On appeal from the Superior Court, Law Division, Morris County.
Brody, Ashbey and Skillman. The opinion of the court was delivered by Ashbey, J.A.D.
This appeal involves the interpretation of the Uniform Commercial Code (UCC) provisions concerning the seller's warranty against patent infringement. Plaintiff seller Yttro Corporation (Yttro) brought suit for breach of contract by defendant buyer X-Ray Marketing Association, Inc. (XMA). XMA defended, claiming Yttro violated the warranty against patent infringement provided for in the UCC. The court granted XMA summary judgment. Yttro appeals and we reverse and remand for trial.
The July 2, 1985 contract between the parties provided for Yttro to sell exclusively to XMA "Yttro filters."*fn1 XMA would distribute and market the filters through distributorships established by Yttro. Under the contract XMA was obligated to purchase each year for three years, beginning July 2, 1985, a minimum of 600 filters at a price of $135 per filter, or a minimum of 1,000 filters at a price of $125 per filter.
During the first year XMA elected to purchase 1,000 filters but refused to accept delivery of 738 of them. Apparently XMA took no further delivery at any time and whether delivery was tendered is not in the record on appeal. Yttro ultimately brought suit for its contract purchase price and XMA defended on grounds unrelated to patent infringement, the issue in this appeal.
On February 2, 1987, after Yttro commenced this suit, Jerry Hoyt, President of XMA wrote Gilbert Zweig, Vice President of Yttro Corporation: "[o]n behalf of X-Ray Marketing Associates, Inc., I am writing to you to formally repudiate the contract between X-Ray Marketing Associates, Inc. and Yttro Corporation which was signed by us on or about July 2, 1985. . . . We hereby tender back to you all remaining filters in
our possession." This repudiation was based on the filters' performance, its compatibility with conventional X-ray equipment and the "master" distributorships Yttro had represented it had established.
While the litigation was in progress, on or about September 4, 1987, Yttro received a letter from the University of Virginia Alumni Patents Foundation (Foundation) demanding that Yttro cease selling these yttrium filters in violation of the Foundation's patent.*fn2 Yttro responded that the Yttro filter was not covered by the Foundation's patent but sought to obtain a license.*fn3
On January 26, 1988, XMA wrote Yttro:
It has recently come to my client's attention that Yttro Corporation is not and never was the patent holder for the yttrium filter. Moreover, my client has informed me that the patent holder has never granted a license to Yttro Corporation to sell the yttrium filter. Therefore, this letter will serve as notice to you that my client is rescinding its contract with Yttro Corporation based on Yttro Corporation's defective title with respect to the filters. This letter is not meant to obviate the [Hoyt to Zweig letter of February 2, 1987].
On March 17, 1988, Yttro and the Foundation entered into a licensing agreement which provided that Yttro would have the non-exclusive license to make and to sell the patented filters retroactively to February 12, 1985, the date of the issuance of the patent.
When the motion judge granted summary judgment in favor of XMA, he found that the contract between Yttro and XMA was void because Yttro did not have a valid patent, that Yttro had no right to cure this defect by a subsequent licensing agreement, and that if there was such a right Yttro had not cured its contract defect within a reasonable time.
Section 2-312 of the UCC, as adopted in New Jersey,*fn4 provides in ...