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gotiatious finally fell through by reason of the refusal of Mr. Lodge to accede to the terms verbally agreed upon. The defendants adhered to their previous election to rescind and their previous rHSi;issiou of the transfer of the two license agreements, dated January 31st, 1908, on the ground of fraud and breach of this condition subsequent, and they further refused to issue a new license of the Patents Company (Dyer, p. 347 et seq.; Deft.'s Ex. 5, pp. 716, 716; Mdies, pp. 456-459).
In this connection the Court's attention should be called to the evidence showing the materiality of the false representations in refeience to the sale of stock to Max Lewis and of the materiality of the breach of conditions subsequent as to the control of the company.
The motion picture business in this country is conducted by three distinct clas.'-es of persons; first, those who arc engaged in the hnsiiiess of manufacturing the pictures, which are commonly known as "film''; second, persons (commonly known as " exchanges " or "renters") who purchase or lease the film fronj the mariufacturers and sublet it to the exhildtors; and third, persons who are engaged in th • business of exhibiting the pictures in theatres and other places of amusement, who are known as "exhibitors '"and who deal directly with the exchanges (Dyer, p. 354). Tliere are reasons of sound business policy why the various branches of this business should be kept separatfi and distinct.
These reasons can be best expressed in Mr. Dyer's own language, at the interview above referred to on September 18, 1908, when objection was raised to the sale of the stock to exchanges, and prior to the assignment of the licenses. In answer to a question whether he explained to Mr. Lodge the necessity of keeping the manufactuiing, rental and exhibition branches of the business separate and distinct, he testified as follows:
"I told him that it was highly important that the manufacturfrs should keep out of the exchange business. I told him that in the plionograph business, the National IMionograph Company of which I am President had been very successful because it had steadfastly adopted the policy of confining