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1,000 cigarettes, either printed or unprinted. H. & Co. continued to use the machines and pay the royalty, and at no time made any objection on the ground that better terms were given to other parties. In August, 1890, the contracts were terminated, and the machines removed by the B. Co. In September, 1890, H. & Co. wrote the B. Co., inclosing a final payment of royalty, and claiming a right to demand from the B. Co. the difference between the royalties paid by them and lower rates allowed to others. In March, 1892, H. & Co. sued the B. Co. for this difference, alleging that, in making the contracts, they had relied on the representations of the B. Co. that the terms offered were the same as those given to all others, that such representations were false and fraudulent, and that contracts had at the time been made by the B. Co. with other parties, at lower rates. No evidence was offered to show that H. & Co. were ignorant of the existence of such contracts during their dealings with the B. Co., or that they made any inquiry, after their letter of April 23, 1889. It did appear that the B. Co. had made contracts at lower rates of royalty, in cash, but that in each such contract certain services by the licensee, in advertising the machines, were agreed upon as part payment of the royalty. Held, that H. & Co. had not established either that they relied upon or acted upon any false representations of the B. Co., assuming such representations to have been made, so as to entitle them to recover back the royalties paid.
Held, further, that the question of the equivalence of the terms allowed to other parties with those allowed to H. & Co. was a material one, and the B. Co. should have been allowed to introduce evidence to show that the terms allowed to such other parties were not more favorable.
In Error to the Circuit Court of the United States for the Western District of Virginia.
This was an action of assumpsit, instituted by S. F. Hess & Co. to recover of the Bonsack Machine Company royalties alleged to have been in excess of the contract price paid by S. F. Hess & Co. to Bonsack Machine Company. The defendant pleaded nonassumpsit.
S. F. Hess & Co. leased one machine for the manufacture of cigarettes from the Bonsack Machine Company in the spring of 1887, and another one in the fall of 1889, besides having used still another machine for a while in the spring of 1888; the price or royalty for the use of the machines being first at 30 cents per 1,000 cigarettes made without any printing of trade-mark or other matter on them, and 33 cents per 1,000 cigarettes with such printing on them. transactions between the parties constituting the subject-matter of this suit began on or about 22d of March, 1887, and continued until some time in September, 1890, during which time the cigarettes made by S. F. Hess & Co. on the machines, at the royalties aforesaid, amounted to about $17,654.09. During this period three contracts were made between the parties. By the first, which is evidenced only by the correspondence between the parties, one machine was to be furnished to S. F. Hess & Co. by the Bonsack Machine Company, at the royalties aforesaid, for no specified time, the arrangement being liable to be canceled by either party at will. By the second, which was made a little more than two years after the first, and which is likewise evidenced only by the correspondence then had between the parties, another of said machines was to be furnished to S. F. Hess & Co. by the Bonsack Machine Company at rather reduced royalties. By the third and last contract, which was reduced to
writing, and signed by the parties, respectively, dated the 7th day of March, 1890, the terms of the contract in pursuance of which the two machines had been furnished as aforesaid are recited, and the royalty for the use of the machine from and after the 1st day of March, 1890, is fixed at 30 cents per 1,000 cigarettes, regardless of whether printing was done or not on the wrapper of the cigarettes. The Bonsack cigarette machine had been in use several years before S. F. Hess & Co. began to use it. Its reputation had been established, and it had grown largely in favor, when, on March 22, 1887, Hess & Co. wrote to P. A. Krise, addressing him as president of the Bonsack Machine Company, as follows:
"If it please you, inform us by return mail all particulars about your cigarette machines, together with your terms and price for which you lease or sell them, giving the number made by one machine per day, and the power necessary.
S. F. Hess & Co. J.
"P. S. How soon could you furnish us one, provided we would want your machine?"
