In re Tear-Off Bottle Seal Co.

224 F. 492 | 2d Cir. | 1915

WARD, Circuit Judge.

One Kaufman was the inventor of a bottle seal made of aluminum, and patentee therefor under letters patent of the United States, followed by patents in about 15 foreign countries. He assigned one undivided half of these patents to B. R. and Berthold Weil. Messrs. Stark and Turner were the inventors of the capping machine for applying the seals or caps to bottles, and owners of patents therefor in this and various foreign countries. All these patents were ultimately assigned to the Bottlers’ Seal Company, of which the brothers Weil were the chief officers and holders of its entire capital stock.

December 23, 1909, the Bottlers’ Seal Company executed an exclusive license under all the foregoing patents to the 4th day of January, 1924, to one Plorner, and sold to him all its machines for making and applying the seals for the sum of $25,000. December 28, 3909, Horner assigned the license a'nd sold the machines to the Tear-Off Bottle Seal Company. September 11, 1913, the Bottlers’ Seal Company filed its proof of debt in bankruptcy proceedings against the Tear-Off Bottle Seal Company for unpaid royalties under the said license agreement of $45,000, with interest.

November 20, 1913, the trustee filed objections on the ground that the bankrupt had been induced to enter into the agreement by fraudulent representations and had rescinded the same, and the proof of debt was referred to- a special master for re-examination. The claimant took no testimony. The record shows, that the Weils and some of the persons who subsequently organized the Tear-Off Bottle Seal Company prepared a prospectus, drafted principally on the strength of statements of the Weils, to be issued to the public to secure capital for the corporation to be organized under the name of Tear-Off Bottle Seal Company to- exploit the patents under the license. This prospectus was shown to other persons, who- joined the company, and it is some statements made by the Weils before that time, together with those contained in the prospectus, said to be false and fraudulent, which induced the bankrupt to enter into the license agreement. The special master so found, and entered an order disallowing the proof of debt, which order, upon petition to revise, was reversed by Judge Mayer, and the claim allowed, without costs. From this judgment the trustee appeals.

[1] The principal statements of the Weils, made before the prospectus was issued, which are complained of, were that the patents were basic and that aluminum could be had for 25 cents per pound. This word “basic” is vague, and may mean either that the United States.patents were the basis of the foreign patents or that they were pioneer patents. At all events, it is a matter of opinion whether a patent is basic, and so what the price of aluminum would be in the future was a pure matter of opinion. In addition there was testimony of one of the Bottlers’ Seal Company’s employes that Stark, its foreman, told him, when running the assembling machine in the presence of persons invited to see it, not to stop, even though he knew imperfect caps were being made. ' The testimony is not entirely satisfactory, but there is nothing, to show that it was within Stark’s authority to give such an instruction. There is no proof whatever that either of the Weil Bros, did such a thing, op ordered such a thing to be done. Ex-animation of the prospectus shows that it was, as might be expected, almost entirely a matter of prediction and of.opinion. The Bottlers’ Seal Company had no commercial plant, but only an experimental one, in which it did stamp out by a standard machine metal which was assembled by a specially devised, but unpatented, machine into the patented seal, and then capped on the bottles by another machine covered by the patent to Stark and Turner. A great many caps had been made and bottles capped, some of which had been used by the Ebling Brewing Company, which expressed its high appreciation of the same in a letter in evidence. All persons-interested were given free access to the plant. Every one knew that the new company was to be organized to build machines which would make and apply the patented seal commercially, and the object of the prospectus was to forecast what such machines, when made, would do, and the probable profits of the operation so as to interest investors.

After the bankrupt began to use the assembling machine, some time in the spring or early summer of 1910, it was'found to be very unsatisfactory. It also found the price of aluminum to be so high as to malee profits impossible. Still, it was so convinced of the value of the license that it spent $100,000 in money and nearly four years in time in devising a better assembling machine, capable of manufacturing commercially tin, instead of aluminum, caps. Just as this machine was about completed, the company went into bankruptcy. Down to that time, however, it had received and invited subscriptions to its capital stock, showing exactly the same kind of confidence in the bottle seal that it was quite natural the Weil Bros, had at the time the prospectus was prepared. We think the District Judge was right in finding that the bankrupt was not induced to make the license agreement by fraudulent x-epresentations.

[2] Were this otherwise, the result would be the same. The bankrupt could not go on availing itself of the benefit of the license for nearly four years after it had discovered the fraud and then rescind. It was. bound upon discovery to stop, if it wished to rescind. By going on it plainly affirmed the contract. Nor, having affirmed it, could the bankrupt recover, either by direct suit or by. set-off or counterclaim, any damages resulting to it from such representations, even if they were false. That would be to let it at the same time affirm and disaffirm the contract. Kingman v. Stoddard, 85 Fed. 740, 29 C. C. A. 413; Simon v. Goodyear Co., 105 Fed. 573, 44 C. C. A. 612, 52 L. R. A. 745. The bankrupt, of course, could avail itself of any breach of the license agreement, but none is shown.

Strictly speaking, the trustee’s objection to the proof of debt should have been overruled, because, as both the special master and the District Judge found, the bankrupt never rescinded the contract. As, however, the claimant took a large amount of testimony upon the subject of fraudulent representations, which was considered by both the special master and the District Judge, the objection may be regarded as amended to conform to the proof, and inclúde the trustee’s claim for damages against the Bottlers’ Seal Company by way of set-off or counterclaim.

The judgment is affirmed, with costs of this court.