Harrison v. Morton , 83 Md. 456 ( 1896 )

Fowler, J.,

delivered the opinion of the Court.

On the eighth of December, 1894, Walter H. Harrison, the appellant, claims to have entered into an agreement under seal with the appellee, Franklin J. Morton. By the. terms of this agreement Flarrison was to assign to Morton a certain invention for a machine to make barrels and kegs, for which application had been made to the Patent Office by Henry Campbell, the inventor. Harrison alleged himself to be the owner of this invention by virtue of an assignment from the inventor. By the terms of this alleged agreement Morton was to pay Harrison the sum of one hundred thousand dollars in consideration of the sale and conveyance to him of all Harrison’s rights under said assignment from the inventor, within -ten days after the issuing by the United States of letters patent for the invention, and also as part of the consideration for said sale and conveyance Morton was to transfer to Harrison a certain number of full-paid and non-assessable shares of a corporation to be formed by the former, who was also to pay Harrison a sum equal to forty per cent, of the gross royalties upon sales of the patented machines under patents issued by the Government. On the 8th of P'ebruary, 1895, Harrison sued Morton in covenant on the agreement of the 8th December, 1894, alleging in his narr. ownership of the patent under assignment from the inventor, the sale and conveyance thereof to Morton, and the consideration therefor as above mentioned, the assignment to Morton, and the issuance and delivery to him of letters patent and acceptance thereof by him, and his failure to comply with said agreement. Harrison claimed as dam-ages $300,000. To this narr. Morton pleaded, first, non est factum ; second, fraud ; and third, undue influence in procuring his signature to the agreement sued on. He also pleaded three additional pleas on equitable grounds, first, that there was no consideration for the alleged contract; second, that at the cíate of the alleged contract Harrison was not the owner of and had no valid title to said invention and machine; third, that at the time of said alleged assignment to Morton of the patent, Harrison, the plaintiff, was not the owner and had no valid title to the same. The defendant also filed a plea of set-off and a bill of particulars thereof, amounting to over $31,000. The case was tried before the Court without a jury, and resulted in a verdict for defendant for $35,091.65.

A number of questions which we do not feel called on to consider here were discussed at the hearing by counsel for both parties. The character and standing of the parties in the city of Baltimore, and the career of one of them as illustrated by former litigation in the Courts of this State are not necessarily, or indeed, at all involved in this controversy. We are concerned with the exceptions which we find in the record, and shall proceed to discuss therh with as much brevity as their proper consideration will permit.

The third and fifth exceptions have been abandoned.

The plaintiff had offered evidence tending to prove that the contract sued on was valid, binding and operative, and that in pursuance thereof the defendant had paid certain sums of money and had done certain acts. When the defendant was examined as a witness he was asked whether before the contract was executed he had any conversation with the plaintiff, and if so, what he had agreed upon and on what terms, in connection with that patent device ? The objection of the plaintiff to the asking of this question was overruled, and this constitutes the first exception. The objection appears to be two-fold. First, that no parol evidence of prior agreements are admissible to vaiy or alter the written contract sued on, and second, that the proposed question, so far as it was asked for the purpose of eliciting testimony upon the issue of fraud and undue influence in procuring the signature of the defendant to said contract, was irrelevant because there was no such issue in the case, the Court below having found, and so declared by plaintiff’s second prayer, which was conceded by the defendant, that there was no legally sufficient evidence in the cause to show such fraud. In regard to the first ground of the objection all difficulty would seem to disappear when we remember that the issue is, not as to the construction of a contract, or what the contract is, but whether there is any contract in existence. The defendant pleaded non est factum, and evidence which tended to show that the money paid and acts done by the defendant were paid and performed not in pursuance of the alleged contract, but in execution of another contract, and at the same time to show that although the alleged contract was signed by both parties, it had never become operative because never delivered, would clearly be admissible.