On the 26th of March, 1887, D. B. Strouse, president of the Bonsack Machine Company, replied as follows:
Letter from D. B. Strouse to Plaintiff, dated March 26, 1887. "Salem, Va., 26 March, 1887. "S. F. Hess & Co., Rochester-Gentlemen: In answer to your letter dated 22d March, and addressed to P. A. Krise, I have to say that our terms are uniform, and are as follows: We send the machine to the factory, and furnish a man to put it up and run it at our expense. The factory must put up the necessary driver, shafting, and belt, and furnish one or two hands to feed the machine. We require a royalty of 30 cents per 1,000 cigarettes, if not printed, and 33 cents if printed. The machine prints any desired device on each cigarette. The machine weighs 2,000 pounds, and requires less than 12-horse power to run it. It should be placed in a room having good light. The capacity of the machine is from 200 to 220 cigarettes per minute, and is thoroughly constructed and reliable. I suppose you know that the best work in America is that done by our machines. These machines are very expensive, and, owing to their exceedingly quick work, require a careful and experienced operator, and we therefore require a guaranty of $200 per month on each machine in case the royalty should not amount to that sum. The machine will easily yield us $600 per month on royalty, but, as they are often not run on full time, we agree to allow the manufacturers to run or not, as they see fit, so that we receive for no month less than $200. All payments are required to be made at the end of each month for the work packed during the month. We have several machines on hand ready to be set up at once. If the machine fails to give you entire satisfaction, we will remove it at our expense. I say this so that you may have no hesitation in making the order. Our machines are now in eight factories, and are giving much more satisfaction than hand-made work. Hoping to hear from you very soon, I am,
"Yours, very truly,
D. B. Strouse." Letter of Plaintiff to D. B. Strouse, dated April 4, 1887. "S. F. Hess & Co.
"Rochester, N. Y., April 4, 1887. "D. B. Strouse, Salem, Va.-Dear Sir: Please let us know the size fully necessary to run your cigarette machine, and whether a tight or loose pulley is necessary, and the speed necessary to run the same, and width of belt, etc.; and please let us know if there is much of a jar to the running of the machine, as we wish to place the machines on 5th floor. Should we decide to order, and should we order, how soon after receiving order would you be able to ship? Let us hear from you as soon as possible, and oblige, S. F. Hess Co. J."
Letter of Plaintiff to D. B. Strouse, dated April 26, 1887. "Rochester, N. Y., April 26, 1887. "Mr. D. B. Strouse, Salem, Va.-Dear Sir: It has been intimated to us that your machine may be an infringement on other parties, which rather upset us, and telegraphed you this a. m. not to ship until further orders. While we know nothing personal about this matter, but to protect us against any suit for infringements, we thought perhaps you would furnish a good bond, and so telegraphed you. The length of cigarette we wish to make will be two inches and thirteen-sixteenths (2 13-16 in.), or rather 24 and a 1-16. Trusting that you can give us this protection, so that we can use your machine. Awaiting your earliest reply, we are yours,
S. F. Hess & Co. J."
Letter of Plaintiff to D. B. Strouse, dated April 23, 1887.
"S. F. Hess & Co.
"Rochester, N. Y., April 23, 1887. "Mr. D. B. Strouse, Salem, Va.-Dear Sir: We telegraphed you this day to ship machine at once, provided you can furnish us same quality paper as the bobbin you sent us; also to ship us one case of the paper. Now, Mr. Strouse, we must have good paper, and wish to impress you with the fact, and hope you will not fail to get it for us to start with. Also send us firstclass man to run machine, for you know we have two other machines in this city to compete with, and don't want to be outdone. Write us all the particulars about what is necessary to be done in advance of machine and man, so that when it arrives there will be as little delay as possible in getting started. Now, give us as good terms in contract as you can, and as good as you give any other house. We understand you give better terms than you offer us. If you are liberal with us, so that we are able to compete with our neighbor, we expect to use more of your machines. Since we have been corresponding with you, parties have made an effort to have us use other machines, but we prefer yours, but at same time want as liberal lease as you give others, and trust that you will do so. Awaiting your reply, we are
"Yours, very respectfully,
S. F. Hess & Co."
Letter from D. B. Strouse to Plaintiff, dated April 25, 1887.
