Opinion · Court of Appeals for the Seventh Circuit
Dodge Mfg. Co. v. Patten
Dodge Mfg. Co. v. Patten, 60 F.2d 676 (7th Cir. 1932)
- Type
- Opinion
- Court
- Court of Appeals for the Seventh Circuit
- Jurisdiction
- Federal
- Date
- 1932-06-22
- Topic
- bankruptcy
SPARKS, Circuit Judge (after stating the facts as above). We are first confronted with the contention on the part of Dodgo Manufacturing Corporation that venue was not laid for the jurisdiction of the court over that corporation, because neither it nor appellee is or was a resident of the judicial district of the trial court, as required by the Judicial Code, § 51 (U. S. C., tit. 28, § 112 [28 USCA § 112]), which, in so far as it relates to the instant ease, is as follows: “* * * Where the jurisdiction is„founded only on the fact that tlie action is between citizens of different Slates, suit shall be brought only in the district of the residence of either the plaintiff or the defendant.” In United States v. Southern Pacific Railroad Company, 49 F. 297, 302, it was held by Mr.
Citator
UpLaw has not yet analyzed Dodge Mfg. Co. v. Patten. The absence of a flag is not a finding that it is good law.
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DODGE MFG. CO. v. PATTEN,60 F.2d 676(7th Cir. 1932)
DODGE MFG. CO. et al. v. PATTEN.
No. 4702.
Circuit Court of Appeals, Seventh Circuit.
June 22, 1932.
Rehearing Denied October 6, 1932.
Suit by William R. Patten against the Dodge Manufacturing Company and another. Decree for plaintiff, and defendants appeal.
Reversed and remanded.
See, also,23 F.2d 852.
This is an appeal from a decree granting specific performance of a written agreement for the payment of what is termed in the agreement as royalties, and awarding appellee the sum of $13,743.21 therefor to December 3, 1930, including interest.
In 1910 appellee designed a steel pulley which he thought was suitable for manufacture in small sizes, of diameters of six inches or less. Upon that supposed invention he filed an application for a United States patent on October 12, 1910.
In 1912 he called upon Oneida Steel Pulley Company, of Oneida, N Y, referred to hereinafter as Oneida Company, and described to it the small steel pulley he was trying to make, and told that company that he then had a patent pending for it. Oneida Company was then manufacturing an extensive line of steel pulleys six inches and larger in diameter and wood pulleys as small as three inches, but it had no dies for a steel pulley smaller than six inches.
As a result of his conversation with Oneida Company, appellee, in May, 1913, entered into an exclusive sales agreement with that company, under which it was to purchase from appellee, for resale to the trade, 25,000 three, four, five, and six inch pulleys a year for three years. Due to difficulties in getting proper dies made, appellee was unable to ship any pulleys to Oneida Company until 1914. About the time the first shipments were made, appellee and two persons by the name of Browning organized and had incorporated under the laws of Kentucky the National Steel Pulley Company, hereinafter referred to as National Company, to which appellee assigned his contract with Oneida Company; and the first use of the name "National" as a trade-name for pulleys was upon those pulleys that were being sold to the trade by Oneida Company under the exclusive sales agreement above referred to.
That agreement proved to be unsatisfactory to all parties. Appellee was then having trouble with the Brownings, and wanted to eliminate them from National Company, and in the latter part of 1915 he and Oneida Company began to discuss the possibility of Oneida Company purchasing Brownings' interest in the National Company, the capital stock of which company was owned one-half by appellee and one-half by the Brownings.
On January 18, 1916, appellee's patent above referred to was granted by the Commissioner of Patents, and on January 19, 1916, Oneida Company purchased the Brownings' interest in National Company for $11,000. On the last-named day appellee and the National Company, parties of the first part, and Oneida Company, party of the second part, entered into a contract hereinafter referredPage 677to as Exhibit A, the pertinent parts of which are set forth in the margin.1
On January 27, 1916, appellee's attorney wrote a letter to the secretary and general manager of Oneida Company relative to an alteration of Exhibit A, in which it was stated:
"* * * It seems to me * * * that it is advisable to alter in some respects the provisions contained in paragraph four of said contract, and I have drafted an addition to said contract which I think should be signed by the parties thereto in order that there may be no possibility of misunderstanding in the future.
