EASTMAN OIL WELL SURVEY CORPORATION ET AL. v. LANE–WELLS CO.
In this action plaintiff sought the following relief: (1) A decree construing the royalty provisions of a contract by which defendant licensed plaintiff to manufacture and use certain patented devices for the directional drilling of oil wells, as to which royalties the parties were in disagreement (the patents being referred to as the Anderson patents, except where more specific reference is required), and (2) a decree declaring that a certain other method, which we shall call the magnetic method, for the directional drilling of oil wells which was being used by plaintiff was not covered by said Anderson patents and was not an improvement thereon.
Plaintiff (sometimes herein referred to as “Eastman”) prevailed as to each of its contentions. It was decreed that the “magnetic method” was not covered by and was not an improvement upon the methods covered by the Anderson patents. Upon the appeal this portion of the judgment is not challenged by appellant. The attack here made is upon the construction of the license agreement. Defendant contends for a construction under which plaintiff would be required to pay royalties to defendant for all work done under the magnetic method or any other method, whether the same is covered by the Anderson patents, upon the same basis as royalties are paid under the agreement for work done under the method covered by the Anderson patents. Plaintiff's contention is that no royalties are payable except for work done in which the devices covered by the several described patents are employed. The court gave the agreement his construction and decreed that work done under the magnetic method carries no royalty obligation under the license agreement. It is this construction of the agreement that is claimed to be erroneous. The license agreement reads in part as follows:
“This Agreement made and entered into this 31st day of January, 1938 by and between Lane–Wells Company, a corporation organized and existing under and by virtue of the laws of the State of Delaware, having its principal office at Los Angeles, California, Party of the First Part, hereinafter referred to as Licensor, and Eastman Oil Well Survey Corporation, a corporation organized and existing under and by virtue of the laws of the State of California, having its principal office at Long Beach, California, Eastman Oil Well Survey Company, a corporation organized and existing under and by virtue of the laws of the State of Delaware, having its principal office at Dallas, Texas, and H. John Eastman of Dallas Texas, Parties of the Second Part, hereinafter referred to as Licensee.
“Whereas, the Licensor is the owner of the following United States Letters Patent and the inventions claimed therein:
and is also the owner, by agreement with Licensee, of that certain invention of one Willard Opocenski entitled ‘Method of Surveying Wells and Apparatus Therefor’, for which an application for Letters Patent is about to be filed; and,
“Whereas, the Licensee is desirous of acquiring a license to manufacture for its own use devices embodying the aforesaid inventions, and to use said devices, and to practice the methods described and claimed in said Letters Patent in its business, of orienting surveys, pipe and tools in well bores;
“Now, therefore, in consideration of the mutual covenants and agreements of the parties, and the full, prompt and faithful performance thereof, and the payment of the royalties at the time and in the manner hereinafter provided, and other good and valuable considerations, the parties hereto have and do agree together as follows, to–wit:
“I. For the term and upon the conditions set forth in this Agreement and under said Anderson and Stokenbury Letters Patent, said invention of Willard Opocenski, and any Letters Patent that may be granted therefor, and under any Letters Patent for any improvements on the inventions of the aforesaid Letters Patent, hereafter made or acquired by Licensor, Licensor hereby grants to Licensee a non–exclusive, non–transferable indivisible and personal license, limited to and personal to the business of the Licensee in making orienting surveys in a well bore, orienting pipe positioned for any purpose in a well bore, and of orienting any tools or any other equipment in a well bore, but not extended to any other use or purpose whatsoever, to manufacture devices embodying any or all of the aforesaid inventions, and to practice the methods described and claimed in and by said Letters Patent and in the invention of said Willard Opocenski. This license to so manufacture for its own use and to so use said inventions shall extend to and be limited to the United States of America, its territories and possessions.
“It is specifically understood and agreed that the license herein granted under said invention of said Willard Opocenski is not to become effective until such time as Licensor has obtained the entire right, title and interest therein by assignment from said Willard Opocenski.
“It is further specifically understood and agreed that the license herein granted is not granted under any other inventions or Letters Patent owned by Licensor and that no license is granted hereunder to manufacture or use or sell, at any time or place, any devices, surveying instruments or other tools, or methods embodying the inventions disclosed and claimed in any other Letters Patent owned by Licensor or under which it is licensed.
