
    CHARLES R. JOHNSON, Appellant v. THE UNION SWITCH AND SIGNAL COMPANY, Respondent.
    
      Option, or executed transfer—Contract, construction of as to—Promise to use, when not implied.
    
    Whether certain phrases used in a contract such as “ sells to, etc.”, or “agrees to sell, etc,” are to be regarded as importing an absolute sale or a mere agreement to sell is to be determined by the tenor and purpose of the whole instrument.
    In the case at bar a clause in the agreement between the plaintiff and defendant that in the event of the termination of the agreement the defendant “shall have a license to use all of the inventions, etc,” on the payment of a certain sum per year to be paid quarterly.
    
      Held, (1). That the phrase “ shall have a license” in view of the tenor and purpose of the whole instrument did not provide for an executed license but only for an option which the defendant might avail itself of upon paying the stipulated sum.
    (2.) That a complaint founded upon a claimed cause of action under the above mentioned clause, which did not allege that defendant had exercised the option and used the inventions or some of them was demurrable.
    (3.) That there being nothing in the agreement that indicated that defendant was bound to use the inventions, a promise to use cannot be implied.
    Before Sedgwick, Ch. J.,Fbeedman and Ingbaham, JJ.
    
      Decided April 7, 1890.
    Appeal from interlocutory judgment and order substaining defendant’s demurrer to complaint.
    The action was founded on the eighth clause in the following agreement: “ This Indenture, made the day of 1885, between Henry Johnson, of Flixton, near the city of Manchester, in the county of Lancaster, engineer, of the one part, and Charles Roberts Johnson, of the city of New York, in the state of New York, in the United States of America, engineer, of the other part.
    “ Whereas, the said Henry Johnson did obtain and now owns certain Letters Patent of the said United States for a Liquid Wire' Compensator which were issued and dated the 20th day of June, 1882, and are numbered 259, 865, and also Letters Patent of the Dominion of Canada for the same invention, which were issued on the same day, and are numbered 20,555, and also certain other Letters Patent of the said United States for a Railway Signal, which were issued and dated the 11th day of March, 1884, and are numbered 294,880, and also other Letters Patent of the said United States for a Rod and Pipe Compensator, which were issued and dated the 23d day of December, 1884, and are numbered 309,627.
    “ And whereas, the said Henry Johnson hath agreed to grant to the said Charles Roberts Johnson an exclusive license to make, use, sell and in any way deal with in the said United States and Dominion of Canada respectively, all and every the said several inventions or any and all other or further patents for improvements of or in any way relating to the said several patents now or to be hereafter obtained by the said Henry Johnson upon the terms hereinafter expressed.
    “ Now this indenture witnesseth, that in consideration of the reservations and covenants hereinafter contained, the said Henry Johnson, as beneficial owner, hereby grants unto the said Charles Rob - erts Johnson the sole and exclusive license and authority to make, use, sell, and in any way deal with all and every the said several inventions and further patents now to be hereafter obtained as aforesaid within the said United States and Dominion of Canada, to hold the same unto the said Charles Roberts Johnson, his executors, administrators and assigns, for all the remainder, now unexpired, of the term granted by the said Letters Patent, yielding and paying to the said Henry Johnson, his executors administrators and assigns on the usual quarter days in England in each year, one half part or share of the net royalties and of the net proceeds of sale received by him from sale or user of the herein-before mentioned patented inventions under and by virtue of the license hereby granted during the three months preceding each such quarterly payment. Provided, always, that in case the total amounts of the said quarterly amounts to be received by the said Henry Johnson from the sale or use of each of the said patented inventions shall in any year ending on the 31st day of December be less than the sums following, that is to say, five hundred pounds in any one year, then it shall be lawful for the said Henry Johnson, his executors, administrators and assigns, at any time after the discovery of such deficiency by notice in writing sent by post to the said Charles Roberts Johnson to his last known address, to put an end to the license hereby granted. And the said Charles Roberts Johnson hereby covenants with the said Henry Johnson that the said Charles Roberts Johnson, his executors, administrators and assigns, will pay the sums of money hereinbefore reserved and made payable at the times and in the manner aforesaid. And also will at all times keep correct and true books of account wherein shall be entered particulars of all machines manufactured, used, sold or disposed of in any way by him under and by virtue of these presents, the names and addresses of the persons or firms to whom the same have been sold or disposed of, and all other necessary particulars and of all sum and sums of. money received and paid by him, the said Charles Roberts Johnson by virtue of this license, and such books shall be open to inspection by the said Henry Johnson or any person by him authorized and that he, the said Charles Roberts Johnson, will at the end of each quarter aforesaid, furnish to the said Henry Johnson, his executors, administrators and his assigns, a true and correct account of all such sums received during the then preceding three months, and will also furnish to him or them all . such information as shall be required in order to test the accuracy of the said list, and will (if required) verify the same by statutory declaration : Provided always, that if default shall be made in payment- of the sum or sums of money payable under the foregoing reservation for the space of two months after the time hereby appointed for such payment, or if any breach shall be committed of the covenants hereinbefore contained, then and in éither of such cases the said Henry Johnson, his executors, administrators or assigns, may, by notice in writing given to the said Charles Roberts Johnson, his executors, administrators or assigns, or one of them, or sent to him or them by registered letter at his, their or one of their usual or last known place or places of abode in the said United States or Dominion of Canada, declare the license hereby granted to be void and the same shall be void accordingly. And also, that the said Henry Johnson, his executors, administrators or assigns, will not at any time during the continuance of these presents, exercise or use or authorize others to exercise or use the said inventions within the said United States or Dominion of Canada, without the consent in writing of the said Charles Roberts Johnson, his executors, administrators or assigns, first had and obtained: Provided, that if any infringement of the said patents shall be committed or threatened by any person or persons within the said United States or Dominion of Canada, and proceedings are taken against the person or persons so infringing or threatening to infringe the said patents, for the purpose of recovering damages or for the purpose of restraining such infringements as shall or may be reasonably required, they the said Henry Johnson and Charles Roberts Johnson, their executors, administrators and assigns, will pay all costs, charges and expenses attending or incidental to such proceedings as aforesaid in equal shares.”
    There was no allegation in the complaint that defendant, alter the termination of the contract in the complaint set forth, had used the patents and inventions theretofore used by it in its business, or any of them.
    The other facts sufficiently appear in the opinion.
    
