author: STEVENS, Circuit Judge.

text:
    DART INDUSTRIES, INC., Plaintiff-Appellee, v. E. I. Du PONT De NEMOURS AND COMPANY, Defendant-Appellant.
    No. 72-1958.
    United States Court of Appeals, Seventh Circuit.
    Argued June 15, 1973.
    Decided Sept. 21, 1973.

      Frank F. Fowle, Chicago, 111., for defendant-appellant.
    George B. Newitt, Chicago, 111., Thomt as F. Reddy, Jr., New York City, for plaintiff-appellee.
    Before KILEY, PELL and STEVENS, Circuit Judges.
   STEVENS, Circuit Judge.

More than one year prior to December 24, 1952, the date he applied for a patent on a glass reinforced thermoplastic molding compound, the inventor sold small quantities to four different purchasers. When the sales were consummated, the invention had already been reduced to practice but the product had not yet been tested in an injection molding machine; each of the four customers indicated that its purchase was for experimental purposes. At the time of the four sales, an essential ingredient— glass roving — was in short supply; for that reason, the inventor was not in a position to deliver commercial quantities of the product. The questions raised by this appeal are whether the product was “on sale” prior to December 24, 1951, within the meaning of 35 U.S.C. § 102(b), and if so, whether the experimental motivation for the sales nevertheless saves the patent from the statutory on sale bar.

The patent in suit issued on March 17, 1959, pursuant to an application filed on December 24, 1952. Product claims 1, 8 and 9 — which defendant’s compound allegedly infringes — cover “an injection molding granule containing about 15 to 60 percent by weight of glass filaments, which extend generally parallel to each other along the longitudinal axis of the granule and which are coated with a thermoplastic molding composition. The glass orientation enables the provision of a molding compound which is readily feedable in any desired quantity into the hopper of a conventional molding machine and which is injection moldable into useful glass-reinforced articles having enhanced physical properties.” Finding 13, 348 F.Supp. 1338, 1343.

The earliest corroborated date of conception of the invention was about June, 1950, when the inventor, a consulting chemist named Bradt, was first interviewed for a job with the Armorite Corporation. At about that time others began to consider the injection molding of glass reinforced thermoplastics. However, such efforts were confined to the use of resin-impregnated glass mat as a reinforcing material, rather than the glass roving contemplated by Bradt. This “diced mat” was unsuccessful largely because of problems associated with feeding it into an injection molding machine. Bradt’s product was superior because, unlike diced mat, it could readily be fed into the molding machine. It also made it possible to injection-mold larger, stronger, and more uniform molded articles. It promptly and permanently supplanted diced mat.

Bradt satisfied himself that his product could be readily fed into a machine by conducting a series of tests in which he forced the mixture through an orifice of the size used in injection molding machines and molds. Since the glass did not clog the orifice and the mixture passed through without separating, Bradt concluded that the product was satisfactory for injection molding. On the basis of these tests, Bradt claimed that there had been a sufficient reduction to practice in December, 1950, to avoid a reference dated April 25, 1951, which had been cited by the Patent Examiner. Bradt pointed out, however, that the material had not actually been tested in an injection molding machine because he possessed no such machine and that the commercial acceptance of the product could not be known until such field tests were made.

At that time, glass roving, an essential ingredient of the product, was in short supply. For that reason, together with his lack of adequate equipment for large scale production, Bradt was not in position to deliver sufficient quantities of his compound to fill commercial orders. He did, however, make at least four separate sales before receiving his first substantial order.

In March, 1951, Victory Plastics placed an order for 500 pounds of Bradt’s roving granules at a price of 68 cents per pound. Victory Plastics was engaged in the development of a nonmetallic land mine pursuant to a military contract and purchased Bradt’s product for use in connection with that development program. In October, 1951, after encountering delay in obtaining glass roving, Bradt filled the Victory order. No conditions or restrictions of any kind were placed on Victory’s use of the product. However, as the district court found, considering the nature of the Victory Plastics’ land mine project, its 500 pound purchase was clearly an experimental or laboratory quantity.

In October, Bradt delivered “an experimental quantity of 15 pounds” of his granules to Service Plastics, Inc., a Chicago injection molder. Finding 88. Also in October, Bradt made a 20 pound shipment to P. R. Mallory; the district court found that this material was to be used only for experimentation. Finding 90. At about the same time, Bradt agreed to supply Dow Chemical Company with 200 pounds which were delivered early in 1952. Finding 87.

Bradt also supplied Hoppers Company with granules pursuant to an order for 250 pounds. Referring to this order, a letter to Bradt from a representative of the Sales Department Section of Hoppers stated that the “material is to be used for experimental molding in our laboratory and we would appreciate having it described in detail.” PX 190A.

Bradt offered the product to other potential customers at least as early as May of 1951, but the district court did not find any other consummated sales prior to the critical date of December 24, 1951.

