Case Name: James J. Ebert, Respondent, v. Max Loewenstein, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1899-06
Citations: 42 A.D. 109
Docket Number: 
Parties: James J. Ebert, Respondent, v. Max Loewenstein, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 42
Pages: 109–116

Head Matter:
James J. Ebert, Respondent, v. Max Loewenstein, Appellant.
License — when the licensee is not absolutely bound to pay a certain amount in royalties, whether earned or not, but may, by so doing, continue his license.
A contract granting the exclusive license to manufacture and sell an invention required the licensee to pay to the inventor a royalty of five cents upon each article manufactured, and provided : “ It is further agreed hy the party of the second part that the royalties he shall pay unto the party of the first part, the above rate, shall amount in the aggregate each separate year to at least three thousand dollars ($3,000), and should the accumulated royalties, at the royalty named, not reach the sum of three thousand dollars, the party of the second part be entitled to continue this license by making up the deficit by payment of cash.”
Held, that the licensee was not under an absolute obligation to pay the inventor the minimum sum of §3,000 each year, and, should the amount of royalties actually earned fall short of that sum, to make good the deficit, but that he enjoyed under the license the option, in case the royalties did not aggregate §3,000, to continue the license by paying the deficiency;
That this construction of the contract was strengthened by a subsequent clause of the contract conferring upon the inventor the right to terminate the contract upon thirty days’ notice if. the aggregate income of the inventor should be less than 83,000.
Patterson, J., dissented.
Appeal by the defendant, Max Loewenstein, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 7th day of January, 1899, upon the verdict of á jury rendered by direction of the court, and also from an order bearing date the 18th day of January, 1899, and entered in said clerk’s office, denying the defendant’s motion for a new trial made upon the minutes.
Emanuel Blumenstiel, for the appellant.
G. A. Seixas, for the respondent.

Opinion:
Rumsey, J.:
On the 24th of September, 1894, the parties to this action made a contract, reciting that the plaintiff was in possession of a certain invention for which he had made application for letters patent, and that the defendant desired to secure the exclusive license to manufacture and sell the invention throughout the United States. For the purpose of carrying into effect the desire of the defendant, it was agreed that the plaintiff should grant to him the exclusive right and privilege to manufacture and sell the invention throughout the United States, which the defendant agreed to do. The defendant further agreed to keep books of account of the articles manufactured and sold and render monthly statements,,, and to pay to the plaintiff at the-time of the rendition of each statement a royalty of five cents upon each article manufactured. The contract contained the following provision : "It is further agreed by the party, of the second part that the royalties he sliall pay unto the. party of the first part, the above rate, shall amount.in the aggregrate each separate year to at least Three Thousand Dollars ($3,000), and should the accumulated royalties at the royalty named not reach the sum of Three Thousand Dollars, the party of the second part be entitled to continue- this license by making up the deficit by payment of cash." As the result of the first year's business the royalties amounted to $574.70 and no more, and this action was brought to recover the difference between that sum and the sum of $3,000, which it was claimed the defendant agreed to pay, by the terms of the contract quoted above: It was held by the learned justice at Trial Term that the clause of the contract above quoted was an absolute agreement on the part of the defendant not only that the royalties should amount in each year to $3,000, but that he would pay to the plaintiff the difference between the royalties actually received and that sum. The correctness of this ruling is the only question presented upon this appeal.
