Where there was an agreement between a patentee and an assignee
that the latter should manufacture the machines for a certain time
and upon certain terms, it is too late for him, when called upon in
chancery for an account, to deny that the patentee was the original
inventor of the thing patented.
Even if the patent were invalid, yet that does not so taint with
illegality the sales of the machines by the assignee as to affect
the claim of the assignor to an account of the sales.
The agreement that one only of the parties should continue the
manufacture was not void as being in restraint of trade.
The assignee could not legally purchase the outstanding claim of
a third person and set it up against the patentee with whom he had
an existing agreement in the nature of a co-partnership.
If the assignee transfers his contract, the person to whom he
transfers it is bound by the same equities which existed between
the original parties to the contract, having purchased with a full
knowledge of the state of things.
If the report of the master was incorrect, exception should have
been taken to it in the court below. It cannot be examined in this
Court, no exception having been taken.
Page 59 U. S. 290
The facts are stated in the opinion of the Court.
MR. JUSTICE CURTIS delivered the opinion of the Court.
This is an appeal from a decree of the Circuit Court of the
United States for the Southern District of New York in a suit in
equity brought by the appellee, Parkhurst, against the appellants.
The bill states, and the proofs show, that Parkhurst, being the
owner of letters patent for improvements in the machine
Page 59 U. S. 291
for ginning cotton and wool, on the 22d of May, 1845, entered
into a written agreement with Kinsman, the substance of which was
that Parkhurst was to be the owner of two-thirds, and Kinsman of
one-third, of the letters patent; that the business of
manufacturing and selling the patented machines should be carried
on by the parties on their joint account, in the proportions of
two-thirds and one-third, Kinsman giving his personal attention to
the business and advancing a sum not exceeding one thousand dollars
for the purchase of machinery, stock &c., for which advance he
was to be repaid out of the first profits of the business. Kinsman
was to pay Parkhurst two thousand dollars in cash and give his note
for one thousand dollars, payable in sixty days. Under this
agreement, the manufacture and sales of the machines were begun and
carried on until the 9th day of February, 1846, at which time the
parties entered into a new agreement, the substantial part of which
was as follows:
"Whereas the party of the first part has advanced moneys, and
become responsible for various sums of money which have been
expended in getting up machinery, and tools, and stock &c., for
the manufacture of burning and carding machines, which were
invented by the said Parkhurst, one third part of which he sold and
assigned to the party of the first part, now therefore the party of
the first part, in consideration of one dollar in hand paid by the
party of the second part, the receipt whereof is hereby
acknowledged, hereby covenants and agrees that as soon as the
profits which have accrued and which may hereafter arise from the
manufacture and sale of the said machines so invented by the party
of the second part and so made and sold by the party of the first
part, shall be sufficient to pay all legal demands for the purchase
of machinery tools &c., and other expenses incurred by said
party of the first part, then he, the said party of the first part
shall and will discontinue the manufacture and sale of said
machines invented as aforesaid, and that all machines which he
shall manufacture and sell after this date should not be sold for a
less profit than one hundred dollars each, and that he will be
accountable for one hundred dollars profit on each and every
machine made and sold from this day unless he has the written
consent of the party of the second part to sell at a less
price."
"The party of the second part, in consideration of one dollar to
him in hand paid by the party of the first part, the receipt
whereof is hereby acknowledged, and also in consideration of the
agreements aforesaid, hereby covenants and agrees with the party of
the first part that he will go on and manufacture the machines
aforesaid as soon as the party of the first part discontinues the
same, and that he will not sell any machine for a less
Page 59 U. S. 292
profit than one hundred dollars without the written consent of
the party of the first part, and that he will pay over to the party
of the first part one third-part and share of the said profits upon
all machines which he makes and sells hereafter, and that, for any
machines which he may manufacture or have manufactured before the
discontinuing of the building of the same by the party of the first
part, shall be subject to the same restrictions of selling for at
least one hundred dollars profit on each machine, one-third of
which shall be paid to the party of the first part."
The original and supplemental bills aver that under this
agreement Kinsman prosecuted the business and not only reimbursed
himself for the cost of the machinery, tools &c., and all his
other advances, but, in violation of his agreement, continued the
manufacture and sale of the machines so as to receive large
profits, of which it prays an account, and also an injunction to
restrain the further making or vending of the machines in violation
of the agreement. A temporary injunction was applied for and
obtained on the third day of July, 1847. On the 29th day of June,
1847, Kinsman made a transfer to the appellant, Goddard, who was
then a clerk in his employment, of the tools, stock &c., used
in the manufacture, and after Kinsman was enjoined, the business
was carried on in Goddard's name. A supplemental bill was then
filed making Goddard a party, charging him with notice of all the
complainant's rights at the time of the transfer to him, alleging
the transfer itself to have been only colorable, and praying an
account and decree as against him and Kinsman. The circuit court
made an interlocutory decree declaring Parkhurst's right to an
account, referring the cause to a master to take and state the
accounts, directing the master, in taking the accounts, to
ascertain and report the number of machines made and sold by
Kinsman and Goddard or either of them, the advances made by Kinsman
and Goddard, or either of them, and charging a profit of one
hundred dollars on each machine sold.
The master reported, and his report, not being excepted to, was
confirmed and a final decree made that Kinsman and Goddard should
pay to the complainant the amount reported by the master to be due
from them. From this decree the appeal now before us was taken.
