they were specially instructed by Mr. Flannery to give her no information whatever.
We now come to the next item involved in this suit, the refund of federal income taxes which were collected by the 1921 corporation and the proceeds thereof received by the defendant. When the plaintiff corporation was formed, it acquired all the property and assets of the 1921 corporation; and in connection with that purchase, a bill of sale was executed by the 1921 corporation to the plaintiff corporation, which conveys "all personal property and assets of every kind and description now owned by said Flannery Bolt Company, a Delaware corporation organized in 1921, or in and to which it has any right, title or interest." There is no question in our minds that this includes plainly refund of taxes. There is no ambiguity in this language, and there is nothing in the bill of sale by which it could be interpreted to limit the generality of the language above quoted. The defendant sought to set up an understanding between himself and Fitzpatrick, president of the American Locomotive Company, prior to the sale, in which it was agreed that the tax refund would be excluded from the property sold to the 1926 corporation, and also sought to show that McCormack, a director of the plaintiff corporation, confirmed the understanding that the tax refunds were to remain the property of the 1921 corporation. We do not think this testimony was admissible, and could not, and did not in any way limit the generality of the words of conveyance. We cannot see how the understanding of Fitzpatrick or McCormack in any way would be interpretive of the particular language of this conveyance. Even if we admit that such was the understanding of Fitzpatrick, it was not carried forward into the agreement, either for the formation of the company or into the subsequent bill of sale.The agreement of September 30, 1926 (Exhibit 2 attached to amendment to answer), sets forth the agreement which led to the formation of the plaintiff corporation. This agreement contains this clause: "Flannery will cause the new company to acquire from the Bolt Company, and the Bolt Company agrees to sell, convey, assign, transfer and dispose of to the new company all of its property, assets, rights, claims and privileges as an entirety." There can be no question that these tax refunds belonged to the plaintiff corporation; and it is evident that the defendant himself had that idea, too, because of the fact that in securing the last large payment of tax refund, precaution was taken not to deposit the cheque in the Pittsburgh banks, but to open account in Washington for the collection of the government cheque and the purchase there of Liberty Bonds, which, with the exception of a sufficient number thereof necessary to pay the expenses involved in the collection of this refund, were sent to Pittsburgh and delivered to the defendant in this case.
The next item of accountability is based upon an indebtedness aggregating $284,430.30 which the defendant owed to the 1921 corporation.This was carried on the balance sheet of the 1921 corporation under the heading of "Bills Receivable"; and Flannery, in the agreement for the formation of a new corporation (Exhibit 2 attached to the answer) agrees as follows: "Flannery agrees that at the time of such conveyance the assets and liabilities of the Bolt Company shall be identical with those shown by the Bolt Company's balance sheet of June 1, 1926, of which a copy has been delivered to the Locomotive Company." In the items that make up the bills receivable in this balance sheet, there is one in the amount of $182,501.30, representing the withdrawals of money taken by the defendant out of assets of the 1921 corporation; and there is an item in the sum of $101,625 representing an obligation of the defendant to the 1921 corporation and charged to his own individual account. There is no doubt that the defendant was fully aware, before the formation of the 1926 corporation, and at the time of the preparation of the balance sheet of June 1, 1926, showing this accounts receivable item, that these items were carried in that account, because he talked with his bookkeeper, Truschel, about it, and discussed with Collins, when Collins prepared the balance sheet, the methods of carrying the defendant's obligations. The accounts receivable of the 1921 corporation conveyed by the bill of sale to the plaintiff corporation as of November 1, 1926, contained these two accounts owing by the defendant.