In explanation of one of the representations to potential customers which the district court found to be “nothing more than puffing and overstatements” (Finding 86), Bradt testified:

“Q. Why did you say that then to this Cordo Chemical Company? A. Because we had an image to create and we were expecting- — we were trying to get — wait a minute, we had better go back and try to explain.
“We had this mission of getting this company Armorite on its feet and had six months to do it. We had to get materials and ideas and customers together at the same time. We had a sales problem, as well as a development problem and a manufacturing problem. This was part of the sales problem; that we knew how to physically do a job. We had to get the customer and the tests, physical tests, field experience on samples before we could get the customer for sale. So we had to bring all of these to focus at one time. This was part of our sales personality.
“We were doing a selling job * * - Our philosophy was * * * that if we had the customer and had the product developed, we could put together the equipment in the time lag that would result from between when we placed the order for the glass and the time we got the glass and get the test made.” A.243a.

There is no evidence that any purchaser, any customer who placed an order, or any potential customer whose patronage was solicited prior to December 24, 1951, was told that the purchase of the product was qualified by any restriction on use or any requirement of secrecy-

The file wrapper indicates that the commercial acceptability of the product could not be known until after substantial quantities had been used in an actual injection molding machine. The district court found that such testing of the product was necessary “before a conclusion could be reached regarding its operability or feasibility,” and therefore such testing was necessary before the “invention could be completed.” Finding 78. The record does not reveal the date when the product was first used in an injection molding machine. Favorable comments were received from Victory Plastics in January, 1952, and from Koppers in March, 1952, confirming Bradt’s earlier judgment that the product would, indeed, be a commercial success. Not until 1955, however, did Victory Plastics place its first order for a commercial quantity of one million pounds.

Summarizing the 1951 sales, orders and offers, the district court found:

“The transactions and offers to supply the injection molding compound claimed in the Bradt patent, which took place before January, 1952 when Victory Plastics first tested the compound in an injection molding machine, were not made for any commercial purpose but in furtherance of Bradt’s efforts to establish the workability of his concept and thereby to complete his invention. Such activities were within the ambit of experimentation and development which is permitted under 35 U.S.C. § 102(b).” Finding 92.

The court concluded that the patent was valid and that claims 1, 8 and 9 were infringed by defendant.

There are four components of plaintiff’s explanation of why § 102(b) does not invalidate the Bradt patent. First, because of the shortage of glass roving and his lack of adequate equipment in 1951, Bradt was not capable of selling the product in commercial quantities. Since the product was not “on hand,” he argues in effect that it was not “on sale.” Second, until the product had been tested in an actual machine, it was not completed and only a completed product may be placed “on sale.” Third, since the purpose of the sales was to give Bradt the benefit of tests of the product, his experimental motivation avoids the on sale bar. And finally, each of his 1951 customers was motivated by an experimental purpose, and their intent may determine whether the statute is applicable. Whether these points are considered separately or in the aggregate, we think plaintiff’s argument is predicated on an improper construction of the statute.

We first note that § 102(b) contains several distinct bars to patentability, each of which relates to activity or disclosure more than one year prior to the date of the application. Two of these — the “public use” and the “on sale” objections — are sometimes considered together although it is quite clear that either may apply when the other does not."' If either objection is raised, the burden of proving that the patented product was in “public use” or “on sale” before the critical date is on the objector. However, once such activity has been established, the burden of avoiding the statutory bar by proving a purely experimental purpose rests upon the inventor. The experimental use doctrine was originally developed and has been almost exclusively applied in cases involving the “public use” rather than the “on sale” bar. In this case we are primarily concerned with the question whether Bradt’s product was “on sale.”

We find no merit in the argument that the product was not on sale because Bradt did not have a sufficient inventory on hand to enable him to make immediate delivery in commercial quantities. The cases which plaintiff cites to support this argument dealt with the question whether selling activity short of a completed sale was sufficient to invoke the bar. These cases are not followed in this circuit, see Wende v. Horine, 225 F. 501, 505 (7th Cir. 1915). The record before us discloses completed sales before the critical date as well as other selling activity. In our opinion, the patented product need not be on hand in commercial quantities for it to be “on sale” within the meaning of § 102(b).

Plaintiff’s argument that the product could not have been “on sale” because it had not yet been completed must also be rejected. In cases in which a sale has been made before the critical date, a typical issue is whether the product sold is sufficiently similar to the product described in the claims to invoke the statutory bar. See, e. g., Frantz Mfg. Co. v. Phenix Mfg. Co., 457 F.2d 314, 318-323 (7th Cir. 1972). Exact identity is not required as long as the invention is essentially completed at the time of the invalidating sale.

In this case, the product which was sold underwent no significant change after the disqualifying sales occurred. It had already been sufficiently reduced to practice to avoid the reference dated April 25, 1951; and it subsequently achieved commercial success in the form in which it was sold. More significantly, even though Bradt’s laboratory tests could not guarantee ultimate commercial acceptance, they were sufficient to demonstrate the workability of his conception. The prior art diced mat clogged the injection molding machine because it would not satisfactorily pass through the orifice. Bradt’s tests demonstrated that his granules would not clog the machine.

We think the record rather plainly indicates that his sales were, at least in part, intended to convince the industry of the workability of his concept. The district court’s finding on the issue of completeness is ambiguous because it is not clear whether the court felt that further testing was necessary to enable the industry to reach a conclusion regarding the operability or feasibility of the product, or whether the court felt that the inventor himself was unable to reach any such conclusion. Under the former interpretation, the court erred as a matter of law; under the latter, we reject the finding as clearly erroneous. The record plainly establishes that the completed product was on sale before the critical date.

