Court Opinion

ID: 9443956
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:36:13.748612+00
Date Added: 2024-06-11T17:29:39.522985
License: Public Domain

*925On Petition for Rehearing.
Although reargument of the issues of the case at bar, previously resolved against plaintiff, comprises a large part of the extended petition for rehearing, plaintiff has so zealously presented its contentions that we have thought it well to re-examine carefully the questions raised and to give the parties our reasons for our decision on this petition. Existence of a Confidential Relationship.
Plaintiff first contends that our conclusion that the disclosure by plaintiff to Ferroline was not in confidence overlooks the controlling law and is contrary to the evidence supporting the Master’s finding that a confidential relationship existed. It argues that a fiduciary relationship is implied in every royalty agreement, that the law of California is controlling on this issue, citing George v. Haas, 311 Ill. 382, 143 N.E. 54, that the cases relied on by the court are not controlling and that the finding by the Master of a confidential relationship is not clearly erroneous. With the exception of the issue as to conflict of laws, therefore, this is merely a repetition of arguments previously made and rejected.
The analogy sought to be drawn between the case at bar and Hollywood Motion Picture Equipment Co. v. Furer, 16 Cal.2d 184, 105 P.2d 299, is too broad to be decisive or even persuasive. The complaint in that case charged that plaintiff, the inventor of a special type microphone, engaged defendant to manufacture dies for castings therefor; that he delivered certain patterns to defendant under an agreement that the latter would use them and the dies only to produce such microphones as plaintiff should order, and that defendant was producing and selling such devices in breach of the agreement. The court, finding that there was no question of trade secrecy involved, held that defendant was a bailee of the patterns for a specific use, and that the complaint stated a good cause of action for damages and for an injunction against any other use of the property by the bailee. This decision can not be construed as holding that the California courts recognize a bailment of intellectual information, as such, apart from its express embodiment in tangible chattel form.
Assuming plaintiff’s contention that the law of California is determinative of this issue1 to be sound, the cases-from that jurisdiction cited by it do not aid its cause. It is true that a confidential relationship may be implied in a proper case from the nature of a contract, Jones v. Ulrich, 342 Ill.App. 16, 95 N.E.2d 113, or from the acts and conduct of the parties under an agreement, before any controversy arises, Universal Sales Corp. v. California Press Mfg. Co., 20 Cal.2d 751, 128 P.2d 665, but we find no case supporting a covenant by implication governing a subject matter covered, in whole or in part, by an express covenant. Plaintiff, relying on the fact that the Hamilton contract is a royalty agreement, contends that a confidential relationship between the parties-thereto must be implied. The cases-cited by it do not support its argument. Extensive review of these is unnecessary. But we observe, for example, that Empire Steam Laundry Co. v. Lozier, 165 Cal. 95, 130 P. 1180, 44 L.R.A.,N.S., 1159, involved a contract of employment containing an express covenant by the employee not to compete with his principal after termination of the employment relationship. The courts, in the other cited cases, were concerned with contracts which were completely silent as to the relationship between the parties thereto, thus paving the way for the admission of extrinsic evidence to show the intent of the parties. See, e. g., Universal Sales Corp. v. California Press Mfg. Co., supra; Gloria Ice Cream & Milk Co. v. Cowan, 2 Cal.2d 460, 41 P.2d 340; Matzen v. Horwitz, 102 Cal.App.2d 884, 228 P.2d 841; *926Barnes v. Cahill, 56 Cal.App.2d 780, 133 P.2d 433.
Thus plaintiff’s argument ignores the basis for our decision on this issue, namely, that “where there is an express agreement between the parties covering the subject matter, the law will not create another by inference.” This basic principle has been repeatedly applied by the courts of California. Thus in Loyalton Electric Light Co. v. California Pine Box & Lumber Co., 22 Cal. App. 75, 133 P. 323, 324, the court said “Where parties have entered into written engagements which industriously express the obligations which each is to assume, the courts should be reluctant to enlarge them by implication as to important matters. The presumption is that, having expressed some, they have expressed all, of the conditions by which they intended to be bound.” “ ‘Courts cannot make for the parties better agreements than they themselves have been satisfied to make or rewrite contracts because they operate harshly or inequitably as to one of the parties.’" Cousins Investment Co. v. Hastings Clothing Co., 45 Cal.App.2d 141, 113 P. 2d 878, 881, quoting 12 Am.Jur. 749. See also, Stockton Dry Goods Co. v. Girsh, 36 Cal.2d 677, 227 P.2d 1, 22 A.L.R.2d 1460; Foley v. Euless, 214 Cal. 506, 6 P.2d 956.
