
    Valley Iron Works Manufacturing Company and another, Appellants, vs. Goodrick, Respondent.
    
      April 4
    
      June 22, 1899.
    
    
      Contracts: Specific performance: Patents and patent rights: Implied contracts: Temporary injunction: Ex izarte application.
    
    X. An action will lie to compel specific performance of a contract entitling a person to patents issued upon, and the right to manufacture and sell machines embodying, the invention.
    2. If an employee using the time, material, machinery, and assistance of coemployees with his employer’s consent, invent a machine and construct and put the same into practical use, and the employer by the aid and with the consent of the inventor, in advance of an application for a patent on the invention, manufacture and put machines embodying it into practical use, an implied contract will arise from the facts, that the employer shall have the right to manufacture at his factory and sell such machines, which a court of equity will enforce; and if there be an express contract, pursuant to which the invention is produced and the machine perfected by the aid of the employer, that he shall have all property rights in the invention, a court of equity will compel specific performance of such contract.
    S. In an equitable action where the facts stated on behalf of the plaintiff may reasonably be sustained so as to entitle him to substantial relief against the defendant, and the circumstances are such that if the latter be unrestrained pending the litigation he may so deal with the subject of the action or change existing conditions as to render the final judgment nugatory, to the irreparable injury of the plaintiff; notwithstanding a positive denial on the part of the defendant of all the allegations of the complaint upon which plaintiff’s right to equitable relief is based, it is the duty of the court, on application therefor, to make such an order as will preserve the status quo till the rights of the parties be settled in the action, upon such terms as will protect the defendant against serious loss, or require, by a proper bond or otherwise, protection to the plaintiff against damage by the acts of the defendant.
    4 The doctrine, that where all the facts pleaded upon which plaintiff’s right to equitable relief is based are positively denied by the answer a temporary injunction granted at the outset will be dissolved, does not apply where it is shown that the preservation of the status quo pending the action is necessary to avoid the probability of plaintiff suffering irreparable loss and the final decree being ineffectual to accomplish the purpose of the litigation.
    [Syllabus by MARSHALL, J.]
    Appeal from an order of the circuit court for Outagamie county: JohN GoodlaNd, Circuit Judge.
    
      Reversed:
    
    Appeal from an order dissolving a temporary injunction, granted ex forte on the complaint, stating, in substance, in addition to formal matters, that for several years defendant was the secretary, treasurer, and general superintendent, at a salary of $120 per month, of the plaintiff corporation, which was engaged in the business of manufacturing and selling machines for screening pulp and paper stock; that during such employment, using the time of the corporation, its material, machinery, and the labor of its employees with its consent, to the amount in value of several thousands of dollars, defendant investigated the subject of a new process for screening pulp and paper stock and the invention of a machine to put such process in practical operation, the efforts in that regard covering a period of about two years, which resulted, about September, 1897, in the discovery of such a process and the invention, perfection, and construction of such a machine; that the new device so discovered is patentable and of great value; that three of the machines were constructed at the factory of the corporation, two of which were sold to and put in operation by other parties, and one of which was put in operation by such corporation, all with the consent of defendant and by his aid at the expense of such corporation; that defendant has applied for patents in this and other countries and obtained one from Canada, ¿nd is about to obtain others; that the corporation consented to the use of its time, machinery, labor, money, and material, as aforesaid, with the understanding and agreement between the parties that the benefit of the discovery, including all patents granted thereon, and the right to manufacture and sell machines embodying the invention, should be its property; that defendant now denies the corporation has any right, title, or interest, either in the invention or the right to manufacture or sell machines embodying the same, and will, unless restrained by the court, place such property beyond the reach of a decree of the court; that defendant is insolvent and unable to respond in damages for the aforesaid breach of his agreement and other breaches threatened; and that, unless he be restrained during the pendency of the action from selling the property to third persons and placing it beyond the reach of the mandate of the court, the corporation will suffer great and irreparable injury.
    Defendant answered, admitting the formal allegations of the complaint, the discovery of the new process for screening pulp and paper stock, the invention of a machine- as alleged, the value of the invention, the application for patents as claimed, the manufacture by the corporation, with the knowledge and consent of defendant, of two of the machines, one of which was sold by plaintiff; but denying that defendant discovered or invented the process or machine while in the employ of the corporation, or that it incurred any expense in that regard or in the manufacture of machines for defendant for testing his process, except one for which he paid in full. The refusal of defendant to recognize plaintiff as having any interest in the invention or the right to manufacture and sell machines embodying the same, was admitted, and it was alleged that the corporation had ■no such right. All the allegations of the complaint not specifically admitted or denied were covered by a general denial. The answer contained further allegations showing prima facie that the action was commenced without authority of the corporation.
    On such answer and supporting affidavits, defendant moved the court to dissolve the temporary injunction. For such supporting affidavits there was one by defendant corroborating the allegations of bis answer on all material points, and stating that after the action was commenced a meeting -of stockholders of the corporation was held, at which a resolution was adopted directing its discontinuance. There was a further affidavit on the part of defendant, by A. B. Whitman, a stockholder and director, corroborating the affidavit and answer of defendant. In opposition to the motion was an affidavit by William A. Farmon, the receiver, named as plaintiff, who was also vice president of the corporation, to the effect that the action was commenced by authority of the president of the corporatioil who was duly authorized in the matter by the board of directors; that after such commencement, and before the proceedings of the special meeting of stockholders and the alleged action directing a discontinuance of the cause, the receiver was duly appointed injudicial proceedings and a temporary injunction granted restraining the corporation from doing any further business. The affidavit further corroborated the material allegations of the complaint, and showed that only a- minority of the stock represented at the stockholders’ meeting, aside from that owned by defendant, was voted in favor of discontinuing the cause. There was a further affidavit by A. L. Smith, the' president of the corporation, corroborating all the allegations of the complaint and stating that the action was commenced by authority of the corporation.
    On the case made by complaint and answer and the affidavits for and in opposition to the motion to dissolve the temporary injunction, such motion was granted, and this appeal was taken from the order.
    For the appellants there was a brief by Zymcm F. Bournes and Henry B. By cm, and oral argument by. Mr. Barnes.
    