The rule which excludes parol testimony when offered to vary or contradict a written instrument can, of course, have no application here, for the testimony objected to was offered not to vary or contradict the contract, but to prove it had no existence. Guardhouse v. Blackburn, L. R., 1 P. & D. 115. In the case of Pym v. Campbell, 6 El. & Bl. 374, Erle, J.,said: “The distinction in point of law is that evidence to vary the terms of an agreement in writing is not admissible, but evidence to show that there is no such agreement at all is admissible.” To the same effect Ware v. Allen, 128 U. S. 596. And in regard to the second ground of objection, it may be said that it does not appear that the testimony objected to was offered to show fraud, but to establish the defendant’s contention that the contract, although signed by both parties, was not to be valid and binding until the defendant should so determine, and that in the meantime he was to hold it “in trust.” And in point of fact, he appears to have held possession of the paper until it was produced in the Court below upon the demand of the plaintiff. What we have said in regard to the first exception applies also to the fourth.

The second exception was taken to the refusal to rule out a question put to the defendant in regard to an arrangement by which he agreed to, and did, advance $2,500 to enable the plaintiff to exploit a North Carolina gold mine, and the representations then made by the plaintiff to the defendant in regard to money the plaintiff owed the defendant. The testimony in regard to the gold mine was offered for the purpose of explaining the circumstances under which the defendant, according to his testimony, determined, with the assent of the plaintiff, that the contract, the cause of action here, should never be considered operative. It was by a speculation in this gold mine with the money borrowed from the defendant that the plaintiff promised to pay the deendant some $25,000 then due, and when, instead of paying this, or any sum, the plaintiff drew a draft on the defendant for $1,175, the defendant thereupon determined to exercise his option of declaring the contract inoperative. The object of the plaintiff was to show the contract was valid, and he had offered much evidence in support of his contention, and therefore the defendant had a right, as we have already said, not only to show the contraiy, if he could do so, but also the circumstances under which his alleged right to declare the contract void was exercised. As we have said, the testimony admitted certainly tended to that end.

The sixth exception involves the admissibility in evidence of the minutes of the Campbell Barrel Company to show that the inventor, long previous to the contract of Dec. 8, 1894, and before the date of his assignment to the plaintiff, Harrison, had agreed to sell and transfer, and that the said company had agreed to purchase, the invention and patent rights which are alleged to have been sold and assigned by the plaintiff to defendant, and that the inventor having assigned all his right and title to said invention to said Barrel Company, he had nothing to assign to the plaintiff and therefore the latter could pass nothing to the defendant. It was shown that the original paper by which this alleged assignment was made by the inventor to the Barrel Company, a copy of which is contained in the minutes of the latter, was searched for among the papers of said company, and in other places where it was believed it might be found, but it was not discovered. We think, under the circumstances, a proper foundation was laid for the introduction of the copy as secondary evidence. But, independent Üf this view, it would seem that the minutes are admissible to show, and they were offered for that purpose, that the plaintiff, having sold his patent to the Barrel Company, could not again sell it to the defendant. The minutes are the best evidence to show that the stockholders agreed to and ratified the proposition of the inventor to subscribe for $90,000 of the company’s stock and pay for his subscription by an assignment of his said patent. Beach on Private Corporations, sec. 295.

The effect of this evidence will be considered under the seventh and last exception, which relates to the rulings upon the prayers, and which we will now consider.

We think there can be no doubt that the defendant’s two prayers were properly granted. By the first the Court declared as matter of law that upon the pleadings the burden was upon the plaintiff to prove the delivery of the sealed instrument sued on, and that if the Court, sitting as a jury, should find that said paper never was delivered, the verdict must be for the defendant. The second prayer recites the evidence more at length, but asserts the same proposition of law, which appears to be well settled in this State. Edelen v. Saunders, 8 Md. 129. We‘discover no inconsistency between the two prayers. The plaintiff specially excepted to the second on the ground that there was no evidence in the cause legally sufficient to prove the facts therein set forth. It is clear, however, that the testimony of the witnesses, Morton and Coale, support the facts set forth in this prayer, and we have already held it to be competent and admissible under the issue made by the plea of non est factum.

We will now consider the prayers of the plaintiff. He offered five, the second having been conceded and the fifth granted.

