Koenig v Johnson & Co Ltd

• Jurisdiction: South Africa
• Judge: Wessels CJ, Stratford JA, Beyers JA and De Villiers JA
• Judgment Date: 29 April 1935
• Citation: 1935 AD 262
• Court: Appellate Division

Wessels, C.J.:

Contex (Proprietary) Limited, a private company, was formed by the plaintiff (appellant in this Court) in 1930 to manufacture a material known as Contex. This was a composition consisting of leather, cork and rubber suitable for floor covering. One, Isidor Manschester, had applied for a patent for the manufacture of this composition in 1916; in 1917 he obtained a patent for the product and in 1920 a patent was granted for an addition to the 1917 patent. In 1929 this patent was assigned to the plaintiff, and in 1930 to Contex Ltd. Manschester was appointed works manager of this company but ceased to have any connection with it in June, 1932. The 1917 patent actually expired in 1931 and was not renewed. On 9th June, 1932, Manschester applied for another patent for a similar composition to be used as floor coverings. This application was not proceeded with and it expired in December, 1933. Meanwhile in October, 1932, Koenig, the appellant, alleged that he was the inventor of an invention entitled "improved flooring and panelling composition," and he ceded his right to obtain a patent for this invention to Contex (Proprietary) Limited on 4th October, 1932. Contex Ltd in terms of the Patent Act applied for a patent covering this invention of Koenig and filed the provisional specification on 5th October, 1932. The complete specification for this patent was filed in July, 1933. After its acceptance Contex Ltd had the same privileges and rights as if a patent for the invention had been sealed on the date of the acceptance of the complete specification except that it could not bring an action for infringement. In September, 1933, therefore, Contex Ltd had provisional protection for the invention of Koenig but it possessed no actual patent for the patent of Manschester granted in 1917 had expired in 1931 and was not renewed.

It is common cause that the protection afforded by the acceptance of the complete specification of the application of Contex Ltd covered the protection which Contex Ltd had under the Manschester patent of 1917 if that patent had then been in existence. In other words as long as the provisional protection afforded by the complete specification of Contex Ltd of July, 1933, lasted, no person could manufacture a similar flooring composition without

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infringing the new Contex Ltd patent. As, however, the Manschester patent of 1917 had expired, the public could manufacture flooring material covered by that patent so long as they did not use the improvements contained in the complete specification of Contex Ltd.

In September, 1932, the Associated Engineers Co. Ltd. (called the A.E.Co.), a subsidiary company of the respondent, Johnson & Co. Ltd. entered into a contract with Contex Ltd by which the A.E. Company was appointed sole distributor of the Composition known as Contex. It had to take from Contex Ltd. 5,000 square yards of material per annum and to pay Contex Ltd as it received payment for sales. This was the state of affairs when the contract which is the subject of the present dispute was entered into between plaintiff and defendant company. This contract is to be found in two letters, dated respectively 5th and 19th September, 1933, which are set out below:-

G. Koenig, Esq., Royal Hotel, Plein Street, Cape Town.

5th September, 1932.

Dear Sir, We herewith confirm the arrangement arrived at this morning whereby we purchase the business known as Contex (Proprietary) Ltd from you on the following conditions: The business to comprise the whole of the assets, including stock, machinery, plant, office furniture, etc., as inspected. Any contracts with others or money due therewith, between yourself or Contex (Proprietary) Ltd in respect of their manufactures. All stocks of raw materials and manufactured goods. All past and existing patents including the one recently taken out by you or the Company. All the formulae, secret processes, trade marks or anything appertaining to the manufacture of cork material or the like. The purchase price to be the sum of £2,500 (two thousand five hundred pounds) sterling, payable on the 15th October, 1933, against transfer of the whole of the shareholding in Contex (Pty.) Ltd. Possession to be given on the 1st October of the factory complete, and the contents therein as inspected by us on Friday last. All liabilities up to that date such as rates, rent, wages, and

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claims or royalties of the original patentees or others for past or future manufacturers, etc., to be paid by you. We further undertake during your lifetime to pay you a royalty of 6d. per square yard for all Contex flooring manufactured and sold by the factory, including a royalty on the stocks in the factory taken over as may be found saleable. You also undertake to associate yourself with Contex (Pty.) Ltd and its activities and to render all the assistance you can in increasing sales. On completion of the transfer of the shares we intend asking you to accept a seat on the Board of Contex (Pty.) Ltd as we feel that your close association with us will be of considerable benefit to our mutual aim of making a success of this Company, and should be glad to know if you would accept such directorship.

for A. H. Johnson & Co., Ltd. (sgd.) L. S. Sloman,; Managing Director.