    For the respondent there was a brief by Goodrich <& Goodrich, and oral argument by A. B. Goodrich.
    
   The following opinion was filed April 25,1899:

Maeshall, J.

The complaint states, with reasonable clearness, facts constituting a good cause of action for specific performance of an implied contract, securing to the plaintiff corporation the right to manufacture at its factory, and sell in the market, machines embodying defendant’s invention for screening pulp and paper stock; also facts entitling plaintiff to specific performance of an express contract securing to such corporation not only such right to manufacture and sell machines, but the patents issued, or that may be issued, for the invention. Respondent’s counsel suggest insufficiency of the complaint as one of the reasons for dissolving the injunction, and, in support of that, point out matters that might possibly be worthy of consideration on a motion to make more definite and certain, but not in testing the sufficiency of the complaint on demurrer or motion to grant or dissolve a temporary injunction.

Our attention is called to the fact that the language relating to the express contract relied upon, is that the corporation incurred several thousand dollars of expense in aid of defendant’s discovery and the invention of his machine, and the construction of machines embodying such invention, with the understanding and agreement between the polities that the right to manufacture and sell such machines and the right to the patents that might be granted thereon should be its property, without stating who are the parties referred to, or definitely wfiat the agreement was, or where it was made, or who represented the corporation in making it. The meaning of the word “ parties,” when viewed in the light of the context, is easily discovered. The only parties mentioned in the alleged transactions are the corporation and defendant, the parties to the action when the complaint was drawn. “ Parties,” in the allegation, refers to the inventor, G-ood/riek, and his employer at the time the invention is said to have occurred, with as much certainty as if it were alleged that the understanding and agreement was made between plaintiff corporation and defendant Goodrich. There is no difficulty in inferring from the allegations that the corporation and defendant made an agreement to the effect that if the former would contribute the use of its factory and the necessary material and labor to aid the latter in his investigations and experiments in the construction of his machine, it should have as compensation therefor the ownership of the results, both as to the right to manufacture and sell such machines, and the patents issued on the invention. True, as indicated, the allegations as to the agreement are-not so definite and certain as to be free from all criticism, but criticism cannot reasonably go further than mere uncertainty, subject to be reached by a motion, seasonably made. The allegation that the discovery was made by defendant and his machine invented and constructed while he was in the employ of the corporation, and by the use, with its consent, of its time, material, labor, and machinery, and that machines were thereafter constructed at such factory with defendant’s aid and consent, some of which were put in operation by plaintiff corporation and some sold to other-parties, makes a showing entitling the corporation to the right, by implied contract, to manufacture at its factory and sell such machines. That is sufficient to support the complaint, in connection with the allegations to the effect that defendant refused to recognize the corporation as having any such right. The allegations that defendant, after some-two years of time, while working for the corporation at an expense to it of several thousand dollars, produced his invention, and that he entered upon the undertaking i-n that regard, and the corporation incurred the expense indicated,, on the faith of an understanding and agreement between the parties that the result should be the property of the corporation, make a showing entitling such corporation to substantially the relief prayed for in the complaint. The-particular time when the agreement was made, or who represented the corporation in making it, or the particular place where the contract was made, were not necessary facts to be pleaded. Applying the rule that all reasonable intend-ments and presumptions are to make for the support of a pleading, and that if the language used will reasonably permit a construction that will sustain the pleading, having in view the evident purpose of the pleader, it should be adopted, •there is no difficulty in reaching a conclusion that a cause of action is stated in the complaint entitling plaintiff to a decree of specific performance. Kliefoth v. N. W. I. Co. 98 Wis. 495; Miller v. Bayer, 94 Wis. 123. It is a well-established rule that an action in equity will lie to enforce specific performance of a contract to convey title to a patent, or the right to manufacture and sell machines embodying the invention; also that if a person, while in the employ of another, discover a patentable machine, and with the knowledge, consent, and assistance, and by the use of the time of such other, perfect the invention, and such other by consent of such person, in advance of any application for a patent on the invention, construct and use or sell machines embodying the invention, that will constitute an implied contract that such person shall have the right to manufacture such machines at its then existing factory and sell them upon the market, and such contract may be enforced by a court of equity. Fuller & Johnson Mfg. Co. v. Bartlett, 68 Wis. 73.

