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BURK V. JOHNSON et al.
(Circuit Court of Appeals, Eighth Circuit. April 24, 1906.)
1. CANCELLATION OF INSTRUMENTS-FRAUD-MUTUAL MISTAKE.
Where a bill to rescind a contract assigning territory for the promotion of burial associations under copyrighted by-laws was based on alleged false and fraudulent representations by defendant, the bill could not be sustained by proof of mutual mistake.
[Ed. Note.-For cases in point, see vol. 8. Cent. Dig. Cancellation of Instruments, § 96.]
2. SAME EVIDENCE.
In a suit to rescind a contract assigning rights within certain territory under a copyright of articles of association and by-laws for the organizations of mutual burial associations and to cancel notes and mortgage given therefor, evidence held insufficient to sustain a finding that defendant represented that the copyright conferred on any purchaser the exclusive right to organize and operate under the plan disclosed, and that no organization using any of the features of such copyrighted plan would or could be operated without obtaining from defendant the right to do so, and that persons so operating were not subject to insurance laws of the several states.
3. COPYRIGHTS-EFFECT-RIGHTS OBTAINED.
The copyright of a pamphlet containing articles of association and bylaws of a mutual burial association did not protect the system, considered merely as a system, so as to confer on the person owning the copyright or his transferees the exclusive right to organize associations under the plan described.
[Ed. Note.-For cases in point, see vol. 11, Cent. Dig. Copyrights, g 37.]
4. CONTRACTS-RESCISSION-MISREPRESENTATIONS-QUESTION OF LAW.
Where defendant assigned the right to organize mutual burial associations according to a copyrighted plan throughout several states to complainants for the full term of the copyright, together with all defendant's right, title, and interest thereto within the states named, secured to defendant by such copyright, any opinions expressed by defendant concerning what his rights were under such copyright, in the absence of a misunderstanding of the facts or bad faith, constituted a mere matter of mistake of law, which was insufficient to authorize a cancellation of the contract.
[Ed. Note.-For cases in point, see vol. 11, Cent. Dig. Contracts, §§ 427, 1166.]
Where complainants purchased from defendant, who was an ignorant man, the right to use defendant's copyrighted plan for the establishment of mutual burial associations in several states on defendant's alleged misrepresentations concerning his rights under his copyright, and that the plan was not subject to supervision by state insurance departments, and when the matter remained in escrow for two months before the transaction was completed, and complainants had ample time to ascertain their rights under the contract, if they failed to do so, they were not thereafter entitled to demand a rescission because of such misrepresentations.
[Ed. Note.-For cases in point, see vol. 11, Cent. Dig. Contracts, §§ 425, 1160-1164.]
6. SAME RATIFICATION.
Where complainants, having purchased an assignment of the right to organize and operate mutual burial associations under a copyrighted plan in June, 1902, discovered the falsity of certain alleged representations of the seller concerning complainants' rights under the contract within a month after the contract was made, but continued, notwithstanding, to operate under the contract, and made no demand for rescission until suit was brought to cancel the contract more than a year thereafter, the fraud, if any existed, was waived.
[Ed. Note. For cases in point, see vol. 11, Cent. Dig. Contracts, §§ 446, 1181, 1183.]
Where the name of the grantee in a deed executed, acknowledged, and deposited in escrow was left blank at the request of the vendee, the fact that he thereafter filled the blank with his own name and recorded the deed did not invalidate it.
[Ed. Note. For cases in point, see vol. 16, Cent. Dig. Deeds, § 64.]
8. SAME-PAROL AUTHORITY.
Under Gen. St. Kan. 1901, § 1195, providing that a deed to real estate situated in that state need not be under seal, parol authority. express or implied, was sufficient to authorize a vendee to fill his own name in a blank left for that purpose in a deed to land located in that state.
Appeal from the Circuit Court of the United States for the District of Kansas.