"Mess. S. F. Hess & Co., Rochester-Gentlemen: This firm will ship you to-morrow 100 reels of paper, just such as the sample, except that the sample reel is glazed on the sides of the reel and this is not. I also cabled Abodie & Cie to ship you 100 reels, which will give you 200 reels of paper. A reel of paper will make 20,000 cigarettes. You can make your own calculations as to other orders. It is best to keep at least 90 days ahead. Your information as to our giving any manufacturers different terms from those I have given you is not correct. Our terms are the same to all. I wired you to-day as to printing cigarettes. If you want to print your cigarettes, we have to have a steel die cut to do the printing, hence I must have the words or device you wish to print, which should be as small as possible. I must also know the length of the cigarette you want to print. The die makes one revolution for each cigarette, and its circumference must correspond with the length of the cigarette. We prefer not to print, but never decline to do so. Will write you as to other details to-morrow.
D. B. Strouse." "Rochester, N. Y., Sept. 9, 1889.
"D. B. Strouse, Salem, Va.-Dear Sir: Yours of the 2d to hand, and note your remarks in regard to machine, &c., and now write to say our future for an increase in trade is very promising, and we feel confident that we will soon have all we can do for 2nd machine, and will want the third soon; but you know we have had a struggle, and up to the present time we have not made a dollar on cigarettes, while you have been paid your royalty; and we now feel, in view of all the circumstances, that you ought to send us the second machine, and allow us to pay for what we pay per month at rate of 30 cents per M., and if we do not make enough to pay you for both, that you should not compel us to pay $200 per month; but of course at any time that
you do not feel that you can afford to leave the second machine in our factory you can order it away, unless we then conclude to pay you the royalty of $200 per month. Still we feel confident that we can make and sell easily enough to pay you the royalty, but of course we cannot positively say, as no one can tell what the future will be. We understand that you have a right to make your own terms, and we make the above suggestions. Trusting you will comply with our wishes so far as you can, and send us another machine at once, on the best terms possible, we are
Answer of Strouse.
S. F. Hess & Co."
"Salem, Va., Sept. 13, 1889. "Messrs. S. F. Hess & Co., Rochester, N. Y.-Gentlemen: I have your letter of the 9th inst. I cannot understand why it was so long reaching me. I will send you another machine just as soon as I can, and will send it on the terms suggested in your letter, except that we will of course expect 33 cents per M. for printed work. We can modify the terms as to guaranty, but not as to royalty. We hope to ship your machine within ten days.
D. B. Strouse.
"I prefer that you say nothing of ordering or receiving another machine. "D. B. S." "Rochester, N. Y., Sept. 6, 1890.. "P. A. Krise, Treasurer, Lynchburg, Va.-Dear Sir: Inclosed we hand you statement of cigarettes made on the Bonsack machines during the month of July, and draft for $485.85, covering royalty on the same. We desire to inform you that we do not construe this payment to be a waiver on the part of S. F. Hess & Co. of any claim against your company for a breach of your agreement with us. We have paid you at the rate of 30 cents per M. for all cigarettes made on your machines, and we shall ask you to make us good between that amount and the lowest rate given by you to other manufacturers while we were using your machines.
"16191⁄2 M., at 30, $485.85."
S. F. Hess & Co.
Contract of S. F. Hess with Bonsack Machine Co., dated March 7, 1890. "Whereas, S. F. Hess & Co., of Rochester, New York, are using two Bonsack cigarette machines, which are owned and operated by the Bonsack Machine Company on a royalty of thirty cents per thousand cigarettes for cigarettes not printed, and thirty-three cents per thousand for cigarettes which are printed, which two said machines are subject to removal at any time at the will of either the said S. F. Hess & Company or of the Bonsack Machine Company: It is agreed: First. That the royalty to be paid by the said S. F. Hess & Co. to the Bonsack Machine Company from and after the first of March, 1890, shall be thirty cents per thousand (1,000) cigarettes, whether the same be printed or not. Second. That the said S. F. Hess & Co. shall have the right to continue to use the two said machines up to the thirty-first day of January, 1891, and shall deliver to the Bonsack Machine Company, or to its order or agent. the two said machines on the first day of February, 1891, without hindrance, delay, or default, on any account whatsoever, provided that the said S. F. Hess & Co. have the right to deliver the said machines to the Bonsack Machine Co. at any time prior to the first day of February, 1891, and provided also, since contingencies may possibly arise which may cause the Bonsack Machine Company to prefer to indefinitely continue its machines in the factory of the said S. F. Hess & Co., that the Bonsack Machine Company shall, in case the said S. F. Hess & Co. shall not have surrendered the said machines, give to the said S. F. Hess & Co. notice in writing of its intention to remove the said machines on the first day of February, 1891, which notice shall be given at least sixty days before the first day of February, 1891, and, upon such notice being given, the said machines shall be surrendered on the first day of February, 1891, without hindrance on any account whatsoever. "Witness the following signatures this 7th day of March, 1890.
