1. Where a person, on a given contract, covenants to pay a sum
whose amount is to be contingent on certain events and is to be
ascertained by arbitrators, such person, if he prevent any
arbitration, may be sued at law on a
quantum valebat, and
the sum due may be ascertained by a jury under instructions from
the court. If the jury, under such instructions, find that only so
much is due, the plaintiff can recover nothing more.
A contract of a special nature explained and interpreted so as
to sustain a charge under which, in a case like that just stated,
the jury found as due much less than the plaintiff claimed.
Page 87 U. S. 21
3. Where a person in consideration of property (not money) to be
assigned by another agrees to give a certain number of shares of
stock having on the day of the contract a fixed market value and,
refusing to give the stock, is sued at law for a breach of the
contract, evidence of the value of the stock at any other time than
at the date of the contract is rightly excluded, its value at that
date being agreed on and admitted.
Humaston having invented certain instruments for expediting the
transmission and reception of messages by telegraph, and especially
for perforating paper for the purpose of such messages, which
inventions were patented, and having also, as he alleged,
discovered a process by which paper could be chemically prepared so
as to be sensitive to the electric current, and by which its value
would be greatly enhanced (a process which he kept secret), entered
in April, 1861, along with one Lefferts, who had some interest in
the matter with him, into an agreement as follows with the American
Telegraph Company, a company already established in the business of
telegraphing:
"The American Telegraph Company agree to buy and Humaston agrees
to sell a full, perfect, and unencumbered title to all his
inventions for all electric telegraph machines and processes, and
particularly the patented invention for perforating paper for the
purpose of telegraphic messages and the adaptation and manner of
using such perforated paper in the transmission of such messages,
including whatever is patented by Humaston in the transmission of
messages by telegraph, and also including the secret process of
preparing the chemical paper, with the right to procure letters
patent therefor."
"The said Humaston and Lefferts agree not to engage, directly or
indirectly, in telegraphing during the period of ten years, in
competition with the American Telegraph Company, nor in any way
aid, countenance, or encourage any telegraph line doing business in
any of the states bordering upon the Atlantic Ocean or Gulf of
Mexico &c., so as to in any way injuriously affect the business
or interests of the American Telegraph Company."
"The consideration to be paid by the company for the said
Page 87 U. S. 22
inventions and patents, and agreement against competition, is
one dollar, and at least 50 shares of the capital stock of the
American Telegraph Company. Upon the execution and delivery by said
Humaston of conveyances of the aforesaid inventions and patents,
conveying a full, unencumbered, and perfect title to the whole
thereof, the said American Telegraph Company are to issue to the
said Humaston 100 shares of the stock of said company,
and a
further consideration of not exceeding 400 shares of the capital
stock of said company is to be paid or issued to the said
Humaston upon the following stipulations and conditions: three
disinterested referees or arbiters
are to decide how much (if
any) more is to be issued to the said Humaston after such arbiters
shall be satisfied as to the capability and value of said patented
inventions, the said referees or arbiters to be mutually
selected."
"It being understood that the aforesaid maximum amount of stock
consideration is stated under a claim by the said Humaston and
Lefferts that his patented inventions will enable the said company
to do by the Humaston system, and on one wire; five times as much
business, regularly and accurately, as can be done now on one wire,
in the same time, by any system now used by said company, it being
also understood that compensation is not to be allowed to Humaston
for what is now public, but only for what their patented
improvements in telegraphy are worth more than any other of said
systems."
"The arbiters or referees are also, in estimating the value of
said patented inventions, to consider
the comparative
reliability, accuracy, rapidity, cost, and also the expense of
working and using said inventions with those now in use. To
enable the said Humaston and Lefferts to prove the capacity and
value of the said inventions, full, fair, and sufficient trials are
to be allowed to them, and made in such manner, and as often, and
for such period of time, as the referees may determine, and the
final decision is to be given before the expiration of one year
from the date hereof. Each party are to have the right to suggest
to the referees such experiments for the testing of such inventions
as to them may seem proper. The referees to have full opportunity
of investigating and deciding in the matter. It is also understood
and agreed that the company are to have reasonable opportunity to
examine into the validity and patentability of the patented
inventions, and place any questions which may
Page 87 U. S. 23
arise thereon before the referees for their decision. But the
referees are hereby instructed that under the foregoing paragraph,
the company are to require only a reasonable amount of evidence as
to the validity of the Humaston inventions, and further agreed
that, should the referees decide that the invention is wholly
invalid and not patentable, then the company will surrender up and
transfer to Humaston, by a good and sufficient assignment, the
title to the said patents on the retransfer of 50 shares of stock
of the company. Upon the award or decision of said referees or a
majority thereof being made in writing and delivered to said
company, said company are to pay or issue to said Humaston the
additional amount, if any, of stock (not exceeding 400 shares),
determined or stated in such award."