The cause of action for equitable relief being complete, and it being alleged that defendant is insolvent and that he will transfer to third persons property rights in his invention to the irreparable injury of plaintiff, unless restrained of his liberty in that regard during the pendency of the litigation, an interlocutory injunction to effect such restraint was properly granted.

The question is presented, Was the injunction properly dissolved on application of defendant based on an answer denying unequivocally all of the allegations upon which the equitable relief sought depends, supported by affidavits to the same effect, such affidavits being opposed by affidavits on the part of plaintiff corroborating the case made by the complaint and alleging facts sufficient to show authority to bring the action; also showing that if plaintiffs’ case be sustained upon the trial the decree will be rendered worthless by the conduct of defendant in the meantime, if free to dispose of the subject of the action, there being nothing to show that restraint of his liberty will work any serious harm to lxim, and no harm but such as can adequately be guarded against by a bond on the part of plaintiff ? That was the situation that confronted the trial judge, and he met it by unconditionally dissolving the injunction, notwithstanding plaintiff gave a bond in the sum of $1,000 to save defendant harmless from any wrongful effects of the injunction in case the court should finally decide that he was not required to respond to the demand of the complaint.

The learned counsel for respondent, in justification of the order appealed from, invokes the rule that, where all the material allegations upon which the equities of the case rest are fully met and denied without evasion or equivocation by the answer and affidavits, the injunction will be dissolved. High, Injunction, § 1505. That rule is stated by this and other courts without qualification, so that, without familiarity with the scope and purpose of the powers of a court of equity, there is danger of too great reliance being placed upon it. This court has often applied the rule and said that it was one “of general application. Walker v. Backus H. Co. 91 Wis. 160; Tiede v. Schneidt, 99 Wis. 201. Language is also often used consistent only with the theory that, in order to warrant the continuance of an injunction pendente lite, where all the alleged equities of the complaint are denied by the answer, plaintiff’s right to the ultimate relief sought must be established. Warsaw W. W. Co. v. Warsaw, 4 App. Div. 509. That goes no further than that, as a general rule, where all the material allegations of the complaint are specifically denied, and they do not show clearly, in connection with the supporting affidavits, that plaintiff is entitled to the relief sought if his allegations are in accordance with the truth, the temporary injunction will be denied. The rule does not go so far as to compel the plaintiff to try his case on affidavits and the court to decide the issues in advance of a trial on the merits, in order to maintain an order preserving the subject of the action and protecting the plaintiff from probable injury from the conduct of his adversary in advance of a final decree. If such were the case, it would be very easy to paralyze the arm of equity and destroy its power to effect justice in a multitude of cases. Notwithstanding the denial by the defendant of all the equities of the bill, there still remains, generally, the probability that plaintiff may ultimately be entitled to the relief prayed for. Just where the truth lies cannot be' told till a trial of the case on the merits, hence the necessity of a power to preserve the status quo pending the litigation, if that be necessary to make the final decree effective to do justice between the parties. It is more accurate and less liable to mislead, to state the rule, in regard to dissolving a temporary injunction on the coming in of an answer, with this qualification, which is universally recognized in judicial administration: notwithstanding the direct conflict between the adversary parties as to the facts upon which the right to the equitable relief prayed for is sought, it is still within the discretionary power of the court, by a temporary injunction, to preserve the status quo between the parties pending the final decree, if that be necessary in order to make such decree effective or to save the person claiming relief from irreparable injury by the conduct of his adversary pending the litigation. The whole subject of granting or refusing interlocutory injunctions rests in the sound discretion of the court. A mere denial of all the equities of the bill does not under all circumstances take from the court its discretionary power to grant or continue a temporary injunction; neither does a case, showing that plaintiff, if he recover, may suffer irreparable loss and the very object of the suit be defeated in the absence of a temporary injunction, entirely deprive the court of all discretionary power to deny such injunction. But there is some limit to judicial discretion in such cases, both in denying and dissolving injunctions, which, if passed, becomes mere arbitrary judicial will regardless of that wisdom essential to the judicial function, in order to render equity power the effective instrument of justice that it is supposed and designed to be.