      Miller & Savage, attorneys, and George W. Miller, of counsel, for appellant, among other things, argued :—
    The particular or real ground of demurrer urged was and is that the complaint did not allege “ that the defendant has used his privilege or any equivalent averment.” The court below seems to have treated the instrument as merely granting an option to defendant to use or not to use the inventions, etc. That is, this would seem to be so from the conclusion arrived at ; and the statement that the contract “ merely grants defendant a privilege.” Certainly it does grant a privilege. A privilege is a license. But when one party grants a license or a privilege to another for which the other agrees to pay a fixed sum, is it necessary to a recovery of that sum to allege or prove that the party has actually used his license or privilege ? It is respectfully submitted that such is not the law. Licenses to use patented inventions are often made in such a way as to necessitate the allegation and proof of use, and the extent of such use, in an action for royalties. That is the case where the royalty provided to be. paid is specific and made to depend upon the usé, and the extent of such use. But licenses of the other kind, such as the one in question, are equally common and lawful. They simply grant the right to use, and the payments or royalties to be paid do not depend upon the use nor the extent of the use. By the “ Third ” and “ Eighth ” clauses of the instrument defendant acquired an absolute executed license to use, etc., the inventions, etc., named, not merely an option to use if it elected or chose tó do so, and no payment to be made except when used. There is nothing in the writing which will bear such a construction. The only option is in the last part of the clause, that relating to purchase.
    It is submitted that the "words of the contract are plain and free from uncertainty ; but even if any uncertainty existed, it is a well-settled rule that, “ where there is any uncertainty in the words of a contract the court will not adopt that construction which puts one party at the mercy of the other.” Rupell v. Allerton, 108 N. Y. 288. “A contract is to be fairly and reasonably construed, with a view of carrying out the intent of the parties.” Crook v. Rindskop, 105 N. Y. 476. The only event in which it is specially provided that the license shall cease, etc., is found in the “ Tenth ” clause of the contract. If it is necessary to allege use by defendant, when and what use and during what time must the use be alleged to have been made ? The complaint does allege that both parties acted upon the entire contract up to March 1, 1888. It may very well be doubted whether the complaint would not have been quite sufficient if it had merely set forth the agreement and that the sum claimed, $1,625, had become due and payable and was unpaid for the Quarter commencing September 1, and ending December 1, 1888. Bogardus v. N. Y. Life Insurance Co., 101 N. Y. 337 ; Brown v. Champlin, 66 lb. 214. It seems almost useless to refer to authority to sustain the proposition that the instrument in question was' an executed license. Reference is made, however, only to Curtis on Patents, §§ 212, 213, and the same author at section 215, says : “If, by his agreement, the licensee has admitted that the process or thing which he uses is the patented process or thing, and he is afterwards proceeded against for not complying with, the terms of his agreement, he will not be permitted to show that he did not use that patented process or thing,” etc.
    