Humaston made the requisite transfers, and the matter meant to
be submitted was referred to the arbitrators. They accepted their
office and entered upon the discharge of their duty, but the
telegraph company withdrew its submission. Humaston now
brought special assumpsit against the company, claiming not only
the 100 shares of stock which he actually received in 1861 (and
then worth $100 a share, or $10,000, and which in 1866 was worth
$18,000), but claiming also the value of the other 400 shares. His
position was that by the terms of the contract, he was entitled to
the 400 shares unless the arbitrators named a smaller compensation,
and that as the company had withdrawn its submission, and so
prevented the arbitrators from naming any such smaller
compensation, he was entitled to the whole 400 shares.
At the trial, the instruments invented by Humaston were
submitted to the jury and explained, and experts, mechanics, and
telegraphers examined upon them for several days.
After the plaintiff had established what was perhaps a
prima
facie case, his counsel, for the purpose of furnishing a rule
for estimating his damages, offered to show that the market value
of the stock of the American Telegraph Company on the 12th day of
June, 1866, on which day the company had been consolidated with the
Western Union Telegraph Company, was $150. The court excluded the
evidence for the purpose for which it was offered, but admitted it
as
Page 87 U. S. 24
a fact which the jury might consider in estimating the value of
the property sold. Subsequently the parties agreed that the market
value of the stock of the company on the 1st day of April, 1861,
was $100 per share, and made their agreement known to the court.
Thereupon the court held that the evidence as to the value of the
stock on the 12th of June, 1866, and at subsequent dates, which had
been admitted, was immaterial, and under plaintiff's exception
struck it out and excluded it.
Some of the defendant's evidence tended to show that the
plaintiff's invention had no value and had never been used.
The court charged:
That the plaintiff was not entitled, as matter of law, to
recover of the defendants the value of the remaining 400
shares:
Also that the plaintiff did not, as matter of law, become
entitled to the said 400 shares of stock by reason of the
defendants' revocation of the powers of the referees or other
breach of contract alleged, but that the plaintiff was entitled, in
consequence of the revocation, to bring an action and to recover
the excess (if any there was) which the value of what he sold,
assigned, and transferred to the defendants (enhanced by the
agreement of the plaintiff and Lefferts not to enter into
competition with the defendants) had when sold and delivered, over
the amount which he had already received (and that this he parties
agreed was 100 shares, of the aggregate value of $10,000), with
interest on such excess from the 13th of February, 1867; but if in
their judgment there was no such excess, then that their verdict
should be for the defendant.
To these instructions the counsel for the plaintiff
excepted.
The jury found for the plaintiff, and assessed his damages at
$7,500.
The exclusion of the evidence and the charge of the court were
the matters now assigned for error.
Page 87 U. S. 25
MR. JUSTICE DAVIS delivered the opinion of the Court.
Whether or not the court erred in its charge, and in the
exclusion of the evidence excluded, depends on the proper
interpretation of the contract and the rule of damages which shall
be applied in this action to the breach of it.