“It is further specifically understood and agreed that no license is granted to Licensee to sell at any time or in any place or country, devices or methods embodying the inventions covered by this License, except with the written consent of Licensor.
“II. Licensee covenants and agrees to pay to Licensor, at the times and in the manner as hereinafter provided, the following royalties:
“For each orienting survey of a well bore, a sum equal to sixteen and two–thirds percent (16 2/3%) of the total charge made by Licensee for such orienting service, but in no event shall such royalty be less than the sum of Twenty–five Dollars ($25.00);
“For orienting pipe positioned for any purpose in a well bore, for which service a charge is made upon a footage basis, a sum equal to sixteen and two–thirds percent (16 2/3%) of the total charge made by Licensee for such orienting service, but in no event shall such royalty be less than the sum of Twenty–five Dollars ($25.00);
“For orienting any tools, or any other equipment in a well bore for which orienting service a flat charge is made by Licensee of One Hundred Seventy–five Dollars ($175.00) or less, the sum of Fifteen Dollars ($15.00);
“For orienting any tools, or any other equipment in a well bore for which service a flat charge is made by Licensee of more than One Hundred Seventy–five Dollars ($175.00), a sum equal to ten percent (10%) of the total charge made by Licensee for such orienting service.
“It is expressly understood and agreed that the royalties herein provided shall be computed from and paid for all orienting services rendered by Licensee from and including January 1, 1938.
“III. Licensee agrees to keep a true and accurate set of books of account, correctly showing the name and address of each customer, the service rendered, and the date and place thereof, the total charge made for such service, and all transactions in connection with all services rendered by Licensee under this license, which books of account shall be open during all usual business hours for the inspection of Licensor or its duly authorized representative; and further agrees to render a statement in writing to the Licensor, on or before the 20th day of each month, during the term of this Agreement, setting forth a true statement of each service rendered hereunder, the date and place where rendered, for whom rendered, the total charge made therefor, during the preceding month, and further covenants and agrees to pay to the Licensor at that time the royalties due for services rendered hereunder by Licensee during the preceding month.
“IV. Licensor covenants and agrees that it will not, during the term of this Agreement, license others under the aforesaid Stokenbury Patent No. 2,088,539 or under the invention of said Willard Opocenski, or any Letters Patent granted therefor, or under any other patents that may be hereafter acquired by Licensor from Licensee, within the United States of America, without the written consent of Licensee.
“VI. Licensee covenants and agrees that it will at no time during the life of this Agreement deny or contest the ownership or validity of the aforesaid Letters Patent, or of any Letters Patent that may issue upon the aforesaid invention of said Willard Opocenski, or upon any improvements of any of the aforesaid Letters Patent, and that it will in no manner set up or induce the setting up of any adverse allegations as to the ownership or validity thereof, and that it will not lend its aid in support of any opposition thereto, or counsel with, aid, abet or encourage any other person or persons contesting the same.
“VII. It is mutually covenanted and agreed that in the event any of the aforesaid Letters Patent, or any Letters Patent granted upon the invention of said Willard Opocenski are finally adjudged by a court of competent jurisdiction to be invalid and no further appeal lies, then, the Licensee shall have the option upon the date of expiration of Anderson Patent No. 1,770,224, to cancel this Agreement by thirty (30) days notice in writing to Licensor, and the obligation of the Licensee to pay royalties hereunder shall cease at the date of cancellation, without, however, relieving Licensee of the payment of all royalties due up to the date of cancellation, it being the intent of this paragraph that the Licensee is obligated in all events to pay the royalties hereinbefore provided until the date of expiration of said Anderson Patent No. 1,770,224, notwithstanding the fact that any of the aforesaid patents under which Licensee is licensed hereunder may have been declared invalid, but that Licensee in the event any of the Letters Patent have been declared invalid may cancel the agreement if it so desires, at the date of expiration of said Anderson Patent No. 1,770,224, but not sooner, and relieve itself from the obligation to thereafter pay royalties hereunder, and that unless the Licensee so elects to cancel the agreement as above provided, the obligation to pay the royalties shall continue for the full term of the agreement.
