Rosenthal Paper Co. v. Nat'l Folding Box & Paper Co.

• Decision Date: 20 May 1919
• Citation: 123 N.E. 766,226 N.Y. 313
• Court: New York Court of Appeals Court of Appeals
• Parties: ROSENTHAL PAPER CO. v. NATIONAL FOLDING BOX & PAPER CO.

226 N.Y. 313

123 N.E. 766

ROSENTHAL PAPER CO.

v.NATIONAL FOLDING BOX & PAPER CO.

Court of Appeals of New York.

May 20, 1919.

Appeal from Supreme Court, Appellate Division, First Department.

Action by the Rosenthal Paper Company against the National Folding Box & Paper Company. From a judgment of the Appellate Division (175 App. Div. 606,162 N. Y. Supp. 814), which reversed the determination of the Appellate Term (95 Misc. Rep. 235,158 N. Y. Supp. 845), which reversed an order of the City Court, setting aside a verdict for plaintiff and dismissing the complaint, and reinstated such verdict, plaintiff appeals. Judgment of the Appellate Division reversed, and judgment of the Appellate Term affirmed.Joseph A. Arnold, of New York City, for appellant.

Franklin M. Clark, of New York City, for respondent.

COLLIN, J.

The action was for the recovery of royalties for the use of a patent. Originally brought in the City Court of New York City, the jury rendered a verdict for the plaintiff in the sum of $1,840.73. The judgment of the City Court set the verdict aside, upon the ground that it was contrary to law, and dismissed the complaint. The Appellate Term, upon the appeal of the plaintiff, reversed that judgment, reinstated the verdict, and upon it rendered judgment for the plaintiff. The Appellate Division, upon the appeal of the defendant, reversed the determination of the Appellate Term, and affirmed the judgment of the City Court. The Appellate Division permitted the appeal to this court.

The action is based upon a contract in writing of March, 1909, between Isse Seligstein and the defendant. January 22, 1912, Seligstein assigned to the plaintiff here the patent involved (and others), which Seligstein held, not as the inventor, but as the assignee of the inventor, and all of his ‘right, title, and interest in, to, and under’ the contract of March, 1909. Plaintiff instituted this action in virtue of the assignment. The contents of the contract of March, 1909, may be adequately stated as follows:

The ownership of Seligstein of letters patent for the millinery or suit box and the desire of the defendant to acquire the exclusive right to manufacture and sell the box within a designated territory are fecited. Seligstein sells to the company the exclusive right to manufacture and sell the boxes under said patent within the territory, ‘upon the following terms and conditions':

(1) The company ‘agrees to pay Seligstein a royalty of one dollar ($1.00) per thousand boxes up to an average daily sale of twenty (20) thousand boxes per day, per year of 300 days, and on all boxes sold in excess of said twenty (20) thousand boxes per day, per year of 300 days, the said the National Folding Box & Paper Company agrees to pay a royalty of seventy-five cents (75c.) per thousand boxes, but it is expressly understood that the payment by the said the National Folding Box & Paper Company to said Seligstein for the right to manufacture and sell boxes under said letters patent shall not be less than the sum of five hundred dollars ($500.00) for each and every year during the life of this contract.

‘(2) The said Seligstein promises and agrees that he will faithfully protect said letters patent from any and all substantial infringements of said letters patent.

‘(3) The said Seligstein further agrees that during the life of this contract he will not sell within the territory, above described, any box manufactured under said letters patent No. 906,138, nor any other clothing, millinery, or suit box, and further that he will not during the life of this contract sell any rights for any clothing, millinery, or suit box to any one for the territory hereinbefore described.

‘(4) The term of this contract shall be five (5) years from and after the 1st day of March, A. D. 1909. * * *’

The defendant, through the period of five years, made and sold the boxes, and regularly paid, quarter-annually, to Seligstein the royalty of $1 per thousand boxes on all the boxes sold. Those paid royalties aggregated $917.79. The minimum aggregate royalty to be paid for the five years was $2,500; that is, not less than $500 each year. This action is to recover the sum of the difference between those aggregates, with interest.

