Opinion
Rehearing Granted July 8, 1948. Appeal from Superior Court, Los Angeles County; John Beardsley, Judge.
FN Matter Not Available.
O'Melveny & Myers, Pierce Works, John Whyte, Louis W. Myers and Lyon & Lyon, all of Los Angeles, for appellants.
Samuel L. Kurland and A. Arnold Klein, both of Los Angeles, for respondent.
OPINION
PER CURIAM.
The plaintiff commenced an action to have certain agreements whereby royalties under a patent license were to be paid to the defendant California Institute of Technology (hereinafter referred to as the defendant) declared void. Two grounds of invalidity were charged. A first cause of action alleged lack of consideration for the assignment of royalties to the defendant. A second cause of action alleged that the inducement for the agreements were certain promises made by the defendant Dr. Donald S. Clark without the intention of performing them. The trial court found for the plaintiff on both grounds. This appeal by the defendants followed.
The following facts are undisputed:
Prior to 1934 the plaintiff attended the Institute as a student, was graduated in 1934 and received his Master's degree in 1936. He assisted himself financially by working for various departments and persons. In 1936 Dr. Clark was a member of the faculty in the mechanical engineering department, was the department's personnel director, and had charge of Impact Research a project organized to study and determine the performance of materials under rapidly applied loads. The project was in part sustained by contributions to the Institute from commercial firms who were interested in the results of the experiments. A paid assistant in the department was Dr. Datwyler who, with Dr. Clark, was working at the time on the problem of devising a method of measuring and determining the force of time relations which occurred to metals during impact loading. For this purpose they utilized a known device an impact dynamometer for translating instantaneous forces into electrical impulses to be recorded by means of an oscillograph. Their problem was the procurement of some strain sensitive element which would make the device workable in the measurement of impacts. In the latter part of August, 1936, they took their problem to the plaintiff, who by this time had acquired a reputation for ingenuity, was frequently consulted by both teachers and students, and gave freely of his advice without charge or pay. Some time before September 10th the plaintiff went to Dr. Datwyler with his suggestion for a strain sensitive element and instructions for use of a particular bonding material and process of construction which he believed would transmit the strain from the dynamic bar to the strain sensitive element. Dr. Datwyler constructed a machine embodying the plaintiff's suggestions and instructions for the dynamometer, starting from a crude and progressing to a suggested improved type, with the desired success in high speed impact testing. The plaintiff was not in the employ of the defendant at the time and his services in this connection were given without compensation.
The department continued the use of the plaintiff's ideas in Impact Research. Beginning December 11, 1936, the plaintiff was employed by the defendant as a parttime paid worker in Impact Research at 75 cents an hour. His duties were to construct equipment according to specifications furnished by Dr. Datwyler. In June, 1938, he received appointment by the defendant to an 'assistantship' for the academic year 1938-39 at $1 per hour, forty hours per month, with the same duties. He was reappointed to perform the same duties in the academic year 1939-40 for sixty hours per month at $1 per hour.
In the autumn of 1939 a representative of Baldwin Locomotive Works went to the defendant's Impact Research Laboratory to negotiate for the issuance of a patent and the procurement of an exclusive license to utilize the plaintiff's invention. Baldwin's representative had observed the invention in use at Massachusetts Institute of Technology and had traced its origin to California and the plaintiff. He expressed the opinion that the little gauge, hardly larger than a postage stamp, would 'be stuck to practically everything' in order to know what was going on; that it was the 'safety pin' in its field insofar as invention was concerned. Aircraft companies were already applying the gauge to airframes and structures to discover distribution of pressures, thus leading to improvements in strength and lightness, and it appeared that the use of the gauge would spread to every form of industry where dynamic application of forces was involved.
