The Thomas A. Edison Papers Digital Edition

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[HX88028], Legal Testimony, Thomas Alva Edison, September 25th, 1888

Editor's Notes

This is Eaton's draft of Edison's deposition against Gilliland and Tomlinson. It is 31 pages, and Eaton notes that this is "too long." Many dates are left blank for Edison to fill in upon reviewing the document. ## The draft is summarized as follows: ##1) Edison organized the Edison Phonograph Company "about one year ago," to which he sold certain patents and inventions concerning phonographs, and controlled all of its shares during the negotiations mentioned below. ## 2) Edison is an inventor and businessman, and his business is complex and multitudinous, so he needs to rely on others to help. Mr. Tomlinson in particular has been his general legal adviser for the past four years, and Mr. Gilliland has been a trusted friend and business adviser for several years. Both have enjoyed an exceptional degree of Edison's confidence and have been privy to his business secrets. ##3) Early in May 1888, Tomlinson had asked Edison if he would be willing to sell his phonograph inventions to a syndicate with a large amount of capital behind it, seeking to buy up all phonograph patents in the US and Canada, represented by a stranger named Jesse H. Lippincott. Gilliland also broached the subject, claiming that Lippincott had approached them about it. After a discussion Edison agreed that Gilliland and Tomlinson could act as his agent to see what terms could be obtained from Lippincott for his patents, that is to say, the stock he owned in the Edison Phonograph Company which would give practical ownership of the patents. ## 4) Gilliland and Tomlinson then took over the negotiations with Lippincott, making progress reports to Edison frequently. Edison was preoccupied and left everything them. Edison was reluctant to sell, proud of his inventions and expecting the business to flourish in the future and thus preferring to keep the business in his hands. Again, Edison stresses the high degree of confidence he was investing in his representatives, and the high degree of transparency he expected from them. He had given both of them an interest in his business, as he was accustomed to doing with close associates--Tomlinson had 150 shares and Gilliland 300 shares. ## 5) During these months Edison had not yet met Lippincott personally, again, trusting everything to Tomlinson and Gilliland. ## 6) During the time of these negotiations Edison owned 10,350 shares of the Edison Phonograph Company, the remaining 1650 shares having been given to his confidential business friends. Some of these share had been sold. When Gilliland and Tomlinson notified Edison that negotiations with Lippincott were likely to succeed, Edison called in the holders of the remianing 1650 shares, about 13 people, to sell him back the stock, and almost all responded favorably, including Tomlinson and Gilliland, who discussed with Edison the most smooth and secure way to deliver the stock to Lippincott. ## 7)Gilliland and Tomlinson then advised Edison that they had secured an offer of $500,000 cash from Lippincott, that this was the highest they could negotiate, and they urged Edison to accept. Edison trusted them, but did not feel the price was adequate. Edison shared this feeling with other assiciates, but Tomlinson and Gilliland were persistent. ## 8) The deposition breaks the narrative to go back in time and establish that the Edison Phonograph Company made a contract with Gilliland, to name him general agent of the company for the sale of phonographs, which Gilliland was anxious to obtain. He importuned Edison constantly to secure this agency, which he felt would be very profitable. Gilliland promised to be a faithful representative and to step aside at any time that Edison could secure a better man for the job. Edison intended to retain a controlling interest of the stock of the company so that could dictate its business policy, and thought the selectino of a general agent a delicate and important matter but he finally settled on Gilliland, since Gilliland was a trusted personal friend. The contract was thus of a "personal" nature. The contract with Gilliland is to hereto annexed, marked Exhibit A. ## 9) Gilliland and Tomlinson asked Edison what would become of Gilliland's contract in the event that Lippincott bought out the said stock, and Edison replied that he thought that Lippincott would likely appoint his own preferred man for that position. Gilliland and Tomlinson subsequently told Edison several times that they had gone over the matter with Lippincott and that Lippincott had decided to "purchase an assignment of this contract from Gilliland." Edison did not give any thought at that point to whether or not the contract was in fact assignable or transferrable. The first time that Edison asked Gilliland what Lippincott would pay for the contract was in his laboratory at Llewellyn Park, with Tomlinson present, and Gilliland had replied that Lippincott would not give him much, "only some stock in his big company," $250,000 of stock in a company capitalized at six or seven million, which, Gilliland claimed, would be worth only $50,000 or $75,000 in cash. All three men discussed the matter several times, and Gilliland and Tomlinson repeatedly characterized the sum as"trifling," never representing the value at more than $75,000. ## 10) [A large question mark is scribbled in the margins next to this item. Eaton, the author of the draft, leaves a note for Edison, asking if Gilliland or Tomlinson had mentioned anything about dividing the profits of the sale of this contract. If so, this information will be inserted here, he says.] ## 11) [Eaton asks