Stahly, Inc. v. MH Jacobs Co.

• Decision Date: 15 August 1950
• Docket Number: No. 10047.,10047.
• Citation: 183 F.2d 914
• Parties: STAHLY, Inc. v. M. H. JACOBS CO. et al.
• Court: U.S. Court of Appeals — Seventh Circuit

183 F.2d 914 (1950)

STAHLY, Inc. v. M. H. JACOBS CO. et al.

No. 10047.

United States Court of Appeals Seventh Circuit.

June 9, 1950.

Rehearing Denied August 15, 1950.

Jules L. Brady, John Rex Allen, Chicago, Ill., Schroeder, Merriam, Hofgren & Brady, Chicago, Ill., for appellant.

Albert F. Mecklenburger, Sidney Neuman, Arthur B. Seibold, Jr., all of Chicago, Ill., for appellee.

Before DUFFY, FINNEGAN and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

Plaintiff, an Indiana corporation engaged in the sale of mechanical razors under the trade-marks "Stahly" and "Live Blade," instituted this suit to enjoin defendants from selling razors with plaintiff's trade-marks impressed thereon, contending that such sales were violative of its trade-mark and fair trade rights. The District Court, upon defendants' motion for summary judgment, dismissed the complaint, holding that plaintiff had waived its rights with respect to the razors in the possession of the defendants. Plaintiff contends that the court erred in this conclusion and, further, that, inasmuch as there were, on the face of the pleadings, genuine issues as to material facts, granting defendants' motion for summary judgment constituted additional error.

In the summer of 1948, both plaintiff and Aircraft & Diesel Equipment Corporation, with whom it had contracted for the manufacture of 125,000 Stahly Live Blade Razors, were in serious financial condition. Aircraft, after delivering approximately 80,000 razors to plaintiff, refused to make further shipments unless plaintiff would make payment in advance, though the contract provided that it was to have thirty days' credit. When it became evident that plaintiff could not pay in advance, Aircraft advised plaintiff that, in order for it to continue operations, it would have to dispose of the 45,000 razors. Plaintiff thereupon sought to market them as prizes or premiums, but its efforts in this direction were unsuccessful. It was subsequently informed by Aircraft that the latter desired to pledge the razors as security for a loan it proposed to procure from General Factors Corporation. At the behest of both Aircraft and General Factors, plaintiff signed a letter of consent, addressed to General Factors, as follows: "We understand that Aircraft & Diesel Equipment Corporation has on hand approximately 45,000 Stahly Live Blade Razors which are in the possession of said Aircraft & Diesel Equipment Corporation subject to our order as to shipment. In consideration of your making a loan to said Aircraft & Diesel Equipment Corporation, we hereby consent to and agree that we will not assert any rights or claims contrary to your rights to realize upon such security as pledgee thereof in the event of non-payment of the loan."

After the loan had been made and Aircraft had defaulted thereon, plaintiff learned that General Factors was planning to foreclose upon the razors which had been pledged as security and thereupon submitted a bid of $2.00 per razor. General Factors declined this offer, and eventually sold the razors to defendants for $50,000, amounting to approximately $1.10 per unit. As soon as it had been advised of the sale, plaintiff warned defendants that sale of the razors without the removal of plaintiff's trade-marks would infringe its legal rights and, further, that sale of the trade-marked goods at prices below those established under the fair trade agreements which had been negotiated by plaintiff in the states which allow them would violate its fair trade rights. As a consequence of defendants' failure to reply to this communication and plaintiff's receipt of numerous complaints from its regular dealers that defendants were offering the trade-marked razors to the public at prices below the established fair trade prices, this suit was begun.

Plaintiff contends that there were and are genuine issues as to material matters of fact which, under the provisions of Rule 56(c) of the Federal Rules of Civil Procedure, 28 U.S.C.A. Rule 56(c), prohibit disposition of this case on a motion for summary judgment. This argument rests on plaintiff's assertion that it has alleged, and defendants have denied, (1), that the razors involved are in defective condition, (2), that defendants did not, in purchasing them from General Factors, rely on the so-called letter of consent executed by plaintiff, and, (3), that plaintiff was induced to sign this letter by reason of certain false promises made by Aircraft and General Factors, which fact, it is urged, makes that document wholly void and inoperative.

Plaintiff's contention that a factual dispute exists with respect to the condition of the razors is, we think, refuted by defendants' express admission that they are defective. True, defendants' motion to dismiss points out that the complaint fails to aver with particularity wherein the alleged defect resides and asserts that the averment that they are defective "is a bald conclusion without any allegations of fact to support same," and one of the defendants has, by affidavit, stated that the razors are not defective, but, on the other hand, defendants have expressly stated, in their brief and on oral argument, that they "admit that the 45,000 razors were just as defective as plaintiff says they were." Moreover, if the District Court correctly construed the letter of consent as a waiver and abandonment of all plaintiff's rights with respect to the razors, the existence or non-existence of the alleged defect was not a material issue in this case and, consequently, could not, under the provisions of Rule 56(c), render erroneous the District Court's disposition thereof on motion for summary judgment.

Nor is there merit in the assertion that there is an issue of fact as to defendants' reliance on the letter of consent. Tarrson's affidavit, which is, as plaintiff observes, the "only thing in the record with respect to this matter," states that he was shown the letter and that, in reliance thereon, he purchased the razors. Plaintiff's failure to controvert this statement, by affidavit or by offer of opposing proof, or to seek disclosure and discovery with respect thereto on the basis of an averment that the facts were wholly within the knowledge of the defendants requires rejection of its contention that there is a substantial question of fact as to defendants' reliance on the letter of consent. Gray v. Amerada Petroleum Corp., 5 Cir., 145 F.2d 730; Hummel v. Riordon, D.C.Ill., 56 F.Supp. 983, 987.

And the conclusive answer to plaintiff's contention that an issue of fact exists with respect to the existence or non-existence of fraud, resulting from the assertion that its execution of the letter of consent was obtained by means of false promises, is to be found in the Illinois cases which hold that fraud in the inducement must be based upon a misrepresentation of fact and cannot rest on a false promise to do an act in the future, even though accompanied by an intention not to perform, Keithley v. Mutual Life Ins. Co., 271 Ill. 584, 586, 111 N.E. 503; Thomson v. Miner, 303 Ill.App. 335, 25 N.E.2d 137, for, in view of this rule, whether false promises were, in fact, made to plaintiff, or whether such promises, if made, did or did not induce plaintiff to sign the letter of consent is wholly immaterial in the disposition of this case.

Having determined that a summary judgment was not improper, the only question remaining is whether that judgment was correct as a matter of law. Dismissal of the complaint was the result of the trial court's decision that the letter of consent signed by plaintiff "constitutes a waiver and abandonment of all rights plaintiff could assert as to the razors without regard to future possession by any other person." Plaintiff insists that this conclusion is erroneous, that its letter of consent did not constitute a waiver of all its rights with respect to the razors, but was limited to the assertion of rights or claims contrary to the pledgee's right to realize upon the security; moreover, it is contended that, irrespective of the effect of the letter of consent, defendants' sales of defective razors bearing plaintiff's trade-mark, without any indication that said razors are defective or that defendants are the vendors thereof, violate the trade-mark rights of plaintiff and constitute a fraud upon the public such as the trade-mark laws were designed to prevent. Defendants, however, maintain that the waiver embodied in the letter of consent is conclusive of the rights asserted by plaintiff herein.

In the letter by which it consented to the pledge of the...