“XII. Any improvements made on the inventions which are the subject matter of this Agreement by or through the efforts of Licensee or acquired by it, or coming under its control, during the life of this Agreement, and all Letters Patent therefor, shall be the property of, and properly assigned to Licensor to the full extent of the interest therein by Licensee; the expense of procuring Letters Patent for any such inventions so assigned to Licensor shall be paid by Licensor.
“XIV. The term of this Agreement shall be for the life of the last numbered Letters Patent issued upon any of the inventions covered by this Agreement unless sooner terminated in accordance with the provisions hereof.”
Defendant has three approaches which are relied upon as leading to the construction for which it contends: (1) That the agreement standing alone requires the payment of royalties upon all work done by plaintiff, whether under the described patents or through the use of other methods; (2) that if the agreement in and of itself cannot be thus construed, it must be read with two other agreements, executed contemporaneously, and that when so read it must receive the interpretation urged by defendant; and (3) that when the three writings are considered together with the circumstances surrounding their execution, including the negotiations of the parties which culminated in the agreement, it will appear that the parties intended to provide for the payment of royalties upon the broad basis of defendant's claims.
Having explored these several approaches we find that they all lead to the end reached by the trial court.
In support of the first argument attention is called to the provisions for the payment of royalty and specifically to charges specified for each of the following services: “for each orienting survey of a well bore;” “for orienting pipe position for any purpose in a well bore for which a service charge is made on a footage basis;” “for orienting any tools or any other equipment in a well bore for which orienting service a flat charge is made by the licensee;” and a provision “that the royalties herein provided shall be computed from and paid for all orienting services rendered by licensee from January 1, 1938.” We find nothing in these phrases or in any of the other terms or provisions of the agreement directly or indirectly purporting to recognize defendant's right to charge or any duty on the part of plaintiff to pay royalties with respect to work to be performed by plaintiff in orienting drilling operations by methods other than those covered by the patents described in the agreement. The subject matter of the contract was the granting by defendant to plaintiff of the right to use certain patented devices owned or controlled by defendant, for which right and the exercise thereof plaintiff obligated itself to pay certain royalties. It is expressly provided in paragraph III of the agreement that Eastman was to keep books of account showing each service rendered, the total charge made for such service “and all transactions in connection with all services rendered by Licensee under this License,” was to render monthly statements “of each service hereunder” and “pay to the Licensor at that time the royalties due for services rendered hereunder by Licensee during the preceding month.” Nothing in the contract suggests that the parties were contracting with reference to anything other than uses to be made of the described devices. The claims now asserted by defendant, had they been recognized by plaintiff at the time of the contract, would have called for a provision therein conceding not only that, as between the parties, defendant was the owner of, or entitled to charge royalties upon, patent rights in certain devices used in the directional drilling of oil wells, but also that it had an exclusive right to practice the art and to conduct the business of orienting oil well drilling by whatsoever methods. It is obvious that to read into the contract a recognition of such right would be to extend its operation far beyond its purposes as they are expressly stated therein. Counsel for defendant, with commendable frankness, dwell but lightly upon their first contention. The terms of the agreement will be discussed more fully in connection with defendant's second and third theories of interpretation. It will be sufficient to say here that it is a cardinal rule of construction that broad general language used in a contract should not be given effect beyond the obvious subject matter of the contract and the mutual intentions of the parties which they have undertaken to express in writing. Lemm v. Stillwater Land & Cattle Co., (1933) 217 Cal. 474, 19 P.2d 785; Hollander v. Wilson Estate Co., (1932) 214 Cal. 582, 585, 7 P.2d 177. Under this rule the duty to pay royalties would be limited to those which became due on account of the use of the licensed devices.
The next argument is that on the same day the agreement was entered into, two other license agreements, which we shall refer to as the Lewis and McVicar agreements, were made between the same parties and that from a comparison of certain restrictive provisions of these two agreements with the broader provisions of the primary agreement, it results that the latter must receive the construction urged by defendant. This contention is inextricably involved with defendant's third argument, as will appear as we proceed.