We conclude that our decision finds ample support in the California authorities. Since the Hamilton contract specifically imposed secrecy with respect to the Johnson formula only and not with respect to plaintiff’s carbonyl process, in view of the deletion of paragraph 7 from the contract, which expressly restricted the use by Ferroline of the latter process, the presumption controls that the parties have expressed all their provisions as to the subject matter of secrecy controls. There was, therefore, no valid basis for the admission of extrinsic evidence relating to this subject matter. United States Building & Loan Ass’n v. Salisbury, 217 Cal. 35, 17 P.2d 140.
This question depends solely upon the interpretation to be given a written contract. In unambiguous language the agreement defines the obligations of the respective parties; therefore there was no question of fact for the Master as plaintiff contends, despite any inadvertent language in the opinion. The conduct of the parties under the contract and the terms of the Bradley-Murray contract, which allegedly was “annexed to” the contract between Hamilton and plaintiff, are evidentiary matters de hors the instrument which are inadmissible in the absence of ambiguity on its face. U. S. Building & Loan Ass’n v. Salisbury, supra.
Defendant’s Knowledge of Plaintiff’s Rights.
Reduced to essentials, plaintiff’s argument with respect to this issue is (a), that the court overlooked evidentiary facts corroborating the oral testimony of notice to defendant; (b), that there was no proof of good faith; (c), that this court erred in ruling on the credibility of the witnesses; and, (d), its principal contention, that the court misconstrued the law of trade secrecy as developed by the New Jersey decisions. The first two of these postulates are repetition of arguments previously advanced and will be dealt with somewhat summarily.
The oral evidence alluded to is the testimony of Given and Birbeck as to conversations had with Angermueller and Aickelin respectively in which the latter were informed that Ferroline received its plant and processes from plaintiff. Plaintiff directs attention to defendant’s knowledge that technical data is necessary to produce carbonyl and that use of such technical data is frequently licensed under a royalty agreement, and argues that the parallelism between the terms of the Hamilton agreement and those of the one between defendant and Farben is of probative value and that defendant’s knowledge that Ferroline maintained the process in secrecy at its plant, the inadequacy of the purchase price for valuable informa*927tion and the fact that defendant purchased the equipment and information from a stranger to the apparent title all constituted evidence corroborating the testimony of Given and Birbeck.
It will be observed that the only new assertion, not taken into account in our opinion, is the possible corroborative value of defendant’s knowledge with regard to the need for and use of technical data. Obviously, any value this would have in supporting plaintiff’s proof of notice depends on an assumption that defendant is chargeable with notice of the Hamilton license agreement. As the opinion points out, this is refuted by the California authorities.
The record discloses the following direct testimony bearing on the issue of notice: 1, Birbeck’s testimony of a conversation with Dr. Aickelin that Ferro-line got the process from plaintiff, and 2, Given’s statement that he told Anger-mueller that Ferroline got its plant from plaintiff. Considered with the factors recited as corroborating evidence, this proof falls far short of that which the New Jersey courts seem to require. See cases discussed, infra, and those cited in the original opinion.
We find nothing in the reargument of the good faith contention requiring extended comment. Plaintiff has yet to cite a single authority which removes the burden of proving bad faith from the plaintiff in trade secrecy litigation. The cases now cited are good law in the field in which they arose, but plaintiff supplies us with no bridge for the gap between the burden which a plaintiff must sustain to prove a prima facie right to recover on a negotiable instrument and the proof required in trade secrecy litigation. Culhane v. Rockford Finance & Thrift Co., 7 Cir., 74 F.2d 1; Palo Alto Mutual Building & Loan Ass’n v. First National Bank, 33 Cal.App. 214, 164 P. 1124. Plaintiff has failed to present a convincing argument that the burden should be cast on defendant to prove its good faith.
In only one respect can the court possibly be charged with ruling on the credibility of the witnesses. That is with regard to the witness Birbeck. In view of the fact that he was presented as a disinterested, or even hostile witness, who, during the course of his testimony, appeared to claim a contingent interest in plaintiff’s cause of action, and in view of the fact that the crucial testimony on this issue related to a conversation with a man who was then deceased, this court is certainly competent to conclude that this, in the absence of other direct proof, will not support a finding of notice without infringing the Master’s prerogative as judge of credibility. Given’s testimony was by deposition, and therefore the Master was in no better position than the trial court or this court to judge of his credibility.