"This amendment may never be necessary, for if the pulleys made under Mr. Patten's patent are as successful as we anticipate, the conditions provided against in paragraph four would not likely arise. But if the Oneida Steel Pulley Company should determine to discontinue the manufacture of these pulleys, and should determine to reconvey to Mr. Patten a one-half interest in the patent, it should be made clear that he has the right in that event to license other parties to manufacture these pulleys without liability for any royalty to the Oneida Steel Pulley Company.
"Since Mr. Patten, under the contract gets nothing but royalties from the Oneida Steel Pulley Company for the use of his patent, for which he has absolutely assigned them the patent, I think you will agree with me that should the Oneida Steel Pulley Company cease to manufacture these pulleys, thereby cutting off the royalty, there should be no question about the right of Mr. Patten to either manufacture them himself or have someone else manufacture them under such agreement as Mr. Patten might make.
"I feel sure that you will agree with me that this is no more than fair, and I therefore trust that you will sign the contract and return to me, and I will have it signed by Mr. Patten and return you a copy thereof."
On February 2, 1916, the same attorney wrote a letter to Oneida Company's patent attorney relative to a threatened infringement suit against that company by the Saginaw Manufacturing Company, in which it was stated: "Mr. Patten thinks that if you will study you will perhaps recall that he expressly declined to become responsible for the expenses of any litigation that might arise, and that his agreement was made on a strict royalty basis. I have procured a copy of the Articles of Incorporation of the National Steel Pulley Company * * * atPage 678the request of Mr. Patten, in order that we may take steps to dissolve this corporation as soon as all matters have been adjusted between Mr. Patten and the Oneida Steel Pulley Company."
On February 7, 1916, appellee's attorney wrote to Oneida Company's patent attorney the following:
"Since Mr. Patten is assigning the entire patent to the Oneida Steel Pulley Company, and must look for his compensation to royalties alone, I cannot see why he should be called on to pay any of the expenses of litigation to protect the property in the patent.
"You should have stated that in your judgment the defensive litigation would not be very expensive, and since something like $4,000 was the amount of the reduction in the purchase price from Browning, claimed on account of the possibility of litigation, it would seem that in any event this sum would be sufficient to cover any expense of patent litigation.
"It is true, that if the use of Mr. Patten's patent was enjoined as an infringement, he would get no royalty, but it is equally true, that the Oneida Steel Pulley Company would not be able to manufacture under the patent, and that the money they have paid for the Browning interest would be in large part lost to them."
Appellee testified that he had a "fuss" with his attorney respecting fees for three letters written "along about" January, 1916, concerning appellee's deal with Oneida Company, and appellee stated: "I told him he hadn't done much of the correspondence, anyway, I had done most of it myself; he hadn't been at the meetings; he hadn't made any of the contracts, and I thought for writing three letters I had dictated myself, seven hundred dollars was too much."
On February 21, 1916, appellee's said attorney sent to the patent attorney of Oneida Company the assignment, properly executed, of the patent in controversy.
On June 14, 1916, appellee and Oneida Company entered into an agreement,2referred to hereinafter as Exhibit B.
Dodge Steel Pulley Corporation, of New York, on March 1, 1917, purchased all assets and assumed the liabilities of Oneida Company, whose common stock was all owned by Dodge Manufacturing Company. On or about July 1, 1922, the Dodge Manufacturing Corporation was incorporated under thePage 679laws of Delaware, and about that time took over the assets and assumed the liabilities of the Dodge Manufacturing Company, of Indiana, and also of the Dodge Steel Pulley Corporation, of New York, and those transactions were effected by exchanging stock of the Delaware corporation for stock of the Indiana and New York corporations, no money being used in the transactions. At all times since the organization of the Dodge Manufacturing Corporation its principal office, factory, and place of business have been and are at Mishawaka, Ind. It nominally maintains an office in Delaware, in order to comply with the corporation laws of that state, but none of its business, except the sale of its product, is conducted in Delaware.
None of the pulleys referred to in this controversy was made under appellee's patent, but, in good faith, all the parties herein interested thought they were. It is conceded that the patent does not read upon the pulleys so manufactured and sold, and that they do not come within range of its equivalents.
Royalties were paid to appellee pursuant to Exhibits A and B by Oneida Company, Dodge Steel Pulley Corporation, and Dodge Manufacturing Corporation, respectively, during their respective terms of ownership, from January 19, 1916, to about February 1, 1924, at which time Dodge Manufacturing Corporation discontinued the payment of royalties and notified appellee as follows: "As provided in Paragraph 3 of the agreement of June 14, 1916, we notify you that the Oneida Steel Pulley Company and its successors have discontinued for a period of more than one year the making of pulleys under your patent No. 1,168,907; and, therefore, we offer to reconvey all interest in said patent to you and to make all necessary assignments to vest the title of said patent in you."
