McCormick & Company, Incorporated v. Childers

• Decision Date: 23 October 1972
• Docket Number: 71-2216.,No. 71-2215,71-2215
• Citation: 468 F.2d 757
• Parties: McCORMICK & COMPANY, INCORPORATED, Appellee, v. Earl L. CHILDERS, Appellant. McCORMICK & COMPANY, INCORPORATED, Appellant, v. BEDFORD INDUSTRIES INCORPORATED, a body corporate of the Commonwealth of Virginia, successor to and formerly known as Childers Foods, Incorporated, a body corporate of the Commonwealth of Virginia, et al., Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

468 F.2d 757 (1972)

McCORMICK & COMPANY, INCORPORATED, Appellee, v. Earl L. CHILDERS, Appellant.

McCORMICK & COMPANY, INCORPORATED, Appellant, v. BEDFORD INDUSTRIES INCORPORATED, a body corporate of the Commonwealth of Virginia, successor to and formerly known as Childers Foods, Incorporated, a body corporate of the Commonwealth of Virginia, et al., Appellees.

Nos. 71-2215, 71-2216.

United States Court of Appeals, Fourth Circuit.

Argued May 9, 1972.

Decided October 23, 1972.

Paul R. Connolly and J. Alan Galbraith, Washington, D. C. (Williams, Connolly & Califano, Washington, D. C., on brief), for Earl L. Childers, Bedford Industries, Inc., and others.

Franklin G. Allen, Baltimore, Md. (William L. Marbury, and Piper & Marbury, Baltimore, Md., on brief), for McCormick & Co.

Before HAYNSWORTH, Chief Judge. FIELD, Circuit Judge, and BLATT, District Judge.

FIELD, Circuit Judge:

This appeal involves a dispute stemming from the sale of the assets of Childers Foods, Inc., to McCormick & Company, Inc., the focal point of the disagreement being an emulsion machine and the patent application which was pending thereon at the time of the sale. In its original complaint McCormick alleged that it had been induced to enter into the contract by false representations made by Childers, and sought rescission of the contract of sale, recovery of certain shares of stock which had been issued to Childers, as well as damages.

Motions to dismiss the complaint and to quash service of process were denied by the district court.¹ Thereafter, the defendants answered and Childers also filed a counterclaim for the balance of the consideration due him under the contract. The defendants demanded a trial by jury under the rationale of Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959), and requested that such jury trial precede a trial in equity. McCormick filed an amended complaint and an answer to the counterclaim in which it modified certain factual allegations and elected the remedy of rescission, thereby abandoning the claim for damages which had been included in the original complaint.

The trial court awarded Childers a jury trial to determine whether he had a right to recover on his breach of contract claim which would, of course, include consideration of any defense McCormick might have thereto. Under the trial court's procedural pattern, if the jury found facts which would provide McCormick with a basis for vitiating the sale, the court would then conduct an equity trial to determine whether McCormick was entitled to rescission or whether it was barred from any such relief under established principles of equity. Broadly, the jury would pass upon events affecting the validity of the contract of sale and, if necessary, the trial court would thereafter consider McCormick's conduct subsequent to the contractual closing date of the sale.

In both the jury trial and the trial on the equity issues the principal dispute concerned the alleged misrepresentations which McCormick claimed that Childers had made with respect to the origin and method of operation of the emulsion machine. Upon special interrogatories the jury found that Childers had made misrepresentations to McCormick; that McCormick relied upon one or more of the misrepresentations when it entered into the contract and would not have entered into the contract if such misrepresentations had not been made. The jury further found that the misrepresentations made by Childers were not of a fraudulent nature and that Childers had not been guilty of the deliberate concealment of any material fact. The jury also determined that McCormick had not been negligent in failing to discover the falsity of the misrepresentations prior to either the signing of the contract or the date of closing.

