Shaw v. E. I. DuPont De Nemours & Co.

• Decision Date: 06 October 1964
• Docket Number: Nos. 66,67,s. 66
• Citation: 204 A.2d 159,124 Vt. 304
• Court: Vermont Supreme Court
• Parties: , 143 U.S.P.Q. 169 Gilbert SHAW, Polymers, Inc. v. E. I. DuPONT DE NEMOURS & CO.

Page 159

204 A.2d 159

124 Vt. 304, 143 U.S.P.Q. 169

Gilbert SHAW, Polymers, Inc. v. E. I. DuPONT DE NEMOURS & CO.

Nos. 66, 67.

Supreme Court of Vermont.

Oct. 6, 1964.

Conley & Foote, Middlebury, for both plaintiffs.

Granville M. Pine and John A. Diaz, New York City, on the brief for plaintiff Shaw.

Black & Plante, White River Jct., Raffaele M. Terino, White River Jct., on the brief for defendant.

Before HOLDEN, C. J., and SHANGRAW, BARNEY, SMITH and SYLVESTER, JJ.

HOLDEN, Chief Justice.

This action is contract is based on a patent license agreement between the plaintiff Gilbert Shaw and the defendant. The licensing contract contained, among other things, a promise designed to protect the plaintiff Polymers, Inc. under a license previously issued to that corporation by the plaintiff Shaw. It is with this aspect of the defendant's undertaking that we are principally concerned.

The defendant challenged the plaintiffs' complaint in this respect contending that it fails to state a cause of action. The question was raised in a motion to dismiss heard by the court before trial. In response to the motion, the trial court dismissed the complaint as to the plaintiff Shaw but retained the cause in behalf of Polymers, Inc. Shaw appealed from the order dismissing his complaint. In a cross-appeal under 12 V.S.A. § 2428, the defendant has procured certification of the failure of the court to dismiss the action of Polymers.

The complaint alleges that the plaintiff Shaw is the sole owner of U. S. Patent No. 2,637,893 which expires May 12, 1970. Sometime prior to June 1955 Shaw granted a sole and exclusive license to the plaintiff Polymers to make, vend and sell under this patent, filaments having a cross-sectional dimension greater than 5 mils. This license was in full force and effect at the time the present action was instituted.

After the Polymers license was granted, Shaw issued a license to the defendant on June 25, 1955, authorizing that licensee to manufacture, use and sell filaments having a maximum cross-sectional dimension of less than 5 mils. The complaint tells us that this was a paid-up royalty-free license granted under the same patent as the Shaw license but for a smaller dimension. The protection for the benefit of Polymers was introduced by way of a promise on the part of the defendant that it would not make filaments of greater dimension than 5 mils. It is alleged that the plaintiff Shaw has performed all the conditions of this agreement but the defendant has violated its agreement by making and selling flaments under the patent which have a greater cross-sectional dimension than 5 mils, thus exceeding its license. Joining in a common complaint, the plaintiffs seek to recover damages arising from this alleged breach of the license agreement.

The narrow question presented by Shaw's appeal is his right as a promisee to participate in the present controversy. The defendant's promise was extended to this plaintiff alone. The consideration for the defendant's undertaking moved from Shaw to the defendant. As promisee his right to maintain this action has been firmly established in the common law. Powers v. New England Fire Insurance Co., 69 Vt. 494, 495, 38 A. 148. His standing is not destroyed by the fact that Polymers, a stranger to the contract, may have such an interest that it will be entitled to the proceeds of any judgment which might be recovered. The beneficiary's interest can be protected in the final judgment both at law and in equity. And there is sufficient protection for the promisor since satisfaction by him, in whole or in part, of his obligation to the promisee, will relieve him to that extent from subsequent payment to the beneficiary. Powers v. New England Fire Insurance Co., supra, 69 Vt. 496, 38 A. 148; 2 Williston, Contracts, § 392 (3rd Ed.). Shaw had adequate standing to enforce the defendant's undertaking. His complaint was erroneously dismissed.

The error was not cured by concessions made at the time of hearing. At that time court and counsel correctly treated the defendant's motion to dismiss as in the nature of a demurrer. Price v. Rowell, 121 Vt. 393, 395, 159 A.2d 622; Kaeser v. Town of Starksboro, 116 Vt. 389, 391, 77 A.2d 831. On the motion presented, only the substance of the complaint can be considered. State v. Verham News Corp., 121 Vt. 269, 272, 155 A.2d 872; Theberge v. Canadian Pacific Railway Co., 119 Vt. 193, 197, 122 A.2d 848; Duplis v. Rutland Aerie No. 1001, Fraternal Order of Eagles, 118 Vt. 438, 439, 111 A.2d 727. This rule is not varied nor avoided by concessions of counsel made at the time of hearing. Powell & Powell v. Greenleaf & Currier, 103 Vt. 46, 48, 151 A. 508; Howard National Bank v. Fidelity & Casualty Co., 96 Vt. 462, 468, 121 A. 24.

In any event, the concession which the defendant relies upon indicates only that Shaw conceded that his co-plaintiff was entitled to the proceeds recovered. This did not constitute a surrender of his interest in the action nor his right to maintain the suit for the benefit of his licensee or for himself as their interest might appear.

The question presented by the defendant's cross-appeal is limited to the right of Polymers, Inc. as a third party beneficiary to maintain this action in law. The defendant challenges Polymers' standing on the strength of the early common law rule that the legal interest in a contract is in him to whom the promise is made and from whom the consideration moves as enunciated in Fugure v. Mutual Society of St. Joseph, 46 Vt. 362, 369, decided in 1873. Under this doctrine only the promisee or his legal representative could maintain an action on a contract made for the benefit of a stranger. The want of privity was a fatal defect.

Since Judge Redfield's decision in Fugure, the right of the beneficiary to maintain an action on a contract made for his benefit has been expanded by judicial decision and legislation to the point where it is the prevailing rule in this country. See Seaver v. Ransom, 224 N.Y. 233, 120 N.E. 639, 2 A.L.R. 1187, 1189; 2 Williston, Contracts § 368 (3rd Ed.); 2 Street, Foundation of Legal Liability, p. 152.

The trend in Vermont has followed the same pattern. Here, as elsewhere, the denial of the right became so obviously unsatisfactory that we have strained to recognize exceptional circumstances to avoid the harshness of the common law rule. See, Crampton v. Ballard's Adm'r, 10 Vt. 251, 253; Hall v. Huntoon, 17 Vt. 244, 251, 44 Am.Dec. 332; Phelps Dodge & Co. v. C. B. Conant & Co., 30 Vt. 277, 284; Coleman v. Whitney, 62 Vt. 123, 127, 20 A. 322, 9 L.R.A. 517. Hodges v. Phelps, 65 Vt. 303, 308, 26 A. 625; Standard Register Co. v. Greenberg, 120 Vt. 112, 132 A.2d 174. In Green v. McDonald, 75 Vt. 93, 97, 53 A. 332, which the defendant cites with reliance, the court by way of dictum, gave lip service to the minority rule. At the same time, it reached out to adopt a discordant application of the...