This is a suit in equity brought to rescind a contract of sale, in pursuance of which the defendants each assigned to the complainant 500 shares of stock in the Hawkeye Metal Company. In the bill of complaint it is averred that, for the purpose of inducing the complainant to buy the shares of stock in question, the defendants represented and stated to him that the Hawkeye Metal Company was the owner and sole proprietor of a secret process of treating metal, known only to the stockholders in tin4 company; that said process was new and valuable; that a patent therefor had been applied for, and would unquestionably be granted; that such process would greatly increase the value of metal treated thereby; that the Hawkeye Company was prepared to commence the business of applying such secret process to the treatment of metals; and that, if complainant would purchase the shares of stock in question, he would he employed at once in the capacity of president and general manager of the company at a salary of $3,000. It, is further charged in the hill that, relying upon these statements,, the 'complainant purchased the thousand shares of stock, paying therefor the sum of $4,000, but that it now appears that -substantially the representations made as above set forth were false, and that the complainant, upon discovery of the fraud, had tendered back the shares of stock and demanded the repayment of the $4,000; and the court is asked to decree a rescission of the contract of sale, with a judgment for the repayment of the purchase price. The case has been submitted upon the pleadings and proofs, and, from the evidence', the general history of the transaction appears to he as follows:
In October, 1889, the defendant Ward visited Minneapolis, Minn., and there met the complainant, Benton. Ward had with Mm a specimen of metal, which he exhibited to Benton, informing him tha t
At the stockholders’ meeting held in January, 1890, the complainant was duty elected president and general manager of the Hawk-eye Metal Company at a salary of $250 per month, and thereupon, on the 7th day of January, he completed the purchase of the stock by paying to Henry Bickel the sum of $2,000 for the 500 shares sold by him, and to Julius A. Ward $2,000 in cash, with a duebill of $2,000, it appearing from the evidence that complainant had agreed to pay Ward double the amount that was to be received by Bickel. When the complainant thus completed the purchase of the stock, and took charge of the affairs of the Hawkeye Metal Company, the evidence shows that he then fully knew the nature of the process for treating metals which it was expected would be followed in the business pf the company; that he had as full knowledge, and the same means of knowledge, as any of the parties in regard to the product of the process and the value of the same; that he knew that a patent therefor had not been obtained, and that the application originally made had been denied by the patent office; that he knew that the defendants and the company had been deceived in supposing that Worrall was the original discoverer, it then appearing that one
In the correspondence carried on between the complainant and the defendant Ward, which is very voluminous, the first and main ground of complaint relied upon by the complainant was the alleged failure to furnish sufficient funds to carry on the business of the company. It: was not until in January. 1891, that the complainant tendered back the shares of stock, and demanded a repayment of the $1,000 cash by him paid for the stock. In the argument of counsel for complainant it is stated that, the represent.alions made hv the defendants to induce complainant to purchase the stock were false in two particulars; (1) The process which they claimed to own was not a. new, secret process; (2) the Hawkeye Metal Company did .not. own the process.
In support: of the first proposition, reliance is placed upon the claim that the patent to John Burt, issued in 1809, covers the same process, and therefore, in tin; language of counsel, “it had been a matter of public record for twenty years.” Granting the claim that the Burt patent in fact described the process used by the Hawkeye Metal Company, the question arises whether that fact proves that the «'presentations made by the defendants were substantially false. It is not shown in t he evidence that Burt, or any one claiming under him, ever manufactured or put in use any metal treated by his process. So far as the proof is concerned, it simply appears that in 18G9 a patent was issued to Burt, hut: it does not appear that the knowledge of the process proceeded further. Many an invention and many an idea of value are doubtless to he found in the «'cords of the patent office, but, so far as public actual knowledge thereof is concerned, they might as well be nonexistent. The fact that a
As already stated, it does not appear that the use of the metal had been introduced under that patent, and, so far as the public were concerned, the process remained unknown. It was therefore open to any one who should rediscover the process to enter upon the manufacture of metal under that process, and, by guarding the secret of manufacture, reap all the benefit possible therefrom. The representations claimed to have been made by the defendants' in regard to' the process being new and secret must be reasonably construed. The meaning thereof cannot be held to have been an affirmance of absolute novelty. If the knowledge of the process was not had by those engaged in that line of business to which the process pertained, then it was practically a new and secret process. The defendants cannot be held liable for having made false statements in this particular by showing that one person, years ago, had knowledge of the process; and that is all that is shown by proof of the granting of the Burt patent. When the representations complained of were made by the defendants, it might well be that Burt and all who had ever acquired knowledge of his process were dead. So far as the evidence shows, the only knowledge extant of his process was that afforded by the record of his patent, issued in 1869. In the absence of evidence showing that in 188!), when the sale was made to the complainant, any one had actual knowledge of the existence of this
The second ground taken by counsel for complainant is that the Hawkeye Metal Company did not own the process, and therefore the sale of stock was procured by false representations. The Hawkeye Metal Company had knowledge of the process, and possessed appliances for the practical use of the same, and thus owned the process to llie extent that ownership is possible of an invention not covered by a patent. When the sale of stock was made to the complainant he then knew that the company did not have a patent upon the means of applying the process in question, and he must have known that the only ownership possible to be had by the Hawkeye Company was that predicated on the possession of the knowledge of the process, and of the means necessary to its application. The fact that James W. Cole, the original discoverer of the process, had assigned the same to John Cole, did not deprive the Hawlcéye Melal Company of the knowledge of the process nor of the right to use it. The fact that the company was defeated in its application for a patent does not show that the defendants had made false representations in regard to the ownership of the process. The denial of the patent applied for was not put upon that ground, and the main position taken by the complainant is that the issuance of the Burt patent was what defeated the issuance of a patent in the interest of the Hawkeye Metal Company.
For these reasons it must be held that the evidence fails to sustain either one of the two grounds upon which complainant rests Ms case in the written argument submitted on Ms behalf. It might be further claimed that there was evidence tending to show that; some other parties in Chicago and elsewhere had knowledge of the process derived from James W. Cole, and parties associated with him. It appears, however, from the evidence, that complainant; knew these facts as well as the defendants before he completed the contract of purchase, and lie must be held to have assumed the risk arising from this knowledge. The evidence clearly shows lhat the enterprise which the Hawkeye Metal Company was organized to carry on was speculative in its nature. The complainant, when he purchased his stock, knew this fact, and bought the same as a speculation. He was placed in full charge of the affairs of the company, and devised several plans looking to making advantageous sales of the interest of the company. He was in position; on and after the 7th of January, 1890, to fully ascertain all the facts connected with the business of the company. He did not tender back the stock until in January, 1891. He himself testified that in August, 1890, he; became fully satisfied that the process was not new or secret, having been anticipated by the Burt patent of 1869; yet he took no action to secure a rescission of the contract until the following January. Even if the evidence had shown a state of facts which would have justified a court of equity in granting a decree of rescission, if ihe application had been promptly made, the delay on part of complain
For these reasons it must be-held that the complainant has failed to make out a case which entitles him to a rescission of the contract of sale. That the expectations which he had formed at the time he assumed the management of the affairs of the Hawkeye Metal Company have not been met is undoubtedly true, but that seems to be equally true of the expectations of the defendants. The enterprise was largly speculative, and was so known to be to the complainant when he connected himself therewith. Having retained the control of the affairs of the company for so long a period, and having retained the stock sold him for months after he had ceased to work in the interest of the company, he cannot expect that a court of equity will now throw the whole burden of the failure of the speculation upon the defendants, and relieve him wholly therefrom.
The bill will therefore be dismissed upon the merits, at the cost of complainant.