This was a suit in equity brought by the appellees against the appellant, Burk, for the rescission of a contract and cancellation of certain instruments made in its execution. Burk was the owner of a copyright on a pamphlet known as "Articles of Association and By-Laws of Harrison Mutual Burial Association." The object of an association formed by the adoption of such articles and by-laws was to provide a plan, by mutual and periodical assessments of members, whereby funeral expenses of each should be secured. The bill charges that Burk induced complainants, W. A. Johnson and Beach, who were copartners under the name of Johnson, Beach & Co., to purchase from him the right to use the copyright throughout certain specified states by false and fraudulent representations made by him, to the effect that the copyright conferred upon any purchaser the exclusive right to organize and operate under the plan disclosed by it; that no organization using any of the features of the copyrighted plan would or could be operated without obtaining from him the right to do so; that persons organizing and operating under his copyrighted articles would not be under the supervision of insurance commissioners of any of the states constituting the territory about which he was negotiating with complainants; and that he would protect them in the exclusive and unembarrassed use of the copyrighted plan in that territory; and further charges that, led on by such false representations, and relying upon their truth, complainants took an assignment from Burk in the following words:
"To All Whom it May Concern: Whereas, I, A. F. Burk, of Harrison, Ohio, did obtain a copyright from the United States for the Harrison Mutual Burial Association, and the certificate of said copyright was dated December 18th, 1899, now this deed witnesseth that for a valuable consideration, viz., ten thousand dollars to me in hand paid, the receipt whereof is hereby acknowledged, I have assigned, sold, and set over, and by these presents do assign, sell, and set over, unto Johnson, Beach & Co., of Wichita, Kan., all the right, title, and interest for and within the following states: Wisconsin, Minnesota, North Dakota, South Dakota, Montana, Idaho, Washington, Oregon, and California, in the said Harrison Mutual Burial Association, as secured to me by said copyright, the same to be held and enjoyed by the said Johnson, Beach & Co. for his own sole use and behoof, and for the sole use and behoof of his legal representatives, to the full end of the term for which said copyright was issued, for and within the limits of the above-described
territory only, as fully and entirely as the same would have been held and enjoyed by me had this assignment and sale not been made.
"In testimony whereof, I have hereunto set my hand and affixed my seal this fourth day of June, 1902.
A. F. Burk.
"[Signed] [Seal.]" The bill further charges that, in consideration of the assignment, complainants executed and delivered to Burk their five promissory notes, maturing from time to time during the following year, and also a deed conveying to him title to a valuable lot of ground in Wichita, Kan.; that Burk had no right to convey to complainants, and did not convey to them, any exclusive use of the copyrighted plan; that other associations operating on a similar plan were at the time in operation; and that the operation under the plan was not free from the supervision of the insurance commissioners in the territory acquired by complainants. After issue joined and hearing had a decree was rendered in the Circuit Court canceling the notes and deed, and forever enjoining and restraining Burk from asserting any claim thereunder From that decree he appeals.
Dudley P. Wayne and Sherman T. McPherson, for appellant.
W. E. Stanley and Earl Blake (R. R. Vermilion, Earle W. Evans, and W. A. Ayres, on the brief), for appellees.
Before SANBORN, HOOK, and ADAMS, Circuit Judges.
ADAMS, Circuit Judge, after stating the case as above, delivered the opinion of the court.
The gravamen of the bill is the alleged false and fraudulent representations of defendant, and the decree must be sustained, if at all, upon proof of the specific and definite fraud alleged in the bill. "The rule that the court will only grant such relief as the plaintiff is entitled to upon the case made by the bill is most strictly enforced in those cases where plaintiff relies upon fraud. Accordingly, it has been laid down that where the plaintiff has rested his case in the bill upon imputations of direct personal misrepresentation and fraud, he cannot be permitted to support it upon any other ground." Daniell's Ch. Pl. & Pr. vol. 1, *page 380; Eyre v. Potter, 15 How. 41, 56, 14 L. Ed. 592; Putnam v. Day, 22 Wall. 60, 66, 22 L. Ed. 764; Hendryx v. Perkins, 52 C. C. A. 435, 114 Fed. 801. Attention is called to the foregoing rule because of a claim that the decree below might be supported on proof of a mutual mistake. We do not wish to be understood as intimating that the proof shows such a mistake, but the rule is alluded to for the purpose of sharply defining the issue before us. The questions arising on this appeal will be stated as the opinion progresses.