The City Court set aside the verdict in favor of the plaintiff and dismissed the complaint upon the grounds: (a) Seligstein, by assigning the patent, put it out of his power to perform his agreement to protect the patent from any and all substantial infringements of the letters patent, and, in consequence thereof, the defendant was released from its agreement to pay the royalty; and (b) the defendant did not, by paying royalty throughout the period, waive its right to assert such release, because it did not know of the assignment of the patent until the five years and the contract had expired.

The Appellate Term reversed the order and judgment of the City Court, and reinstated and ordered judgment upon the verdict, upon the ground that the defendant had the full benefit of the contract for its entire period without molestation of any kind.

The Appellate Division reversed the determination of the Appellate Term and affirmed the order of the City Court, upon the grounds: (a) The agreement of the defendant to pay the minimum royalty and the agreement of Seligstein to protect the patent were concurrent and dependent. When Seligstein assigned the patent, he put it out of his power to protect the patent (because the owner of the patent alone had a standing to sue on account of an infringement), and therein and thereby committed a breach of the contract which relieved the defendant from the obligation of full performance on its part. (b) Defendant did not waive this breach, because, in the first place, it was ignorant of it, and, in the second place, plaintiff's complaint alleges full performance by Seligstein of this agreement; and (c) the contract was personal to Seligstein and unassignable.

[1] We take up first the question whether or not the agreement of the defendant to pay the minimum royalty and the agreements of Seligstein to protect the letters patent from substantial infringement, and to refrain from selling, within the designated territory, any box manufactured under the patent, or any rights for any clothing, millinery, or suit box to any one for the territory were dependent or independent of each other. In Kingston v. Preston, cited at the bar in Jones v. Barkley, 2 Douglas, 684, Lord Mansfield expressed himself to the following effect:

‘There are three kinds of covenants: (1) Such as are called mutual and independent, where either party may recover damages from the other, for the injury he may have received by a breach of the covenants in his favor, and where it is no excuse for the defendant, to allege a breach of the covenants on the part of the plaintiff. (2) There are covenants which are conditions and dependent, in which the performance of one depends on the prior performance of another, and therefore, till this prior condition is performed, the other party is not liable to an action on his covenant. (3) There is also a third sort of covenants, which are mutual conditions to be performed at the same time; and in these, if one party was ready and offered to perform his part, and the other neglected or refused to perform his, he who was ready, and offered, has fulfilled his engagement, and may maintain an action for the default of the other; though it is not certain that either is obliged to do the first act.’

The complexities of modern industrial and commercial transactions have not rendered the classification inaccurate or inadequate. By a long series of decisions, the rule has been established that the question whether covenants are to be held dependent or independent of each other is to be determined by the intention and meaning of the parties, as expressed by them, and by the application of common sense to each case submitted for adjudication. Stavers v. Curling, 3 Bingham's N. C. 355; Tipton v. Feitner, 20 N. Y. 423;Pollak v. Brush Electric Association, 128 U. S. 446, 9 Sup. Ct. 119, 32 L. Ed. 474;Loud v. Pomona Land & Water Co., 153 U. S. 564, 14 Sup. Ct. 928, 38 L. Ed. 822;Griggs v. Moors, 168 Mass. 354, 47 N. E. 128; Leonard v. Dyer, 26 Conn. 172, 68 Am. Dec. 382. The efforts put forth in judicial opinions and by text-writers to define or formulate the distinctions of dependence and independence of promises or covenants have revealed their comparative futility and served, in the main, to strengthen the rule. Parties have the right to contract as they will for any lawful purpose, and the problem for the courts is to ascertain, in accordance with established rules of interpretation, the real contract or agreement. If they make their promises dependent or independent throughout, or dependent in part and independent in part, it is not for the courts to thwart them. Their expressed intention and meaning, ascertained from the whole instrument, rather than from technical or conventional expressions, are the guides in determining the character and force of their respective covenants.

In the contract under consideration the intention of the parties is not obscure. They contemplated that the letters patent prohibited to all persons except Seligstein, in the absence of his authorization, the manufacture and sale or the manufacture or sale of any box incorporating the patented invention or inventions and that the contract secured to the defendant the exclusive right, as against the whole world, to manufacture and sell, within the prescribed territory, the box. This exclusive right the defendant sought and Seligstein sold to it. The continued exclusiveness of the right throughoutthe period of five years was the root of the transaction. The defendant, presumably, could not, in the intention of the parties, pay Seligstein for the right to manufacture and sell a product which others, without price, were manufacturing and...