Watson Fireproof Window Co. v. Henry Weis Cornice Co.

• Decision Date: 01 June 1914
• Citation: 168 S.W. 905,181 Mo.App. 318
• Parties: WATSON FIREPROOF WINDOW COMPANY, Respondent, v. HENRY WEISS CORNICE COMPANY, Appellant
• Court: Kansas Court of Appeals

168 S.W. 905

181 Mo.App. 318

WATSON FIREPROOF WINDOW COMPANY, Respondent, v. HENRY WEISS CORNICE COMPANY, Appellant

Court of Appeals of Missouri, Kansas City

June 1, 1914

Appeal from Jackson Circuit Court.--Hon. Thos. J. Seehorn, Judge.

AFFIRMED.

Judgment affirmed.

Lathrop Morrow, Fox & Moore, Thos. H. Reynolds and O. W. Pratt for appellant.

(1) Where a contract is induced by fraud the defrauded party can upon discovery of the fraud, rescind the contract. Miller v. Crigler, 83 Mo.App. 401, and cases there cited. (2) Such a rescission is a rescission in toto and may be interposed as a defense in any action brought on the contract. Page on Contracts (1905), Section 136; Cecil v Burger, 32 Mo. 462; Zang v. Adams, 23 Colo. 408, S. C. 58 Am. St. Rep. 249; Och v. Railway Co., 130 Mo. 27.

New & Krauthoff, Edwin Camack and P. E. Reeder for respondent.

OPINION

JOHNSON, J.

This action was begun August 7, 1912, in the circuit court of Jackson county, to recover royalties under a license dated November 1, 1910, authorizing defendant, a manufacturer in Kansas City, to make and sell a certain kind of metal window sash covered by letters patent issued in 1902, and owned by plaintiff. The petition alleges that in consideration of the license defendant agreed to pay plaintiff "as a royalty for the right and license to manufacture and sell such windows the sum of two cents per square foot contained in such windows so manufactured and sold . . . and . . . should make regular bimonthly reports showing the number of windows made and sold under the terms of said contract." That between November 1, 1910 and July 1, 1912, defendant made and sold 84,655 square feet of such windows and reported the same, that the royalties on these sales amounted to $ 1693.10, and that after deducting payments made by defendant amounting to $ 607.00 there remained $ 1086.10 due and unpaid upon the sales made during the period which, as stated, ended July 1, 1912. The action is for the recovery of this remainder.

The answer, in addition to a general denial, alleges that defendant "was induced to enter into the contract set forth in plaintiff's petition by intentionally false and misleading statements and promises upon which defendant relied, not knowing the same to be false, and that by reason thereof said contract is null and void. Further answering this defendant states that the plaintiff induced this defendant to enter into the contract referred to in said petition by collusion with other parties, competitors of this defendant, for the purpose of placing this defendant at a disadvantage in placing its products upon the market and that since said contract was entered into plaintiff has in pursuance of said collusion so conducted itself as to injure and defraud this defendant. And that upon the discovery of said fraud said contract was repudiated by defendant."

The reply is a general denial. The trial resulted in a directed verdict for plaintiff for the full amount of the demand. Defendant appealed and argues, in substance, that the court erred in directing a verdict in the face of evidence tending to show a breach by plaintiff of conditions in the license imposing upon plaintiff a duty to protect defendant against the injurious competition of infringing manufacturers and erred also in refusing proof offered by defendant in support of the allegations of its answer that the defendant had been induced to enter into the license contract by false and fraudulent representations of plaintiff.

The material facts of the case are as follows: Defendant, in common with many other manufacturers of window sash in the United States, had been infringing upon the patent owned by plaintiff and in 1910, plaintiff instituted and carried on a vigorous campaign against the infringers, the main purpose of which was to compel a substantial recognition of the patent. A number of manufacturers had been induced to enter into license contracts with plaintiff and suits for infringement had been instituted against others who had refused and were continuing to ignore the patent and the rights of plaintiff thereunder. Such was the situation when defendant received a letter from the attorneys for plaintiff dated July 20, 1910, urging defendant to enter into a license contract and making certain representations relating to the number of manufacturers who had taken out licenses, the terms of their contracts and the suits that were being prosecuted against others who were obdurate. This letter initiated negotiations that culminated in the contract in suit. We have referred to allegations in the petition which correctly state some of the terms of the contract. Among others of importance was one providing that the minimum annual sum paid by defendant in royalties should be $ 1,000.00; another requiring the licensor vigorously to assert its rights against infringers for the protection of the licensee, and another in which the licensor agreed not to grant other licenses on more favorable terms than those accorded by the license to defendant. It is conceded that from November 1, 1910, the date of the license until September 9, 1911, defendant performed the conditions of the contract, made the required reports and acknowledged the indebtedness for royalties as shown by them. Defendant then ceased making reports or payments upon the royalty account and for sometime answered requests for payments with excuses which in no manner suggested the defenses now being interposed. On December 28, 1911, defendant wrote a letter saying: "In reply to yours of the 26th, regarding balance on royalties, we fully intended to make settlement by the 15th, but we have been tied up to the extent of about $ 8,000 on a job in Denver and which has made us hard up. We regret that we are unable at this time to make this settlement, but assure you that we will do so at the very earliest possible moment."

Plaintiff afterward sent agents (one of them an attorney) to Kansas City to collect the account and complaints were made by defendant to these agents that plaintiff was not acting with sufficient vigor in the prosecution of its infringement suits and that defendant was losing business from the unfair competition of infringers but though put to the proof by the ruling of the court that evidence of fraudulent representations in the procurement of the license contract would not be admitted until after a repudiation of the contract by defendant had been shown, defendant was unable to adduce any evidence tending to show an election on its part to rescind the contract on the ground of fraud.

One of these collectors called on defendant in December, 1911, the other in the following January. Defendant offered to prove that one of its officers stated to each of them that "it had come to his knowledge in regard to the falseness of the statements that had been made at the time this contract was entered into and in regard to the failure of the Watson Window Company to grant the protection to which the Henry Weis Cornice Company was entitled, that the Henry Weis Cornice Company wouldn't make any further payments of any royalties and no longer considered itself bound by the contract."

Counsel for plaintiff objected on the ground that "the authority of the agents to receive notice of the rescission of the contract was not shown." The objection was sustained and this ruling is the foundation of defendant's claim that it was erroneously deprived of the defense of fraud.

The officer of defendant who was on the witness stand testified that he told the collector who called in January that defendant would pay royalties "up to a certain point and quit." When asked what he meant by "a certain point" he said "My recollection is, up to the point we...