American Car & Foundry Co. v. Merchants' Despatch Transp. Co.

• Decision Date: 22 June 1914
• Citation: American Car & Foundry Co. v. Merchants' Despatch Transp. Co., 216 F. 904 (W.D. N.Y. 1914)
• Parties: AMERICAN CAR & FOUNDRY CO. v. MERCHANTS' DESPATCH TRANSP. CO. KEITHLEY v. AMERICAN CAR & FOUNDRY CO. et al.
• Court: U.S. District Court — Western District of New York

216 F. 904

AMERICAN CAR & FOUNDRY CO. v. MERCHANTS' DESPATCH TRANSP. CO.

KEITHLEY v. AMERICAN CAR & FOUNDRY CO. et al.

United States District Court, W.D. New York.

June 22, 1914

On Rehearing, July 29, 1914.

Charles W. Pooley, of Buffalo, N.Y. (D. S. Wegg and Walter H Chamberlin, both of Chicago, Ill., of counsel), for cross-complainant.

Parsons Hall & Bodell, of Syracuse, N.Y. (Edward W. Hatch, Charles J Hardy, Frederick P. Whitaker, and Frederick H. Gibbs, all of New York City, of counsel), for defendant and cross-defendant.

HAZEL District Judge.

This action in equity was brought by the American Car & Foundry Company against the Merchants' Despatch Transportation Company, for infringement of letters patent No. 707,702, granted to Herbert R. Keithley August 26, 1902, for underframes for railway cars. On January 16, 1909, the said patent, and 20 other patents relating to railway cars granted to the petitioner at different dates, were assigned by him in writing to the complainant company. After the testimony in the original suit for infringement was fully taken, there was a continuance for argument and the submission of briefs, but in the meantime a petition was filed and served on the complainant company by the patentee, alleging in substance that he parted with title to the patent in suit, and the other patents mentioned, in pursuance of a gross fraud practiced upon him by the American Car & Foundry Company (hereinafter called the company), in obtaining from him said assignments and transfers for an inadequate consideration, in that at the time of the execution and delivery thereof the company concealed from him material facts which it was its duty to have disclosed, namely, that prior thereto it had actually manufactured and sold a large number of underframes for cars embodying the invention of the patent in suit, and praying for a cancellation of the assignments and reconveyance thereof to him, and for an accounting for damages. Afterwards affidavits in opposition to the petition having been submitted on behalf of the company and cross-defendant herein, and the interested parties having been heard, the petition to intervene was granted, and the petitioner, Herbert R. Keithley, made a party to this cause, later filing a cross-bill of complaint, to which answers were interposed. Proofs have since been taken thereon, and the paramount question now to be determined is whether the evidence equitably justifies setting aside the assignments of the patents on the ground that nothing was said by Wolff, the agent of the company, regarding the prior car construction for the Atchison, Topeka & Santa Fe Railway Company (hereinafter called the Santa Fe cars), which, according to the prima facie evidence in the original suit for infringement, drawn out on cross-examination of the expert witness Weisbrod, embodied the Keithley invention in suit. An answer to this question necessitates a brief recital of the material facts.

In 1904 the patentee, who was a prolific inventor in the art of steel car construction, went to the office of the company at St. Louis, intending to dispose of five car patents, including the underframe patent in suit, taking with him four blueprints of drawings of the patents. He met Ames, the assistant general manager of the company, and left with him the blueprints, saying that he would like to have the company examine his car designs with a view to manufacturing them on a large basis or to controlling the patents. He was asked by Ames to return later. On a subsequent day he returned, and was shown into the office of the witness Wolff, then the chief mechanical engineer of the company, but nothing was said at this time germane to the subject now under discussion. On April 27th ensuing, he wrote to the company, from his residence in Chicago, that he would consider an offer for his car designs on a royalty basis with a cash payment, and Ames, on receipt of the letter, took the blueprints to McBride, the vice president of the company, calling his attention to the letter and the blueprints, which, as he testified, had in the interval remained folded on his desk. The company replied to the letter of the petitioner, stating that the car designs had been looked over carefully and with interest, but that the company did not care to negotiate for their control, and returned the blueprints to him. According to the petitioner, one of the blueprints included the design in controversy, but the company denies any knowledge thereof.

Nothing further to interest the company in the patents was done until 1908, when the patentee again went to the office of the company, intending to interest the witness Wolff (who he supposed at the time was an officer in a corporation engaged in constructing side frames for cars) in another patent for a side car frame which he wished to sell. He testifies that during his conversation with Wolff he was asked what he had done with his car patents, and was told that the company might make an offer for them if he would sell them cheaply enough. Wolff also stated that the company never expected to use them, and that, if they had had any use for them, they would have looked him up. Afterwards there were other conversations between them relative to the car side frame, but no particular reference was made to the car patents which the petitioner had offered to sell the company in 1904.

There is testimony to show that on a subsequent occasion, when the petitioner was at the office of the company, Wolff directed the patent attorney of the company to make a list of the Keithley patents from the Patent Office Gazette, and that later he handed to the petitioner copies of three patents, upon each of which was marked in lead pencil $100, stating that he would give $300 for the three; that the petitioner replied that he ought to have more money for them, whereupon Wolff offered $450 for the 21 patents, which was accepted. The assignments were 'some time later' (January 16, 1909) executed and delivered by Keithley after an examination had been made and the titles found to be clear. Wolff's version of what occurred at the time of the bargain is somewhat at variance with Keithley's, but not as to important particulars. He testifies that he offered Keithley $300 for all his car patents, and that Keithley requested $500, and that they finally agreed on $450 for the lot.

The conversation leading up to the meeting of minds was most commonplace and devoid of discussion of the merits of the inventions. No reference was made to other car constructions or to the car frames manufactured by the company for the Santa Fe Railway Company, or to any extrinsic or intrinsic facts or circumstances which might bear upon the value or practicability of the assigned patents. Efforts had previously been made by the petitioner to dispose of them to various other car manufacturers, but without success, and it is evident that, at the time of the assignment, he valued them at only a nominal figure. No misrepresentations as to their value or usefulness are claimed to have been made. Nothing was said by Wolff or any other representative of the company that may fairly be regarded as evasive or adroit either as to their value, their importance, or the use to which it was intended to put them, and the patentee made no inquiries in relation thereto. In my judgment it would not be proper from this interview to impute to Wolff a knowledge that the company had infringed the underframe patent in suit by the Santa Fe car construction, or to consider him as scheming and conniving to obtain control of it for a trifling sum. To persuade the court that an asset was acquired by fraud or deceit, there must be some overt act or some expression of a convincing nature indicative thereof.

The general rule relating to the purchase of personal property is that no duty devolves upon one party to disclose to another any facts or information possessed by him regarding the value of any personal...