The royalty for each article manufactured was to be five cents, and that sum the defendant agreed to pay to the plaintiff by the express terms of the contract. It was clearly the ' desire of the plaintiff to obtain an income of at least $3,000 a year out of his royalties; but the amount of royalties to be paid was not fixed at that sum, and there is no express agreement on the part of the defendant to pay it. There is no provision in the contract that, if the royalties did not reach that sum and the deficit for any year should be made up by the defendant, he should be at liberty to credit the excess of payment made in any one year upon subsequent royalties. So that if the contract is to be construed as claimed by the plaintiff, it would require the defendant not only to manufacture the articles and assume the risk of putting them upon the market and finding that they, were desirable, but,.in doing so, to practically subject himself td a penalty of a considerable amount in case the parties to the contract should be mistaken as to the desirability of the article. This is not a probable arrangement to have been made. But whether it is probable or not, the question whether it was made is to be determined solely by a consideration of the words in which the parties saw fit to frame the contract that they •did agree upon. In the agreement as quoted the defendant refers to the royalties he shall fay unto the party of the second part. The words " he shall pay " are used here, not by way of an agreement to pay, but by Way of a description of the royalties referred to in the preceding clause of the contract providing for the payment of them. The agreement is that those royalties shall amount to $3,000 a year. But there is no agreement to pay that amount in that particular portion of the contract, and the defendant can only be bound in case an agreement can be implied from those words. There is, however, an actual agreement in regard to payment made in that clause of the contract, and for that reason there is no necessity of making any implication, because the parties have put in precise terms the arrangement which they sought to arrive at. That arrangement is not that the defendant shall pay in any event the difference between the sum of $3,000 and the amount of royalties actually earned, but that he shall be entitled to continue the license for another year if he makes up the deficit by payment in cash. It was clearly within the purview of the parties when they agreed upon that portion of the contract that the royalties might not actually amount to .$3,000 a year, and that there might be a deficit. If they had intended that the defendant should absolutely bind himself to pay that sum, it certainly was not likely that they would have said that if he paid the deficit he was entitled to continue the royalty; because if he actually bound hirhself to pay the $3,000 absolutely there could have been no deficit, which it was necessary for him to pay to entitle him to Continue the royalty. This portion of the contract, therefore, standing alone, as it seems to us, should be construed simply as giving to the defendant the right, in case the royalty upon goods actually sold did not reach the sum of $3,600, to continue the contract in effect by making the deficit good if he saw fit to do so.
This conclusion is strengthened by a subsequent clause-of the contract which provides " that in the event of the non-fulfillment of the terms of this agreement by the party of the second part, by failing to continually make sales or payments of royalty and herein provided so that the aggregate income of the party of the first- part shall now be less than $3,000, then the party of the {first), second part may at his option terminate .this license by serving a written notice of his intention so to do, giving the party of the second part thirty days from the receipt of said notice to fulfill the terms of these presents, otherwise this license to remain in full force and effect during the entire term for which .said patent may be granted."
It is clear from this portion of the contract that the parties contemplated that the sales might not be sufficient to make the aggregate income of the licensor $3,Q00, and in case that condition of affairs came to exist, they authorized the licensor to put an end to the contract. But this provision of the contract is in direct contra diction to the construction claimed for it by the plaintiff; because if the defendant was absolutely bound in any event to pay the sum. of $3,000 a year to the plaintiff, the condition of affairs could never come to exist that the aggregate income of the party of the first part should be less than $3,000, because of the failure to make sales. The failure to make sales was a matter of no importance in view of the construction put upon the contract by the plaintiff, because -he had the absolute right to the sum of $3,000 in each year whether there were any royalties or not.
It seems to us that the plain construction of this provision of the contract is that, if the royalties arising from sales did not reach the. aggregate amount of $3,000, and the defendant did not make up. that deficit so as to entitle himself to retain the contract, then the plaintiff would be at liberty, either to permit the contract to stand, receiving such royalties as were actually earned, or to give notice of his intention to put an end to it if he saw fit, in which case the defendant would be called upon to determine, within thirty days, whether he should pay enough to make up the full $3,000, or allow the contract to terminate. This construction, as it seems to us, makes the whole contract consistent, and it is the construction which the learned trial justice should have given to it. It was erroneous, therefore, for him to hold that the defendant was under an absolute contract to pay the full sum of $3,000 in each year, without regard to the royalties earned.
In view of the conclusion which we have reached, we have not thought it necessary to examine any of the other exceptions taken by the defendant. For this error the judgment and order must be reversed and a new trial,ordered, with costs to the appellant to abide the event.
Yan Brunt, P. J., and O'Brien, J., concurred • Patterson, J., dissented.