A formal reassignment of the patent was made by Dodge Manufacturing Corporation and lodged with the court, but it has not been accepted by appellee.
Wm. J. Peck, of Peoria, Ill., for appellee.
Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
In United States v. Southern Pacific Railroad Company, 49 F. 297, 302, it was held by Mr. Justice Harlan, speaking for the Circuit Court in the Northern District of California, that a corporation, for the purposes of jurisdiction in personam, may have additional habitations in states other than the one in which it was incorporated. In referring to the cases which hold that for the purposes of jurisdiction in the courts of the United States a corporation is to be deemed a citizen of the state creating it, Justice Harlan said: "Those cases undoubtedly hold that a corporation cannot throw off its allegiance or responsibility to the state which gave it existence, and that its primary, legal domicile or habitation — that is, its citizenship — is in such state; consequently, for the purposes of suing and being sued in the courts of the United States, it is to be deemed a citizen of the state by whose laws it was made an artificial person. But neither those cases, nor any case in the supreme court of the United States, directly decides that a corporation may not, in addition to its primary, legal habitation or home in the state of its creation, acquire a habitation in, or become an inhabitant of, another state, for purposes of business, and of jurisdiction in personam."
He then refers to certain sections of the Code of Civil Procedure of California relating to corporations of other states transacting business in that state, and says:
"It is thus seen that corporations of other states do business here under the license of this state, subject to the implied condition that they may be brought, by service of process upon their agents, before the courts of this jurisdiction; * * *
"If it be said that inhabitancy in a state, in its strict legal sense, implies a permanent, fixed residence in that state, the answer is that a corporation of one state, operating, by agents, a railroad or telegraph line in another state, with its consent, or under its license,Page 680may be regarded as permanently identified with the business and people of the latter state, and, for the purposes of its business there, to have a fixed residence within its limits; * * * It does there just what it would do if it had received its charter from that state. It seems to the court that a corporation of a state, * * * holding such close relations with the business and people of another state, may, within a reasonable interpretation of the act of 1887, be deemed an `inhabitant' of the latter state for all purposes of jurisdiction in personam by the courts held there; although a corporation is, and, while its corporate existence lasts, must remain, a `citizen' only of the state which gave it life."
We are impressed with the reasoning of that opinion, and are convinced that it is not inconsistent with the later rulings of the Supreme Court. We regard it as especially applicable to the instant case because the facts in this case relative to residence in Indiana are quite as strong as in the California case, and the pertinent statutes of Indiana relative to corporations of other states transacting business in Indiana are substantially the same as those of California. See Burns' Indiana Statutes 1926, §§ 4913, 4918, 4923. We think the court had jurisdiction of appellant Dodge Manufacturing Corporation.
The remaining question to be considered arises over the construction of the contract referred to as Exhibit A. It is upon that contract alone that the suit is based. The contract referred to as Exhibit B was entered into about five months later, and is characterized by the parties as being supplementary to, and as a part of, Exhibit A. While Exhibit B is not in any way relied upon by appellee as a basis for his action, yet it was properly admitted in evidence, and we think it is of vital importance as bearing upon the parties' own construction of Exhibit A, and upon appellee's right of action on Exhibit A.
The trial court proceeded upon the theory that Exhibit A is not simply a contract for royalties, but that it is one for the transfer of an interest in the National Pulley Company.
The contract in suit was entered into by appellee and National Steel Pulley Company as parties of the first part, and Oneida Steel Pulley Company as party of the second part. It is well to bear in mind the situation of the parties, and just what property was involved therein and how it was owned at the time the contract was entered into.
Oneida Company was, and had been for some time, a manufacturer of pulleys other than those produced by National Company and those described in appellee's patent. It owned one-half the capital stock of National Company. Appellee owned his patent and also one-half the capital stock of National Company. The National Company had no property interest in the patent, but it was organized for the purpose of manufacturing the pulleys described in that patent, and it owned the dies, tools, and machinery used by it in making pulleys which it supposed were covered by the patent. All parties to the contract thought, in good faith, that the patent covered all pulleys manufactured by National Company.
