Pope Manufacturing Company v. Gormully (144 U.S. 224)/Opinion of the Court

This case involves the question whether a court of equity can be called upon to decree the specific performance of a contract, wherein the defendant, in consideration of receiving a license to use certain patents belonging to the plaintiff during the life of such patents, agrees never to import, manufacture, or sell any machines or devices covered by certain other patents, unless permitted in writing so to do, nor to dispute or contest the validity of such patents or plaintiff's title thereto, and further to aid and morally assist the plaintiff in maintaining public respect for and preventing infringements upon the same; and further agrees that if, after the termination of his license, he shall continue to make, sell, or use any machine or part thereof containing such patented inventions, the plaintiff shall have the right to treat him as an infringer, and to sue out an injunction against him without notice.

There are other covenants in this contract which show that the plaintiff intended to reserve to itself a large supervision and control of the defendant's business; for example, in the second clause, wherein the defendant agrees to maintain a place of business in Chicago, keep on hand a stock of bicycles, and advertise his business by occupying and paying for one-page space continuously, during the term of his license, in a certain periodical published in Boston, and in other publications of general circulation; and to advertise that it is licensed by the plaintiff. By the sixth clause he agrees to sell bicycles at retail, and not to sell to any person except upon terms and prices satisfactory to the plaintiff, and as shall first be submitted to and approved by it; and shall not have or sell to any agent in any other place than Chicago, nor pay nor allow freight beyond Chicago, nor any bonus, rebate, allowance, or commission on sales. By the seventh clause he agrees to stamp the word 'patented' on each machine, together with the dates of the patents under which each of the machines is made or sold, according to a list furnished by the plaintiff.

It is rarely that this court is called upon to consider so unique a contract, and we have found some difficulty in assigning to it its proper place among legal obligations. Its requirement is not merely that the licensee shall refrain during the term of his license from infringing other patents than those which he is expressly authorized to use, but shall forever afterwards, at least during the life of such patents, refrain from importing, making, or selling articles covered by them, and from disputing the validity thereof or plaintiff's title thereto, and shall afford his moral aid and assistance in securing proper aid and respect for such patents. The exact nature and amount of moral suasion the licensee is bound to exert in behalf of the plaintiff is not specified, but is apparently left to be determined by the circumstances of the case.

1. Ordinarily the law leaves to parties the right to make such contracts as they please, demanding, however, that they shall not require either party to do an illegal thing, and that they shall not be against public policy or in restraint of trade. It is argued with much earnestness here that this contract is open to the last objection, as an attempt to fetter the defendant from importing or making bicycles, in which he might otherwise have a perfect right to deal, and thus foreclose himself from the ability to earn an honest living in his chosen calling. It is scarcely necessary to say that, without this contract, the defendant would have no right to manufacture or sell bicycles covered by valid patents of the plaintiff, so that the contract is not needed for the protection of the plaintiff to this extent. The real question is whether the defendant can estop himself from disputing patents which may be wholly void, or to which the plaintiff may have no shadow of title. It is impossible to define with accuracy what is meant by that public policy, for an interference and violation of which a contract may be declared invalid. It may be understood in general that contracts which are detrimental to the interests of the public as understood at the time fall within the ban. The standard of such policy is not absolutely invariable or fixed, since contracts which at one stage of our civilization may seem to conflict with public interests at a more advanced stage are treated as legal and binding. In certain cases a man may doubtless agree that he will interpose no defense to a specified claim, and that another may take judgment against him without notice. This is a matter of every-day occurrence in connection with what are termed judgment notes. But, if one should agree for a valuable consideration that he would set up no defense to any action which another might bring against him, and such other person might enter up judgment against him in any auch action without notice, we think that no court would hesitate to pronounce such an agreement invalid. There are certain fundamental rights which no man can barter away, such, for instance, as his right to life and personal freedom, and, in criminal cases, the right to be tried by a jury of his peers. Courts have even gone so far as to say that a man cannot consent to be tried by a jury of less than twelve men, whatever may be the circumstances under which the twelfth man is taken from the panel. Cooley, Const Lim. 319. We are reluctant to say that a right to defend a whole class of unjust claims may not be one of these. It is as important to the public that competition should not be repressed by worthless patents, as that the patentee of a really valuable invention should be protected in his monopoly; and it is a serious question whether public policy permits a man to barter away beforehand his right to defend against unjust actions or classes of actions, though, in an individual case, he may doubtless assent that a judgment be rendered against him, even without notice.

