Inventions Corp. v. Hobbs

• Decision Date: 08 May 1917
• Docket Number: 259.
• Citation: 244 F. 430
• Parties: INVENTIONS CORP. v. HOBBS et al.
• Court: U.S. Court of Appeals — Second Circuit

244 F. 430

INVENTIONS CORP. v. HOBBS et al.

No. 259.

United States Court of Appeals, Second Circuit.

May 8, 1917

The turning point of this case on the merits is whether the two contracts of May 9, 1914, and April 10, 1915, were in fraud of Robinson. It is of no consequence whether Hobbs and Hammond had earlier designs upon the stock of the Vanoscope Company which might have conflicted with Robinson's contract. If there is no evidence that the license agreements obstructed the collection of Robinson's claim, then this case must fall, regardless of other consideration. This claim before May 9, 1914, had become no more than for money, and later resulted in a judgment for money; obviously, there could be no fraud affecting the judgment which did not diminish the value of the property of the Vanoscope Company subject to be reached in execution. Now it is true that the Vanoscope Company under the contract parted with the right to exploit its patent except for the manufacture of home machines, and that this was the practical equivalent of an assignment to that extent of its rights. As the patent could have been made available upon Robinson's claim-- though not subject to levy under execution-- and as the license agreements prevented him from getting the benefit of the full value of the patents upon sale or the like, certainly it is true that they hindered and delayed him prima facie in his rights as a creditor. Yet these same agreements contained considerations, which gave the Vanoscope Company certain rights having more than merely a colorable value, and therefore the case is not one where the contract is a mere device to cover a gratuitous grant. The intent to hinder creditors does not follow necessarily from such agreements it must independently appear that they were made with that intent. That Robinson should be hindered in his remedies against the patents would equally follow from any sale, yet the sale would not be fraudulent if the consideration was reasonably sufficient and equally available to him. In such cases it must appear that the parties were actuated by a desire to prevent the creditor from getting as much as he otherwise would, and that without added trouble.

There is no such proof respecting the first agreement, that of May 9, 1914. The payment down of $50,000 for a patent which had never been exploited, and which depended absolutely for any value upon its future success would alone suggest that the parties were not concerned in defrauding Robinson. The plaintiff urges that I must suppose that Van Riper appropriated this money, and that Hobbs & Hammond were in collusion with him. There is not a whit of evidence remotely suggesting any collusion between Van Riper and the New York Company if Van Riper embezzled the money, and there is indeed no evidence that he did embezzle it, except in so far as one may guess so from its disappearance.

Vanoscope Co., Inc	Vanoscope	Company
Operating expenses	$60,000	$240,000
Common dividend ......................	42,000
	---------
	$102,000
Preferred sinking fund ...............	45,000
Average preferred stock dividend .....	10,500	157,500
	---------	--------
	$157,500	$82,500

In this account I have figured the average of the preferred stock dividends, since they were to be computed each year upon only so much as the accumulated sinking fund should not cover at 105. I have also disregarded the repayment of $50,000 for the obvious reason that it had already been paid out to Vanoscope Company as advanced royalties. The preferred stock represented the outside amount of capital to be invested, and the provisions for its redemption were certainly intended to repay the New York Company for all expenses of actual manufacture. The redemption provisions were therefore meant to be a way of repaying the expenses of manufacture; at least there was no other. The other expense was of general exploitation of the machines, of 'operating' as it was called, which was fixed at 25 per cent. That this was a genuine estimate and not colorable is to be in any case assumed, and is strongly fortified, since it is the tentative figure fixed in the proposed contract between the Johns-Manville Company and the New York Company of the succeeding winter, into the negotiation of which no fraud could possibly have entered.

Hector M. Hitchings, of New York City, for appellant.

Wellman, Gooch & Smyth, of New York City (William A. Redding and Frederic C. Scofield, both of New York City, of counsel), for appellees.

Before WARD and ROGERS, Circuit Judges, and MAYER, District Judge.

MAYER District Judge.