here if Edison reported to any of his associates the fact that Gilliland was to sell his contract, and for how much, before Edison finally decided to sell his stock to Lippincott? If so, Eaton will insert that information here]. ## 12) Edison, still reluctant to sell, was persuaded by Gilliland and Tomlinson that it would be good to have such a huge sum of ready cash available, and that the deal would be good for Edison's associates who owned stock in the company and for Gilliland, who would get to sell his contract. Again, they reiterated that the value of the stock exchanged for the contract would be worth in the neighborhood of $50,000, though perhaps if Lippincott's company were a great success then it might be worth $75,000. They both told Edison that Lippincott would not buy the stock unless he could also buy the agency contract. Niether Gilliland nor Tomlinson ever mentioned that they hoped to obtain any other payment than the said block of stock worth abovementioned. ### 13) Edison felt that Gilliland and Tomlinson were not entitled to the proceeds of the sale of the Gilliland contract, since neither had performed any agency services whatever under the contract, since no phonographs had been made and none sold. Certainly he had performed no service under the contract worth $50,000. Edison felt that whatever price should be obtained for the agency contract should be added to the total sale of the stock and divided among the owners of the stock in the same manner as if the entire payment were for the stock. Edison felt this strongly and expressed it to Gilliland and Tomlinson. They replied that the amount was such a small percentage of the total that Edison should yield as a personal favor to them. Edison still hesitated, though after more solicitation he at last consented in June 1888, ever expressing his reservations. ## 14) Fnally the contracts for the sale were prepared in June 1888, though Lippincott's business associates felt the contract was not quite satisfactory, so an amended contract was prepared by Tomlinson and executed on June 28, 1888, with no change made in the purchase price. A copy of the contract is annexed marked Exhibit B. Simultaneously, Gilliland made a separate contract with Lippincott to sell his general agency contract, for 2,500 shares of stock at $100 each in Lippincott's proposed American Phonograph Company. This agreement was prepared by Edison's private secretary, A.O Tate. A copy of that contract is annexed marked Exhibit C, under the direction of Tomlinson, who dictated its contents ## 15) These were the facts as Edison had understood them, but he was deceived, for Tomlinson and Gilliland had conspired to make a secret, better contract, to purposely mislead Edison. If Edison had known all the facts, he would not have sold his stock. Therefore, he charges them with fraud, with fraudulent concealment, and with conspiracy. The facts for the charge he sets forth below.### 16) The key facts as Edison understood them are repeated. At the same time as Edison was led to believe that Gilliland was only receiving $250,000 of stock valued at $50,000 cash from the sale of his contract, he was in fact selling this same stock back to Lippincott for $250,000 cash. This agreement had been made before the first contract between Edison and Lippincott had been prepared, with Tomlinson's knowledge and approval on the [left blank] day of June, 1888. Tomlinson and Gilliland endeavored to keep this secret from Edison and enlisted Lippincott's aid in preserving the secret. Edison is aware of this because of information recently divulged by Lippincott. Lippincott is expected to make an affadavit of the above facts, with a copy of the secret agreement annexed to the affadavit, and that he will set forth in detail how much stock and money he has already paid Gilliland and how much still remains unpaid. ##17) In August of 1888, Gilliland and Tomlinson sailed for Europe with Edison's approval. Edison did not yet know of their perfidy. Tomlinson called on Edison to ask for money in view of his going abroad, arguing that he deserved it, since he had been the agent of a favorable sale of Edison's patents. Tomlinson stated that he would get little from Gilliland for his services and that therefore Edison should do something for him. Edison, feeling friendly towards Tomlinson and believing him ill treated by Gilliland, agreed to give him $7,000, though he now understands that his presumptions were false. ##) [Eaton notes that Edison should tell him to whom Tomlinson stated that he was to get one-third from Gilliland so that he can prepare an affadavit and insert it here]. ## 18) Not only did Tomlinson come to Edison before his European trip to ask for pecuniary favors, but Gilliland did as well. Gilliland stated that he felt he was not getting much from the phonograph deal. Edison obliged. At this time, Lippincott had already paid the two men $50,000 in two checks, one $15,000 check for Tomlinson and one $35,000 check for Gilliland. Edison has photographed copies of these checks in his possession as proof. These checks are dated August 1, 1888, the interviews between him and the two men having taken place in days subsequent thereto. ##[Eatons note: "Who will swear as to when the [interlineation?] abt Gilliland's future [enventions? Inventory?] was made?] Thereafter [image 23] an atachment, presumably written by Edison: ##The first mention the author had ever heard of the business was when he had an interviewed under the apple tree by Tomlinson. He said that parties, particularly a Syndicate, wanted to purchase the whole phonograph affairs, and Tomlinson urged an outright sale, arguing that Edison's time was best spent inventing rather than conducting the phonograph