By this time the plaintiff had become interested in the work conducted in Impact Research, in continuing to have an active part therein, and in having possible income from the invention devoted thereto. After some weeks of negotiation with Dr. Clark and with Baldwin, whose attorney prepared and prosecuted the application for the issuance of the patent to the plaintiff, the plaintiff on February 21, 1940, signed an instrument designated as Exhibit A, which reads in part: 'In consideration of my employment by the California Institute of Technology I agree that as to my inventions involving an electrical strain gauge wire secured throughout its length to the surface of a member adapted to be subject to strain, and also my inventions relating to the measurements and indications of various conditions including impact testing, * * * I will not grant any license to make, use or sell apparatus or methods embodying any of said inventions unless such licenses are approved by' the defendant. 'The royalty on said inventions shall be paid to' the defendant 'unless at my option I shall request in writing * * * that up to and including forty per cent (40%) of the total royalty paid by any licensee shall be paid to me * * *' (This option was added at the plaintiff's request to apply in the event income from royalties exceeded the needs of Impact Research.) Dr. Clark's signature appears on this instrument under the word 'Witness'.
On March 3, 1940, the plaintiff and Baldwin Locomotive Works executed an agreement (Exhibit B) whereby the plaintiff (in consideration of $1 and other good and valuable consideration), granted an exclusive license to Baldwin Locomotive Works with specified reservations, to make for use, rental and sale the inventions covered by the patent for a royalty of five percent of the sales price or income from rentals of the portion of apparatus embodying the inventions. The entire royalty was provided to be paid to the defendant unless the plaintiff exercised the stated option. The defendant's president signed an approval of the license 'in accordance with an agreement (Exhibit A) between Edward E. Simmons, Jr., and the California Institute of Technology dated February 21, 1940.' By action of the executive council of the defendant, Exhibit B was approved; but there was no action by the executive council ratifying the president's approval of Exhibit A.
About July 1, 1940, the plaintiff was reappointed to the assistantship on the same terms for the ensuing academic year. Toward the close of that year, in June, 1941, he was informed by Dr. Clark that his employment would not be renewed because Impact's funds were running low. The plaintiff for the first time learned that royalties received by the defendant pursuant to Exhibit B were not turned over to Impact Research. He was not thereafter re-employed by the Institute, although there is testimony that the work in Impact Research continued and evidence that royalties under the license would support the plaintiff's employment. The plaintiff did not exercise the contract option nor did he receive any royalties. He sought from but was denied relief by the defendant and in January, 1942, served notices of rescission, notifying Baldwin Locomotive Works thereof which thereupon withheld further payments of royalties pending the outcome of the controversy. This action was commenced on August 17, 1943, to have it declared that the plaintiff was entitled to recover some $2,000 theretofore received as royalties by the defendant, and to obtain a declaration of the invalidity of any claim of the defendant to future royalties.
The trial court found that the instrument Exhibit A, and the instrument Exhibit B insofar as it purported to confer rights upon the defendant, were unsupported by any consideration (the basis of the first cause of action), and were to that extent invalid. The court also made a general finding that the allegations of the second cause of action (relating to the representations of Dr. Clark) were true. It was concluded that the Instrument Exhibit A, and that part of Exhibit B conferring rights upon the defendant, were void. The judgment provided that the plaintiff recover from the defendant royalties paid in the sum of $2,004.94, and that the defendant had no right, title or interest in the accrued and unpaid royalties or any future royalties under Exhibit B.
The defendant asserts that the evidence is insufficient to support the findings and the judgment on either ground; and that the court erroneously admitted evidence over objection the effect of which was to vary the terms of a written contract.
The invalidity asserted in the first cause of action was alleged in general terms, that is, that Exhibit A was 'without any consideration', and that Exhibit B, insofar as it purported to confer rights upon the defendant was 'without consideration' on the part of the defendant. Likewise the findings as to this cause of action were in general terms, that is, that there was no consideration for Exhibit A, and that the plaintiff received no consideration for the licensing agreement Exhibit B insofar as it purported to confer rights upon the defendant.