The Reports are not entirely barren of authority upon this subject. Thus in Crane v. French, 38 Miss. 503, it was held that though a party may omit to take advantage of a right, such as the right to plead the statute of limitations, secured to him by law, he could not bind himself by contract not to avail himself of such right if it be secured to him on grounds of public policy. 'But there appears to be,' says the court, 'a clear distinction between declining to take advantage of a privilege which the law allows to a party, and binding himself by contract that he will not avail himself of a right which the law has allowed to him on grounds of public policy. A man may decline to set up the defense of usury, or the statute of limitations, or failure of consideration to an action on a promissory note. But it would scarcely be contended that a stipulation inserted in such a note, that he would never set up such a defense, would debar him of the defense if he thought fit to make it. * *  * Suppose, then, an agreement made by the maker of a note that he would not set up the defense of usury. Would an action lie for a breach of that agreement, in case the party should make the defense in disregard of it? It appears not, and the reason is, that the right to make the defense is not only a private right to the individual, but it is founded on public policy, which is promoted by his making the defense, and contravened by his refusal to amke it. * *  * With regard to all such matters of public policy, it would seem that no man can bind himself by estoppel not to assert a right which the law gives him on reasons of public policy.' There are cases wherein it is held that a promise not to plead the statute of limitations is a good bar, but they are those wherein the promise was made after the cause of action had accrued, and where it was considered by the court as a new promise. There are a few cases, however, which hold that an agreement not to plead the statute, made upon the instrument, or at the time of its execution, may be pleaded as an estoppel. So in Stoutenburg v. Lybrand, 13 Ohio St. 228, it was held that a contract which provides that a defendant in a proceeding for divorce shall make no defense thereto is against public policy, and therefore void. 'The tendency of such agreements. said the court, 'is to mislead the court in the administration of justice, and injuriously affect public interests.' A like ruling was made in Sayles v. Sayles, 1 Fost. 312; and in Viser v. Bertrand, 14 Ark. 267. So in Bell v. Leggett, 7 N. Y. 176, 179, it was said that 'all contracts or agreements which have for their object anything which is repugnant to justice, or against the general policy of the common law, or contrary to the provisions of any statute, are void;' and that this principle has often been applied by our courts to contracts which had for their objects the perversion of the ordinary operations of the government. In that case a note given by a third person to a creditor in consideration of his withdrawing opposition to the discharge of a bankrupt debtor, was held to be void as against the policy of the law. In most of the states wherein the question has arisen it has been held that a debtor is not bound by his waiver of his homestead or other exemptions upon execution. Kneetle v. Newcomb, 22 N. Y. 249, 251. 'In these cases,' said the court, 'the law seeks to mitigate the consequences of man's thoughtlessness and improvidence, and it does not, I think, allow its policy to be invaded by any language which may be inserted in the contract.' The exigencies of this case do not require us to decide the question whether a man may or may not contract before hand not to set up a certain defense to a particular action; but we are of the opinion that a contract not to set up any defense whatever to any suit that may be begun upon 50 different causes of action is in violation of public policy. See, as pertinent to this question, Insurance Co. v. Morse, 20 Wall. 445; Doyle v. Insurance Co., 94 U.S. 535; Barron v. Burnside, 121 U.S. 187, 7 Sup. Ct. Rep. 931.

2. But whether this contract be absolutely void, as contravening public policy, or not, we are clearly of the opinion that it does not belong to that class of contracts, the specific performance of which a court of equity can be called upon to enforce. To stay the arm of a court of equity from enforcing a contract it is by no means necessary to prove that it is invalid; from time immemorial it has been the recognized duty of such courts to exercise a discretion; to refuse their aid in the enforcement of unconscionable, oppressive, or iniquitous contracts; and to turn the party claiming the benefit of such contract over to a court of law. This distinction was recognized by this court in Cathcart v. Robinson, 5 Pet. 264, 276, wherein Chief Justice MARSHALL says: 'The difference between that degree of unfairness which will induce a court of equity to interfere actively by setting aside a contract, and that which will induce a court to withhold its aid, is well settled. 10 Ves. 292; 2 Cox, Ch. 77. It is said that the plaintiff must come into court with clean hands, and that a defendant may resist a bill for specific performance by showing that under the circumstances the plaintiff is not entitled to the relief he asks. Omission or mistake in the agreement, or that it is unconscientious or unreasonable, or that there has been concealment, misrepresentation, or any unfairness, are enumerated among the causes which will induce the court to refuse its aid.' This principle is reasserted in Hennessey v. Woolworth, 128 U.S. 438, 442, 9 Sup. Ct. Rep. 109, in which it was said that specific performance is not of absolute right, but one which rests entirely in judicial discretion, exercised, it is true, according to the settled principles of equity, and not arbitrarily or capriciously, and always with reference to the facts of the particular case. Willard v. Tayloe, 8 Wall. 557, 567; Marble Co. v. Ripley, 10 Wall. 339, 357; 1 Story, Eq. Jur. § 742; Seymour v. Delancey, 6 Johns. Ch. 222, 224; White v. Damon, 7 Ves. 30, 35; Radcliffe v. Warrington, 12 Ves. 326, 331.

These principles apply with great force to the contract under consideration in this case. Not only are the stipulations in paragraphs 9 and 11 unusual and oppressive, but there is much reason for saying that they were not understood by the defendant as importing any obligation on his part beyond the termination of his license. Indeed, thd operation of these covenants upon his legitimate business was such that it is hardly possible he could have understood their legal purport. The testimony upon this point was fully reviewed by the court below in its opinion, and the conclusion reached that the contract 'was an artfully contrived snare to bind the defendant in a manner which he did not comprehend at the time he became a party to it.' We have not found it necessary to go into the details of this testimony. While we are not satisfied that his assent to this contract was obtained by any fraud or misrepresentation, or that the defendant should not be bound by it to the extent to which it is valid at law, we are clearly of the opinion that it is of such a character that the plaintiff has no right to call upon a court of equity to give it the relief it has sought to obtain in this suit. We express no opinion upon the question whether an action at law will lie upon the covenants of the ninth clause of the contract not to manufacture or sell the devices therein specified.

The decree of the court below dismissing the bill is, therefore, affirmed.