business. Edison was reticent, that he could manage the business best himself, but he was open to the offer. He thinks that Tomlinson mentioned Theo N. Vail and associates as the principal party. The conversation took place in the confidentiality of the laboratory yard. Tomlinson urged and advised Edison that it was in his own interest to sell..Edsion had retained Tomlinson as his personal and confidential attorney for four years and habitually trusted him as his agent. The above points were reiterated again. ## Edison heard nothing further about the matter until [date left blank], when an interview took place in the Library with Tomlinson and Gilliland. Edison remembers that mark Twain and George Iles were at the Laboratory at the same time the interview took place, so Edison was trying to rush through the interview as quickly as possible to attend to his visitors. Tomlinson opened by offering $500,000 cash for the phonograph business on behalf of the parties with whom he had been negoatiating. After arguing about it Edison made some memoranda regarding the conditions under which he would sell. This was the first time that he heard that Lippincott was the party with which they were dealing. He asked about Lippincott's connection with the graphophone, and about how Gilliland was going to take care of his agency contract. He was told that Gilliland wanted to give him stock interest in his new Company in exchange for the contract. He asked if Gilliland was to receive any cash and Gilliland said no, that Lippincott would only pay stock having a perspective value, as the contract was only of persepctive value. Edison asked what was the proposed capital of the Company and they stated six million dollars. Edison asked what the stock was worth and Gilliland said it was not worth anything, only a future risk and possible reward. Gilliland thought they might get $75,000 out of the deal. ## Edison's relations with Gilliland were intimate and confidential. Gilliland had left his previous occupation with the Bell Telephone Company to come with Edison, about three years ago, at Edison's request and with the promise that Gilliland would make at least as much with Edison as he did with Bell. During these previous three years, Gilliland had been entirely associated with Edison and his affairs, and Edison presumed he was acting in Edison's interest, as he and Tomlinson had before. ## Edison drew up a memo containing his views and what he should insist on in a deal to sell the Phonograph Company, due to Tomlinson and Gilliland's insistence, arguing for hours over Edison's objections to a sale: that he did not need the money, that the business was more profitable than yearly interest on $500,000. Edison vocally expressed his befuddlement at the persistence of Tomlinson and Gilliland, asking them why they went so strongly against his wishes, and stating that he wished Lippincott had never been born. ###[Note: curiously, Edison never seems to divulge what arguments Tomlinson and Gilliland provided to overcome such strong objections, other than the idea that having the business off of his hands would be a convenience. Their persistent assurance that the deal was in Edison's interest alone, seems to have eroded his objections.] Tomlinson and Gilliland sent Edison's memo to Lippincott to negotiate. On the 27th of June they presented Edison with a new memo, stating that it was the best Lippincott could do. Edison was still opposed to several provisions, so the three men sat up all night to come up with a new compromise contract. Lippincott took the new contract and signed it without a thorough review and without having a lawyer review it, he was so anxious to close. Edison did not know of the Gilliland side-deal, but he saw paper with Tomlinson's writing on it upon Lippincott's desk. He remembers Tomlinson stating that the deal would be injure himself personally but would be good for Edison. Next Tomlinson and Gilliland showed Lippincott around the factory. While in the Library Tomlinson asked for an extra allowance for himself, stating that he would not make much money on the deal and asked for something extra from Edison. Edison promised six or seven thousand dollars. Soon thereafter Gilliland stated that he wished to go to Europe in a few days to avoid some agents to whom he had made "too many promises." Edison blessed his decision and sent a phonograph and a box of cylinders for Gilliland to pass on to Gouraud. He learned afterwards that Tomlinson was to travel together with Gilliland. Edison backtracks at this point in the document to point to some specific objections he had to the memo of June 27th. These were that: the proposed contract provided that Edison would part with his property immediately, but that payment would only come in installments, giving him no recourse short of lawsuit to protect him. He suggested that the stock be held by a trustee as security in the event of failure to pay. Other changes he suggested he does not recall at present. Edison reiterates his surprise that Lippincott did not inquire deeply into Edison's changes to the contract but signed it without consulting a lawyer.

Author

Edison, Thomas Alva

Mentioned

Gilliland, Ezra Torrance

Clemens, Samuel Langhorne

Tomlinson, John Canfield

Date

1888-09-25

Type

Legal Testimony

Subject

Sales and service

Stocks, bonds, and investments

Cylinder phonograph

Folder ID

HX88-F

Microfilm ID

145:201

Document ID

HX88028

URL

https://edisondigital.rutgers.edu/document/HX88028

Rights

Thomas Edison National Historical Park

Publisher

Thomas A. Edison Papers, School of Arts and Sciences, Rutgers University

Has Version

Archive.org Viewer, Microfilm Series Reel 145

Item sets

[HX88-F] Miscellaneous Legal File (1888)