Johnson v. Union Switch & Signal Co.

In construing the contract between the parties as a whole, the eighth section must be held to provide not for an executed license, but for an option of which the defendant may avail itself upon paying a mentioned sum. The fact that no time is fixed anywhere for the continuation of the so-called nonexclusive license imperatively calls for that conclusion under all the circumstances. There is no indication anywhere that it was

. In fact the license was not to come into existence until after the termination of the contract. Another difficulty is that there are quite a number of patents issued at widely different times and which, consequently, will expire at widely different times, and that in absence of everything showing a meeting of minds as to a certain period, it is not reasonable to suppose that the defendant agreed to pay $6,500 per year until the expiration of the patent last issued. The most reasonable construction is that § 8 gave to the defendant merely the option to use the patents on the payment of the sum of $6,500 per year, and that the time during which such use and such license were to continue was left for future consideration and negotiation. There being no express or implied promise to pay the $6,500 per year, and no ground for implying one, the plaintiff was bound to show in his complaint that the defendant exercised the option and used the patents, or some of them.

The judgment and order should be affirmed, with costs.

I agree with Judge Freedman, and wish to make a few further observations.

The rule of construction given in Decker v. Furniss, 14 N. Y., 611 , should be followed. It is “ there is no doubt that the phrase which stands at the commencement of the contract 1 William H. Brown sells, etc.,’ imparts of itself an executed sale. But the books furnish abundant evidence that phrases of this kind are used in a very loose sense, and that their literal signification is often overruled by the tenor and purpose of the whole instrument. So a party to a contract may say he agrees ‘to sell,’ and yet the intention be entirely manifest that the title shall pass immediately. Such phrases are quite inconclusive, and are often made to yield to other terms of the contract evincing a different design.”

The covenant, leaving out words not involved in the controversy, reads: “ It is further mutually agreed that in the event of the termination of this agreement the said company (by reason of the expenditures that shall have been made during the continuance of this agreement) shall have a license (not exclusive) to use all of the inventions that may have been used in carrying on the business of the company on the payment of $6,500 per year to be paid quarterly.”

It appears that the sole consideration of the grant of the privilege to use is indicated in the words “by reason of the expenditures that shall have been made during the continuance of this agreement,” and the words “ on the payment of $6,500 per year,” do not refer to the making of the grant. The latter words are a part of the description of the nature of the grant. That part is a license to use on the payment of $6,500. The general rule is that, nothing else forbidding, words that are relative must be held

It is not correct, in my judgment, to suppose that the relative clause refers to “shall have a license, etc.,” inasmuch as there had been, as has already been said, a consideration appropriated by the covenant to the granting of the privilege or license.

This view does not combat the position that a promise to pay the $6,500 was implied, but it is used to show that the payment was to be made for the use. And the further question being, was there an implied promise to use, I must say that there is nothing in the covenant or the rest of the agreement that indicates that the defendants were bound to use the inventions.

(Dissenting.)—I am unable to agree with my associates in the conclusion to which they have arrived.

This action is brought to recover the amount due for one quarter, under an agreement executed by the plaintiff and the defendant.

i- I think that the true construction of this clause of the agreement is that immediately upon the termination of the agreement of employment the defendant did have a license to use all the inventions that may have been used in carrying on the business of the company. By operation of the agreement, without any further act on the part of either the plaintiff or the defendant, the license was created. Ro other construction can be given to the clause in question without disregarding the plain obvious meaning of the words used.

When an option was given, the language used was very different ; it was then that the company should “ be entitled to purchase,” but when a grant was intended the words were “shall have a license.”

Such being the construction of the contract, it is clear that there was an implied obligation to pay the consideration expressed.

In Booth v. Cleveland Mill Co., 74 N. Y., 21 , Allen, J., says: “ There is no particular formula of words or technical phraseology necessary to the creation of an express obligation to do or forbear to do a particular thing or perform a specified act. If from the text of an agreement and the language of the parties, either in the body of the instrument or in its recital or reference, there is manifested a clear intention that the parties shall do certain acts, courts will infer a covenant in the case of sealed instruments, or a promise, if the instrument is unsealed, for non-performance of which an action on covenant or assumpsit would lie.”

In the case of Barton v. McLean, 5 Hill, 257 , plaintiff agreed to furnish what ore might be wanted in stocking a forge at a price not to exceed five dollars per ton, and the defendant refused to take any ore. It was held that the defendant was bound to accept and purchase from the plaintiff so much ore as was necessary to stock the defendants’ forge.

In the covenant in this case the same words are used. The clause in question commences: “It is further mutually covenanted and agreed.” What? “ That the defendant shall have a license ” on payment of $6,500 per year.

To this covenant the words of Mr. Justice Gridley in Richards v. Edick apply: “When the defendant signed the agreement there was a promise to pay for the license; the consideration expressed was as clearly implied as though it were expressed in words.”

The tenth clause of the agreement strongly confirms the view that this construction was the one intended by the parties. It is there provided that in the “ event of the business of the company being terminated by circumstances over which the officers and directors have no control, this contract shall be null and void, and the license to use the inventions above referred to shall cease.”

If the defendants had the option to use the invention or not as they pleased and were only obliged to pay when they used it, the provision would be entirely unnecessary.

I am of the opinion therefore that the defendants were liable to the plaintiff whether they used the invention or not, and that the complaint set up a good cause of action.

I think therefore that the judgment should be reversed and judgment ordered for the plaintiff as demanded in the complaint. Judgment and order affirmed, with costs.