American Photocopy Equipment Co. v. Ampto, Inc.

• Decision Date: 20 February 1964
• Docket Number: No. A--522,A--522
• Citation: 198 A.2d 469,82 N.J.Super. 531
• Parties: , 140 U.S.P.Q. 616 AMERICAN PHOTOCOPY EQUIPMENT COMAPNY, a corporation (substituted as plaintiff- appellant for Copease Manufacturing Co., Inc.), Plaintiff-Appellant, v. AMPTO, INC., a corporation, Defendant-Respondent, and Ampto Equipment Corporation et al., Defendants.
• Court: New Jersey Superior Court — Appellate Division

Page 531

82 N.J.Super. 531

198 A.2d 469, 140 U.S.P.Q. 616

AMERICAN PHOTOCOPY EQUIPMENT COMAPNY, a corporation (substituted as plaintiff- appellant for Copease Manufacturing Co., Inc.), Plaintiff-Appellant, v. AMPTO, INC., a corporation, Defendant-Respondent and Ampto Equipment Corporation et al., Defendants.

No. A--522.

Superior Court of New Jersey Appellate Division.

Argued Nov. 12, 1963.

Decided Feb. 20, 1964.

Alfred C. Clapp, Newark, and William C. Conner, New York City, admitted pro hac vice, for appellant (Clapp & Eisenberg, Newark, attorneys).

Samuel J. Stoll, Jamaica, N.Y., admitted pro hac vice for respondent (Morris, Downing & Sherred, Newton, attorneys, John R. Knox, Newton, of counsel).

Before Judges CONFORD, FREUND and SULLIVAN.

The opinion of the court was delivered by

CONFORD, S.J.A.D.

This is an action to recover royalties under a patent license agreement allegedly entered into by Copease Manufacturing Co., Inc. (Copease), a corporation of the State of New York, and Ampto, Inc. (Ampto), a corporation of the State of New Jersey. The action was originally brought by Copease against Anken Chemical & Film Corp. (Anken) and its two wholly-owned subsidiaries, Ampto and Ampto Equipment Corp. At the pretrial conference, the suit was voluntarily withdrawn, without prejudice as to Anken and Ampto Equipment Corp. American Photocopy Equipment Company (Apeco) is the substituted plaintiff as assignee of the interest of Copease in the license agreement.

The subject matter of the contract in question is U.S. Patent No. 2,657,618, issued to one Walter Eisbein on November 3, 1953. The patent claims invention of a machine designed to develop photocopies according to the diffusion-transfer-reversal process. Copease acquired title to this patent by assignment, and in 1956 granted the license in dispute to Ampto. The royalty provision of the agreement follows:

'2. Licensee agrees to pay a royalty of six percent (6%) of the net retail selling price for each photocopying machine embodying any of said inventions (of the Eisbein patent) and made, used or sold or otherwise disposed of under the provisions of this agreement.'

Ampto has asserted two defenses. First, it disputes the authority of the officer who signed the agreement to bind the defendant corporation. Second, it contends that the photocopy machines it made or sold do not 'embody the inventions' of the Eisbein patent and therefore do not come within the obligating terms of the contract. The trial judge, sitting without a jury, entered judgment for defendant on the latter ground and found it unnecessary to decide the former. Since we find that the machines involved do embody the invention disclosed by the patent in suit, it will be necessary for us to consider the issue as to whether the corporate defendant is bound by the agreement.

I.

Charles E. Hallenborg, president of Copease, testified that negotiations with Ampto for the sale of photocopying machines were initiated by representatives of Ampto in January 1956. At various times Ampto was represented by Mahlon Boyer, an employee of Ampto and vice-president and a director of Anken, Anna C. Campbell, vice-president, treasurer, and a director of Ampto and president and majority shareholder of Anken, and Louis P. Ratti, president and a director of Ampto. Ratti testified that he was at all times opposed to taking a license from Copease and that he never discussed such an arrangement with Hallenborg.

In February 1956 Hallenborg sent a form of license agreement to Boyer. An executed verbatim copy thereof, naming Ampto as the licensee, was returned by Boyer to Copease on March ,, 1956. As returned, this contract form was signed for the licensee by Anna C. Campbell, 'Pres.' It had been prepared by Morris, Downing & Sherred, attorneys for Ampto, and was contained within the form backer of that firm. Willis H. Sherred, a partner in the firm, and secretary and director of Ampto, testified that the Copease form of contract came across his desk, but that he gave it to a secretary to use in preparing the agreement without reading its contents. He stated that he knew at the time that the instrument was a license agreement between Copease and 'some other corporation.' Execution of the disputed agreement was completed on March 19, 1956 with the appending thereon of the signature of Hallenborg on behalf of Copease.