Even though the product was completed and on sale prior to December 24, 1951, arguably the statutory bar should not apply because of the parties’ experimental motivation. For it is well settled that the “public use” bar may be avoided by proof that the use was purely experimental. Although plaintiff has cited no cases holding that an experimental purpose avoided the on sale bar, unquestionably such an avoidance would be appropriate in some situations. In this case plaintiff relies on the experimental purpose of (a) Bradt and (b) his customers.

The district court found that the sales and offers by Bradt in 1951 “were not made for any commercial purpose.” Our study of the record leaves us with the firm conviction that this finding is clearly erroneous. Unquestionably Bradt wanted to have the compound used in an actual injection molding machine and no such machine was available to him. But it is equally clear that his promotional activity was not confined to the objective of obtaining a test of his product. His own testimony, quoted above, clearly exposes the mixed character of his motivation. He wanted as many potential customers as possible to experiment with his product in order to develop a market for it, as well as to find out how well it would perform under commercial production. Even the public use bar would not be avoided by this type of commercial experimentation.

The experimental purposes which motivated Victory Plastics and Bradt’s other customers did not qualify the unrestricted character of his sales to them. They wanted to ascertain whether the product would be suitable for their purposes. But the terms of sale did not require them to make any report to Bradt and their work led to no changes in Bradt’s conception or in the composition which had previously been reduced to practice. Cf. Tool Research and Engineering Corp. v. Honcor Corp., 367 F.2d 449, 453 (9th Cir. 1966). Again, we recognize that a transferee’s experimentation may avoid the public us bar, particularly if there is a fiduciary relationship or contract term which entitles the inventor to the benefit of the transferee’s experimental work. But if the inventor has made several unqualified sales of the identical product he later seeks to patent, we do not believe his customers’ experimental motivation can foreclose the application of the on sale bar.

Even though the quantities involved were small, and even though neither Bradt nor his customers could foresee the ultimate commercial acceptability of the product, we hold that the unrestricted sales to four different purchasers after the invention had been reduced to practice sufficiently to avoid an important reference cited by the Examiner and more than one year before the patent application was filed, precluded the allowance of the claims in suit.

The judgment is

Reversed.

      . “A person shall be entitled to a patent unless—
      * ¡1: * * *
      “(b) the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States, . . . . ” 35 U.S.C. § 102(b).

      . Patent No. 2,877,501, covering a glass-reinforced thermoplastic injection molding compound and the injection-molding process employing it, issued to Rexford Bradt, assignor to the Fiberfil Corporation, pursuant to Application No. 327,935. The patent was subsequently assigned to the plaintiff, Dart Industries, Inc., formerly Rexall Drug Company.

      . Finding 24. One of the reasons Bradt accepted employment with that company was that “[they] gave him carte blanche to use our laboratory and its equipment for his own personal development.” A.72.

      . See Findings 33, 34, 37 and 38.

      . In a Rule 131 affidavit dated May 20, 1957, Bradt stated:
      “5. Among the matters I had studied before my association with Armorite Corporation was the possibility of an injection-molding compound comprising a mixture of glass fibers and a thermoplastic. To determine the practicability of injection-molding such a compound, I mixed small quantities of acrylic plastic with short lengths of glass fibers, and forced the mixture, in a plastic state, through an orifice of the size used in injection-molding machines and molds. Similar tests were conducted with mixtures of short glass fibers and polystry-rene. The results of those tests, in which I used equipment owned by me, indicated that such compounds were satisfactory for use in injection molding; for the glass did not clog the orifice and the mixture passed through the orifice without separation. It was my opinion at the time that the process of making such a compound by mixing short lengths of glass fibers with the plastic was impracticable for large-scale production and that the product of such a mixing would be inferior as an injection molding compound to a product in which the glass fibers were disposed in generally parallel relation. In planning on going into the manufacturing business myself, as set forth in Paragraph 2 above, I contemplated that one of my products would be a molding compound produced by impregnating continuous lengths of glass strand or roving with a thermoplastic and chopping the impregnated material into short lengths suitable for use in injection molding machines.” PX 2, pp. 45-46.
      In his affidavit of April 17, 1958, Bradt described one of the tests which he performed prior to March 9, 1951:
      “(c) The melting of mixtures of short glass fibers and thermoplastic resins, including polystyrene, the forcing of the melted mixture through an orifice of a size used in injection molding machines under pressures comparable to those used in injection molding machines, and visual examination of the material passed through the orifice to determine the extent, if any, to which passage through the orifice had caused segregation or breaking of the glass fibers.” PX 2, pp. 85-86.
      He then added:
      “3. The tests described above convinced me, as I believe they would convince anyone familiar with the injection-molding art, that at least certain types of injection moldings could be produced from the product obtained by cutting the aforesaid resin-impregnated strands into granules ; for there was no reason why the product would not fill a mold cavity once it had passed through the restricted injection orifice without undue segregation or breakage of the glass, as my tests demonstrated it would. Commercial acceptance of the product, however, depended on a number of other factors such as whether the product would result in moldings of improved properties, whether any improvements obtained would be worth the added cost, and whether use of the product would involve undue deterioration of molding equipment. Such factors could only be weighed on the basis of experience with actual injection molding in commercial injection molding machines. As no injection molding machine was available to me, the only opportunity for further testing lay in persuading a company with injection molding machines to try my product. To do that, I would have to be able to offer the company a substantial quantity of the product; and at the time it was impossible to obtain glass roving or strand without a priority allocation, which neither I nor the Armorite Corporation had. In my opinion the tests I made prior to March 19, 1951, represented all that could have been done, in the absence of an injection molding machine, to measure the worth of my product as an injection molding material.” Ibid.