The principal objection made by the appellants to the decree of
the court below is that Parkhurst was not the original and first
inventor of the thing patented. We are not satisfied that this is
made out. But we have not found it necessary to come to a decided
opinion upon this point, because we are all of opinion that under
the agreement of the ninth of February,
Page 59 U. S. 293
1846, the invalidity of the patent would not afford a bar to the
complainant's right to an account. Having actually received profits
from sales of the patented machine, which profits the defendants do
not show have been or are in any way liable to be affected by the
invalidity of the patent, its validity is immaterial. Moreover, we
think the defendants are estopped from alleging that invalidity.
They have made and sold these machines under the complainant's
title and for his account, and they can no more be allowed to deny
that title and retain the profits to their own use than an agent
who has collected a debt for his principal can insist on keeping
the money upon an allegation that the debt was not justly due.
The invalidity of the patent does not render the sales of the
machine illegal so as to taint with illegality the obligation of
the defendants to account. Even where money has been received,
either by an agent or a joint owner, by force of a contract which
was illegal, the agent or joint owner cannot protect himself from
accounting for what was so received by setting up the illegality of
the transaction in which it was paid to him. Thus, where a vessel
engaged in an illegal trade carried freight which came into the
hands of one of the part owners, and on a bill filed by the other
part owner for an account, the defendant relied on the illegality
of the trade, but it was held to be no defense.
Sharp v.
Taylor, 2 Phil.Ch. 801. So in
Tenant v. Elliot, 1 B.
& P. 3, the defendant, an insurance broker, having effected an
illegal insurance for the plaintiff and received the amount of a
loss, endeavored to defend against the claim of his principal by
showing the illegality of the insurance, but the plaintiff
recovered.
See also McBlair v.
Gibbes, 17 How. 236.
Here, however, as already observed, there was no illegality; it
is simply a question of failure of title, and as that does not
appear in any manner to have affected the profits which the
defendants received, there can be no ground to allow it to be shown
in defense.
Bartlett v. Holbrook, 1 Gray 114;
Wilder
v. Adams, 2 Wood. & Minot 329, are in point.
Similar views are decisive against the objection that this was a
contract in restraint of trade. It was certainly competent for two
persons, being joint owners of letters patent, whether valid or
invalid, to enter into a co-partnership for the manufacture and
sale of the patented machines and to stipulate that one of them
should alone conduct the business. This was a provision for the
prosecution of the business in a particular mode, and not for its
restraint. It is a very common and not an illegal stipulation in
partnership articles that neither partner shall carry on that
business for which the partnership is formed outside of the
partnership and for his own account. Besides, if the contract
Page 59 U. S. 294
to refrain from the manufacture could not be enforced as being
against public policy, this would afford no answer to a claim for
an account of profits actually realized by prosecuting the
business, there being no connection between the illegal stipulation
and the profits of the business.
It was insisted by the appellants that they did not act under
the complainant's title, but under some right acquired from one
Sargent. We are not satisfied that Sargent had even an inchoate
right to a patent for the machines which the appellants made and
sold. But even if he had, the defendant, Kinsman, could not
secretly acquire the outstanding right of Sargent, if any, and set
it up against his joint owner, Parkhurst, in derogation of his
rights under the agreement of the 9th of February, which Kinsman
entered into with knowledge of this alleged title of Sargent, and
Goddard is bound by the same equities, for he not only purchased
pendente lite, and with actual notice of the suit, but we
are satisfied the sale to him was made to enable Kinsman to attempt
to evade the injunction.
The appellant, Goddard, objects that he has been charged by the
final decree, jointly with Kinsman, for the profits on sales of
machines made before the transfer to him by Kinsman. If this be so,
it arises from the report of the master, who was directed by the
interlocutory decree to report the sales made by Kinsman and
Goddard, or either of them, and the advances and expenditures of
them, or either of them.
If his report was in this or any other particular erroneous, it
was incumbent on the defendants to have pointed out the error by an
exception filed pursuant to the rules of the court on that subject.
But no exception was filed, the report was confirmed, and the final
decree was drawn up and entered without objection by the appellant,
Goddard, reciting that it appears by the report of the master that
the sum of $23,220 28/100 is due and owing by Kinsman and Goddard
to Parkhurst, and thereupon proceeds to decree them to pay that
sum. When a motion to dismiss the appeal was made at a former day
on the ground that the master's report not having been excepted to,
and the appellants not having objected to the final decree, there
was nothing open on this appeal, the appellant's counsel declared
that the appeal was designed only to review the interlocutory
decree which had decided the merits of the cause, and that unless
error was found therein, there was no ground for the appeal. The
motion to dismiss the appeal was overruled, the court being of
opinion that it was open to the appellants to review the decision
made by the interlocutory decree. But the interlocutory decree does
not direct the master to charge Goddard and Kinsman jointly with
profits on sales made by Kinsman alone. If the master
Page 59 U. S. 295
put such an interpretation on the decree, it was an erroneous
interpretation and should have been brought before the court below
by an exception. It is too late to object to it here, for the first
time.
The appellants also insist that they were charged with profits
not actually received, by reason of the failure of the purchasers
to pay and other causes. But this was in accordance with the
agreement of the 9th of February, which stipulates that Kinsman
shall be accountable for one hundred dollars profit on each machine
made and sold by him. By force of this stipulation, he and Goddard,
who acted with him under this agreement, took the risk of bad
debts. It appears from the master's report that evidence tending to
show that some of these losses were attributable to the
interference of Parkhurst was offered to the master and rejected by
him. But no exception having been taken to bring this point before
the circuit court, it is not open here.
We have considered all the objections to the decree of the
circuit court, and, finding them untenable, we order the decree to
be
Affirmed, with damages and costs.