An agreement may consist of several writings, substantially part of one transaction, which are to be taken together. (Section 1642, Civil Code; Daniels v. Daniels, 3 Cal.App. 294, 297; Patterson-Ballagh Corp. v. Byron Jackson Co., 145 F.2d 786.) That Exhibits A and B must be so considered may not be gainsaid. Obviously Exhibit B, insofar as it provided for payment of royalties to the defendant, depended upon Exhibit A to show the consideration moving to the plaintiff. Therefore if for any reason Exhibit A falls, Exhibit B in its relation to the defendant falls with it.
'A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.' (Section 1647, Civil Code.) 'If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.' (Section 1949, Civil Code.) The word 'employment' in Exhibit A admits of more than one interpretation, according to the subject matter and the belief and understanding of the parties in relation thereto. The appearance of the word in Exhibit A presents a case for examination and discovery of the sense to be ascribed to it. Wachs v. Wachs, 11 Cal.2d 322 and authorities cited at page 326, 79 P.2d 1085. Therefore the circumstances under which the agreement was made, including the situation of the subject matter and the parties, may be shown in order that the court be placed in the position of those whose language is to be interpreted. (Section 1860, Code of Civil Procedure; Lemm v. Stillwater Land & amp; Cattle Co., 217 Cal. 474, 19 P.2d 785; Patterson-Ballagh Corporation v. Byron Jackson Co., 9 Cir., 145 F.2d 786, at page 790. The true consideration of a contract may be shown by extrinsic evidence. Shiver v. Liberty Building-Loan Ass'n, 16 Cal.2d 296, 106 P.2d 4; Johnston v. Courtial, 216 Cal. 506, 14 P.2d 771.
The purpose of the admission of extrinsic evidence in this case was not to establish a consideration at variance with that expressed in the instrument Exhibit A. Regardless of any other issue in the case, testimony concerning the plaintiff's inventions, the situation of the parties in relation thereto, their conversations regarding their object and intent, and their subsequent conduct, was eminently proper for the purpose of ascertaining the meaning of the word 'employment' as used in that instrument. The court made but one finding regarding the meaning of that word. That finding is implicit in the general finding of the truth of the allegations of the second cause of action and is that the plaintiff expected and intended permanent employment. The conclusion followed that since permanent employment was the consideration contemplated in the execution of Exhibit A, and since the plaintiff did not receive that employment, there was a failure of consideration for both Exhibits A and B. The record supports the finding that by 'employment' permanent employment was meant, and that both parties so understood the expression. The plaintiff was in the employ of the defendant at the time. After execution of the instruments his employment continued and was renewed for an additional year. That he did not receive permanent employment is not disputed. But it is contended by the defendant that a provision for permanent employment means a hiring at will or for a reasonable time.
Cases holding that a contract between employer and employee for permanent employment, in the absence of anything further, means a hiring at will or for a reasonable time (see 135 A.L.R. p. 646 et seq. and cases cited; Davidson v. Laughlin, 6 Cal.Unrep. 865, 68 P. 101), furnish no obstacle to recognizing the contract actually made by the parties. Those cases do not indicate that where the intent is discoverable pursuant to applicable rules it will not be given effect accordingly. Furthermore receipt of consideration by the employer under such a contract is deemed to prevent the termination of the employment except for good cause. Brown v. National Electric Works, 168 Cal. 336, 143 P. 606; Seifert v. Arnold Bros., Inc., 138 Cal.App. 324, 31 P.2d 1059; Carnig v. Carr, 167 Mass. 544, 46 N.E. 117, 35 L.R.A. 512, 57 Am.St.Rep. 488; Evans v. Cincinnati, S. & M. R. Co., 78 Ala. 341; Mt. Pleasant Coal Co. v. Watts, 91 Ind.App. 501, 151 N.E. 7. In Lord v. Goldberg, 81 Cal. 596, 22 P. 1126, 15 Am.St.Rep. 82, the employee did not bring in the promised consideration for the promised employment and it was held to be terminable at will; but in Davidson v. Laughlin, 138 Cal. 320, 71 P. 345, 5 L.R.A., N.S., 579, it was held that failure to furnish the promised permanent employment released the employee from the promised consideration. The rule is stated in 135 A.L.R. at page 654, as follows: '(W)here the employee has given consideration additional to the services incident to the employment, or, as it is sometimes stated, where the employee purchases the employment, in the absence of statute, other terms in the contract, or circumstances to the contrary, a contract for permanent employment, for life employment, or for other terms purporting permanent employment * * * continues to operate as long as the employer remains in the business and has work for the employee, and the employee is able and willing to do his work satisfactorily * * *'
The foregoing discussion establishes that the judgment is supported by the findings and the evidence that there was a failure of consideration for the plaintiff's agreements Exhibits A and B insofar as the defendant was concerned.