The conduct of the parties following the Copease on March 8, 1956. As returned, significantly upon the issue of defendant's responsibility thereon. The contract called upon Ampto to furnish Copease with annual financial and sales statements. Failing to receive such statements for the first year of the agreement, Hallenborg wrote to Boyer in June 1957 requesting them. In a telephone conversation on August 13, Boyer agreed to comply. Still not having received statements by September 4, Hallenborg telephoned Ratti, who was vague as to his intentions with respect to the license but never questioned its validity. He suggested that Hallenborg call Sherred.

A telephone call to Sherred was made shortly thereafter by William C. Conner, patent attorney for Copease. Conner testified that he complained to Sherred that Copease had received neither royalty payments nor any statement as to how many machines Ampto had sold, as was required under the agreement. Sherred assertedly said he knew of no sales of any machines. Sherred also said, according to Conner, that Ampto was awaiting the outcome of an infringement suit in Illinois in which the validity of the Eisbein patent was at issue (Copease Mfg. Co. v. American Photocopy Equipment Co., 189 F.Supp. 535 (N.D.Ill.1960), reversed in part, 298 F.2d 772 (7 Cir.1961)), and that if the patent was there determined to be invalid Ampto would be absolved of liability for royalties. Conner testified that when he then explained to Sherred that the validity of the patent was not relevant to Ampto's liability under the license agreement, Sherred stated that if Ampto sold the Eisbein machines, it would pay the royalties. Sherred's testimony for defendant, though vague and evasive, was essentially corroborative of Conner's version of the conversation except for the affirmative statement as to intention to pay royalties.

The authority of Mrs. Campbell to execute the license agreement was never questioned by Ampto until it filed its amended answer on January 20, 1960. (This action was instituted March 2, 1959.) At all pertinent times, all of the offices and directorships of Ampto were held by Ratti, Sherred, and Mrs. Campbell. Mrs. Campbell, of course, knew of the agreement from its inception, while Ratti learned of it 'shortly after it was signed.' Sherred, if he did not read the contract when he undertook to prepare the copy for Mrs. Campbell's signature, which strains credulity, became aware of its existence at least in the fall of 1957 when he spoke with Conner. Sherred also testified that the license was discussed at an informal meeting of the directors of Ampto in April of 1957 or 1958.

Since we find that there is no serious dispute over the basic, operative facts, a remand to the trial court for findings of fact on the issue is unnecessary. Nor need we decide whether Mrs. Campbell possessed actual or apparent authority in the matter. We find that the defendant corporation ratified the license contract by acquiescing, through its officers and directors, in what we shall assume, Arguendo, was the unauthorized act of its vice-president.

It is well established that binding ratification of an unauthorized contract by a corporation 'will be implied from acquiescence or the acceptance of the benefits of such contract; it being essential to implied ratification that it and the acceptance of benefits be with knowledge of the facts.' Feist & Feist v. A. & A. Realty Co., 105 N.J.L. 461, 464, 145 A. 478, 479 (E. & A.1929). See also Oliver v. Autographic Register Co., 118 N.J.Eq. 72, 75, 177 A. 680 (Ch.1935), affirmed o.b. 119 N.J.Eq. 481, 183 A. 171 (E. & A.1936); Royal Blue, &c., Inc. v. Delaware River, &c., Inc., 140 N.J.Eq. 19, 23, 52 A.2d 763 (Ch.1947), appeal dismissed, 2 N.J. 73, 65 A.2d 264 (1949); Beach v. Palisade Realty and Amusement Co., 86 N.J.L. 238, 242, 90 A. 1118 (E. & A.1914). In the New Jersey cases, acquiescence has been concomitant with or evidenced by the acceptance of tangibly ascertainable benefits of the contract. E.g., Feist & Feist v. A. & A. Realty Co., supra, 105 N.J.L. 461, 145 A. 478 (defendant corporation accepted rents under realty management contract with plaintiff); Shaten v. American Nat. Bank of Camden, 109 N.J.Eq. 307, 157 A. 128 (Ch.1931) (officers of corporation deposited bonds with bank as collateral for loan; corporation used proceeds of loan to meet payroll). However, evidence of acceptance of benefits is not absolutely required for the general rule is set forth in the disjunctive; either 'acquiescence or the acceptance of benefits' will suffice. See Freeport Journal-Standard Pub. Co. v. Frederick W. Ziv Co., 345 Ill.App. 337, 103 N.E.2d 153 (App.Ct.1952). Since it is the formation of the contract with which the doctrine of ratification is concerned, it is the principal's acceptance of the existence of the contract that is dispositive, not its acceptance of benefits thereunder. The latter circumstance is merely probative of the former, i.e., evidence from which approval can be implied. See 2 Williston, Contracts (3d ed.1959), § 278. It may be here noted that Ampto did in fact enjoy the only benefit contemplated under the license agreement, i.e., liberty to manufacture or sell the patented machine free from suit by Copease for patent infringement.

It is also well established that silence on the part of the corporation, i.e., failure to disaffirm the unauthorized act of its agent within a reasonable time, will under certain circumstances amount to the acquiescence from which ratification will be implied. Royal Blue, &c., Inc. v....