To understand clearly the questions here in issue, it is desirable to divide the controversy into two parts: (1) That relating to the effort to set aside certain license agreements; and (2) that relating to the character in law of certain proceedings following the obtaining of certain judgments by plaintiff's assignor.

First. Plaintiff is the assignee of one William J. Robinson, Miriam E. Robinson, Hector M. Hitchings, and Irving E. Burdick, of their respective interests in a judgment recovered by Robinson against Vanoscope Company (hereinafter called Delaware Company. It is also the purchaser of whatever right, title, and interest the receiver in supplementary proceedings of the Delaware Company had in and to the assets of the Delaware Company. Defendants Hobbs and Hammond are officers of and stockholders in Vanoscope Company incorporated (hereinafter called New York Company), licensee of Delaware Company, by virtue of two license agreements dated, respectively, May 9, 1914, and April 10, 1915, and also licensee of defendant Continental Motion Picture Company, Incorporated, by virtue of a license agreement dated April 10, 1915. Defendant Slease died pending the action, and it has abated as to him, and defendant Van Riper was never served and did not appear. Defendant Singer is the trustee in bankruptcy of Delaware Company appointed on April 6, 1916, by the referee in a voluntary bankruptcy proceeding pending in the United States District Court for the Southern District of New York in place of a previous trustee who had resigned.

The suit is brought by plaintiff in the dual capacity of assignee of the judgment creditor and as purchaser at the sale by the receiver in supplementary proceedings.

The Delaware corporation was formed to exploit an invention for projecting moving pictures by means of revolving mirrors in such a manner as to do away with the necessity for the shutter to cut off the light between each picture.

We are not concerned with the scientific details of the invention; suffice it to say that if the structure should be perfected so as to be commercially practicable, the patent covering the invention and here concerned may prove to be of substantial value.

Van Riper, the inventor, and Robinson, as promoter, entered into a contract on October 31, 1912, and the Delaware corporation, in which Van Riper was the controlling spirit and Robinson also entered into a contract dated January 13, 1913, the details of which it is unnecessary to set forth, the essential feature being that Robinson obtained the exclusive right to dispose of a certain amount of preferred and common stock of the Delaware Company under certain mutual terms, and the Delaware Company agreed that it would not--

'sell, assign or transfer or enter into any contract or agreement of any kind for the sale, assignment or transfer of any of the said treasury stock of said first party (Delaware Company) during the existence of this contract. * * * '

Both Robinson and Van Riper made various attempts without success to sell stock to Hobbs and Hammond, who had become attracted by the invention. About January, 1914, Robinson commenced to have differences with Van Riper and with the board of directors composed of stockholders who had bought stock through Robinson. The condition of the company was most unsatisfactory from a financial standpoint, and it practically did not have any assets except the invention, and the stockholders were not willing to add to their previous investments.

In February, 1914, Hobbs and Van Riper entered into an agreement for the sale of stock owned by Van Riper, but that agreement was surrendered by mutual consent and was never acted upon.

On March 2, 1914, Robinson commenced an action at law in the District Court for the Southern District of New York against the Delaware corporation and Van Riper, for damages for the breach of his contracts. This action was subsequently severed by order of the District Court so that thenceforth one action was against the Delaware Company and one against Van Riper.

On April 16, 1914, an agreement was entered into between the Delaware Company and a group known as the Hammond-Hobbs-Dyer syndicate, giving them an option upon a license agreement under the patents upon payment of $50,000 prior to May 1, 1914. Under this arrangement Hobbs and Hammond were relying upon Dyer to furnish the capital and upon his failure so to do the option was canceled.

Hobbs and Hammond, however, obtained the co-operation of A. L. Garford of Elyria, Ohio, to take up the Dyer interest in the contract, and Hobbs entered into a new contract with the Delaware Company for an option for the license agreement and paid $10,000 on account of the consideration therefor.

Garford is a large manufacturer of repute, well known in the business community and having large facilities in the way of tools and machinery for perfecting an invention of the character here concerned. Meanwhile, Hobbs and Hammond had become stockholders in a New York corporation known as Vanoscope Company,...