      Carter, Hughes & Cravath, attorneys, Paul D. Cravath and John W. Houston of counsel, for respondent, made the following points :—
    I. It cannot be contended that there is an express promise on the part of the defendant to purchase and pay for a license.
    II. There is no promise implied inlaw to purchase the license. There are, properly speaking, but few instances of covenants or promises implied in law. These few instances are where the law has, from the mere use of certain words in an instrument by a grantor, covenantor or promisor, imposed a correlative duty on the part of the grantee, covenantee or promisee to do or perform something on his part. Familiar illustrations are the words, “ give,” “grant ” and “ demise ” in deeds and leases. All of these words have a highly technical meaning, and the rules applicable to them do not apply to the ordinary language used in contracts.
    III. It is not neccessary to find an implied promise on the part of the defendant, in order to sustain or give validity to the contract. Hudson Canal Co v. Pennsylvania Coal Co., 8 Wall. 276,289.
    IV. The rule which favors construing language as a covenant or promise rather than as a condition has no application to this case.
    V. The promise of the defendant, if any, must be contained in the contract as a necessary inference, just as if it had been set forth expressly.
    VI. When a contract, as in this case, is technically and formally drawn, with recitals and separate covenants or promises, no covenant or promise will be implied unless the implication is clear and necessary. This rule is forcibly illustrated in Hudson Canal Co. v. Pennsylvania Coal Co., 8 Wall. 276 ; Aspdin v. Austin, 5 Q. B. 671 ; Dun v. Sayles, 5 lb. 685.
    VII. Even if the words used, standing alone, could, if unexplained, by some means be construed to imply a promise on the part of the defendant, the context clearly shows that a mere offer and nothing more was intended.
    VIII. The failure of section eight to fix any time during which the non-exclusive license therein provided for is to continue' shows that no executed license was intended.
   By the Court.—Freedman, J.

In construing the contract between the parties as a whole, the 8th 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 non-exclusive license, imperatively calls for that conclusion under all the circum - stances. There is no indication anywhere that it was the intention of the parties that the license should continue for the time the contract would have run, if it had not been terminated, and there is no logical connection between the duration of the license and the time fixed for the duration of the contract. 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 the 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 section eight 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.

Sedgwick, Ch. J., (concurring).

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 ‘ William H. Brown sells,’ etc., imports 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 “byreason 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 grant 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 to refer to the last antecedent, that is, that the payment refers to “ to use,” and the further rule is that the antecedent being ascertained, it must be read in the relative clause, that is, that the payment is to be for the use.

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 defendant was bound to use the inventions.

'Ingkaham, J., (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 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. No 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 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 Rolling 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 enforce 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 will 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 $5 per toil, 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 defendant’s forge.

In Richards v. Edick, 17 Barb. 263, the plaintiff agreed to sell his farm for and in consideration of $1,700 but there was no express agreement by defendant to buy or pay for the farm. It was held that “ when Richards agrees to sell his farm to Edick for $1,700, and two hundred and forty acres of land in Illinois, and Edick signs the agreement, there is a promise to purchase and pay for the farm; the consideration expressed is as clearly implied as though it were expressed in w'ords. It is not merely a promise made by one paity to the other, but it was an agreement made by both and binding upon both by every principle of law and morality applicable to the construction of contracts and this case is cited with approval in Baldwin v. Humphrey, 44 N. Y. 615, where the same principle is applied.

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 G-bidley 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 defendant had the option to use the invention or not as it pleased and was only obliged to pay when it used, it, the provision would be entirely unnecessary.

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

I think, therefore, that the judgment should be erversed and judgment ordered for the plaintiff as demanded in the complaint.  