Did defendant make the false and fraudulent representations as averred, with the actual fraudulent intent and purpose charged in the bill? The proof discloses that complainants had observed the success of one Gill, who had acquired an assignment of defendant's copyright for use in Wichita county, Kan., where he had organized an association of over 8,000 members, had heard of the Burk plan and its advantages through Gill and one Larimer, who was Burk's agent for disposing of territory in the state of Kansas, and had become exceedingly anxious to acquire territorial rights themselves. From April 12 to June 1, 1902, urgent letters were written by Johnson to Burk, advising the latter that he and his associate had concluded to make a
deal with him, and, as they wanted to secure large territory, urged Burk to come to Wichita. Burk at this time was much occupied in handling his copyright and organizing associations under it. He had, before negotiating with Johnson, made between 8,000 and 9,000 sales of territory throughout the United States, and had made them all by assigning his copyright for use within the territory sold, substantially as done by him in this case. Burk finally, on June 4th, was persuaded to go to Wichita to meet Johnson. The parties differ concerning the negotiations which followed. Burk says he expected to have to explain his proposition, and, as he began to do so, Johnson told him he had seen Gill and Larimer, and knew the whole thing, and all he wanted to know was the price and conditions on which he could get the desired territory; that they quickly agreed upon the territory, and the price of $9,000; $2,000 to be paid in notes of complainants, maturing from time to time within the following year, and the balance ($7,000) to be paid by conveying a house and lot in Wichita owned by Johnson. The assignment of the copyright, which was made in the form Burk had always employed, and which was written or filled in by Beach, the notes and the deed were all executed and left in escrow with the president of the Fourth National Bank, to be exchanged when Johnson should have paid a note of about $1.000, secured by mortgage on the lot. Subsequently, deliveries of these notes, assignment, and deed were all made according to the terms of the escrow.
Johnson, the main witness for complainants, testifies as follows: "That upon learning that Burk was at the hotel, we went up to his room, and said to Burk: 'Now I have got just a few questions to ask you. I am very busy. What have you got, and how can you protect us in this proposition?" "
That the following colloquy then occurred between him and Burk. The latter said:
"I have got my plan so thoroughly covered with copyrights that I have absolute protection, and can protect you absolutely against all comers and goers. ** I can absolutely protect you from any one collecting money in a burial association by assessment.' I told him if he had some proposition to offer us that would give the men we sold to absolute protection, so that no one else could infringe or start a plan similar to it, that we could deal; otherwise it would not be any use to say a word. * He said:
‘I have had that idea copyrighted, and I am protected for seventeen years from the date I am copyrighted.'
Johnson testifies that these conversations were both before and after the execution of the assignment; that Burk had with him his certificate of copyright, and in course of the negotiation exhibited the same to complainants, and also exhibited the constitution and by-laws copyrighted, and made a good many explanations concerning them. Mr. Beach, the other complainant, gives his account of the negotiations as follows:
"I said * that there were two propositions that I wanted to thoroughly understand. One was, was it strictly a legitimate proposition? And the other was, was he able to protect us by copyright in the proposition?"
He testifies that Burk answered in the affirmative, and further stated that the plan did not conflict with the insurance laws of any of the states. Burk flatly denies the testimony of both Johnson and Beach.
From this kind of testimony, in the light of many other incontrovertible facts, we are unable to find that Burk made the representations ascribed to him by complainants in any such sense as is claimed by them, or in any sense that afforded complainants any ground for reliance upon them in the deal they were engaged in making.
Complainants, after the transaction was closed and after they had entered upon the business contemplated by it, wrote some letters which are in evidence. In those letters they referred to the existence of similar associations which they found they had to compete with, and referred to the fact that they were required to conform to the insurance laws of the state of Minnesota before commencing business there. If the representations claimed to have been made by Burk had been made, and if complainants had been induced by them to make the negotiation in question, nothing would have been more natural than an immediate and vigorous protest upon first ascertaining that the representations were untrue; but, as will be later seen, there were no such protests. Moreover, complainants seem, according to their own testimony, to have been fully advised as to the nature and character of the business from conversations with Larimer and Gill, who had been successfully operating the same kind of a business in the state of Kansas, and particularly in the county of Wichita They seem, from the correspondence anterior to Burk's going to Wichita, to have made up their minds to go into the business provided they could get territory from Burk. Their anxiety to secure this territory was great and Burk's disposition indifferent. All these things harmonize better with Burk's theory than with complainants'. We have no doubt that Burk, like many successful business men, exaggerated the merit of the general scheme of his business. He had organized many associations under his copyrighted articles, and had made a great success of them. He would naturally boast of his success. Whatever may have been his representations, we hesitate to believe, from all the facts and circumstances attending this case, that he deliberately, fraudulently, and deceitfully undertook to assure complainants that his copyright, for the partial assignment of which he was then negotiating, would secure to them the exclusive use of the plan of operation suggested by it. His copyright conferred upon him no such exclusive right. Baker v. Selden, 101 U. S. 99, 25 L. Ed. 841; Griggs v. Perrin (C. C.) 49 Fed. 15. This he and complainants were both presumed to know, and any representation to the contrary or reliance upon it would be unreasonable and improbable.
But, in deference to the contrary contention, we are led to some other considerations. The representations relied on in the bill relate to the scope and effect of the copyright, or, rather, to what advantages or immunities the law conferred upon its owner. Bearing in mind that during the negotiations in question the parties had before them, free to the observation and inspection of all, the certificate of copyright