It is insisted by the plaintiff that the defendant promised to
pay him for his invention four hundred shares in addition to the
one hundred shares paid on the delivery of the title, unless the
arbitrators should relieve the company by fixing some less amount,
and a great deal of learning touching the
Page 87 U. S. 26
doctrine of conditions subsequent and precedent has been invoked
in support of this position. But this doctrine has no application
here, for manifestly this is not an undertaking to which a
condition subsequent could be attached. It is easy to determine why
this contract was made, the nature of it, and the acts to be
performed by the contracting parties. The American Telegraph
Company were engaged in carrying on the telegraph business in some
portions of the country, and naturally desirous of appropriating to
itself any new invention which would facilitate the transmission of
telegraphic messages. Humaston claimed that his system just
patented would do five times as much business on one wire as the
ordinary systems then in use. If it could do this with equal
accuracy and reliability and at no greater cost, the value of it
could be hardly overestimated, but there had been no experiments to
test the question of whether or not it was capable of doing these
things. It might do the work claimed for it and yet be so
unreliable, or the expense of working and using it so much greater
than the expense of working and using the inventions then open to
the public or used by the company, that its purchase would be dear
at any price. The company, desirous of possessing everything new
and useful in the line of their business, were willing to risk
something in the acquisition of these inventions, but unwilling to
pay the estimate of value which Humaston put upon them without
trial of their utility. This estimate was $50,000, as the proof on
the trial was that the stock of the company stood at par in the
market at the date of the contract. The company said to
Humaston,
"We will take your patents, whether valid or not, and pay you
$5,000 for them if you and Lefferts stipulate not to compete with
us for a period of ten years, and if they are valid, whether useful
or not, the compensation shall be increased to $10,000. But we
cannot promise additional compensation unless, after proper
experiment, your system shall be proved to be worth more. It may be
that your claim of rapid performance can be sustained, and yet the
system, owing to its greater cost than those now in use, or some
other controlling practical
Page 87 U. S. 27
consideration, be of comparatively little value to us. This can
only be determined, after trial, by some impartial tribunal. We are
willing that this tribunal shall be referees mutually selected, to
whom shall be submitted the question of whether we shall pay
anything more than the $10,000 already paid, after the merits of
your system have been tested by them and its capability and value
established. They may reach the conclusion that you are
sufficiently compensated already, and if they do, their award must
be accepted as a final settlement of the matters of difference
between us. If they reach a contrary conclusion, they must fix the
amount of consideration which we are to pay in addition to what you
have already received; but this must be within the limit of four
hundred shares of stock equivalent to $40,000."
This is a fair analysis of the provisions of the contract and of
the considerations on which it was based. Instead of its binding
the company to pay four hundred shares unless a less number was
fixed by the arbitrators, it left them to say whether Humaston was
entitled to any more than he had already got, and if so, how much.
There was no concession by the company that the inventions were
worth any more to it than the hundred shares. If might turn out on
the trial that the price already paid was excessive, or, on the
contrary, that it was not sufficiently remunerative. This point of
value the triers were to determine, and if determined favorably to
the plaintiff, he would have a cause of action against the
defendant. Until this determination, if there had been no
interruption to the arbitration, no cause of action could arise. It
was a reasonable provision that the value of these inventions
should be submitted to the arbitration of practical business men,
and if Humaston, instead of the company, had refused to proceed
with the arbitration, he could not resort to an action, for the
defendant would not have been in default, and, therefore, not
liable to suit. [
Footnote 1]
But the defendant broke the agreement and revoked the
Page 87 U. S. 28
submission, and Humaston asks that in consequence of this
wrongful action of the defendant his rights may be determined by
the court and jury, instead of by arbitration.
It becomes, therefore, important to determine what is the
measure of liability for the breach of contract by the defendant.
If we are correct in our interpretation of the contract, this
action cannot be supported as an action seeking damages for breach
of contract to deliver stock, for there was no engagement to
deliver any except on a condition which has not happened, and there
is no proof that the arbitrators would have found that Humaston was
entitled to receive more stock than he had already obtained.
The action can be supported for the value of the property, and
this was the proper subject of inquiry at the trial. The company
covenanted to pay this value, to be ascertained in a particular
mode, and as they have prevented this mode's being adopted, they
cannot take advantage of their own wrong and deprive the plaintiff
of the opportunity of showing to the court and jury what it is. In
lieu of the award of the arbitrators, the verdict of the jury can
be asked by the plaintiff to determine it. The ascertainment of
this value was the essence of the contract, the thing on which the
submission was based, and the revocation of the submission leaves
the jury to settle it. Benjamin, in his Treatise on Sales,
[
Footnote 2] says, if the
performance of the condition for a valuation be rendered impossible
by the Act of the vendee the price of the thing sold must be fixed
by the jury on a
quantum valebat, as in
Clarke v.
