Case Name: Eugene V. Daly, as Receiver of National Gramophone Corporation, Respondent, v. Frank Seaman, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1909-02-05
Citations: 130 A.D. 432
Docket Number: 
Parties: Eugene V. Daly, as Receiver of National Gramophone Corporation, Respondent, v. Frank Seaman, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 130
Pages: 432–439

Head Matter:
Eugene V. Daly, as Receiver of National Gramophone Corporation, Respondent, v. Frank Seaman, Appellant.
First Department,
February 5, 1909.
Contract — assignment of patent license — action for accounting of moneys held in trust — transactions not establishing trust relation.
Action for an accounting of moneys alleged to be held in trust. The defendant was licensed by the B. Company to sell and deal in patented gramophones manufactured by it for a certain period, the contract providing that the defendant might organize a corporation “With such powers and capital as the licensor may in writing approve” and after such approval assign the license to the corporation.' The defendant organized the FT. Company hut failed to obtain the approval of the B. Company, but notwithstanding that fact thereafter in consideration of a transfer of most of the capital stock of the FT. Company assigned to it his interest in the license, agreeing that if recognition by the B. Company could not be obtained, the defendant would place the • FT. Company in charge of all the business carried on by the defendant under the license and turn over to it the profits derived therefrom, and further agreed to sell and deliver to the IT. Company all gramophones received from the B. Company. The defendant was unable to. obtain sufficient gramophones to meet the demands of the IT. Company, and the latter by resolution and by an instrument in writing notified him that it desired to procure its goods elsewhere, and reassigned the license of the B. Company to the defendant, who thereafter instituted various actions against the B. Company in which the IT: Company did not participate.
Held, that moneys received by the defendant from the B. Company ,in settlement of such actions were not held in trust by him for the FT. Company or its assignee, and that an action to compel him to account therefor did not lie, even though he retained the stock which was the consideration for the original assignment.
Appeal by the defendant, Frank Seaman, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Yew York on the 15th day of April, 1908, upon the decision of the court, rendered after a trial at the Yew York Special Term, directing a referee to take and state an account of certain dealings and transactions between the defendant and the Yational Gramophone Corporation and the Yational Gramophone Company.
John B. Stanchfield [ Waldo G. Morse with him on the brief], • for the appellant.
James M. Gray, for the respondent.

Opinion:
Laughlin, J.:
The Yational Gramophone Corporation was duly organized under the laws of Yew York on the lOtli day of March, 1899, and on the ,13th day of December, 1901, an application was duly made to the Supreme Court in the county .of Westchester for a voluntary dissolution of the corporation, and on the 5tli day of April, 1902, the plaintiff was duly appointed permanent receiver in the proceedings for the dissolution of the corporation, and this action is brought by him as such receiver.
On the 10th day of October, 1896, the defendant made a certain contract, in writing, with the Berliner Gramophone Company, a corporation duly organized under the laws of Virginia, and thereafter and on the 4th day of Yovember, 1896, made a contract with the National Gramophone Company, a domestic corporation, with a view to assigning his interest under the contract with the Berliner Company, and thereafter and on the 1st day of October, 1897," the defendant and the National Gramophone Company made another contract purporting to reassign to the defendant the rights theretofore assigned by him to the National Gramophone Company. On the-31st day of March, 1899, the National Gramophone Company assigned and transferred to the National Gramophone Corporation all of its assets, including any interest it had in said agreement between -the defendant and the Berliner Company, and all rights, title and interest which it had under the two contracts made by it with the defendant. . This action is based upon that assignment, and is brought and the interlocutory judgment has been rendered on the theory that the defendant, by virtue of said two contracts-with the assignor of the National Gramophone Corporation, became a trustee for that corporation and accountable to it for any profits he derived under his contract with the Berliner Company.
