Allen v. Werner

• Decision Date: 13 July 1951
• Docket Number: No. 13320.,13320.
• Citation: 190 F.2d 840
• Parties: ALLEN, Collector of Internal Revenue, v. WERNER.
• Court: U.S. Court of Appeals — Fifth Circuit

190 F.2d 840 (1951)

ALLEN, Collector of Internal Revenue, v. WERNER.

No. 13320.

United States Court of Appeals Fifth Circuit.

July 13, 1951.

Helen Goodner, Ellis N. Slack, Sp. Assts. to the Atty. Gen., Theron Lamar Caudle, Asst. Atty. Gen., John P. Cowart, U. S. Atty., Macon, Ga., for appellant.

Randolph W. Thrower, Atlanta, Ga., James H. Wilson, Jr., Washington, D. C., for appellee.

Before HOLMES, McCORD and RUSSELL, Circuit Judges.

RUSSELL, Circuit Judge.

The appeal in this case, coming after the winnowing process of the trial of a suit for refund of income taxes, presents the primary question of whether the trial Court erred in admitting and considering parol evidence in construing the purpose and effect of an agreement between a patentor and a manufacturer with reference to the manufacture and sale of hydraulic lifting jacks. The tax question at issue is whether the income received by the grantor was ordinary income, or income from the sale of a capital asset. As the case is presented here, and, as to this question, in the trial Court, the substantial dispute centers around the question whether the agreement should be held to convey to the manufacturer and seller the right of "use" of the patented invention. The exclusive right to manufacture and sell was indisputably granted. We determine the case as presented by the parties.

The trial Court, upon consideration of all of the terms and provisions of the written agreement, held it to be ambiguous and that parol evidence was, therefore, admissible to solve the ambiguity and ascertain the true intentions of the parties. In additional support of this ruling, it referred to the proposition that, in the suit involving taxes, the defendant, not being a party to, or in privity with, the agreement could not assert the objection. It was further found that in the nature of the article involved, a hydraulic jack, models of which sold in a price range of from $2.98 to $30, even the retention of the right of use would be so inconsequential in value as that a Court, seeking the "substance of the matter rather than the form", in determining the incidence of taxation, should disregard this feature in determining whether the inventor had effected a sale rather than a license.

We think the ruling of the Court that the agreement was ambiguous, and therefore subject to parol evidence in aid of its construction and application, was correct. We therefore have no occasion to consider or pass upon the subsidiary rulings of the trial Court. Furthermore, the appellant does not contend that if consideration of the parol evidence adduced was legally permissible, the evidence produced was in anywise insufficient to establish that the purport and intention of the parties was to grant all right of manufacture, use and sale possessed by the patentor. It is contended, however, that because of other provisions of the writing, to which we shah later advert, (which it is insisted are inconsistent with any idea of a sale), that the agreement nevertheless evidenced a license and not a sale.

We state briefly the basis of our conclusion that the trial Court properly held the agreement to be ambiguous. The agreement between Richard W. Werner, the inventor and patentor, and Automobile Specialties Manufacturing Company, the proposed manufacturer and seller, designates Werner as "licensor" and the company as "licensee". It recites a stated consideration, being a guaranteed minimum annual royalty payment of not less than $5,000, and computed upon a stated percent of gross sales of the devices in question, and the expressed mutual covenants thereinafter expressed. As directly material here, the agreement "grants to the licensee the exclusive...