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Pav-saver Corp. v. Vasso Corp.

OPINION FILED MAY 23, 1986.

PAV-SAVER CORPORATION, PLAINTIFF-APPELLEE,

v.

VASSO CORPORATION, DEFENDANT-APPELLANT (VASSO CORPORATION ET AL., COUNTERPLAINTIFFS AND THIRD PARTY PLAINTIFF-APPELLANTS,

v.

PAV-SAVER CORPORATION ET AL., COUNTERDEFENDANT AND THIRD PARTY DEFENDANTS-APPELLEES).



Appeal from the Circuit Court of Rock Island County; the Hon. David D. DeDoncker, Judge, presiding.

JUSTICE BARRY DELIVERED THE OPINION OF THE COURT:

This matter before us arises out of the dissolution of the parties' partnership, the Pav-Saver Manufacturing Company. The facts are not in dispute, and only those needed to explain our disposition on the issues on appeal will be stated.

Plaintiff, Pav-Saver Corporation (PSC), is the owner of the Pav-Saver trademark and certain patents for the design and marketing of concrete paving machines. Harry Dale is the inventor of the Pav-Saver "slip-form" paver and the majority shareholder of PSC, located in Moline. H. Moss Meersman is an attorney who is also the owner and sole shareholder of Vasso Corporation. In 1974 Dale, individually, together with PSC and Meersman, formed Pav-Saver Manufacturing Company for the manufacture and sale of Pav-Saver machines. Dale agreed to contribute his services, PSC contributed the patents and trademark necessary to the proposed operation, and Meersman agreed to obtain financing for it. The partnership agreement was drafted by Meersman and approved by attorney Charles Peart, president of PSC. The agreement contained two paragraphs which lie at the heart of the appeal and cross-appeal before us:

"3. The duties, obligations and functions of the respective partners shall be:

A. Meersman shall provide whatever financing is necessary for the joint venture, as required.

B. (1) PAV-SAVER shall grant to the partnership without charge the exclusive right to use on all machines manufactured and sold, its trademark `PAV-SAVER' during the term of this Agreement. In order to preserve and maintain the good will and other values of the trademark PAV-SAVER, it is agreed between the parties that PAV-SAVER Corporation shall have the right to inspect from time to time the quality of machines upon which the licensed trademark PAV-SAVER is used or applied on machines for laying concrete pavement where such machines are manufactured and/or sold. Any significant changes in structure, materials or components shall be disclosed in writing or by drawings to PAV-SAVER Corporation.

(2) PAV-SAVER grants to the partnership exclusive license without charge for its patent rights in and to its Patent #3,377,933 for the term of this agreement and exclusive license to use its specifications and drawings for the Slip-form paving machine known as Model MX 6-33, plus any specifications and drawings for any extensions, additions and attachments for said machine for said term. It being understood and agreed that same shall remain the property of PAV-SAVER and all copies shall be returned to PAV-SAVER at the expiration of this partnership. Further, PAV-SAVER, so long as this agreement is honored and is in force, grants a license under any patents of PAV-SAVER granted in the United States and/or other countries applicable to the Slip-Form paving machine.

11. It is contemplated that this joint venture partnership shall be permanent, and same shall not be terminated or dissolved by either party except upon mutual approval of both parties. If, however, either party shall terminate or dissolve said relationship, the terminating party shall pay to the other party, as liquidated damages, a sum equal to four (4) times the gross royalties received by PAV-SAVER Corporation in the fiscal year ending July 31, 1973, as shown by their corporate financial statement. Said liquidated damages to be paid over a ten (10) year period next immediately following the termination, payable in equal installments."

In 1976, upon mutual consent, the PSC/Dale/Meersman partnership was dissolved and replaced with an identical one between PSC and Vasso, so as to eliminate the individual partners.

It appears that the Pav-Saver Manufacturing Company operated and thrived according to the parties' expectations until around 1981, when the economy slumped, sales of the heavy machines dropped off significantly, and the principals could not agree on the direction that the partnership should take to survive. On March 17, 1983, attorney Charles Peart, on behalf of PSC, wrote a letter to Meersman terminating the partnership and invoking the provisions of paragraph 11 of the parties' agreement.

In response, Meersman moved into an office on the business premises of the Pav-Saver Manufacturing Company, physically ousted Dale, and assumed a position as the day-to-day manager of the business. PSC then sued in the circuit court of Rock Island County for a court-ordered dissolution of the partnership, return of its patents and trademark, and an accounting. Vasso counter-claimed for declaratory judgment that PSC had wrongfully terminated the partnership and that Vasso was entitled to continue the partnership business, and other relief pursuant to the Uniform Partnership Act (Ill. Rev. Stat. 1983, ch. 106 1/2, par. 1 et seq.). Other related suits were filed, but need not be described as they are not relevant to the matters before us. After protracted litigation, the trial court ruled that PSC had wrongfully terminated the partnership; that Vasso was entitled to continue the partnership business and to possess the partnership assets, including PSC's trademark and patents; that PSC's interest in the partnership was $165,000, based on a $330,000 valuation for the business; and that Vasso was entitled to liquidated damages in the amount of $384,612, payable pursuant to paragraph 11 of the partnership agreement. Judgment was entered accordingly.

Both parties appealed. PSC takes issue with the trial court's failure to order the return of its patents and trademark or, in the alternative, to assign a value to them in determining the value of the partnership assets. Further, neither party agrees with the trial court's enforcement of their agreement for liquidated damages. In its cross-appeal, PSC argues that the amount determined by the formula in paragraph 11 is a penalty. Vasso, on the other hand, contends in its appeal that the amount is unobjectionable, but the installment method of payout should not be enforced.

In addition to the aforecited paragraphs of the parties' partnership agreement, the resolution of this case is controlled by the dissolution provision of the Uniform Partnership Act (Ill. Rev. Stat. 1983, ch. 106 1/2, pars. 29 through 43). The Act provides:

"(2). When dissolution is caused in contravention of the partnership agreement the rights of the ...


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