The events that preceded the making of the three agreements, and which were proved under circumstances to be related hereinafter, were the following: Lane–Wells, holding the two Anderson patents described in the agreement, had been awarded an interlocutory judgment in the United States District Court for the Southern District of California, adjudging Eastman to be guilty of infringement of said patents and ordering an accounting to Lane–Wells of damages occasioned thereby. The accounting of damages was to be limited to business done in California, although other like actions were pending in the courts of Oklahoma and Texas, where the Eastman company had also been operating. Without the taking of an accounting, an agreement was reached by the parties compromising all of Lane–Wells' claims for damages for patent infringement for the sum of $30,000. Thereupon stipulations were filed in the courts of California, Texas and Oklahoma, calling for final decrees, which were duly entered, adjudging the Eastman company guilty of patent infringements and awarding Lane–Wells the sum of $30,000 as damages. Contemporaneously with the compromise and the entry of the decrees Eastman paid Lane–Wells in cash $7,500; Eastman also assigned to Lane–Wells the Stokenbury patent and the so–called Opocenski application for patent rights described in said license agreement, and Eastman received a credit therefor on the judgment of an additional $5,000, leaving $17,500 unpaid, which Eastman agreed to pay in fifteen equal installments on the 20th day of each month, commencing February 20, 1938. Thereupon the license agreement was entered into by which plaintiff Eastman was licensed under the two Anderson patents, the Stokenbury patent and the Opocenski application for patent. At the same time Lane–Wells licensed Eastman to manufacture and use two devices invented by and patented to one Lewis, one a straightening tool and the other a deflecting tool to be used in well bores, for the use of which Eastman agreed to pay Lane–Wells $25 for each run of either of said tools in a well, and Eastman licensed Lane–Wells to manufacture and use a patented device for use in directionally drilling oil wells and which tool was described as a “whipstock,” for the use of which Lane–Wells was to pay as royalty $15 per run in a well. No separate written agreement of settlement was made.
In its answer defendant alleged that plaintiff and defendant entered into negotiations for the purpose of reaching a compromise settlement of defendant's claims for damages and to obviate an accounting thereof in the patent infringement litigation in the Federal court; that the negotiations culminated in a settlement pursuant to which the three license agreements were executed. It was then alleged “that it was understood and intended between the parties hereto that the license from the defendant to the plaintiffs for orientation surveys of well bores and orientation of pipe or tools or other equipment in a well bore, was to call for royalties on all such orientation operations conducted by the plaintiffs irrespective of whether or not such operations were conducted under the patents owned by the defendant and licensed to the plaintiffs. That it was understood and intended between the parties hereto that such royalty payments as therein provided would provide a medium whereby defendant would thus be reimbursed in part for its having waived the accounting for and recovery of a larger sum than the sum of $30,000 in said infringement action and to which defendant was entitled to recover, and for the further consideration of the dismissal of the two actions then pending in the United States District Court of Texas and Oklahoma respectively, which actions were thereupon dismissed by the defendant.”
All of defendant's evidence as to circumstances preceding or relating to the negotiations for settlement of defendant's claims of damage was introduced over objection of plaintiff. Defendant introduced the evidence in support of the allegations of its answer and in an effort to show that the three license agreements were executed pursuant to and as a part of a settlement of Lane–Wells' claim for damages for patent infringement; that the underlying consideration for each of the three agreements was the settlement of the litigation; that they were in reality but a single contract and that when they were so considered by the court in connection with evidence of the circumstances under which they were negotiated and executed, it would be established that the parties intended that Lane–Wells should receive royalties upon work done by Eastman under any and all methods. Plaintiff contended and now insists that the principal license agreement was sufficient unto itself; that no questions as to the terms of the settlement are involved; that each agreement expresses its own subject matter and consideration and is to be construed according to its own terms, independently of the others. Plaintiff further contended and here insists that the principal license agreement is unambiguous and that resort may not be had to evidence of other agreements made at the same time or to the surrounding circumstances as an aid in the interpretation thereof.
We shall not undertake to decide whether the three agreements should have been considered by the court as a single instrument. They were so offered by defendant, the court received them in evidence upon the issue tendered by defendant's answer, and no question of error is raised in that behalf. To be sure, defendant contends that the court did not give consideration to the Lewis and McVicar agreements in construing the Anderson agreement, but that appears to be an unwarranted assumption based upon the court's conclusion that the Anderson agreement was unambiguous. Manifestly the single question whether a given document should be read with others executed at the same time and as if they constituted a single writing and the question of ambiguity are unrelated.