      . See PX2, p. 80.

      . Apparently relying on the date of the Victory Plastics communication to Bradt describing the results of its experimentation, the district court found that the compound was first tested by Victory “in January, 1952.”

      . There may be a public use prior to any sale or offer to sell and, alternatively, there may be sales which neither the vendor nor the purchaser desires to make public but which nevertheless impose an obligation on the inventor to file his application within one year.

      . Amphenol Corp. v. General Time Corp., 397 F.2d 431, 436 (7th Cir. 1968); George R. Churchill Co. v. American Buff Co., 365 F.2d 129, 134 (7th Cir. 1966). The district court’s conclusion of law No. 36 was incomplete because it omitted any reference to the inventor’s burden.

      . See Burke Electric Co. v. Independent Pneumatic Tool Co., 234 F. 93 (2d Cir. 1916), cert. denied 241 U.S. 682, 36 S.Ct. 728, 60 L.Ed. 1234; McCreery Engineering Co. v. Massachusetts Pan Co., 195 F. 498, 501 (1st Cir. 1912); B. F. Sturtevant Co. v. Massachusetts Hair & Felt Co., 124 F.2d 95, 97 (1st Cir. 1941).

      . “Until the inventive idea is successfully reduced to practice, however, no amount of selling activity should put the invention on sale.
      “An invention is usually considered reduced to practice once there is a completely operable physical embodiment. To be considered complete, however, a claimed invention need not be free of minor engineering imperfections but need only be demonstrably operable. Following this approach, once it is clear that an invention is functional, the inventive process should be considered finished and the invention reduced to practice even though much work remains before production can start.” Note, New Guidelines for Appying the On Sale Bar to Patentability, 24 Stan.L.Rev. 730, 743 (1972).

      . Finding No. 78 reads as follows:
      “The evidence adduced at trial demonstrates that it was considered necessary by Bradt and other persons skilled in the art including Robert Maier, the patentee of the DuPont British patent, that a glass-reinforced injection molding compound be tested in an actual injection molding machine before a conclusion could be reached regarding its operability or feasibility (71a, 180a-181a, 205a, 286a-287a, 307a). Testing was thus necessary before Bradt’s invention could be completed.”

      . The experimental use exception recognizes the necessity for testing of an invention under circumstances which would ordinarily be considered a public use. See Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126, 24 L.Ed. 1000. But the exception is narrowly construed, and the use must be solely for experimental purposes. “A use for experimental purposes is not a public use ‘if it is conducted in good faith for the purpose of testing the qualities of the invention and for no other purpose not naturally incident to that.’ Walker, Patents, Deller’s Edition 347.” Hobbs v. Wisconsin Power & Light Co., 250 F.2d 100, 108 (7th Cir. 1957). See also Egbert v. Lippmann, 104 U.S. 333, 336, 26 L.Ed. 755; George R. Churchill Co. v. American Buff Co., 365 F.2d 129, 134 (7th Cir. 1966); Cline Electric Co. v. Kohler, 27 F.2d 638, 641 (7th Cir. 1928). “A reasonable period of experimentation wherein the inventor may perfect what he has conceived has long been acknowledged as an exception to the requirement of seasonable disclosure. But this exception must be recognized as such; it must be so limited as not to interfere with the ef-fectuation of the policy underlying the general rule of early disclosure. An inventor may not be permitted to use a period of experimentation as a competitive tool.” Koehring Co. v. National Automatic Tool Co., 362 F.2d 100, 103 (7th Cir. 1966).

      . See Cali v. Eastern Airlines, Inc., 442 F. 2d 65, 69-70 (2d Cir. 1971). In Smith and Griggs Mfg. Co. v. Sprague, 123 U.S. 249, 257, 8 S.Ct. 122, 31 L.Ed. 141, the Court stated:
      “A single sale to another of such a machine as that shown to have been in use by the complainant more than two years prior to the date of his application would certainly have defeated his right to a patent ;
      í¡: % ;J: s*s #
      “On the other hand, the use of an invention by the inventor himself, or by another

        ■person under Ms direction, by way of experiment, and in order to bring the invention to perfection, has never been regarded in this court as such a public use as under the statute defeats his right to a patent.” (Emphasis added.)


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. George VITALE, Defendant-Appellant.
    No. 73-1559.
    United States Court of Appeals, Sixth Circuit.
    Argued Dec. 3, 1973.
    Decided Jan. 15, 1974.