Westrope, [
Footnote 3]
where the outgoing tenant sold the straw on a farm to the incomer
at a valuation to be made by two indifferent persons, but, pending
the valuation, the buyer consumed the straw. And the doctrine of
the text is sustained by adjudged cases in this country and
England. [
Footnote 4]
Page 87 U. S. 29
Nothing is therefore due on this contract unless the court and
jury, sitting in the place of the arbitrators, shall decide that
the plaintiff is entitled to recover for the sale of his inventions
more than he has already received. The case was tried on this
theory, and the court charged the jury that the value of a
specified amount of stock was not the legal measure of the
plaintiff's damages, but that he was entitled to recover the excess
(if any there was) which the value of what he sold and transferred
to the company, enhanced by the agreement of the plaintiff and
Lefferts not to enter into competition with the company, as
stipulated in the contract, had, when sold and delivered, over the
amount which he had already received, and this the parties agreed
was one hundred shares of the defendant's stock, of the aggregate
value of $10,000, with interest on such excess from the date of the
revocation of the powers of the arbiters. This charge is in
conformity with the views we have expressed of the obligations of
this contract and of the rule of damages applicable to the breach
of it.
It is urged, however, that the court erred in excluding
testimony of the value of the defendant's stock both when they sold
out to the Western Union Company and when the revocation
occurred.
It is not perceived how the sale to the Western Union Company
changed the rights of the parties, for there is nothing to show
that it hindered the defendants from acquiring in the market at any
time a sufficient number of shares of its stock to comply with the
award which it was expected the arbitrators would be suffered to
make long after this sale took place.
If there had been an agreement to deliver a certain quantity of
stock, and an action had been brought for the conversion of it on
the ground that the defendant by the sale to another company had
put it out of its power to comply with the terms of its agreement,
evidence of the value of the stock at the time the sale occurred
would be competent. And so would evidence of its value at the date
of the revocation,
Page 87 U. S. 30
if the plaintiff was in a position to support an action for
damages for breach of contract to deliver stock. But as he is
limited in his recovery to the value of his inventions when sold
and delivered, evidence of the value of shares of stock at all is
only proper as tending to show the estimate put upon the property
by the parties at the time they made their bargain. And as the
value of the stock in 1861, when the contract was concluded, was
directly shown, its value at any other time became unimportant. The
circuit court proceeded on the theory, and we think correctly, that
the defendant intended to give for and considered the plaintiff's
property worth (if it performed certain conditions) the cash
equivalent of five hundred shares of stock. This was $50,000, which
the plaintiff must also have adopted as his estimate of the value
of the property when he sold it, as he offered evidence tending to
show that it was worth that sum and claimed that the evidence
proved the fact. The conflict of testimony on the worth of the
Humaston inventions was very great, for the defendant also
introduced evidence tending to prove, and claimed it was proved,
that these inventions were of no value, or if any, no more than the
amount already paid for them.
In this condition of the evidence, it was a difficult matter for
the jury to settle the issue submitted to them, but as they were
able to do it with the aid of the court and eminent counsel, after
a lengthy trial, by finding a considerable verdict for the
plaintiff, it would seem that he ought to be satisfied with it.
At any rate, there is no error in the record, and the judgment
must be
Affirmed.
[
Footnote 1]
Delaware & Hudson Canal Co. v. Pennsylvania Coal
Co., 50 N.Y. 250.
[
Footnote 2]
First edition, page 430.
[
Footnote 3]
18 C.B. 765.
[
Footnote 4]
Inchbald v. Western &c., Plantation Co. (headnote),
112 English Common Law (17 C.B.N.S.) 733;
Hall v. Conder,
89
id. (2 C.B.N.S.) 53;
United
States v. Wilkins, 6 Wheat. 135,
19 U. S. 143;
Kenniston v. Ham, 9 Foster (N.H.) 506;
Holliday v.
Marshall, 7 Johnson 213;
Cowper v. Andrews, Hobart
40-43.
