Court Opinion

ID: 5243626
Source: CourtListenerOpinion
Date Created: 2022-01-06 17:32:26.894535+00
Date Added: 2024-06-11T08:27:50.196568
License: Public Domain

Smith, J. (dissenting):
One Seligstein was the owner of a patent for a folding paper box. He gave an exclusive license to the defendant to manufacture and sell those boxes in certain territory, in consideration of the payment of royalties, which were not to be less than $500 per year, for five years. In that license contract he cov*614enanted to faithfully protect said letters patent from any and all substantial infringements thereof. Within a short time after the execution of this contract with defendant, the defendant wrote to Seligstein calling his attention to the sale of similar boxes and asking whether they were not infringements upon his patent. Seligstein answered that they were infringements upon another patent existing. About two years after the making of the contract, and in August, 1911, the defendant wrote to Seligstein complaining that he was not protecting them against folding boxes which were offered for sale in their territory and which were thought to be infringements upon the patent, and suggesting that he ought either to protect them or release them from the minimum royalty. No answer was made to that letter. ■ Thereafter, and in January, 1912, Seligstein assigned to the plaintiff his patent and all rights of action for infringements thereof and defendant’s contract. The defendant paid to Seligstein, without knowledge of the assignment, the royalties for sales actually made, which did not amount to the minimum of $500 a year. This action is brought by the plaintiff as the assignee of Seligstein to recover the difference between the royalties paid and this minimum sum stated in the contract. The court submitted to the jury the question whether there had been any practical infringements of the patent or whether the defendant had waived any infringements if any existed, charging them if there were no substantial infringements oy if the defendant had waived any infringements, that the plaintiff had the right to recover the amount. The jury found for the plaintiff for the full amount. Thereafter the trial court set aside said verdict and the complaint was dismissed upon the sole ground that the assignment by Seligstein to the plaintiff incapacitated him from performing his covenant to protect the license given to the defendant against infringements, and because he had thus incapacitated himself from performing, his assignee could not recover the minimum royalties stipulated. The Appellate Term has reversed this decision of the trial court, and has reinstated the verdict. From this order of the Appellate Term this appeal is taken.
The assignment of the patent and claims for infringement *615incapacitated Seligstein from performing his covenant and constituted a breach thereof. Whether the breach of that covenant by Seligstein is a complete bar to this action is to be determined by the test whether Seligstein’s covenant was a condition precedent or an independent covenant upon his part. If this covenant were a condition precedent, then his failure to perform that covenant would clearly he a bar to the action. If it simply was an independent covenant, then his failure to perform the covenant is not a bar to the action, hut simply gives to the defendant the right to counterclaim damages for the breach or to bring a separate action therefor.
In Watson Fireproof Window Co. v. Henry Weiss Cornice Co. (181 Mo. App. 318), where a similar question arose, the court said: “ The second defense of a breach of the covenant to protect the licensee against the competition of infringers was properly excluded on the ground that it was an independent covenant which could not be interposed as a defense to an action for royalties and to be available in such action must be made the subject of a counterclaim. * * * ` Where mutual covenants go to the whole of the consideration on both sides, they are mutual conditions, the one precedent to the other. But where they only go to a part, where a breach may be paid for in damages, there the defendant has a remedy on his covenant, and shall not plead it as a condition precedent. ’ (Boone v. Eyre, 1 Bl. H. 273.) Since the covenant in question was independent, under the rule above stated, it could not serve as a defense to the action, * * * and, as stated, the damages resulting from its breach could be recovered by defendant only in a separate suit or by a counterclaim in this suit.”
In Birdsall v. Perego (5 Blatch. 251) suit was brought for royalties. In sustaining a demurrer to a plea alleging a violation of the contract the court said: “The third plea, as pleaded, admits the transfer to the defendant, of the exclusive right mentioned in the declaration * * *; and if, after such transfer, the plaintiff infringed that exclusive right, the defendant would have a right of action for such infringement. It would not, however, be a defense to this action for the recovery of the sum agreed to be paid as a license fee for the machines *616which the plea admits were made and sold by the defendant. Even if such damages could he deducted from the plaintiff’s demand, by way of recoupment, the facts alleged would furnish no sufficient defense, by way of special plea, in bar of the plaintiff’s action; for, recoupment is a matter which, it is said, is never pleaded in bar. * * * And, if such matter could be pleaded in bar of the action, it would be necessary to aver that the defendant’s damages were at least equal to the damages of the plaintiff; for, otherwise, the plea would not answer the whole action, and would be bad for that reason. But it is not matter for a plea in bar, under any circumstances, * * * and, whether the defendant claims damages for an infringement of the exclusive right transferred to him, or for the violation of the plaintiff’s agreement to allow him the exercise of that exclusive right, the rule of law and pleading is the same.”