      Sanford Rosenthal, Detroit, Mich., for defendant-appellant; George Stone, Detroit, Mich., on brief.
    Laurence Leff, U. S. Dept, of Justice, for plaintiff-appellee; Ralph B. Guy, Jr., U. S. Atty., on brief; Atlee W. Wampler, III, Sp. Attys., U. S. Dept, of Justice, Detroit, Mich., of counsel.
    Before McCREE and MILLER, Circuit Judges, and MeALLISTER, Senior Circuit Judge.
   PER CURIAM.

This is a direct appeal from a conviction for unlawfully and willfully appropriating for his own use the property of a labor union of which appellant was an officer in violation of the Labor-Management Reporting and Disclosure Act of 1959, 29 U.S.C.A. § 501(c). Appellant was sentenced to two years probation and was fined $1,000. The sole issue before us is whether the evidence presented at trial is sufficient to support the verdict of guilty rendered by the jury. We hold that it is.

Section 501(c) provides that

[a]ny person who embezzles, steals, or unlawfully and willfully abstracts or converts to his own use, or the use of another, any of the moneys, funds, securities, property, or other assets of a labor organization of which he is an officer, or by which he is employed, directly or indirectly, shall be fined not more than $10,000 or imprisoned for not more than five years, or both, (emphasis added).

As we have stated before, “[t]he language in the statute, ‘embezzles, steals, or unlawfully abstracts and converts to his own use,’ would seem to cover almost every kind of taking, whether by larceny, theft, embezzlement or conversion.” United States v. Harmon, 339 F.2d 354, 357 (6th Cir. 1954), cert. denied, 380 U.S. 944, 85 S.Ct. 1025, 13 L.Ed.2d 963 (1965). Other courts have agreed that “[i]n section 501 Congress defined ‘in the broadest terms possible the duty which the new federal law imposes upon a union official.’ ” United States v. Silverman, 430 F.2d 106, 113 (2d Cir. 1970), cert. denied, 402 U.S. 953, 91 S.Ct. 1619, 29 L.Ed.2d 123 (1971), citing Highway Truck Drivers and Helpers Local 107 v. Cohen, 182 F.Supp. 608, 617 (E.D.Pa.), aff’d per curiam, 284 F.2d 162 (3d Cir. 1960), cert. denied, 365 U. S. 833, 81 S.Ct. 747, 5 L.Ed.2d 744 (1961). In the Silverman case, the court, in discussing the wide range of conduct that the statute was intended to prohibit, stated:

The fiduciary role that labor officials must occupy is defined in section 501(a) to include a duty to hold the union’s property solely for the benefit of the union and to expend it only in accordance with its constitution, bylaws and resolutions. Decisions finding violations of the criminal provision of section 501(c) have also emphasized the elements of appropriate union benefit and proper union authorization. Section 501(c) is read as requiring an intent to deprive the union of the use of its funds and either a lack of union benefit from the expenditure or a lack of proper authorization for the expenditure. 430 F.2d 106, 114.

And in United States v. Dibrizzi, 393 F.2d 642 (2d Cir. 1968), the court held that even if the union authorized and ratified the expenditures with full knowledge of all the facts, an officer is not for that reason absolved of a violation of the Act.

In examining the sufficiency of the evidence in this case, we are cognizant that we must view the evidence presented at trial in the light most favorable to the government, United States v. Ferrara, 451 F.2d 91, 93 (2d Cir. 1971), cert. denied, 405 U.S. 1032, 92 S.Ct. 1291, 31 L.Ed.2d 489 (1972); that “[a]ny doubt as to the wilful intent to commit the act is usually deemed to be a doubt for the jury to resolve,” United States v. Dibrizzi, supra at 644, citing Morissette v. United States, 342 U.S. 246, 273-276, 72 S.Ct. 240, 96 L.Ed. 288 (1952); and that direct proofs of each element of the crime are not necessary to convict but that circumstantial evidence may suffice. Moreover, the jury is entitled to draw inferences adverse to the accused from acts or a combination of acts even though each act standing by itself may seem to be unimportant, United States v. Dibrizzi, supra, and the jury, not a court of review, should be the judge of the credibility and the veracity of witnesses particularly where there is directly conflicting testimony. United States v. Levinson, 405 F.2d 971 (6th Cir. 1968).

Teamsters Local 283, of which appellant was vice-president, has had a practice of furnishing Cadillac automobiles for the use of its president, vice-president and secretary-treasurer. In early 1968, the union decided to discontinue the practice of purchasing automobiles for use by these officers, and to lease them instead. The union, through appellant, then initiated negotiations with Klett Cadillac Company for leasing three new Cadillacs and for the sale of the three Cadillacs owned by the union. An agreement was reached in March, 1968, whereby the union leased three new Cadillacs from Klett, and Klett purchased the three Cadillacs owned by the union for $7,560. It is not disputed that the 1967 Cadillac, previously used by the union president, was purchased by Klett for $3,600. However, there is some dispute, not material in light of the other evidence presented, whether the 1966 and 1965 Cadillacs were sold for $1,600 and $2,360 respectively, or vice-versa.

At the time of the negotiations for the sale of the union automobiles to Klett, Klett also agreed to resell two of the Cadillacs to Local 283 officers: one to the president of the union, and the other to appellant, as a “courtesy deal”. Klett agreed to sell the automobiles at wholesale, that is, the price at which they would be purchased from the union, and thereby forego any profit. Thereafter, the president paid $3,600 for the 1967 Cadillac, and appellant testified that he paid $1,600 for the 1965 Cadillac, the automobile that had been assigned to him as vice-president, but that by some stroke of luck Klett delivered to him instead the 1966 Cadillac.