"S. F. Hess & Co.
In their declaration in the court below Hess & Co. set out their case as follows:
"And the said plaintiff further avers the said contract was made and entered into by the said plaintiff upon this express agreement, understanding, and representation by the said defendant; and the said defendant, to wit, on or about the month and year aforesaid, in its correspondence and in its negotiations, and in its agreement concerning the use of said machines by the plaintiff, expressly promised and undertook that the said royalty of thirty cents and thirty-three cents per thousand for cigarettes of that character was and should be the fixed and uniform royalty then charged and thereafter to be charged by it for the use of such of its machines as were then in use by manufacturers of cigarettes, or which should thereafter be hired to or placed by said defendant with such manufacturers for use in making cigarettes, and that there was and should be no discrimination made against said plaintiff in the royalty so charged as aforesaid for the use of said machines. And the said plaintiff further avers that, relying upon the said representation, agreement, and assurance, and upon the said promise and undertaking of the said defendant that the said royalty so charged the defendant as aforesaid was the fixed and uniform charge to all manufacturers of cigarettes for the use of its said machines, and that there was and should be no discrimination made against the plaintiff in the royalty charged for such use, the said plaintiff did pay to the said defendant monthly during said period, to wit, from the- day of April, 1887, to the day of September, 1890, an amount to the sum, to wit, of $17,654.09, royalties so agreed to be paid, and in all other respects faithfully complied with their said contract. And yet the said plaintiff avers that the said defendant, wholly disregarding its said agreement, representation, and assurance, and its said promises and undertaking, had, before the making of the said contract with the said plaintiff, secretly and fraudulently let and hired out its said machines to other manufacturers of cigarettes, rivals and competitors in the making and sale of cigarettes of said plaintiffs, among them W. Duke, Sons & Company, doing business in the city of Durham, in the state of North Carolina, and in the city of New York, on or about, to wit, the 11th day of June, 1885, and to the Lone Jack Cigarette Company, doing business in the city of Lynchburg, in the state of Virginia, on or about, to wit, September, 1885, not at the said royalty of thirty cents per thousand agreed, promised, and undertaken by it with the plaintiff to be its fixed and uniform royalty to all manufacturers using its machines, but to the said W. Duke, Sons & Company at a royalty of, to wit, twenty (20) cents per thousand cigarettes, and to the said Lone Jack Cigarette Company at a royalty of, to wit, fifteen cents per thousand cigarettes, which said contracts of hire and letting were craftily concealed from this plaintiff, although in full force between the parties thereto during the entire said period from the day of April, 1887, to the day of September, 1890, during which period the said plaintiff was using and paying said royalty on said machines as aforesaid. And the said plaintiff avers that it was altogether ignorant of said other contracts with said other manufacturers of cigarettes by said defendants until a long time after the 1st day of August, 1890, at or about which time said plaintiff ceased to use said machines. Wherefore the said plaintiff says that the said defendant, not regarding its said contract, promise, and undertaking, hath craftily broken the same, contriving and intending to deceive and defraud the plaintiff in the premises, and the said defendant hath not paid or returned to the said plaintiff the large sums so overpaid it monthly during the said period as aforesaid by the said plaintiff, amounting in whole to the sum of, to wit, $8,837.64, although requested so to do, but hath hitherto wholly refused and neglected, and still does so refuse and neglect. Therefore the said plaintiff says that, by reason of the premises, he is injured and hath sustained damage to the amount of $12,000."
The declaration complains of no contracts in conflict with the alleged stipulation of the Bonsack Company that none should have better terms than those granted to Hess & Co. other than one with