Arcturus Radio Tube Co. v. Radio Corp., of America

• Decision Date: 22 March 1935
• Citation: 177 A. 899,20 Del.Ch. 376
• Court: Court of Chancery of Delaware
• Parties: ARCTURUS RADIO TUBE COMPANY, a corporation of the State of Delaware, v. RADIO CORPORATION OF AMERICA, a corporation of the State of Delaware

177 A. 899

20 Del.Ch. 376

ARCTURUS RADIO TUBE COMPANY, a corporation of the State of Delaware, v. RADIO CORPORATION OF AMERICA, a corporation of the State of Delaware

Court of Chancery of Delaware, New Castle

March 22, 1935

INJUNCTION BILL to restrain action at law and for reformation of contract. In 1927 the complainant, together with certain other companies engaged in the manufacture of radio vacuum tubes, filed a joint bill in equity in the United States Court for the District of Delaware against the defendant charging it with a violation of the anti-trust laws (15 USCA § 1, et seq.) and praying for an injunction restraining the defendant from enforcing a certain clause in its uniform license agreements by which the licensees were required to purchase from the defendant all radio vacuum tubes used by the licensees in the radio sets manufactured by them.

The defendant was permanently enjoined by the court from enforcing the objectionable clause.

Thereafter the complainant and some fifteen other radio tube manufacturers brought several suits against the defendant for treble damages under the Sherman Anti-Trust Act (see 15 USCA § 15, and note).

Negotiations for settlement of these suits were opened and an agreement of settlement was reached. In the terms of the settlement was included a provision by the defendant to enter into a uniform license agreement with each of the settling companies by which the defendant would license each of them to manufacture and sell radio vacuum tubes under the patents controlled by the defendant.

The complainant and the defendant entered into such a license agreement. By its terms the complainant engaged inter alia to pay to the defendant royalties at the rate of five per cent. Section 6 of Article Three of the agreement obligated the complainant to pay the defendant in each calendar year during the life of the agreement minimum royalties of fifty thousand dollars. The license agreement was dated September 18, 1931 and was to continue in force until January 1, 1934. The complainant was given the option upon not less than six months notice prior to January 1, 1934, to extend the life of the agreement until January 1, 1939.

On January 14, 1933, the defendant sued the complainant in the New Jersey Supreme Court to recover royalties for the year 1932 at the rate of five per cent., asserting no claim on the basis of the minimum royalty obligation under Section 6 of Article Three. The controversy in the New Jersey suit turned upon the interpretation of the license agreement as applied to tubes for sets, the defendant here, plaintiff there, contending the five per cent. royalty was taxable on such tubes; the complainant here, defendant there, contending otherwise.

The defendant as plaintiff in the law action suffered a non-suit.

Thereafter on June 26, 1933, the complainant gave notice of its desire to extend the license agreement until January 1, 1939, and the same was thereupon extended.

On July 24, 1933, the defendant instituted a second action at law against the complainant in the New Jersey Supreme Court for the difference between the royalties actually paid by the complainant for 1932 under the five per cent. clause and the fifty thousand dollar minimum specified by Section 6 of Article Three of the agreement.

Thereafter the pending bill was filed. The complainant alleges that notwithstanding the minimum royalty clause is in the contract, yet the parties agreed that it never would be enforced, and that therefore further prosecution of the New Jersey suit in which liability under the minimum royalty clause is asserted against the defendant should be enjoined. The bill also prays that the agreement be reformed by eliminating the questioned clause.

The defendant by its answer denies that it ever agreed that it would never enforce the minimum royalty clause, and avers that the clause is a valid and enforceable term of the agreement.

Heard on bill, answer, oral testimony taken before the Chancellor and exhibits.

Bill dismissed and restraining order dissolved and vacated.

Clarence A. Southerland, of the firm of Ward & Gray, for complainant.

Charles F. Curley, for defendant.

OPINION

THE CHANCELLOR:

Before the hearing of testimony in this case was commenced, I raised the question of the court's jurisdiction. The defendant declined and has since declined to notice the query. Of course the complainant considers the jurisdiction exists. I have concluded that it does not.

1. The first ground on which the complainant relies as sufficient to support the jurisdiction is that of reformation of the contract. It is not pretended that the clause which the complainant seeks to eliminate from the contract is present therein as a result of fraud or mistake. Of course there is no question of accident. Both parties knew the clause was in the contract before it was executed. In fact the complainant refused at first to enter into the agreement unless the clause was eliminated. It claims that it finally accepted the clause on the parol representation by the defendant that the clause would not be enforced; that it was designed for the ulterior purpose of merely supplying the appearance of a burdensome obligation which the defendant, in case irresponsible parties should request from it a similar uniform license, might exhibit as an excuse for not granting the requested license. The clause was thus, the complainant claims, only "window-dressing" and it was so understood.

Granting arguendo this to be true, the fact remains that the so-called window-dressing was deliberately agreed upon by the parties. What right has the complainant now to ask that the defendant be deprived of the potential benefits which the alleged sham appearance of the clause is supposed to confer, benefits which the complainant knowingly and deliberately stipulated that the defendant might enjoy? The enforceability of the clause is one thing. Its elimination from the agreement is another. Where a party with full knowledge of what he is doing, without the inducement of fraud or the misapprehension caused by mutual mistake, enters into a contract, whatever may be his other rights of relief, he is not entitled to the relief of reformation. Albert Co., Inc., v. Newtown Creek Realty Corp., 211 A.D. 1, 206 N.Y.S. 670.

The bill cannot therefore be sustained on the ground of reformation.

2. Can the complainant be permitted to show by parol evidence that the clause of the written contract was agreed by the parties not to be binding? This question was argued at length. It is a question which goes to the terms of the contract. Is the writing the exclusive evidence of the contract's terms or may the writing be supplemented by parol evidence, and the terms of the contract be extracted from both the written agreement and the parol understanding? The complainant contends that the parol agreement is properly receivable in evidence as a separate and distinct agreement because it is one that shows that a part of the written contract, viz., the clause in question, was never a contract between the parties. Thus the case is one that falls within the principle, says the complainant, of the case in the Superior Court of this State of Gluckman v. Gross, New Castle County, in which judgment was refused upon an affidavit of demand, where the affidavit of defense averred that the promissory note sued upon was...