In re Waterson, Berlin & Snyder Co.

• Decision Date: 13 April 1931
• Docket Number: No. 27.,27.
• Citation: 48 F.2d 704
• Parties: In re WATERSON, BERLIN & SNYDER CO. FAIN et al. v. IRVING TRUST CO.
• Court: U.S. Court of Appeals — Second Circuit

48 F.2d 704 (1931)

In re WATERSON, BERLIN & SNYDER CO.

FAIN et al. v. IRVING TRUST CO.

No. 27.

Circuit Court of Appeals, Second Circuit.

April 13, 1931.

Wise, Whitney & Parker, of New York City (John Dashiel Myers, of Philadelphia, Pa., and Frank C. Welles, of New York City, of counsel), for appellant.

Nathan Burkan, of New York City, for appellees.

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The bankrupt was a music publisher. Prior to bankruptcy it had purchased from the petitioner Fain, and others, musical compositions, including words and music, under agreements all of which were identical except as to royalty rates and advance royalties. There were agreements made with twenty-two such composers.

The provisions of the royalty contracts important for consideration are illustrated by the following taken from the contract with one of the composers:

"For the Consideration of the sum of One dollar, in hand paid to Jimmie Monaco, party of the first part, by Waterson, Berlin & Snyder Co., party of the second part, the receipt whereof is hereby acknowledged, the said party of the first part does hereby sell, set over and transfer unto the said party of the second part, its successors and assigns, a certain song or musical composition, including the words and music thereof, bearing the title `You Went Away Too Far and Stayed Away Too Long' or any other title, name or style the said party of the second part may at any time give to said composition, together with the right to take out a copyright for or upon the same, and each and every part thereof, including the words and music, to the full extent in all respects as the party of the first part could or might be able to do if these presents had not been executed.

"And The Said Party of the second part hereby covenants and agrees in the event of the publication by it of the said song or musical composition, to pay to the party of the first part 1¢ cents upon each and every ordinary printed pianoforte copy sold and paid for of the said song or musical composition hereafter sold by the party of the second part in the United States, except as hereinafter mentioned or specified, such payment to be made only upon a full and complete compliance with all and singular the terms and conditions herein contained on the part of the party of the first part. And it is hereby expressly agreed that out of the first royalties to which the party of the first part may be entitled by or under the terms of this agreement the sum of $500.00 dollars, paid as advance Royalty, shall be deducted. * * *

"And The Party of the first part hereby covenants and represents to Waterson, Berlin & Snyder Co., for the purpose of inducing it to accept an assignment of said song and musical composition, and to enter into and execute this agreement and make the payment above mentioned, that he has not heretofore sold, mortgaged, hypothecated, or otherwise disposed of or incumbered any right, title or interest in or to said song or musical composition or any part thereof, and has not made or entered into an agreement with any person, firm or corporation in any wise affecting the said song, words or musical composition, and that he is the author and composer and absolute owner thereof, and has the full right, power and authority to make this assignment and agreement.

"We agree to pay 33 1/3% jointly of all revenue received from Mechanical reproductions less any expense incurred.

"Settlement On This Agreement shall be made semi-annually within thirty (30) days after the first days of January and July, respectively, during the whole term in existence of the copyright of said song and musical composition, according to such correct and proper statements of account as may be available on such days. Any such payment when made and accepted shall operate as a release to the said party of the second part, his successors or assigns, from any further claim or liability for any royalty up to the date thereof."

On September 20, 1929, and after the adjudication in bankruptcy which occurred late in August or early in September, 1929, the Irving Trust Company, which had been appointed receiver of Waterson, Berlin & Snyder Company, sent a circular to various persons in the music trade inviting bids before October 1, 1929, for all of the right, title, and interest of the bankrupt estate in the copyrights for the songs free from royalty claims. The circular stated that on October 1, 1929, the receiver proposed to submit the bids for individual songs, including rights to mechanical royalties, to the court for acceptance.

