Ozan Lumber Co. v. Union County Nat. Bank of Liberty, Ind.

• Decision Date: 04 April 1906
• Docket Number: 2,205.
• Citation: 145 F. 344
• Parties: OZAN LUMBER CO. v. UNION COUNTY NAT. BANK OF LIBERTY, IND.
• Court: U.S. Court of Appeals — Eighth Circuit

145 F. 344

OZAN LUMBER CO. v. UNION COUNTY NAT. BANK OF LIBERTY, IND.

No. 2,205.

United States Court of Appeals, Eighth Circuit.

April 4, 1906

The lumber company, in the purchase from a manufacturer of a machine for loading logs upon cars, gave 11 promissory notes negotiable in form. The bank acquired the notes in the regular course of business for value and before maturity, and upon default in payment brought action against the lumber company. The latter asserted by way of defense that the machine was covered by letters patent of the United States that the notes were not executed upon a printed form showing that the consideration was a patented machine or implement as required by an Arkansas statute, and that under the statute the bank was not an innocent purchaser, and the notes were absolutely null and void. The Arkansas statute referred to (sections 493-496, Sand. & H.

Dig.) provides that every negotiable instrument taken in payment for any patented machine, implement, substance, or instrument shall be executed on a printed form showing upon its face that it was so taken, no person shall be considered an innocent purchaser thereof though he may have given value for the same before maturity, the maker may interpose defense to the collection of the same in the hands of any holder, and finally, that all such negotiable instruments not showing on their face for what they were given shall be absolutely void. A violation of the statute is punishable by a fine. A demurrer to this defense was sustained, and the bank had judgment.

T. C McRae, W. V. Tompkins, and U. M. Rose, for plaintiff in error.

Morris M. Cohn, for defendant in error.

Before VANDEVANTER and HOOK, Circuit Judges, and LOCHREN, District judge.

HOOK Circuit Judge, after stating the case as above, .

The question presented is that of the validity of the Arkansas statute, which, as applied to this case, declares that the notes are nonnegotiable and are null and void in the hands of an innocent purchaser, because they were not executed upon printed forms showing on their face that they mere given in payment of a patented machine. It will be noticed that the statute strikes directly at the protection afforded by a patent issued by the national government, and that it does not proceed upon any consideration of the character of the machine itself, or the use for which it is designed. If the manufacture and sale of the machine were not protected by letters patent, the statute would not be applicable, nor would it apply if a patent once issued had expired by limitation. In other words, were it not for the patent, the case would not be within the statute. If the notes had been given for a car-loading machine precisely like the one in question, but upon which no patent had been obtained, they would then be valid obligations free from all equities in the hands of an innocent purchaser. These observations narrow the inquiry, and the question is whether a state may so discriminate by hostile legislation against rights granted by the United States pursuant to the provisions of the Constitution.

This legislation has been upheld by the Supreme Court of Arkansas. Tilson v. Gatling, 60 Ark. 114, 29 S.W. 35; Wyatt v. Wallace, 67 Ark. 575, 55 S.W. 1105; Roth v. Bank, 70 Ark. 200, 66 S.W. 918, 91 Am.St.Rep. 80. And it is claimed that authority for it may also be found in Patterson v. Kentucky, 97 U.S. 501, 24 L.Ed. 1115, and Webber v. Virginia, 103 U.S. 344, 26 L.Ed. 565. There is a widespread misconception of the doctrine of these two cases, and it has been freely employed in support of conclusions which in our opinion are radically different from those announced by the Supreme Court. In the Patterson Case, a Kentucky statute, enacted in the rightful exercise of the police powers of the state, provided for the inspection and gauging of illuminating oils and fluids, recognized as standard those that ignited and permanently burned at a specified temperature, and condemned as unsafe for illuminating purposes those that more quickly yielded to combustion. It was sought to exempt from the operation of this statute a certain patented oil which could not be made to comply with the test, and the exemption claimed rested solely upon the ground that the oil was protected by letters patent. The right was asserted to sell the patented oil in any part of the United States without regard to local statutes or regulations. It will be observed that there was no discrimination whatever against any right or privilege granted by and enjoyed under the Constitution and laws of the United States. On the other hand, there was an assertion by Patterson of a special immunity and exemption of the patented oil from local laws properly enacted with reference to all property of the class described whether possessing patented features or not. It was held by the Supreme Court that there was no such exemption from the operation of the police laws of the state.

In the Webber Case there was an attempt by an agent of a manufacturing company to escape the operation of the tax and license laws of Virginia, upon the ground that the machines sold by him were covered by a patent. The laws in question had a general application and did not relate exclusively to those who sold patented articles. It was held that the right conferred by the patent laws upon inventors to sell their inventions and discoveries did not remove the tangible property to which the invention or discovery was applied from the operation of the local laws.

Similar questions were presented in Jordan v. Overseers, 4 Ohio, 295, and Vannini v. Paine, 1 Har. (Del.) 65. In the first of these cases the assignee of a patent for making, using, and vending a certain medicine contended for the invalidity of an Ohio statute regulating the practice of physic and surgery, and in the second it was claimed that a statute prohibiting lotteries did not operate against a patented mode of conducting such prohibited business.

Some courts have upheld local statutes requiring that notes taken in the sale of patent rights, as...