This rule is further illustrated in actions for rent, where it has always been held that a breach of a covenant by the lessor was no defense to an action, but could only be asserted by way of counterclaim. In Ely v. Spiero (28 App. Div. 487) the opinion in part reads as follows: “Since the decision in the case of The Mayor of New York v. Mabie (13 N. Y. 151) the rule has been established in this State that a tenant sued for rent can recoup such damages as he may have suffered by reason of a breach of the landlord’s covenant to repair the premises. (Kelsey v. Ward, 38 N. Y. 83; Thomson-Houston El. Co. v. Durant L. I. Co., 144 id. 34, 44.) But the lessee’s right to recoup which is asserted in cases of this kind means simply the right to plead a counterclaim under the Gode. As Professor Pomeroy has pointed out. in his able and instructive work on American code procedure, the recoupment of damages of the old practice has been transferred by all the-Codes into a species of counterclaim. (Pom. Rem. & Rem. Rights, § 736.) In Myers v. Burns (35 N. Y. 269) and Cook v. Soule (56 id. 420) the damages growing out of the landlord’s breach of his covenant to repair were in each instance set up specifically as a counterclaim; and that the breach of that covenant could not he pleaded simply as a defense is necessarily implied by the language of Andrews, Oh. J., in the case of The Thomson-Houston El. Co. v. Durant L. I. *617Co. {supra), where he says: `The plaintiff, having entered upon the demised premises under the lease and continued in possession, was bound to pay the rent reserved, and he could not defend on the ground that the covenant on the part of the lessor to put the premises in repair, or to make changes or alterations required by municipal or other legal authority, had not been performed. On the other hand, the lessor, when sued on his covenants, could not allege in bar of the action that the lessee had remained in possession of the premises. But either one, in an action brought against him by the other, could counterclaim any demand arising under the lease . against the plaintiff in the action. * * *.’ * * * The agreement of the plaintiff in the present case to furnish an electric current of a specified power to the defendant was just as independent of the defendant’s covenant to pay rent as a covenant to repair would be, and it is equally subject to the rule thus laid down.”
A distinction is asserted between the cases cited and the case at bar in that the licensee’s contract was to pay the royalties upon sales actually made and, in addition to that, such sum as would make a minimum of $500. In this case the defendant has paid such sum as represents royalties upon the sales actually made, and is only sued for this minimum deficiency. It is contended that as to that sum the breach of the covenant to protect this licensee is a complete defense. I am not able to follow this reasoning. It is true that the consideration of the licensee’s covenants was both the right to manufacture and sell the patented article and Seligstein’s covenant to protect him. The contract itself does not separate the consideration so as to declare the payment of royalties on sales actually made to be the consideration for the right to manufacture and sell and the payment of such extra sum as would make a minimum of $500 as the consideration of Seligstein’s covenant to protect the licensee. The consideration is not specifically severed by the contract, nor is it severable by the nature of the contract. For instance, the contract would be broken by failure to prosecute a single infringer, and the damage to the licensee might be very small. Nevertheless, the liability of the licensee under the contract would be to make *618full payment up to the minimum amount less the damage thus suffered. The royalties paid have never amounted to $200 per year. It clearly cannot be held that the damage to the licensee on account of the plaintiff’s breach of covenant amounts- as matter of law to the remaining $300 per year. For the reason, then, that the consideration is not expressly severed by the terms of the contract and is not severable by the nature of the contract,' the defendant is liable for the full minimum royalty with the right to recover by counterclaim or cross-action the damages which it has sustained by the breach of Seligstein’s covenant.'
But the trial court dismissed the counterclaims, notwithstanding the defendant proved the breach of the covenant and damage therefrom. If the counterclaims were improperly dismissed, then the verdict cannot be reinstated, but the judgment of the Appellate Term must be reversed and the judgment of the Oity Court modified so as to provide for a new trial. By section 502 of the Code of Civil Procedure a counterclaim may be asserted against an assignee only when the cause of action which is the subject thereof existed at the time of the assignment. There is no proof in the record of any specific amount of damage which the defendant had suffered by reason of the broken covenant for protection at the time of the assignment. The damages are sworn to as the total amount suffered by reason of the breach of covenant to the time when the contract terminated, and because the proof does not show the extent of the damage suffered to the time of the assignment of the contract, the defendant has not proven a counterclaim which is available against this plaintiff as the assignee of Seligstein. I am referred to no cases and have been unable to find any which impose upon this plaintiff by virtue of this assignment the obligation to protect the defendant. This appears to have been a personal covenant, and for its breach Seligstein is clearly liable to an action. However intimately associated with the subject of the contract, there is no authority cited to the effect that the assignee is thereby bound or is responsible for its breach. In the case of landlord and tenant there is specific statutory provision that the grantee of the landlord is bound during the term of the lease by the covenants of the leases *619which run with the land. In Ovington Brothers Co. v. Henshaw (47 Misc. Rep. 167) it is held that the covenant of a lessor that at the end of the term he would pay for buildings to be erected by the lessee does not run with the land, and, therefore, the heirs, assigns or devisees of the lessor are not bound thereby unless by express words. That case was affirmed by the Appellate Division and by the Court of Appeals (115 App. Div. 886; 190 N. Y. 504).
The counterclaims were not, therefore, recoverable from the plaintiff.
Finally, the defendant claims that its contract with Seligstein was not assignable. The contract does not involve personal confidence or skill or obligations of such a nature as to import the personal performance thereof by the parties. A covenant to faithfully protect adds nothing to Seligstein’s legal obligation in a covenant to protect. Every contract to an extent involves confidence that the other party will faithfully perform, and such confidence does not operate to make those contracts unassignable. Failure to protect amounts to a breach of the contract with its penalty in damages, whether that failure arises from a refusal to perform the covenant • or from an act of the covenantor making the covenant impossible of performance. -If we assume for the argument, however, that the covenant to protect in this case was a personal covenant of which Seligstein could not divest himself by assignment, nevertheless the assignment is good to pass to the plaintiff the royalties payable under the contract. (Gray Engine Starter Co. v. Gray & Davis, 224 Fed. Rep. 723.) .
The judgment appealed from should, therefore, be affirmed.
Determination reversed and judgment of the City Court affirmed, with costs to appellant in all courts.