself involve a sale of the rolls within the purview of the contracts. It was the placing of an order for rolls for which payment was made in advance, involving some discount as the inducement. It appears that in a few instances payment so made in advance ...


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