The conclusion that the Anderson agreement was unambiguous was responsive to defendant's effort to prove by extraneous evidence certain understandings and intentions of the parties as to Eastman's obligation to pay royalties. In support of its contention that it was the understanding that Lane–Wells should be given the broad rights to exact royalties or other compensation which it now asserts, it is urged that although the principal license agreement by its terms may be construed as calling for royalties only for work done embodying use of the licensed devices and methods, when the three agreements are read together it will become apparent that the royalties payable under the main license agreement were not intended to be limited to Eastman's operations under the Anderson, Stokenbury and Opocenski patents. Defendant relies upon the circumstance that in the Lewis and McVicar license agreements there was the following provision: “It is mutually covenanted and agreed that in the event the aforesaid Letters Patent or any Letters Patent for any improvements on the invention of the aforesaid patent are finally adjudged by a court of competent jurisdiction to be invalid and no further appeal lies, Then the Licensee shall have the option to cancel this Agreement by thirty (30) days notice in writing to Licensor, without, however, relieving Licensee of the payment of royalties due up to the date of such cancellation, and the obligation of the Licensee to pay royalties hereunder shall cease at the date of cancellation, but unless the Licensee so elects to cancel the Agrement as above provided the obligation to pay the royalties shall continue for the full term of this Agreement.” In the main license agreement a provision respecting cancellation in case of adjudication of invalidity read as follows: “It is mutually covenanted and agreed that in the event any of the aforesaid Letters Patent, or any Letters Patent granted upon the invention of said Willard Opocenski are finally adjudged by a court of competent jurisdiction to be invalid and no further appeal lies, then, the Licensee shall have the option upon the date of expiration of Anderson Patent No. 1,770,224, to cancel this Agreement by thirty (30) days notice in writing to Licensor, and the obligation of the Licensee to pay royalties hereunder shall cease at the date of cancellation, without, however, relieving Licensee of the payment of all royalties due up to the date of cancellation, it being the intent of this paragraph that the Licensee is obligated in all events to pay the royalties hereinbefore provided until the date of expiration of said Anderson Patent No. 1,770,224, notwithstanding the fact that any of the aforesaid patents under which Licensee is licensed hereunder may have been declared invalid, but that Licensee in the event any of the Letters Patent have been declared invalid may cancel the agreement if it so desires, at the date of expiration of said Anderson Patent No. 1,770,224, but not sooner, and relieve itself from the obligation to thereafter pay royalties hereunder, and that unless the Licensee so elects to cancel the agreement as above provided, the obligation to pay the royalties shall continue for the full term of the agreement.”
It is said that under conventional license agreements, such as the Lewis and McVicar agreements, the payment of royalties may be terminated in the event of an adjudication of invalidity of the patent. The Anderson agreement does not contain this provision and defendant argues from the fact that Eastman cannot terminate its royalty obligation in the event of adjudication of invalidity until the date of expiration of the Anderson patent, but must continue to pay as if the patents were valid, that it must have been the intention by this provision to require Eastman to pay royalties at the stipulated rates for all work done under any and all methods. But keeping in mind the scope of the Anderson agreement, as it can be ascertained from a reading thereof by itself or in connection with the two other agreements, we are unable to see that the obligation to pay royalties in the event of an adjudication of invalidity of said patents or either of them relates to any work other than that done through a continued use of the patented devices. Such a construction of the agreement is consistent with its main purpose, whereas a contrary construction would read into the contract something the parties did not attempt to place there. It would be extremely difficult for us to believe that the parties employed the wholly inadequate language in question with an intention that it would receive the broad construction defendant seeks to place upon it. So far as this provision is concerned, we think the Anderson agreement does not even by implication relate to any work that might be done by Eastman without using the licensed devices. A more logical reason for the provision of the agreement for the payment of royalties in the event of adjudication of invalidity is that Eastman would thereby be discouraged from raising the question of validity.