To show that the defendant did not wish his associates in the plaintiff corporation to know that the accounts receivable included these items, when the monthly balance sheet (Plaintiff's Exhibit 16a) was prepared, it showed accounts receivable in the sum of $601,909.30. The defendant regarded the amount so large as to arouse suspicion, and thereupon directed the suppression of that balance sheet and the preparation of a new one which would segregate the Funk Air Spring Company item of $101,625 into a new account and would be declared to be the Funk Air Spring Company refund. This word "refund" apparently must have been added to the account for the purpose of conveying the impression that the amount shown was an amount owing from the Funk Air Spring Company. The defendant takes the position that this item of $101,625 arose out of a patent infringement suit, and that when the 1921 corporation issued bonds aggregating over $750,000, the underwriters of the bonds insisted that the defendant enter into an agreement to protect the company from liability because of claims in this patent suit which was settled by the payment of $101,625 out of the funds of the 1921 corporation, this amount being thereupon charged to himself individually on the books of that company, in accordance with his agreement of indemnity. He argues that when the bonds of the 1921 corporation were paid off out of the purchase price received from the plaintiff corporation, his obligation to pay this account was at an end. We cannot so hold. These two items were carried into the balance sheet of the 1921 corporation, and we think the defendant is now estopped from denying that this $101,625 is his own personal obligation. On the whole matter, there can be no escape from the conclusion that the defendant was accountable to the plaintiff for this $284,430.30, with interest thereon from November 1, 1926, because it is defendant's obligation to the 1921 corporation purchased by the plaintiff and fraudulently represented by him as trade accounts receivable, certain in character and in amount.
The defendant sought to set up certain offsets against the moneys advanced to him by contending that the same were expended for the benefit of the plaintiff corporation and were acquiesced in by its board of directors. The first item is an offset of $52,000, being par value of bonds of the Detachable Bit Corporation of North America, transferred by defendant to plaintiff corporation and credited to defendant on plaintiff's books. We find that this claim of credit is obviously an error. The testimony was that the plaintiff received and paid for $142,000 face amount of these bonds. $50,000 face amount of bonds was turned in to plaintiff for $50,000 in cash; the remaining $92,000 face amount of bonds being exchanged in a transaction involving stock of the Keystone Stores Corporation and for stock of the Vanadium Metals Corporation. But this whole transaction was merely a technical transaction, the bookkeeper, Truschel, having testified that the defendant told Truschel to enter this credit, although no transfer of stock was ever made to the plaintiff. This Detachable Bit transaction resolved itself into this situation. The defendant took down $50,000 worth of bonds of the Detachable Bit Corporation, and the plaintiff paid $50,000 for the same. The defendant then took down $92,000 additional face amount of these bonds and exchanged them to the plaintiff corporation for worthless stock which the defendant had heretofore conveyed to the plaintiff corporation for value. There was a manufacturing contract between the Bit Corporation and the defendant individually, the defendant then causing plaintiff corporation to manufacture these bits of different sizes for defendant at a price of 16 cents and 20 cents respectively. But, in the meantime, the defendant had inserted himself between the plaintiff and the Detachable Bit Corporation, and arranged to receive from the latter a commission of not less than 4 cents on each bit, being one-fourth or one-fifth, depending upon size, of the amounts which were supposed to be received by the plaintiff for manufacturing the bits. We cannot see anything in this transaction that was for the benefit of the plaintiff corporation. The bits in question manufactured by the plaintiff corporation at the behest of the defendant were billed to the Flannery Manufacturing Company for the manufacturing price; and if there was any profit on the contract, it was not received by the plaintiff corporation. The Flannery Manufacturing Company, according to the books of the plaintiff corporation still owes for the manufacturing of these bits. Then, the credit for $77,558.71 for money alleged to have been expended in behalf of the plaintiff corporation by the Flannery Manufacturing Company, is in the same category, there being no evidence of benefit to the plaintiff corporation from this transaction.
We now come to the patent situation. As to the invention known as "double flexible bolt," there is no question that this bolt was developed during the incumbency of the defendant as president of this corporation; but as Flannery admitted on the witness stand, these inventions belong to the plaintiff corporation; and he expressed his willingness to execute the application and assign it to the plaintiff corporation, provided a proper description of the invention were included. The application and specifications prepared by Parmelee, the patent attorney, we are of the opinion correctly described this invention and should be executed by the defendant.
As to the Shure Tell Tale Bolt, our conclusion is that the contention of the defendant that this device was developed by Friday, his brother-in-law, is not a correct statement of the transaction. It does not appear that Friday's connection with the bolt business is such that it is at all likely that he could have conceived this idea; and our finding is that the Shure Tell Tale Bolt was developed at the plaintiff corporation's plant by the defendant Flannery, and the Patent Committee of the plaintiff corporation, and that so far as that particular invention is concerned, the plaintiff corporation is entitled to the shop rights in it.
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