True it is that Vom Rath testified that he learned of plaintiff’s existence in the latter part of 1940 through a conversation with one Mullaly who stated he was trying to “sell their [plaintiff’s] product.” And Birbeck testified that, during his negotiations with Mueller in the latter part of July, 1939, he told the latter that Ferroline had purchased the right to manufacture carbonyl from plaintiff. This testimony is immaterial upon the notice issue. The former conversation took place in the course of an unrelated conversation several months after defendant acquired its knowledge of plaintiff’s process from Ferroline and began constructing its plant. As to the latter, Mueller was at that time associated with Chemnyco, and entered defendant’s employ for the first time on February 14, 1941, about one month before its carbonyl plant was put into operation.
Plaintiff’s principal contention relates to the imputation of actual knowledge of a breach of a fiduciary relationship to a third party who deals with the fiduciary. Specifically it challenges the statement in the opinion that no case is found in which the New Jersey courts have imputed actual knowledge without convincing proof, and cites numerous cases which, it is asserted, have held a third party liable in trade secrecy litigation in the absence of proof of good faith. *928Not only do these cases not support the contention, but they tend to support our reasoning.
For example, plaintiff relies principally on Vulcan Detinning Co. v. American Can Co., 72 N.J.Eq. 387, 67 A. 339, 342, 12 L.R.A.,N.S., 102. In that case, Vulcan, largely through the efforts of one Assman and another, obtained a secret process for detinning scrap, and for many years maintained a virtual monopoly in that field. Assman was one of its directors, a member of its executive committee and an express trustee of one of four written copies of its process. Thereafter, Assman resigned his position, and was employed immediately as president of the newly organized American Can Company. The court found that he was “the leading spirit” in adapting American’s plants to the use of Vulcan’s processes. Several of Vulcan’s employees were hired to aid in the necessary construction. There was some indication that one of these, one Egbert, after entering the employ of American, stayed on at Vulcan’s plant to report on the details of new construction and improvements in the process, although there was no specific finding on this. For the purpose of enjoining American from further use of the process, the court held that the knowledge of Assman was imputable to it, and the cause was remanded for an accounting. When the case again came before the Court of Errors and Appeals to review the accounting, despite the language and holding of its previous decision, the court held that no fraud was imputable to American until actual notice of Assman’s fraud was proved. An accounting was ordered only from the date Vulcan’s bill was filed, at which time American had received actual notice of Vulcan’s rights. Vulcan Detinning Co. v. American Can Co., 75 N.J.Eq. 542, 73 A. 603.
In Stone v. Goss, 65 N.J.Eq. 756, 55 A. 736, 63 L.R.A. 344, the defendant, Grasselli Chemical Company, had tried unsuccessfully to obtain plaintiff’s secret formula for a depilatory by analyzing its product. Thereafter, an agent of Gras-selli contacted Goss, plaintiff’s employee, and arranged an interview for him with Grasselli’s officers. As a result of this meeting Goss left plaintiff’s employ and went to work for Grasselli. For several weeks, his only duty was to answer questions put to him by Grasselli’s supervisor with respect to plaintiff’s process. Then he was assigned the task of setting up a plant employing plaintiff’s process. Thus it appears that the third party was an active participant in the fraud.
In Maas & Walstein Co. v. Walker, 100 N.J.Eq. 224, 135 A. 275, affirmed mem. 102 N.J.Eq. 328, 140 A. 921, Walker, the president of plaintiff corporation, absconded with certain of plaintiff’s records and copies of its secret formulae for the manufacture of varnish and entered the employment of the third party defendant. On finding that defendant had tried unsuccessfully to obtain plaintiff’s formulae by analyzing its products, had “bought put” one Thomas, an employee of another competing firm, in a fruitless attempt to obtain varnish formulae, and had employed two other of plaintiff’s employees who were close associates of Walker, and on the strength of certain correspondence in evidence which tended to prove that defendant was a knowing participant in the fraud, the court found that Walker and the others were employed by defendant for the express purpose of acquiring plaintiff’s trade secrets.