The controlling proposition in this part of the case is that contended for by the plaintiff in his first, third and fourth prayers, namely, that there is no legally sufficient evidence in the case to- show that he had any knowledge or notice of the agreement between the inventor, Campbell, and the Campbell Barrel Company. The correctness of this contention of the plaintiff depends, first, upon the legfl effect of the assignments from Campbell to the plaintiff, and, secondly, upon the effect of the contract of Campbell .with the Campbell Barrel Company—that is to say, whether said Campbell thereby assigned to said company an equitable title to his invention prior in date to the title he claims to have assigned to the defendant, which latter title the plaintiff claims to be an absolute legal title; and the defendant’s contention on the contrary is that it is a mere equitable title subsequent in date, and therefore inferior to the title of the Barrel Company. The plaintiff claims title through two assignments from Campbell, each being for one-half interest in a certain application filed in the Patent Office of the United States at Washington, D. C, which application is for letters patent covering the invention of a machine for forming and making barrels and kegs.

It will be found upon an examination of these instruments that they do not contain a request to the Commissioner of Patents to issue letters patentto the plaintiff. Notwithstanding they were recorded in the Patent Office, letters patent were issued in the name of Henry Campbell, the inventor, and the defendant contends that the legal effect of such an assignment, in which the inventor fails to embody a request to the Commissioner of Patents to issue letters to the assignee, is to convey to such assignee only an equitable title. It is conceded that by one of the rules of the Patent Office the Commissioner will not, and cannot, issue the letters patent to an assignee, unless specially requested so to do by the terms of the-assignment. One of the witnesses refers to this rule in his testimony. The patent having been issued to- Campbell instead of to the defendant, the witness thus explains : “ I ascertained that the probable reason why it (the patent) had not been issued to Mr. Morton was this : The original assignment from Mr. Campbell to Mr. Harrison did not contain the request which the rules of the Patent Office required in order that the patent should be issued in the name of the assignee.” Rule 26, Rules of Practice in the U. S. Patent Office, page 9. Revised April 1, 1892.

Remembering that the assignments from Campbell to the plaintiff which we are now considering were made before the issue of letters patent, let us ascertain what such a conveyance carries. The assignment of a right to obtain letters patent is “ in effect, a contract to assign the patent when issued, and as such is enforceable in equity.” But “such an instrument creates no legal title to the patent in the assignee.” 1 Robinson on Patents, sec. 411—414. The same author (sec. 764) thus speaks of an assignment like the one we are considering, which was made before the issue of letters. “ An assignment of a completed invention may be made either before or after the issue of the patent. An inventor has, by virtue of his inventive act, not merely the ownership of his invention, but an inchoate right to the monopoly, which is to become vested upon his application for and receipt of letters patent. This ownership of the invention and inchoate right to perfect his title to the monopoly by obtaining letters patent is made assignable by law equally with the patented invention; and an assignment covering these rights and properly recorded secures to the assignee both the invention and monopoly immediately on the issue of the patent. To authorize an issue of the patent directly to the assignee, however, the instrument of assignment must contain a written request to the Commissioner of Patents that the letters patent may be granted to the assignee.” * * * “ Such a conveyance transfers to the assignee the legal title as well as the equitable to the patented invention.” * * * “ An instrument purporting to be an assignment, but not containing the request * * * does not convey the legal title to the patented invention.” One of the earliest cases in which this rule, thus explained by the learned author, was adopted, is that of Gayler v. Wilder, 10 Howard, 480, in which Chief Justice Taney, delivering the opinion of the Supreme Court, said : “ The discoverer of a new and useful improvement is vested by law with an inchoate right to its exclusive use, which he may perfect and make absolute by proceeding in the manner which the law requires.” Again, he Says : “It appears by the language of the assignment that it was intended to operate upon the perfect legal title which he then had the lawful right to obtain, as well as upon the imperfect and inchoate interest which he actually possessed. The assignment requests that the patent may issue -to the assignee." As we have seen, it is required when letters are to be issued to an assignee, the assignment must contain that request, Rule 26, p. 9. But it was suggested that such a rule is a mere regulation for the convenience of the Patent Office, and was not binding. But the rules established by the Commissioner of Patents, “ are, until abrogated, as binding as the law itself, not only upon him and his inferior officers, but upon persons doing business with his department, provided such rules are not in contravention of any statute.” U. S. Rev. Stat., 1874, sec. 483 ; 1 Robinson on Patents, p. 84 and note.