On principle and authority, where there is a clear case made by the complaint for equitable relief, supported by affidavits,— notwithstanding a direct conflict between such complaint and affidavits and the answer and affidavits .on the part of the defendant, if it be reasonably probable that plaintiff may finally recover, and on account of the insolvency of the defendant or some other cause the object of the action, notwithstanding the final decree in plaintiff’s favor, may probably be defeated or he be made to suffer irreparable injury if defendant be left unqualifiedly at liberty to deal with the subject of the action pending the litigation,— it is not only within the discretionary power of the court to make some reasonable provision against such a contingency, but on a proper application in that regard it is the judicial duty of the presiding judge to do so. Just what provision should be made must necessarily be governed by the particular facts and circumstances of each case, but to refuse to act at all in such a situation, when action is requested, is in effect to decide the litigation against the plaintiff in advance of a trial. Our judicial system has no such weakness as to lead to that result, though certainly it would be otherwise if it were the unqualified rule, even that the court has the discretionary .power to refuse to preserve, by temporary injunction, the status quo between parties pending the entry of a final decree determining their rights.

Obviously, the court should act with care in such cases. The inconvenience to parties, and sometimes to those not directly parties, to the cause, must be considered. Sometimes restraint upon a defendant may cause to him great inconvenience and damage in case he recover finally, and the refusal of such restraint very little inconvenience or damage to the plaintiff in case of his recovery, and vice versa. In some circumstances it maybe found consistent with judicial wisdom to grant a restraining order upon plaintiff’s giving such bond to protect the defendant as may appear necessary in any reasonable view of the case; in others to refuse such order on defendant’s giving adequate security to protect plaintiff, in view of any probable future situation as to him, down to and inclusive of the final decree. No power of the court is more necessary to the proper and efficient administration of justice, and none more easily abused or dangerous if not exercised with judgment, than the power of injunction. It should never be exercised in any case where the liberty of a person is thereby liable to be interfered with in a serious manner and to his irreparable injury, except with thoughtfulness and judgment as to the probabilities in that regard, and upon such notice and terms as may reasonably be required to protect both parties against ultimate wrongful injury or damage.

Applying the foregoing to this case, it is quite clear that the granting of the order appealed from, dissolving the temporary injunction, was error, and that it must be reversed. The learned trial court evidently gave too great weight ter the rule that, where all the equities of the bill are denied, a temporary injunction should be dissolved. The qualification of that rule, that, notwithstanding the conflict between complaint and answer, the injunction m lirwme should be retained or some other adequate provision made by way of security where it is clear that such a course is necessary to protect the plaintiff from serious loss in case of the establishment of his cause of action on the trial, was either not. comprehended or overlooked. To retain the temporary restraining order, or require security as terms of dissolving the injunction, is only to preserve the property forming the-subject of the action vn statu quo and prevent substantial damage to any one whatever, may be the final outcome. The refusal to do it in this case might inflict irreparable loss upon the plaintiff corporation and render the litigation useless. As before indicated, the existence of the power to grant temporary injunctive relief is for the very purpose of avoiding such a danger. The exercise of the power in a case clearly calling for it is as necessary as the existence of the power itself, therefore judicial discretion in such a case can act in but one direction without abuse. As said, in substance, by Circuit Judge SaNboeN, in Newton v. Levis, 79 Fed. Rep. 715, though the granting or withholding of a preliminary injunction rests in the sound judicial discretion of the court, if by reason of the refusal to issue the injunction, the final decree, if it should be in favor of the plaintiff, will be utterly nugatory, and he left remediless for his injury, there is no question as to the duty of the chancellor to issue it, or in some proper way to guard against such a result. It. is so recognized by courts generally in their administration, but accompanied so often by language to the effect that when all the equities of the bill are denied the temporary injunction will be dissolved, as to carry the idea that the-court has no discretionary power to do otherwise.

By the Bourt.— The order appealed from is reversed.

A motion for a rehearing was denied June 22,1899.  