In Heyden Chemical Corp. v. Burrell & Neidig Inc., 2 N.J.Super. 467, 64 A.2d 465, and Vander May v. Schoone-Jongen, 128 N.J.Eq. 336, 16 A.2d 198, affirmed mem. 130 N.J.Eq. 227, 21 A.2d 819, the supposed third parties enjoined from using the plaintiffs’ trade secrets were corporations composed solely of former employees of the respective plaintiffs. In Flexmir, Inc., v. Herman, 138 N.J.Eq. 594, 49 A.2d 489, the third parties held liable for wrongful use of trade secrets were a corporation composed solely of three of plaintiff's employees who opened a competing business in breach of an express covenant, members *929of the immediate families of the wrongdoing employees, two partnerships composed of such family members and organized secretly after the action was filed and a temporary injunction issued, and a former customer of plaintiff’s who participated actively in the fraud from its outset. In Silbros Inc., v. Solomon, 139 N.J.Eq. 528, 52 A.2d 534, the only question before the court was the en-forcibility of a covenant not to compete against a former employee. Apparently the third party named in the bill did not appear to defend. In A. Hollander & Sons Inc. v. Imperial Fur Blending Corp., 2 N.J. 235, 66 A.2d 319, Singer, employed by plaintiff under an express covenant not to compete, while remaining on plaintiff’s payroll, organized the predecessor to Imperial and gave plaintiff’s trade secrets to it. The court treated the third parties as the alter ego of Singer. In Abalene Exterminator Co. v. Oser, 125 N.J.Eq. 329, 5 A.2d 738, the defendants were a former employee of plaintiff, his brother and a partnership composed of these two. There was proof that the employee’s knowledge of plaintiff’s customer lists and other documents was discussed before the competing business was organized, and that this fact influenced the brother to participate in the venture. Salomon v. Hertz, 40 N.J. Eq. 400, 2 A. 379, arose on a motion to dissolve a temporary injunction, and, therefore, was not considered on the merits. The court held that a complaint which alleged that two of complainant’s former employees “had made an arrangement to enter” the employ of a competitor stated a good cause of action to enjoin them from disclosing complainant’s trade secrets.
Thus, if any fault is to be found with the sentence, “trade secret litigation in New Jersey has been restricted to the employer-competing former employee situation,” it is a fault of expression, not of interpretation of the authorities. We did not intend to imply that no third parties were parties to this litigation, but, when read in context, to indicate that, with the two exceptions noted, such litigation had grown out of the wrongdoing of a former employee, under circumstances which clearly indicated that the third party was an active and knowing participant in the fraud, or acted with knowledge thereof.
The reputed parallelism between these cases and the case at bar disappears completely with respect to this issue. As evinced by the Vulcan cases, the New Jersey court, while willing to impute notice to a third party corporation for the purpose of enjoining further use of secret information gained through the fraud of its president, refused, notwithstanding the agency principle of implied knowledge, to impute fraud to the corporation for the purpose of an accounting except on proof of its actual knowledge of the injured parties’ rights. It is clear that the decision of each case discussed depends on the strength of the proof made by the complaining party, not on the weakness of the defendant’s proof.
Laches.
Plaintiff ignores the undisputed facts on which this issue was resolved against it. Instead its argument is a plea that the burden should not be placed on a defrauded party to ascertain immediately that it has been defrauded. That this begs the issue is apparent.
It contends, however, that the Illinois courts will stay the running of the bar of limitations in a fraud case until “the party defrauded has knowledge of the actual and complete facts.” This contention presumes the existence of fraud on the part of defendant. Furthermore, we do not understand that the Illinois authorities support this stark assertion. Although the isolated language of certain Illinois opinions may tend to support the proposition that a party affected by a fraud is excused from the exercise of due diligence, Penn v. Fogler, 182 Ill. 76, 108, 55 N.E. 192; Wilson v. Augur, 176 Ill. 561, 571, 52 N.E. 289; State Bank & Trust Co. v. Commercial Trust & Savings Bank, 300 Ill.App. 435, 448, 21 N.E.2d 157, later decisions of the court repudiate this extreme view. Thus, *930in Skrodzki v. Sherman State Bank, 348 Ill. 403, 181 N.E. 325, 327, the court stated that “the rule that the statute begins to run only from the discovery of the fraud does not apply when the party affected by the fraud might with ordinary diligence have discovered it.” Again, in Klee v. Chicago Trust Co., 365 Ill. 354, 358, 6 N.E.2d 442, 444, it is said that “the tendency of courts in recent years has been to hold the plaintiff to a rigid compliance with the law which demands, not only that he should have been ignorant of the fraud, but that he should have used reasonable diligence to have informed himself of all the facts.” Quoting Pomeroy’s Equity Jurisprudence. See also, Village of Dolton v. Harms, 327 Ill.App. 107, 63 N.E.2d 785; Pelcak v. Bartos, 328 Ill.App. 435, 446, 66 N.E.2d 465. Our decision of this issue is, we think, consistent with the principle announced in these cases.
Other contentions are disposed of, we think, in our discussion herein. The petition for rehearing is denied.

. Confusion reigns as to what conflicts rule the courts of Illinois apply in the interpretation of a contract. See, II Beale, Conflict of Laws, Sec. 832.21.