G. Koenig, Esq., Royal Hotel, Plein Street, Cape Town.	19th September,1933.
Dear Sir, Further to our letter No. 598 of September 5th, 1933, and our subsequent interviews when you informed us that the patent covering the flooring had not yet been granted. As we explained to you that we consider the original patent for the mixture of cork and rubber and your Subsequent patent for flooring material which has not yet been granted, to be a most essential factor for the purchase of the Contex factory we now confirm the arrangement arrived at with you, namely that instead of making payment of the sum of £2,500 on the 15th October, 1933, we will pay you £1,000 on that date and a further £1,500 when you deliver to us the two patents as aforesaid.
	for A. H. Johnson & Co. Ltd. (sgd.) Len., S. Sloman,; Managing Director.

It will be seen that in the letter of September 5th Koenig undertakes to hand over to Johnson & Co. all the assets of Contex Ltd including "all past and existing patents including the one

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recently taken out by you or the Company" (i.e., Contex (Pty.) Ltd.). Johnson & Co. apparently had doubts whether the second, or what I will call the "new patent," had been sealed and on September 8th wrote: "We understand that both of these patents are in your possession hut so far have only seen the provisional and the completed application of the last patent covering the flooring. We understand from you that the patent has been granted and we should like to see the official patent." Thereupon new negotiations took place as the result of which the letter of 19th September was written embodying the new term agreed upon, and the contract contained in the letter of 5th September was accordingly modified. The letter of 19th September added a condition which is not to be found in the letter of 6th September, viz., that the purchase price of £2,500 was not to be paid on the 15th October, 1933, in one sum but that only £1,000 should be paid down and a sum of £1,500 if and when Koenig delivered to Johnson & Co. the new patent as well as the old Manschester patent of 1917 with its 1920 addition.

The contract between the parties as it stood on the 19th September, 1933, was therefore as follows:

1. Johnson & Co. purchased from Koenig the whole of the latter's shareholding in Contex (Pty.) Ltd.

2. Koenig undertook to deliver to Johnson & Co. the whole of the assets of Contex Ltd including all past and existing patents including a patent for flooring composition which had not yet been sealed but for which an application had been made and protection granted.

3. The purchase price for the shares of Koenig together with the stock, assets, patents, etc., was to be £2,500.

4. The purchase price was to be paid in two instalments. The first instalment of £1,000 was to be paid on October 15th and the second instalment of £1,500 if and when Koenig delivered to Johnson & Co. the old Manschester patent of 1917 and the new patent of 1933 if and when it was sealed.

The contract, therefore, as is pointed out by the learned JUDGE-PRESIDENT in the court below, although it purports to be a purchase of the assets of Contex Ltd., was in fact a purchase Of Koenig's shareholding in Contex Ltd. In addition to this there was an undertaking by Koenig to see that Johnson & Co., Ltd received all the assets of Contex Ltd together with all existing patents and the new patent when sealed.

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In this case we are only concerned with the two patents, that of 1917 and the "new patent." In the court below the question was investigated whether Sloman, the managing director of Johnson & Co., who negotiated the a to, knew or did not know at the time the contract was entered into that Manschester's 1917 patent had lapsed and not been renewed and that the second patent was only in the provisional protection stage where the complete specification had been filed and accepted but the letters patent not yet finally granted. The learned JUDGE-PRESIDENT found as a fact that Sloman did not know that Manschester's patent had lapsed and not been renewed nor did he know that the "new patent" had not been granted, and this latter finding of fact was not contested by appellant. As I have said, the complete specification for the "new patent" was filed in July, 1933: if no...