The validity of appellant’s conviction under section 501(c) turns on the question whether the union received the fair market value of the 1966 Cadillac sold to Klett or, to put it another way, whether appellant by his purchase of the 1966 Cadillac for $1,600 obtained some benefit for himself at the expense of the union. At trial, evidence was adduced that in March 1968, the average wholesale value of a 1967 Cadillac of the model sold to the president was $3,600; that the average wholesale value of a 1966 Cadillac of the model sold to appellant was between $3,180 and $3,415; and that the average wholesale value of a 1965 Cadillac of the model sold by the union was $2,225. Moreover, Thomas Dreisbach, the president and general manager of Klett Cadillac Company and a 50% owner at the time of the transactions in question, testified that during his negotiations with appellant concerning the sale of the union Cadillacs to Klett he personally appraised the three Cadillacs and told appellant that the wholesale value of the 1966 Cadillac was between $2,800 and $3,000. He added that it was in fair to good condition at the time of his examination but that with repairs it would be in good to very good condition. Dreisbach testified that appellant, in response, indicated that he wished to purchase the 1966 Cadillac for his wife, but observed that it was against Teamster regulations to buy directly from the union, and then set the price that he would pay for the automobile at $1,600. Appellant also instructed Dreisbach to make repairs for which Klett subsequently billed the union $370.15. Appellant, in his testimony contradicted Dreisbach’s testimony except with respect to delivery of the 1966 Cadillac to his wife and his payment of $1,600 to Klett.

If the jury believed the testimony of Dreisbach, as it apparently did, the union received for its 1966 Cadillac approximately $1,200 to $1,400 less than its fair market value and appellant reaped the benefit of this difference. To be sure, appellant did not pocket directly any union money but the benefit to appellant and the loss to the union demonstrated by the evidence are the same that would have occurred if appellant had received $2,800 to $3,000 from Klett for the vehicle and had accounted to the union for only $1,600. In finding no legally significant difference between accomplishing an unlawful goal by an indirect instead of a direct method, we agree with the observation of the court in United States v. Silverman, supra, 430 F.2d at 113, that “[i]t was the plain intention of Congress to hold officers and employees strictly responsible as fiduciaries for the union funds entrusted to them and this intention should not be subverted by the use of indirect methods.” See also United States v. Harrel-son, 223 F.Supp. 869 (E.D.Mich.1963).

Affirmed.

      . In that case, where we upheld a conviction under the Act of a union officer who had purchased gasoline, supplies, and equipment for his boat by a credit card issued to the union and in which the bills for these purchases were paid for by the union by checks drawn on its bank account and approved and signed by the officer convicted, we also observed that “[i]n § 501(a) of the Act Congress indicated rather clearly its policy with respect to the fiduciary responsibility of officers, agents and representatives of labor organizations, and it would appear that technical common law distinctions of various types of crimes were not intended to be rigidly applied.” 339 F.2d at 357. Section 501(a) provides:
      The officers, agents, shop stewards, and other representatives of a labor organization occupy positions of trust in relation to such organization and its members as a group. It is, therefore, the duty of each such person, taking into account the special problems and functions of a labor organization, to hold its money and property solely for the benefit of the organization and its members and to manage, invest, and expend the same in accordance with its constitution and bylaws and any resolutions of the governing bodies adopted thereunder, to refrain from dealing with such organizations as an adverse party or in behalf of an adverse party in any matter connected with his duties and from holding or acquiring any pecuniary or personal interest which conflicts with the interests of such organization, and to account to the organization for any profit received by him in whatever capacity in connection with transactions conducted by him or under his direction on behalf of the organization. A general excusatory provision in the constitution and bylaws of such a labor organization or a general exculpatory resolution of a governing body purporting to relieve any such person of liability for breach of the duties declared by this section shall be void as against public policy.


author: GURFEIN, District Judge:

text:
    UNITED STATES of America ex rel. Leo Di GIANGIEMO, Petitioner-Appellant, v. Leon J. VINCENT, Superintendent Green Haven Correctional Facility, Respondent.
    No. 204, Docket 73-2021.
    United States Court of Appeals, Second Circuit.
    Argued Dec. 5, 1973.
    Decided Jan. 9, 1974.

      Theodore Ruthizer (James J. Mc-Donough, Atty. in Charge, Legal Aid Society of Nassau County), Mineóla, N. Y., for petitioner-appellant.
    Burton Herman, Asst. Atty. Gen. (Louis J. Lefkowitz, Atty. Gen. of N. Y.), New York City, for respondent.
    Before WATERMAN and FEINBERG, Circuit Judges, and GURFEIN District Judge.

       Of the United States District Court for the Í nation. cithern District of New York, sitting by designation.

   GURFEIN, District Judge:

This is an appeal from an order of the United States District Court for the Eastern District of New York (Mishler, J.), dismissing a petition for a writ of habeas corpus. The District Court granted a certificate of probable cause.