It is quite apparent from the contract that appellee desired to rid himself of the burden and responsibility of, and the liabilities for, the manufacture and sale of the product, and it was therein agreed that Oneida Company should assume all such burdens, responsibilities, and liabilities. That interpretation is reinforced by the fact that appellee refused to interest himself in the defense of a threatened action for infringement, claiming that by the terms of the contract he was not called upon to do so. He was to do nothing except to assist in every way possible, if Oneida Company so desired, in the removal of all dies, tools, machines, and all other property of National Company to Oneida, N Y
Appellee as an individual had no authority whatever to dispose of the assets of National Company, for he owned nothing but stock in that concern. If Oneida Company was in any way obligated for the use and possession of the property of National Company, that obligation would move to National Company and not to appellee individually. He and Oneida Company were equal owners of the National Company stock, and neither was entitled to its assets except by way of dividend or upon dissolution. The only asset, therefore, which appellee transferred by the contract in suit was his patent, and for that he was to receive royalties during the life of the patent. The language of the contract in this respect is clear and unambiguous. If it be said that, in addition to the patent, Oneida Company also received dies, tools, and machinery, the answer is that it received them from National Company and not from appellee, and he is not entitled to payment for their use or their value. The trial court said that aside from the subject of royalties the contract transferred an interest in National Company. But to what interest doesPage 681the court refer, and who transferred it? So far as this record shows, appellee owned nothing but his patent and one-half the capital stock of National Company, which stock ownership was all the interest he had in that company. He did not transfer any stock, but he did assign his patent. The assignment of the patent, however, transferred no interest in National Company, because that company owned no part of it. If the transfer of interest mentioned by the trial court refers to a transfer by National Company of the dies, tools, and machinery, it is quite apparent that appellee cannot recover for such transfer.
In view of the fact that National Company has never been dissolved, and the further fact that by the supplemental contract of June 14, 1928, appellee sold and transferred to Oneida Company his one-half interest in the capital stock of and "all his right, title and interest in and to" the National Company, we think his right to recover for any interest he may have had in that company is precluded.
We are convinced that the royalties referred to in both contracts were exclusively for the use of the patent; and, inasmuch as no pulleys covered by the patent were ever made or sold by either appellant, they will not be required to pay the royalties designated by the contract in suit. Pursuant to the contract, they have reassigned the patent to appellee and have deposited it with the court for his benefit, and he has received all rights which the contract gives him.
The fact that appellants have erroneously paid, and appellee has erroneously received, the royalties for several years, is not sufficient to estop appellants from discontinuing further payment of royalties to appellee.
The decree of the trial court is reversed, and the cause is remanded for further proceedings not inconsistent with this opinion.Page 696
- "Whereas W.R. Patten one of the parties of the first part is the owner of one-half of the capital stock of the National Steel Pulley Company, and whereas the party of the second part has this day purchased the remaining one-half of the capital stock of said Company, and whereas the party of the second part is desirous of manufacturing pulleys which is the invention of the said Patten, subject to terms and conditions hereinafter set forth.
"Now, therefore, be it known that for and in consideration of the terms and conditions hereinafter set forth, and the assignment by the said Patten to the party of the second part, of certain improvements in pulleys and application for letters patent, therefore known as Serial No. ____ Filed ____, to the faithful performance of which parties hereto mutually agree to combine themselves. Parties agree as follows:
"First: — It is agreed between all of the parties hereto that with all convenient speed steps will be taken to dissolve the National Steel Pulley Company, but it is expressly agreed that the name `National' may be preserved as a Trade Mark and transferred by due and proper assignment in writing to the party of the second part."
"Third: — It is also further agreed that the contract now existing between the National Pulley Company and the party of the second part, is hereby cancelled, rescinded and annulled, said contract being dated May 12, 1913, signed W.R. Patten and Oneida Steel Pulley Company, Per T.E. Shepard. Insofar as it recites and contemplates the further purchase by the party of the second part of pulleys from the National Steel Pulley Company.
"Fourth: — In the event that the party of the second part discontinues for the period of one year after it has actually commenced the manufacture thereof of pulleys under the application or applications for letters patent herein referred to which includes all future improvements, the party of the second part agrees to reconvey to the said W.R. Patten an undivided one-half interest in the same.
"Fifth: — It is agreed that W.R. Patten shall receive in lieu of all profits arising from the manufacture and sale of pulleys contemplated by this contract, the sum of 12½c per pulley during the years of 1916 and 1917, and that for the subsequent years during the life of said patent he shall receive the sum of 10c per pulley, the said sum to be due irrespective of prices for which the same may be sold. It is agreed that such royalties shall be paid quarterly or within 30 days thereafter.