In comparing the Lewis and McVicar agreements with the Anderson agreement it is pointed out that in the two former agreements there is a provision that royalties shall be paid “for each and every directional changing operation in a well bore (commonly known as a run in the well) in which operation the licensee employs or leases to others to employ a directional changing device embodying the inventions of said (Lewis or McVicar) patent.” Defendant insists that this also is a conventional term of licensing agreements, that there is not the same or an equivalent provision in the Anderson agreement, and that this is further proof that Eastman's royalty obligation was wholly unrestricted, since it was not expressly limited to operations by means of devices embodying the inventions of the Anderson patents. The fact that the identical provision found in the Lewis and McVicar agreements was not placed in the Anderson agreement is a circumstance tending but lightly, if at all, to support the affirmative matter pleaded in the answer which we have quoted; it is not at all sufficient to overcome the provisions of paragraph III of the Anderson agreement, which expressly limit the duty of keeping accounts, rendering statements and paying royalty, to the operations of Eastman which involved the use of the patented devices and other provisions which are consistent with that limitation or to supply what is lacking in that agreement and which would have to be read into it in order to establish the validity of defendant's contention. We cannot see that the difference in expression as to the same subject matter in the agreements evidences any difference in meaning; the same argument was made to the trial court and no doubt was fully considered, together with other circumstances which were the subject of proof under the quoted allegations of defendant's answer, to which we shall now refer.
The parties are in entire disagreement as to the theory under which the case was tried. Plaintiff contends that defendant insisted at the trial that written and oral evidence of the circumstances under which the agreement was made, including the negotiations which preceded and attended its execution, should be received as an aid to the court in its interpretation, and that such evidence was introduced under the theory that the agreement was ambiguous or uncertain. Defendant now insists that it undertook to show only that the three license agreements were executed as a part of a single transaction relating to a single subject matter and should be considered as one instrument, and that the evidence was not offered under the theory that there was any ambiguity or uncertainty in the Anderson agreement when read with the other two. The record amply supports plaintiff's contention as to the theories and motives of defendant in offering the evidence in question. It is true that the parties argued to the trial court at great length their respective theories of construction, plaintiff contending that the Anderson agreement was unambiguous and should be construed from a consideration of its terms alone, and defendant contending that the three agreements read together were unambiguous. But defendant contended also that it had a right to prove all of the conditions and circumstances surrounding the execution of the agreement in order to establish that it was the intention of the parties to place no limitation whatever upon Eastman's obligation to pay royalty for all work done in the directional drilling of oil wells. The law bearing upon the introduction of extrinsic evidence under such circumstances was discussed by counsel and the court at length. Counsel for defendant firmly took the position that they had a right to show by extrinsic evidence and that their evidence would establish that it was understood that Eastman was to pay Lane–Wells tribute on all of its operations in consideration of the remission of a part of the claim for damages, and they cited many authorities in support of their right to make such proof. The court ruled with defendant and received the evidence. We find hundreds of pages of the record devoted to the testimony of the parties and their attorneys, in which were related the versions of the respective witnesses as to numerous and lengthy conversations had in the settlement negotiations and connected with the drafting of the several documents which evidence the terms of the settlement. It is unnecessary for us to do more than state the general scope of those conversations.
An attorney who drafted the documents for defendant, and who was associated with its patent attorneys, testified on defendant's behalf that the president of defendant corporation stated to Eastman, president of plaintiff corporation: “John, we are settling all of our grievances, including this previous suit of Alexander Anderson, and I am going to settle the whole thing now or we are not going to have any deal. You are going to have to pay on everything you do, regardless of patents, because that is a part of the settlement.” The same witness testified that he told one of plaintiff's attorneys before the agreement was signed, “that anything Mr. Eastman did in the way of orientation came under that agreement, and he would have to pay a royalty under it” and that plaintiff's said attorney replied, “Well, I think so too.” Defendant's president testified that he said to Eastman: “We are settling up a lawsuit in which there is a lot of money involved, and you are going to have to pay a royalty on all orienting at any time, and you are going to have to continue to pay it until the expiration date of the last Anderson patent. If the patents are declared invalid, you will have to pay the royalty anyhow.” The witness was unable to recall what, if anything, Eastman said in reply to that statement. Again the witness stated that he had told Eastman: “You are going to pay a royalty on all orienting anyhow * * *.” And again he testified that another of his attorneys made the statement to the president and counsel of plaintiff during the settlement negotiations: “And he [Eastman] was to pay us the 16 2/3 percent royalty on all orienting of any kind and description on all tools or devices that were run in an oil well.” Other statements of similar import were testified to. Plaintiff's witnesses gave entirely different versions of the same conversations, denying any and all discussions as to the payment of royalties except for the exercise of the rights acquired by plaintiff to use the several patented devices described in the agreement. Defendant now relies upon testimony such as we have quoted to prove that the parties intended that the Anderson agreement should, and that they believed that it did, provide for the payment to defendant of all royalties which it now claims. Plaintiff relies upon the testimony of its own witnesses to refute this contention of defendant.