Thereupon Fain and the other composers filed a petition in the District Court alleging that in entering into their contracts they had relied on the reputation and organization of Waterson, Berlin & Snyder Company as leading musical publishers to popularize their publications and to increase sales of the songs, that the bankruptcy of the publishers had disabled them from further performance of the contracts to publish, and that, if the receiver was permitted to sell the compositions and copyrights free from royalty claims, purchasers would publish them without obligation to pay further royalties to the composers, who would thus be deprived of all revenue from their productions. The petitioners prayed for an order directing the receiver or trustee in bankruptcy to reassign the copyrights to them, or, in the alternative, not to sell without provision for the payment of future royalties to the composers, and for other and further relief.

The District Judge, though finding that each agreement involves "a transfer, absolute on its face, in exchange for a covenant by the publisher for the payment of certain agreed royalties," held that the "royalty contracts * * * involve such personal elements of trust and confidence that they are not assignable without the consent of the parties," and that they may "be rescinded by the composers when the publisher, as here, is unable or definitely refuses to fulfill his obligations thereunder." He therefore granted the petition and ordered that the royalty contracts be rescinded and that the trustee in bankruptcy should reassign each copyright to the composer upon the return to the bankrupt estate of any unearned advance royalties paid thereon to such composer.

The trustee has taken this appeal, which raises the questions (1) whether the trustee has a right to sell the copyrights at all; (2) whether, if he has a right to sell them at all, he may sell them free and clear of royalties.

The questions involved are interesting, and few precedents can be found in the American courts that throw direct light on the problems involved. We find difficulty in taking the view adopted by the District Judge, in spite of his interesting and informing opinion, because it disregards the unqualified grant to the publisher, and because it appears to give no weight to the labor, skill, and capital which a publisher expends in putting a song on the market. The expense of maintaining an organization, of building up a business and making it available to the composers of songs, as well as the more direct cost of making plates, advertising, and distributing the songs so as to give them popularity, largely go for nought if a rescission of the contracts be ordered on the sole condition that the composers return unearned advance royalties. Such a disposition seems specially inequitable where in the case of some, if not many, of the songs there are no unearned advances whatever.

In attempting to allow the composers any relief, we are confronted by certain decisions holding that an agreement to pay royalties in exchange for a transfer of title is nothing but an executory contract to pay, enforceable only at law. Bigham, J., in Re Grant Richards, 1907 2 Q. B. 33, held that the trustee in bankruptcy of a publisher, who had purchased the copyright of a book and agreed to pay royalties to the author upon sales, could sell the copyright and was not even liable for royalties upon sales of the publication made by him as trustee. In other words, the relation was held to be that of debtor and creditor and the author was allowed no more than the right to prove his claim against the bankrupt estate. The foregoing decision of Bigham, J., is referred to with approval by Scrutton, L. J., in the Court of Appeal in Barker v. Stickney, 1919 K. B. 121, where an author who had sold his copyright under an agreement with the purchaser to pay royalties was held to have no lien upon the copyright in the hands of a subvendee who took title with notice of the original agreement. It was said (page 132) that "a person acquiring a chose in action is not bound by mere notice of a personal covenant by his predecessor in title."

The foregoing decisions would indicate that the assignor of a copyright has only the right to recover at law for the breach of an agreement to pay royalties, and would have no control over the use of the copyright by his vendee or a subvendee. This rigorous doctrine, attributed to the English courts, is certainly far less satisfactory than that adopted by the court below, for, in case of bankruptcy or insolvency of the purchaser of the copyright, it deprives the author of any substantial remedy, though the consideration he was to receive for parting with his compositions was to depend on royalties accruing from a business during a long period of years. Under such a doctrine rescission could not be had even in the event of a complete failure to publish the songs.

But In re Grant Richards and Barker v. Stickney do not represent the sole current of English authority regarding the rights of a person in the position of the trustee in the present case.

In Werderman v. Society Generale d'Electricite, 19 Ch. D. 246, a patentee had assigned letters patent to A and B, who covenanted with him that they and their assigns would use their best endeavors to...