We are of opinion that the construction placed upon these contracts by the learned trial judge was erroneous, and that no trust relation existed between the defendant and the assignor of the National Gramophone Corporation. The Berliner Company owned certain letters patent for gramophones and for processes of producing records of sound, being the inventions of one Emile Berliner, and the purpose of the agreement of October 10, 1896, between that company and the defendant, so far as material to the issues here- presented, was to license the defendant to buy, sell and deal in gramophones and gramophone goods embodying said inventions and improvements therein throughout the United States, excepting in the District of Columbia, for a period of fifteen years. It was expressly provided in the agreement that the defendant should be at liberty to organize a corporation or corporations under the laws of New York or any other State "with such powers and capital as the licensor may in writing approve, and after such approval the licensee may assign-to the said corporation or corporations all the rights hereby granted by the licensor." With a view to assigning his rights under this contract, as therein authorized, the defendant caused the National Gramophone Company to be incorporated, but he did not obtain the approval of the Berliner Company thereto and without such approval, by an indenture under his hand and seal bearing date the 4th day of November, 1896, the day on which the company was incorporated, in consideration of the issue to him of capital stock of the National Gramophone Company of the par value of $49,800 out of the total issue of the par value of $50,000, assigned to it all his right, title and interest in, to and under the contract with the Berliner Company, and in and to the rights and privileges secured thereby. This assignment contains the following provisions, to wit :
" That I will use my best endeavors to secure the recognition by the said .Berliner Gramophone Company of said transfer, and that in case such recognition cannot be obtained, the said party of the first part will act' with the party of the second part and place in its charge all the business to be carried out by me under said contract, obtain and turn over to said party of the second, part all goods thereunder which may be advantageously used by said company, and turn over and deliver to it all profits and advantages whatever which may be derived from said contract with the Berliner Gramophone Company.
" To have and to hold the said contract and rights so transferred unto the said party of the second part, its successors and assigns, forever."
The National Gramophone Company issued the capital stock to the defendant; and business relations were resumed and continued between the defendant and that company under the assignment, until the 1st day of October, 1897, when, owing to the fact that the Berliner Company refused to consent to the assignment or to recognize any rights of the National Gramophone Company thereunder, the other agreement was made between the defendant and the National Gramophone Company. This agreement recites the assignment and that it was intended and desired by the parties that it should be recognized by the Berliner Company; that the Berliner Company declined to recognize the defendant's assignee and that it was " deemed advisable by the parties " thereto " that such assignment and transfer be modified as herein provided," and then provided that the parties had agreed as follows:
" The party of the first part shall and hereby does surrender and retransfer to the party of the second part, the aforesaid contract and agreement, and all rights and-privileges thereunder.
" And the party of the second part does hereby covenant and agree to and with the party of the first part, to sell and deliver to it, any and all Gramophones and Gramophone goods which it may require in its business, so far and as rapidly, and in such quantities as it shall be ¡lossible for him to obtain the same under and by virtue of his said contract, and as shall be required by the [party]' of the first part, and that such goods be so sold and delivered at the 'price at which the same shall'be received by him, with the addition thereto of one per centum (1$) to such price to cover any expenses of advertising which he may incur, and to compensate him for his risk and! attention in carrying on such business under said contract.
" And it is further mutually covenanted and agreed that wliile the party of the first part shall purchase from the party of the'second part such goods in sufficient quantities to satisfy the terms of 1ns said contract, that he shall sell to no other person any of such goods, and shall use his best endeavors, so far as his other appointments may permit, to advance the interests of the party of the first part in selling such goods, and that the party of the first part shall use its best endeavors to introduce such goods more generally and extend the sales of same."
Thereafter the business relations betwéen the defendant and the National Gramophone Company' were continued under the agreement of October 1,1897, the defendant supplying all goods desired by the National' .Gramophone Company, so far as he was able to obtain them from the Berliner Company, but being unable to obtain sufficient to meet the demands of the National Company at all times, and on the 2d day of April, 1900, the directors of the latter company adopted a resolution that thereafter the company would procure its goods elsewhere and notified the defendant thereof. The defendant acquiesced in this action of the National Company and! proceeded to sell such goods as he was able to .obtain from the Berliner Company elsewhere. Thereafter the defendant instituted various actions against the Berliner Company for violations of his . contract with it and for an injunction and an accounting and against others which litigations were all settled on the 3d day of February, 1903, upon the payment to him by the Berliner Company of $35,000 and the delivery to him of stock in the Consolidated Talking Machine Company of America, of the par value of $35,000.