Following the jury trial both sides filed motions for judgment n. o. v. and, additionally, the defendants filed motions for a new trial. The court deferred action on all of these motions and proceeded with the trial of the equitable issues. At the conclusion of the equity trial, the court filed its opinion in which it denied all of the post-jury motions and made certain factual findings based upon the evidence presented at both the jury trial and the trial to the court. Upon the factual findings derived from all of the evidence the district judge held that Childers had made an innocent misrepresentation with respect to an essential feature of the agreement which would entitle McCormick to rescission unless precluded by other equitable principles. While the court further found that the conduct of McCormick did not constitute an affirmance of the transaction, it did conclude that McCormick was guilty of an unreasonable delay in seeking rescission and that the resultant change of circumstances made it inequitable to require Childers to make full restitution. Upon this basis the court ordered that the purchase price should be reduced by denying Childers the right to recover from McCormick the balance of the consideration due under the agreement, and also requiring him to return to McCormick the stock which he had theretofore received as part of the purchase price. Both McCormick and Childers have appealed from this action of the district court.

A consideration of the issues presented on these appeals requires a somewhat lengthy review of the facts with respect to the background and development of the subject machine, as well as the conduct of the parties incident to their negotiations and execution of the contract of sale.

Earl Childers has only a 9th grade education, but obviously is a man of considerable mechanical ingenuity and resourcefulness. Prior to 1968 he had engaged in several enterprises, including Childers Foods, Inc., located at Bedford, Virginia, which sold deboned chicken parts to salad makers and other customers. In the late 1950s Childers developed a "belt machine" which was designed to facilitate the separation of the meat from the bone. In 1960 he obtained a patent on this machine designated as U. S. Patent No. 2,932,058. In the early 1960s Childers developed a second machine known as the "shaker machine," U. S. Patent No. 3,118,172, which further refined the processing of deboned chicken parts.

In the middle 1960s Childers began to sell emulsified chicken processed from chicken necks to the Gerber Company for use in baby food, and incident to the development of an improved product investigated a vegetable pulper produced and marketed by FMC Corporation. In March of 1966 Childers ordered a Model 50 Pulper from FMC although a representative of that company had advised him that the pulper was designed to produce emulsion from fruit or vegetables and would not debone chicken parts. The FMC Model 50 Pulper, based upon two patents issued to Harold Lewis and assigned to FMC, is a basic mill-type machine consisting of a hopper, a cylindrical drum enclosing the pulper chamber, a conical distributor plate in the forward end of the chamber, a beater blade assembly inside the chamber, a perforated screen comprising the bottom half of the drum casing, and a discharge gate at the rearward end of the chamber. The beater blade assembly and the distributor plate are mounted on a rotating shaft that runs through the center of the mill. The beater blade assembly consists of two spiders attached to the ends of the rotating shaft, the spiders having four arms positioned at intervals of ninety degrees around the shaft, an arm on each spider supporting one of the four beater blades. The concave surface of the conical distributor plate faces the hopper and the convex surface faces the pulping chamber. Molded onto the convex surface of the plate are four vanes, each vane extending from the center of the plate at a ninety degree angle from the next. In the pulper the beater blades and vanes are arranged so that they alternate with one another at forty-five degree spacings as they overlap the outer edge of the distributor plate.

In undertaking to convert the Model 50 Pulper into a deboning machine Childers was aware of the fact that he must avoid breaking the bones and also control the length of time that the poultry necks remained in the machine. This time element was important to prevent the crushing of the bones and also in obtaining a maximum yield from the process.

After considerable experimentation Childers altered the Model 50 Pulper in several respects, including the following: (1) He reversed the distributor plate with its convex surface facing the hopper and its concave surface facing the chamber; (2) he installed a more powerful motor; and (3) he adjusted the relationship of the beater blade assembly to the distributor plate so that along the outer edge of the convex distributor plate the ends of each beater blade were about "two fingers" ahead of the tips of each vane in the clockwise direction of rotation. This relationship of the blades and vanes was used for processing chicken necks and the space was extended to "three fingers" in processing turkey necks.

In January of 1967 Childers retained an attorney for the purpose of obtaining a patent on the machine, and a representative of the attorney came to Bedford where he examined the machine and made several rough sketches of it. Childers did not disclose to either the attorney or his representative that the machine was an FMC pulper on which he had made certain changes. The application was filed by the attorney stating that Childers sought a patent for "Poultry Deboning and Comminuting Apparatus and Method." The background of the invention referred to several prior machines for deboning poultry, but made no reference to the fact that Childers had adapted an existing machine to what he believed to be a new use.

In the application the "Description," referring to the drawings,² stated in effect that the terminal end of each beater blade is curved in the direction of rotation of the beater assembly and is...