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Low v. Davidson Mfg. Co.

June 6, 1940


Appeal from District Court of the United States for the Northern District of Illinois, Eastern Division. Charles Edgar Woodward, Judge.

Author: Major

Before SPARKS, MAJOR, and KERNER, Circuit Judges.

MAJOR, Circuit Judge.

This is an appeal from a decree entered July 13, 1939, dismissing plaintiff's complaint for want of equity. The action of the court was had at the conclusion of plainiff's testimony.

The suit was predicated upon a contract dated February 2, 1923 between the defendant and the plaintiff, and other parties described as investors. A copy of this contract was attached to and made a part of the compalint. The plaintiff sought an accounting, together with discovery, examination and inspection of defendant's records. Defendant, by its answer, denied liability and alleged that the contract of 1923 was amended and modified by a contract between the same parties entered into August 18, 1931, a copy of which latter contract was attached to and made a part of defendant's answer.

The principal question for decision involves a construction of the 1923 contract and, to some extent, the 1931 contract. The subject matter of the former contract was Automotic Press Feeders. It appears that at the time of the execution of the first contract, the defendant was in need of financial means to manufacture the feeder described in the contract. The situation resulted in the execution of the contract by which plaintiff and other parties to the contract advanced the sum of $50,000, of which $5,000 was advanced by plaintiff.*fn1

Insofar as the 1923 contract is concerned, the question in dispute is whether it includes suction feeders, or applies solely to friction feeders. It is plaintiff's theory that it includes both types of feeders, while defendant contends it applies only to friction feeders. After the 1923 contract, defendant commenced and has continued the manufacture of fraction feeders.About 1928 or 1929, defendant also commenced the manufacture of amachine known as a suction feeder. It is admitted that plaintiff has had an accounting and has been paid by the defendant for all moneys due him on account of the manufacture and sale by the defendant of the friction feeder. No accounting has been made, however, and it is denied by the defendant that there is any liability on account of defendant's manufacture and sale of the suction feeder for the reason that it is not included in the contract.

Due to the length of the contract we shall not set it forth in full, but wil refer to such portions as seem material in determining The urcial question as to whether it includes both types of feeders. It commences by reciting that the company (defendant) is the owner of certain inventions relating to automatic paper feeders which it has been manufacturing and selling; that it requires additional capital in the conduct of such business and, that the investors (plaintiff and others) have examined such invention and devices and are willing to invest their money by the purchase of an interest in the proceeds thereof. In Paragrasph 1-a, the investors agree to advance to the company the sum of $50,000. Paragraph 1-b purports to set forth the investors' interest, the pertinent language being:

"That said consideration is and shall be considered as payment for the purchase by Investors of an interest hereinafter specified in the proceeds to be realized in the future from the sale of such feeders as mayb e hereafter designed and manufactured for application to printing presses, duplicating machines, folding machines, paper box machines, glueing machines, and all other machines. * * * "

Plaintiff contends that the words "such feeders' appearing in this and other portions of the contract refer to all automatic feeders, which, if correct, admittedly includes the suction type feeder. Paragraph 2-b designates the Chicago Title and Trust Company as depository, with whom defendant is to deposit the amounts accruing to the investors under the terms of the contract. So far as material, it provides: "To turn over and pay to the Chicago Title and Trust Company hereinafter designated Depository from time to time when and as hereinafter specified for the benefit of the Investors, beginning with the date of the sale of the first feeder of the new model known as Model No. 3, designed and now in the process of manufacture under the improved inventions, for application to all types of machines (excepting to typewriters, as aforesaid) a portion of the net selling price to the Company as follows: * * * "

The paragraph continues, fixing the amount which investors are to receive from "each feeder so manufactured," and the "manufacture and sale by the company of said feeders."

In subsequent paragraphs, the words "such feeders" and "said feeders" are frequently found. In a subsequent paragraph is provided the manner of terminating the contract.It is stated: "That the company may, at any time after eight years from the date of sale of the first of said new feeders, known as Model #3, terminate this agreement * * * "

As stated, it is plaintiff's contention that the feeders referred to have reference to all automatic paper feeders as mentioned in the recitals to the contract. It is argued that the reference in Paragraph 2-b to "the new Model known as Model #3, designed and now in the process of manufacture", merely has reference to the time when the payments were to begin.This appears to us as a rather weak explanation of the reason for specifically mentioning this particular model of machine. If plaintiff's contention be sound that the contract refers to all types of automatic feeders, there would have been no occasion to mention this particular type merely for the purpose of showing when payment was to commence. This purpose would have been served just as well by providing that payment should begin with the manufacture of the first feeder without any reference to Model #3. The mentioning of this model is inconsistent with plaintiff's theory that the contract included all types of feeders. It is also of some pertinency to point out that at the time the contract was made, the plaintiff and other investors examined the only type of machine which defendant then had and that it was a friction type such as Model #3. It would appear, therefore, that that was the type of machine which the parties had in mind and which they intnded to cover by their contract. The more we study the contract in connection with the relevant circumstances, the more convinced we become in this respect.

It is argued by plaintiff that this construction would amount to a fraud on him because the defendant might have at once ceased the manufacture of the friction type machine and thereby defeat plaintiff's rights under the contract. We do not belive there is any merit in this contention. In ascertaining what the parties had in mind, it is more reasonable to consider what did happen rather than what might have happended. The fact is, the defendant did not commence the manufacture of the suction type machine until seven or eight years after the ...

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