The trial court found the Anderson agreement to be unambiguous and, as we have seen, construed it as obligating Eastman to pay royalties only for use of the patented devices. There is necessarily included in the court's determination an implied finding of fact that the parties did not intend to provide and did not understand that they had provided in their agreement that plaintiff could not engage in the directional drilling of oil wells by any method without paying tribute to defendant. This implied finding of fact must be recognized because defendant could not have prevailed at the trial without convincing the court that the Anderson agreement is ambiguous and that the rights of defendant and the obligations of plaintiff thereunder were understood by the parties to be greater than those which are clearly described and set forth in the agreement or, in other words, that the terms of the agreement should be given a far broader meaning in the light of the extrinsic evidence as to the intentions of the parties.
Upon the trial the court and counsel had fully in mind the rule that evidence of surrounding circumstances may be received “only in cases where upon the face of the contract itself there is doubt and the evidence is used to dispel that doubt, not by showing that the parties meant something other than what they said, but by showing what they meant by what they said.” United Iron Wks. v. Outer H., etc., Co., 1914, 168 Cal. 81, 84, 141 P. 917, 920; Purdy v. Buffums, Inc., 1928, 95 Cal.App. 299, 303, 272 P. 770; Salter v. Ives, 1916, 171 Cal. 790, 155 P. 84; Kunz v. Anglo & London Paris Nat. Bk., 1931, 214 Cal. 341, 347, 5 P.2d 417. We think it cannot be doubted that the court received the extrinsic evidence because there existed in the court's mind a doubt as to the meaning of the agreement and because defendant insisted upon its right to put in such evidence. The case was tried, so far as the scope of the evidence is concerned, exactly as it should and would have been tried had the parties conceded that the agreement was ambiguous. The issue was raised by the affirmative allegations of defendant's answer and was tried because of defendant's insistence. While there is serious doubt in our minds whether the court would have been warranted in accepting the testimony of defendant's witnesses concerning the negotiations as a basis for holding that the contract should be construed as defendant seeks to have it construed, we must say that a complete acceptance of such testimony would inevitably have involved a holding that the contract is ambiguous. Certainly if defendant was to receive royalties upon all of plaintiff's orienting work, that right is but ambiguously or imperfectly expressed in the agreement, if it is expressed at all. Upon the other hand, the testimony of plaintiff's witnesses was entirely consistent with the construction which the court placed upon the contract. We think the court did accept this testimony and concluded therefrom as well as from the language of the contract that it was not ambiguous and expressed the complete intentions of the parties, namely, to impose upon plaintiff no duty to pay royalty where no use was made of the patented devices.
Defendant insisted upon and was given the right to prove the intentions of the parties by extrinsic evidence. The court has found against defendant's contention. Defendant now contends that this court should look solely to the three writings, and from them exclusively give a construction to the Anderson agreement contrary to that given it by the trial court. Having failed to convince the trial court that the contract should be construed so as to conform to the alleged oral agreements testified to by its witnesses, it now insists that all of its extrinsic evidence was offered for the single purpose of showing that the three agreements should be read as one. The truth of the matter is that the court has by implication decided as a matter of fact that the parties did not make, intend to make or understand that they had made the covenants defendant contends for.