"Sixth: — The said Patten agrees to consent and in every way possible assist, provided the party of the second part so desires, the removal of all dies, tools, machines and all property of every kind, character and description owned by the National Steel Pulley Company to Oneida, N.Y., so that they may be manufactured at Oneida or some other place designated by the Oneida Steel Pulley Company, instead of manufacturing them at Chicago. This removal, however, shall be subject to the pleasure of the party of the second part.
"The spirit and intent of this contract may be summarized about as follows:
"The party of the second part has purchased a one-half interest in the business of the National Steel Pulley Company, and said Patten is desirous of turning over his entire interest in the profits to the party of the second part with the understanding that the party of the second part is to assume the manufacture or direct the manufacture of the inventions contemplated by this contract and the interest of the said Patten consists in his receiving in consideration of such transfer, the sum or sums as herein provided and explicitly set forth above.
"Seventh: — * * * Said Patten agrees to make, execute and deliver any further assignment or agreements to insure the fulfillment of the agreements entered into this day." ↩ - "That whereas said parties have heretofore entered into a contract dated January 19, 1916, and whereas it is recited in said contract, and is true that the said W.R. Patten is the owner of one-half of the capital stock of the National Steel Pulley Company, and whereas the Oneida Steel Pulley Company desires to become the owner of all the capital stock of the National Steel Pulley Company, a corporation organized under the laws of the State of Kentucky.
"Now, Therefore, this agreement is entered into in consideration of the premises and supplementary to, and as a part of, said contract between said parties, dated January 19, 1916, and it is agreed between the parties as follows, —
"(1) Said W.R. Patten agrees to assign and transfer his capital stock and all his right, title and interest in and to the National Steel Pulley Company to the Oneida Steel Pulley Company without recourse upon him, and said Oneida Steel Pulley Company agrees to pay him therefor the sum of Nine Thousand ($9,000.00) Dollars (which was paid) * * *
"(2) Should said Oneida Steel Pulley Company become insolvent at any time, or bankrupt, and its assets come to be administered either by assignment for the benefit of creditors, or by proceedings in bankruptcy, then, and in that event the assignment of the patent for the manufacture of steel pulleys, heretofore made by the said W.R. Patten to the Oneida Steel Pulley Company, dated February ____, 1916, shall be null and void and the title to said patent shall be revested in the said W.R. Patten, and the said Oneida Steel Pulley Company, and its assignee or trustee in bankruptcy, shall be obligated to execute all necessary assignments to carry this provision of this contract into effect.
"(3) It is further agreed, as part of this contract, that should the Oneida Steel Pulley Company, at any time, discontinue for a period of one year the making of pulleys under said patent, * * * then said Oneida Steel Pulley Company shall reconvey and make all necessary assignments to vest the title to said patent in said W.R. Patten, and all interest of the said Oneida Steel Pulley Company in said patent shall cease * * *.
"(4) It is further agreed between said parties that the royalties provided for in the contract dated January 19, 1916, to be paid to W.R. Patten, shall be paid upon all pulleys sold by said Oneida Steel Pulley Company on and after January 1, 1916.
"(5) Said Oneida Steel Pulley Company further binds itself, that during the life of this contract it will not, in any way, transfer in whole, or in part, said patent, #1,168,907, or any interest therein to any person, firm, or corporation, nor mortgage, pledge nor encumber said patent in any way, nor issue any license to, or permit any other person, firm, or corporation to manufacture or sell pulleys under said patent, and in case of a violation by said Oneida Steel Pulley Company, of any of the above provisions, then any and all assignments of said patent shall become null and void, provided, nevertheless, that should the Oneida Steel Pulley Company sell its entire plant, business and good will to any other person, firm, or corporation, or be merged with any other corporation during the life of said patent, then, and in that event, said Oneida Steel Pulley Company shall have the right to assign and transfer said patent #1,168,907 to said person, firm or corporation, subject to all the rights of said W.R. Patten, under any contract then existing between said Oneida Steel Pulley Company and said W.R. Patten, and such rights shall be expressly reserved in any assignment or transfer by said Oneida Steel Pulley Company of such patent, and in case said Oneida Steel Pulley Company violates any of the provisions of Clause Five of this contract, then any and all assignments of said patent shall become null and void, and said W.R. Patten shall have the right to at once institute all necessary proceedings at law or in equity to compel the reconveyance to him of said patent." ↩