On June 2, 1967, appellant Leo Di Giangiemo was sentenced by Judge Kelly in the Nassau County Court, as a second offender, to imprisonment for 10 to 20 years to be served concurrently, upon conviction by a jury of the crimes of burglary in the third degree and grand larceny in the first degree. The judgment was affirmed by the Appellate Division, Second Department, 34 A.D.2d 960, 312 N.Y.S.2d 381 (2d Dept. 1970), and by the New York Court of Appeals, 27 N.Y.2d 956, 318 N.Y.S.2d 325, 267 N.E.2d 109 (1970). Certiorari was denied, 401 U.S. 981, 91 S.Ct. 1216, 28 L.Ed.2d 333 (1971). An application for a writ of error coram nobis was denied, the order of denial being affirmed by the Appellate Division, 34 A.D.2d 1108, 313 N.Y.S.2d 972 (2d Dept. 1970), and the Court of Appeals affirmed, 28 N.Y. 2d 929, 323 N.Y.S.2d 175, 271 N.E.2d 704 (1971).

Thereafter, the application for the writ of habeas corpus was filed in the Eastern District. The petitioner contended that his conviction was unconstitutional because certain evidence was admitted at his Nassau County trial in violation of his rights under the Fourth and Fifth Amendments to the United States Constitution.

Appellant had been arrested on September 2, 1965 about a half hour after he had been dropped off at his home from an automobile operated by John Galante. After dropping appellant, Gal-ante was arrested and his automobile searched. A gun and jewelry were found in an attache ease in the car. A chisel and two screwdrivers were found in the trunk of the car. Appellant and Galante were indicted in Queens County for the crimes of receiving and withholding stolen jewelry and an automobile, and possessing a dangerous weapon. Appellant was also indicted in Nassau County with two others for burglary and grand larceny.

In the Queens prosecution, counsel for appellant and Galante moved for suppression of the gun and jewelry, relevant to the Queens prosecution, on the ground that their Fourth Amendment rights had been violated by an alleged unlawful search and seizure. They apparently did not move to suppress the chisel and the two screwdrivers because they were not to be offered in evidence in the Queens prosecution.

A suppression hearing was held in the Queens County matter, and Mr. Justice Bosch of the Supreme Court, Queens County, on June 3, 1966, ordered the evidence suppressed and the indictment dismissed upon the ground that the war-rantless arrest was not based on probable cause, and could not validate the illegal search. He ordered the pistol and the jewelry to be suppressed as evidence, and he also dismissed the indictment.

Although Mr. Justice Bosch held the search unlawful, he did not suppress the chisel and screwdrivers found in the car at the same time, because that relief was not asked. Appellant was not present at the suppression hearing.

Thereafter, represented by a different lawyer, appellant was tried, beginning February 27, 1967, on the Nassau County indictment. The chisel and the screwdrivers that had been taken from Galante’s car were put in evidence. As Judge Mishler found, they were “important to the State’s case against petitioner. The tools were alleged to have been used in prying open a stolen safe. There was no other physical evidence linking petitioner with the crime.”

When the tools were offered in evidence, counsel for appellant objected, but not on Fourth Amendment grounds. The objection was overruled. No motion to suppress was made. It develops that the Nassau lawyer for the appellant had not been told that the other items involved in the same search and seizure had been suppressed.

Judge Mishler held a hearing to determine whether appellant had “understandingly and knowingly” waived his

Fourth and Fifth Amendment rights by not objecting on those grounds to the admission of the tools at the Nassau trial. Fay v. Noia, 372 U.S. 391, 83 S.Ct. 822, 9 L.Ed.2d 837 (1963); Johnson v. Zerbst, 304 U.S. 458, 464, 58 S.Ct. 1019, 82 L.Ed. 1461 (1938). After hearing testimony from appellant and the Queens lawyer for appellant, and by deposition from his Nassau lawyer, Judge Mishler made a specific finding “that petitioner did not knowingly waive his fourth and fifth amendment rights.” He found that appellant was not informed about the suppression hearing in Queens until after the Nassau trial, and the Queens lawyer confirmed that he had not told the Nassau lawyer of his success at the suppression hearing in Queens. Nor did the District Attorney of Queens tell the District Attorney of Nassau.

Although police officers of Queens (New York City) and Nassau County jointly made the arrest of appellant, Detective Reilly of the N.Y. Police Department testified only regarding the jewelry and the gun at the Queens proceeding; and Detective Miraval, of the Nassau police force, testified in the Nassau trial only about the chisel and screwdrivers. No one mentioned the Queens suppression hearing or that items seized at the same time and place. had been suppressed.

In his pro se petition on the coram nobis and in his brief in the Appellate Division, appellant argued primarily that the police officers had given inconsistent and perjurious testimony with the knowledge of the District Attorney. He relied on Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963), and eases involving the use of “false evidence.” When counsel were appointed to act for him in the Court of Appeals, they rather stressed the argument that Justice Bosch’s suppression order was a collateral estoppel to the introduction by the People in the Nassau case of the fruits of the same illegal search. They cited the scholarly opinion of Judge Sobel in People v. De Sisto, 27 Misc.2d 217, 214 N.Y.S.2d 858 (Co.Ct. Kings Co., 1961) in support of collateral estoppel. They also argued that even a negligent failure of the Nassau District Attorney to reveal the Queens suppression hearing, citing People v. Robertson, 12 N.Y.2d 355, 239 N.Y.S.2d 673, 190 N.E.2d 19 (1963), would require granting the writ of coram nobis.