The defendant has been held accountable for the profits of this settlement. The precise contention made in support-of the judgment is that the agreement of October 1, 1897, between the National Gramophone Company and the defendant, by which it reassigned to him all right, title and interest ^derived by it under his assignment of his contract with the Berliner Company, was merely a modification of the agreement by which he made the assignment to it, and that the provisions of his assignment by which he obligated himself, in the event that the consent of the Berliner Company to the assignment should not be obtained, to account to the National Company for all profits and advantages which he might derive from the contract with the Berliner Company, remained in full force. We are of opinion that this was not the intention of the parties as manifested by the agreement; and if there were any doubt in that regard, it has been removed by the practical construction of the agreements made and acquiesced in by the parties for a long period of time. The fair construction of the reassignment agreement is, that all rights theretofore assigned by defendant were reassigned to him, and that the provisions of the reassignment agreement with respect to the future relations between the parties were intended to be substituted for those prescribed in the assignment, and such has been the practical construction placed upon it by the parties. The defendant being the principal stockholder of the National Company became a director and president thereof, but upon it being finally determined that the consent .of the Berliner Company to the assignment could not be obtained, he resigned both as president and as a director, and after these vacancies were filled, a resolution was formally adopted by the board of directors, as follows:
" That the contract between the Berliner Gramophone Co. and Frank Seaman, dated Oct. 10, 1896, and assigned by said Seaman to this company upon the 4th day of Nov. 1896, be and the same is hereby surrendered and retransferred to him upon his contract and agreement to sell and deliver to this company any and all gramophones and gramophone goods which it may require, so far as it shall be possible for him to obtain same under and by virtue of his said contract, and that such goods to be so delivered and sold at the price at which the same shall be received by him with the addition of. one per centum to such price to cover any expenses of advertising, whicli he may incur and to compensate him for his risk and attention in carrying on such business under said contract. Such contract shall provide that while this company shall purchase from said Seaman such goods in sufficient quantity to satisfy tlie terms of his said contract, that he shall sell to.no other person and shall use his best endeavors so far as his other appointments may permit to advance the interests of. the company in selling such goods, and that this company shall use its best endeavors to introduce such goods more generally and extend the sales of the same.
" And it was further Resolved, That the president be authorized to execute the necessary agreements to carry into effect this resolution."
The reassignment agreement of October 1, 1897, was based on this resolution.' It also appears that at this time the National Gramophone Company was having a new type of talking machine, known as the "Zonophone," constructed by the Universal Talking Machine Company, with which it had intimate relations. At the same meeting of the board of directors at which the reassignment of the contract to the defendant was authorized there was spread upon the minutes with respect to this new talking machine the following:
" Cur new type of machine has been completed at last and. will probably be put on the market the end of this month. We have hundreds of unfilled orders for these machines, which will show distinct improvements over everything we have ever sold, and which will yield us a greater profit as well."
That contract between the Berliner Company and the defendant precluded him from engaging in selling other goods in competition with its gramophones or gramophone goods. It is evident that the National Gramoplione/Company recognized that it, as an assignee of the contract, would be bound by this provision and it is manifest that it desired to be free to deal in other similar goods. The fact that the defendant did not reassign his stocks which was. the consideration he received for the assignment, is not controlling with respect to the construction of the agreement. By virtue of the agreement of October 1,1897, the National Gramophone Company was still to receive virtually all of the profits that it would have derived from the business had the Berliner Company consented to. the assignment, and it had enjoyed such profits in the meantime. It is difficult to explain the áction of the National Gramophone' Company in finally terminating all relations with the defendant and refusing to be further bound by the agreement of October 1, 1897, upon any theory consistent with an understanding on its part that the defendant was still representing it and acting as-its trustee for it in his relations with the Berliner Company. It was not consulted with respect to the litigation instituted by him nor did it take part in conducting such litigation or bear any part of the expense thereof. The litigation involved more than breaches of the contract which defendant had attempted to assign to the National Company. When its successor in interest, the National Gramophone Corporation, filed its schedules in the dissolution proceeding no reference • was made to any of these contracts as an asset. The claim, therefore, that the defendant held the contract between him and the Berliner Company as trustee for the National Gramophone Company and of its successor, cannot be sustained.
The material facts are found by the court, and in view of the documentary evidence upon which they rest, it is manifest that they cannot be changed upon a new trial. The court has, however, found as matter of fact and in the findings of fact that it was the intention of the parties that defendant- should account under the assignment for any profits he might realize on or by virtue of his contract with the Berliner Company and that said assignment was' never canceled or superseded in toto by the reassignment -agreement and, therefore, although these findings are, strictly speaking, conclusions of law, yet it is not entirely clear that we would be justified in changing them or in dismissing the complaint without changing them.
It follows that the judgment should be reversed and a new trial granted, with costs to appellant to abide the event.
Patterson, P. J., Ingraham, Houghton and Scott, JJ., concurred.
Judgment reversed and new trial ordered^ costs to appellant to abide event.