It follows from what C. J. Taney says in Gayler v. Wilder, supra, that prior to the issue of letters patent to the inventor he has an imperfect inchoate right to its exclusive use, which he may perfect and make absolute by taking the steps required by law, and especially by having letters patent issued to him. Or he may by an assignment of this inchoate right, coupled with a request to issue letters to his assignee in compliance with Rule 26 of the Patent Office, transfer to such assignee a legal title to such invention. The legal title passes to the assignee under Such an assignment, because he has under it, as the inventor had by law, the right to secure letters in his own name. But the only way in which such letters, which are the evidence of a perfect legal title, can be secured by the assignee is by the request of the inventor first, and of his assignees as the case may be, expressed in the assignment. It appears by the evidence that the letters for the invention and patent which the plaintiff claims to have sold and assigned to the defendant for $100,000, never have been in the name of either. Letters patent were issued to Henry Campbell, the inventor, although every effort was made by the plaintiff to have them issued to the defendaut. In the case of Wright v. Randle, 8 Fed. Rep. 591, Blatchford, J., cites Gayler v. Wilder, supra, to show that an assignment with request to issue letters to assignee passes the legal title. But in referring to another assignment before the Court he says in the same case: “ The instrument provided that Randle (the inventor) should apply for new patents for the past improvements, but it did not, while assigning the improvements, provide that the new patents should be issued to Randle and the assignee jointly. Out of this all the trouble has arisen.” Further on in the opinion the following language shows what the trouble was : ‘ ‘ The omission of a request by Randle to the Commissioner to issue the patent to the assignee jointly with himself * * * enabled Randle to make a second transfer of the invention, and to secure the issuing of the patent as it was issued,” that is to himself and two others. The general rule appears to be that an assignment without the request conveys only a equitable title. See also Davis Wheel Co. v. Davis Wagon Co., 22 Blatchford, 221 ; Hendric v. Sayles, 98 U. S. 551; U. S. Stamping Co. v. Jewett, 7 Fed. Rep. 877; Littlefield v. Perry, 21 Wall. 205 ; Newell v. West, 13 Blatchford, 114; Nail Co. v. Corning, 14 How. 193.

It would seem, therefore, that the rule so broadly laid down by the learned author (Robinson on Patents), if not adopted in clear and distinct terms, has been often recognized and never repudiated, by the Courts having general jurisdictions of questions arising under the patent laws of the United States. Applying the rule we have been considering to the assignments from Campbell to the plaintiff, it will follow that the plaintiff took from Campbell, and could sell and assign to the defendant only an equitable ■title, because those assignments were not drawn as required by law to carry the legal title. What, then, is the result ? In the case of Chew v. Barnett, 11 S. & R. 389, C. J. Gibson said, an equitable title “is in truth nothing more than a title to go into chanceery to have the legal estate conveyed, and, therefore, every purchaser of a mere equity takes subject to every clog that may lie on it, whether he has notice or not.” And to the same effect are Bassett v. Nosworthy, notes to 2 White and Tudor’s Ldg. Cas. in Equity, 67 ; Shiras v Caig, 7 Cranch, 34-38 ; Phillips v. Phillips, 4 DeGex, F. & J. 208-215. If, therefore, the Campbell Barrel Company acquired an equitable title to the patent, as it undoubtedly did under its contract with the inventor before the assignment of the equity to the defendant, the latter took subject to the equitable title in the said company, and the first, third, and fourth prayers of the plaintiff were properly refused, for they all asked the Court to say that there was no legally sufficient evidence to show that the plaintiff had knowledge, or notice of the agreement between the plaintiff and the Barrel Company. But as we have seen, knowledge and notice will be imputed to him, as C. J. Gibson said in Chew v. Barnett, supra, “whether he had notice or not,” holding as he did only an equitable title.

By the fifth prayer of the plaintiff, which was granted, from which ruling there has been no appeal, the Court below held that the agreement of Campbell with the Barrel Company was no defence to this action, if the Court should find that by the true construction of that agreement the invention and device described in the contract sued on is not embraced within sáid agreement. Inasmuch, however, as there was a verdict for the defendant, it follows that the Court below must have found that the invention and device described in the declaration was embraced in the Campbell agreement, and that, therefore, the latter was a good defence to this action. It will appear from an examination of the whole case that the only other alternative upon which the Court below could have found a verdict for the defendant was that the contract sued on never was in force, so that in neither event could there have been a verdict for the plaintiff.

(Decided June 17th, 1896).

Finding no error in the rulings of the learned Judge below, the j udgment will be affirmed.

Judgment affirmed.