The trial court could well have believed from the evidence that there was not involved in the patent litigation any claim by defendant that it had the exclusive right to carry on the art or business of the directional drilling of oil wells or that it possessed anything more than the ownership and control of certain inventions and devices for the directional drilling of oil wells; that during the course of the extensive negotiations for settlement of the patent litigation defendant did not advance the contention that it had those exclusive rights; that no claim or assertion of any such rights was stated in any of the license agreements, and that plaintiff had not been asked to concede and had not conceded that defendant had any such rights. It is significant to us, and must have been to the trial court, that there was no evidence that at the time the agreements were made there were devices or methods for the directional drilling of oil wells other than those controlled by defendant. The several license agreements were executed for the purpose of settling all disputes between the parties concerning the patents owned by defendant and providing for the use of the patented devices by plaintiff. It may well be that the parties assumed that no other methods would be invented or at least that they did not anticipate such other inventions. In any event, it is quite clear that they had in mind, and that the Anderson agreement refers to, only the devices and methods covered by the patents described in the agreement. And in this connection we will refer again to the provision in that agreement expressly limiting the duty to keep accounts, render statements and pay royalty, to work involving the use of the devices covered by those specific patents. This limitation strongly indicates that the parties had no intention to provide for operations under processes yet to be discovered. The significant and persuasive fact in the case is that there is nothing whatever in the record to prove or even to suggest that it was anticipated that Eastman would operate under newly invented methods. The absence of any provision in the agreement for such possible contingency, and the patent fact that if Lane–Wells had intended the agreement to cover such contingency the agreement no doubt would have contained specific and unequivocal provisions therefor, necessarily lead us to the construction of the agreement which the trial court gave to it. Nothing could be more clear than that it should not be construed so as to cover rights of the parties which were not only not in controversy, not the subject of negotiation or barter, but which apparently were not even in their minds or anticipated by them at the time they contracted. For the court to extend the terms and meaning of the agreement in question so as to require Eastman to pay royalties for orienting work done under the magnetic method which it is now using would be to write a new and different contract for the parties.
We have pointed out that the decision of the trial court that the agreement is unambiguous was likewise a decision against defendant of the alleged fact that the parties intended that it should cover all operations of Eastman, including its use of the magnetic method, which is a new invention. The language of the court in Scott v. Sun–Maid Raisin Growers Ass'n, 1936, 13 Cal.App.2d 353, at page 358, 359, 57 P.2d 148, 151, is so appropriate to this situation that we quote it in part. The court said:
“The record demonstrates that respondents strenuously contended throughout the lengthy trial of the action that there is no ambiguity and uncertainty in the phraseology of the instrument and that parol evidence was therefore unnecessary to aid the court in the task of construction. The court, however, accepted appellant's view and permitted to be admitted all evidence offered by appellant which tended to show the circumstances preceding the execution of the instrument as well as those which followed its execution. The trier of facts was therefore fully informed of all the circumstances and facts surrounding the making of the written agreement and its conclusion intelligently formed on so ample a showing may not lightly be dismissed.
“In the second place, the construction placed upon the language by the trial court under the circumstances disclosed by the record herein, if it appears to be consistent with the intent of the parties, should not be disturbed by a reviewing court even though another interpretation would seem equally tenable from the facts developed by the evidence. Kautz v. Zurich Gen. A. & L. Ins. Co., 212 Cal. 576, 582, 300 P. 34; Wilson v. Brown, [5 Cal.2d 425], 55 P.2d 485; Serviss v. Jones, 133 Cal.App. 640, 642, 24 P.2d 881; Hale v. Harbor Petroleum Corp., 139 Cal.App. 455, 462, 33 P.2d 1039. When the meaning of the language of a contract is uncertain or doubtful and parol evidence is introduced in aid of its interpretation, the question of its meaning is one of fact and a finding of fact made by the trier of facts embodying his interpretation of the doubtful language must stand if not lacking in evidentiary support. Thomson v. Leak, 135 Cal.App. 544, 548, 27 P.2d 795; Gallatin v. Markowitz, 139 Cal.App. 10, 13, 33 P.2d 424; Coats v. General Motors Corp., 3 Cal.App.2d 340, 356, 39 P.2d 838.”
The rule was applied there as it should be here, where the ruling of the trial court was against the claim of ambiguity. We might add that while it is not contended that the evidence was insufficient to support a finding contrary to the allegations of defendant's answer under which the extrinsic evidence was received, we have found in the record ample evidence to support such a finding. But independently of the extrinsic evidence we are wholly in accord with the construction of the agreement reached by the trial court.
The judgment is affirmed.
SHINN, Acting Presiding Justice.
PARKER WOOD, J., and SHAW, Justice pro tem., concurred.