Johnson v. Union Switch & Signal Co.

Earl, J. In September, 1886, the plaintiff and defendant entered into a written contract whereby he became its manager at a salary of $5,000 per year, and gave it the exclusive right to use all the inventions relating to the signal business which he or Henry Johnson then had or might thereafter make or acquire, and it agreed to pay for the use of such inventions the sum of $3,000 per annum. In addition to these compensations for patents and salary, it further agreed to pay him ten per cent of its net profits. Then in the seventh clause of the contract it was provided as folfows: “ It is mutually agreed that this contract shall continue for a period of ten years, subject to termination by — 627 — either party, however, by one year’s notice (in writing) to the other party at any time after the second year, or by the death of Charles R. Johnson, or by his permanent inability to perform his duties as general manager.” The “ termination” here spoken of is of the entire contract, and after such termination all parts of the contract would cease to have further operation, and no other ternination was contemplated by the parties. Except by his death or permanent inability, the contract could not be terminated in less than three years. The right to use the inventions given in the third clause of the contract was intended to be co-extensive with the stipulated time of service of the plaintiff as the ten per cent, of net profits was to be paid to him, not for service alone, and not alone for the use of the inventions, but for both. I can perceive no reason for supposing that the parties intended that the right to use the inventions provided for in the third clause should survive the termination of the contract as specified in the seventh clause. Upon the termination of the contract as specified in the seventh clause, the parties were to be brought into new relations by the operation of the eighth clause, which is as follows : “ It is further mutually covenanted and 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 sixty-five hundred dollars per year, said sum to be paid quarterly, and shall be entitled to purchase from the said Charles R. Johnson, or 'his executors, the exclusive right to use all of the inventions upon as favorable terms as he or his executors may be willing to grant to any other parties.” This clause was to have operation only after the termination of the contract, of the whole contract and all the stipu — 628 — lations therein contained as embodied in the prior seven subdivisions thereof. It was intended to secure to the defendant some advantage on account of the expenditures made by it “ during the continuance of the agreement,” that is, during the continuance of the agreement by its terms. The “ termination ” which the parties had in mind was the same termination spoken of in the prior clause. It is entirely improbable that they meant any other termination of the agreement than those they had just provided for, and which were then in their contemplation. If they had meant to embrace in the language used by them a termination of the agreement by a breach thereof, it is probable that they would have used some language appropriate to express that meaning. A breach by one party to a contract signed by two parties containing mutual stipulations does not terminate the contract unless the other party assents thereto. The obligation of the contract remains, and in a proper case the other party can enforce specific performance thereof, and if it be a case in which specific performance cannot be had he may recover his damages for a breach in an action at law, and the damages thus recovered will stand in lieu of performance. If the plaintiff’s contention be right that this contract could be terminated by a breach thereof, then the plaintiff could have terminated the same at any time by a breach on his part, and could thus have put the eighth clause in operation and could thus place himself upon his construction thereof, in a position to recover the amount stipulated therein at the end of every quarter. The action in such a case to recover the amount stipulated would not be founded upon the broken contract, but upon the contract which came into operation upon the termination of the broken contract. The parties certainly could not have contemplated that the language used by them should place them in such a position. We are, therefore, of opinion that the contract between the parties was not terminated and that therefore the eighth — 629 — clause did not come into operation, and that this action based thereon cannot be maintained. But there is still a further answer to this action which is at least equally obvious and satisfactory, even upon the assumption that the contract had been terminated by a breach thereof on the part of the defendant. The claim of the plaintiff is that upon the termination of the contract the defendant became absolutely bound to pay him for the license to use the inventions the sum of $6,500 per year during at least the whole of the ten years mentioned in the seventh clause of the contract, whether it used the inventions or not; and I do not perceive from any language used in clause eighth any reason for limiting the obligation of the defendant, if it exists, to any period of time less than the life of the patent; and thus upon the plaintiff’s construction of the clause an extraordinary burden rests upon the defendant, and the intention to impose it on the one side and to assume it on the other should be clearly found in the language used. Upon the plaintiff’s contention, for what was the $6,500 to be paid ? Not for any exclusive license to use the inventions for any time or at any place, for the plaintiff might license, and had the right to license, any and all persons to use them at all times and places, and in the same business carried on by the defendant. «By the payment of $6,500 the defendant could procure no monopoly at any time or place and no advantage whatever over any competitor or any other person to whom the plaintiff might give a license to use his inventions. Can it be believed that the officers of the defendant, looking after its interests, could have intended to bind it to pay this large sum of money for a series of years, without securing to it any monopoly or exclusive advantage whatever? Such an extraordinary responsibility should be imposed upon the defendant only by very clear and plain language showing that such was the intention. The language used shows quite plainly that such was not — 630 — the intention of the parties.' The defendant did not bind itself to take a license, or to use the inventions. The effect of the eighth clause is to secure to the defendant the right to use the inventions upon the payment of the sum stipulated. It did not bind itself to use the inventions or to pay for their use unless it did use them. It was cleárly optional with it.to use or not to use them ; but in case it did take a license to use them then it was to pay the stipulated sum. It was to have the option “ by reason of expenditures that shall have been made during the continuance” of the agreement. It was a privilege secured to it to indemnify itself against such expenditures; and as it was optional with it, the term and duration of the license were not specified. They were left to be arranged when the time came for the use of the inventions by it, and then it could stipulate as to the places where and the time during which, and the terms upon which, the inventions were to be used. It was to have the privilege, if it desired, to use the inventions, and also to purchase them upon as favorable terms as the plaintiff might be willing to grant to other parties. There is no allegation in the complaint that the defendant ever exercised its option to take any license, or to use any invention of the plaintiff’s. There is not even an allegation in the complaint that during the quarter commencing on the 1st day of December, 1888, and ending on the 1st day of March, 1889, for which the stipulated compensation is claimed in this action, the defendant used any of the inventions. The defendant in its answer denied that it did use them, and there was no evidence whatever showing that during that time it used any of the inventions ; and more than this, the learned counsel for the plaintiff does not claim in his brief submitted to us that the defendant used the inventions during that time, or that there was any evidence that it did. He plants the plaintiff’s case upon the broad ground that he has the right to recover in this action without any evidence whatever that the defendant used the inventions and whether it used them — 631 — or not. As it was optional with the defendant to accept a license and use these inventions, it could be liable, under its agreement, for their use, only during the time when it actually used them. The plaintiff testified that at the time of the breach of the contract on the part of the defendant he had an interview with its president, in which he said: “ Of course, you will pay me the $6,500 a year royalty,” and the president answered : “ Yes ; oh yes, we shall pay the royalties.” These declarations of the defendant’s president are not, and are not claimed by plaintiff’s counsel to be important in tins case. There is no proof whatever that he had any authority to exercise the option on the part of the defendant, and even if he did have, the language does not import that the defendant would pay the royalties for an indefinite time in the future or for the whole term of ten years, or for the life of the patent. All that can he fairly inferred from the language used is that he would pay the royalties for the use of the patents so long as the defendant used them, and so far as the evidence in this case discloses the facts, it has paid the royalties during the time it used the inventions. The view I take of this contract and of the rights of these parties can work no injustice whatever to the plaintiff. He is left with the absolute control of his inventions, and if the defendant shall use them without his license it can be prosecuted for infringement of his patents. If it has any rights still subsisting under the eighth clause, it can use the inventions only upon payment of the large compensation stipulated, and then it can use them only in common with every other person whom the plaintiff may also choose to license as its competitors. We are, therefore, of opinion that the judgment should be affirmed, with costs.