The parties argue the import of various conversations between the plaintiff and Dr. Clark, and of the conduct of the parties. But the weight of the evidence and the inferences to be drawn therefrom were for the trial court, and so long as there is, as here, substantial evidence which supports the findings, there is no further question before this court in that respect. Noll v. Baida, 202 Cal. 98, 259 P. 433; Divani v. Donovan, 214 Cal. 447, 6 P.2d 247.
There is no merit in the contention that the licensing agreement, Exhibit B, was one for the benefit of a third party (defendant), supported by the consideration running between the parties thereto, which may be enforced by the defendant at any time before rescission. Taking the instruments together, as we must, it was not contemplated that the defendant's receipt of royalties thereunder should be without consideration running to the plaintiff from the defendant, and the evidence supports the finding that that consideration was permanent employment.
The defendant also argues other matters relating to a possible legal consideration for Exhibit B, such as moral obligation (section 1606, Civil Code), and settlement of a claimed existing controversy as to ownership of the invention. The appropriate answer to these contentions is that there was no evidence that a moral obligation, if any existed, was the intended consideration. Assuming a dispute, its settlement must be considered to be merged in the written agreements, and the findings of the trial court on the subject of the consideration intended thereby and that the same was not received, being supported by sufficient evidence, are conclusive on appeal.
The contention that the plaintiff's rescission was ineffectual because of his failure to return or offer to return everything of value received under the contract cannot be sustained. The contention refers to employment and other claimed incidental benefits received by the plaintiff. Obviously the plaintiff was entitled, independently of the agreements, to retain compensation received for services rendered. It is also obvious that the defendant could not return the services received, and that both parties could not be restored to their status existing prior to the contracts. Under such circumstances the element of restoration is not a legal requirement. Watson v. Poore, 18 Cal.2d 302, 316, 115 P.2d 478; Walsh v. Majors, 4 Cal.2d 384, 396, 49 P.2d 598; Steele v. Scott, 192 Cal. 521, 526, 221 P. 342; California Farm & amp; Fruit Co., Ltd., v. Schiappa-Pietra, 151 Cal. 732, 740, 91 P. 593.
It becomes unnecessary to dwell at length upon the ground of rescission alleged in the second cause of action, and the evidence and findings thereon. The evidence supports the implied findings of the following facts: That the plaintiff was promised permanent employment, which did not receive; that there was also a promise that the receipts from Exhibit B would be used by the defendant to support Impact Research and the plaintiff's employment therein; that they were not so used but were devoted by the defendant to other purposes; that Dr. Clark who made the promises was in a position of responsibility and authority to make them; that the plaintiff relied upon those promises; that but agreement Exhibit A, approved both by Dr. Clark and the president of the Institute, expressed that understanding and reliance and that both agreements were pursuant thereto; that the defendant, by expressly approving the agreement Exhibit B and accepting benefits thereunder, and adopted Dr. Clark's conduct promises in respect thereto; but that the defendant's omission, after Dr. Clark's and the president's recognition and approval Exhibit A, expressly to ratify and approve that agreement, and its subsequent failure to keep the promises to the plaintiff, justified the trial court in inferring the defendant's formulation of an intent not to perform them at least as of the time when they were adopted by acceptance of Exhibit B. Furthermore it is axiomatic that the defendant may not accept the benefits and avoid the obligations imposed by the understanding and agreements to which it was a party. To permit that result would be to condone a fraud upon the plaintiff.
The judgment is affirmed.
SHENK, J., did not participate on rehearing.