The Nassau District Attorney argued: (1) that appellant had made no objection at the trial; (2) that Fourth Amendment issues may not be raised for the first time on the reargument of a State appeal by way of eoram nobis-, (3) that the Nassau District Attorney was neither a party to nor bound by the Queens County ruling, and that the Nassau judge would not be bound by the Queens County ruling; (4) that appellant had left the car before the search. Lastly, the District Attorney argued that the case against appellant rested primarily on eyewitness testimony.

Judge Breitel granted leave to appeal. The New York Court of Appeals affirmed without opinion (28 N.Y.2d 929, 323 N.Y.S.2d 175, 271 N.E.2d 704). We are now asked to decide as a matter of constitutional law that the granting of a motion to suppress evidence is a collateral estoppel to the introduction of the evidence in a subsequent trial. We are reluctant to undertake the determination of this question, because we feel that the matter has not been adequately presented to the State court.

Judge Mishler perceptively called attention to Section 813-c of the former N.Y. Code of Criminal Procedure in effect at the time of the Nassau trial. That section reads:

“ § 813-c. The motion in general
A person claiming to be aggrieved by an unlawful search and seizure and having reasonable grounds to believe that the property, papers or things, hereinafter referred to as property, claimed to have been unlawfully obtained may be used as evidence against him in a criminal proceeding, may move for the return of such property or for the suppression of its use as evidence. The court shall hear evidence upon any issue of fact necessary to determination of the motion.
If the motion is granted, the property shall be restored unless otherwise subject to lawful detention, and in any event it shall not be admissible in evidence in any criminal proceeding against the moving party.
If the motion is denied, the order denying such may be reviewed on appeal from a judgment of conviction notwithstanding the fact that such judgment of conviction is predicated upon a plea of guilty.”

We have examined the briefs submitted to the Court of Appeals and we find no mention of this statute. To be sure, the statute requires interpretation in two respects: (1) Does it bar the evidence in a subsequent trial on other charges in a different county; and (2) is it applicable to barring as evidence the chisel and tools when the order to suppress named only the jewelry and the gun, although all the items were seized under the same circumstances. We deem Section 813-c to be a State rule of evidence, which could be dispositive, in the absence of waiver, if it be given a certain interpretation.

We would not willingly venture into so delicate a question involving the administration of New York’s criminal law unless compelled to do so. Cf. United States ex rel. Rogers v. LaVallee, 463 F.2d, 185, 187 (2 Cir. 1972). We think here that before we attempt to find whether constitutional questions exist in this area, we should allow our fellow judges in the State court to determine the meaning of the State statute first. Unless we treat exhaustion of State remedy in the most technical sense, we must consider that the question of appellant’s rights under the statute has not been exhausted in the State courts. Cf. Picard v. Connor, 404 U.S. 270, 276, 92 S.Ct. 509, 30 L.Ed.2d 438 (1971); United States ex rel. Nelson v. Zelker, 465 F.2d 1121 (2 Cir. 1972).

Tempting though it may be to decide so interesting a question of collateral es-toppel, we shall, therefore, not do so, even in the light of Judge Mishler’s well-reasoned opinion.

We accordingly neither affirm nor reverse on the issue of collateral estoppel, but remand to the District Court with instructions to dismiss the petition and to remand to the State court for exhaustion of the State remedy. We think that another coram nobis proceeding is still available. Matter of Bojinoff v. People, 299 N.Y. 145, 151, 85 N.E.2d 909 (1949).

Remanded with directions.

      . In those cases it was the constitutional issue that had not been presented adequately. This court has also held, however, that a federal habeas corpus petition should be dismissed to permit state court construction of a criminal procedural statute, refraining in the meantime from deciding unresolved issues concerning the construction of the statute. United States ex rel. Herrington v. Mancusi, 415 F.2d 205, 209 (2 Cir. 1969).


author: FAIRCHILD, Circuit Judge.

text:
    UNION CARBIDE CORPORATION, a corporation, Plaintiff-Appellant, v. Sidney KATZ, Defendant-Appellee.
    No. 71-1921.
    United States Court of Appeals, Seventh Circuit.
    Argued Oct. 26, 1972.
    Decided Nov. 5, 1973.

      P. Terence Crebs, Thomas E. Toney, III, St. Louis, Mo., John M. Ferguson, Belleville, 111., for plaintiff-appellant.
    Sam S. Pessin, Belleville, 111., for defendant-appellee.
    Before CASTLE, Senior Circuit Judge, KILKENNY, Senior Circuit Judge  and FAIRCHILD, Circuit Judge.

       Senior Circuit Judge John F. Kilkenny of the Ninth Circuit is sitting by designation.

   FAIRCHILD, Circuit Judge.

Plaintiff Union Carbide sought recovery from defendants Harold Rosen and Sidney Katz on a contract of guaranty. The district court entered judgment against Rosen, but in favor of Katz. Plaintiff appealed from the latter portion.

Plaintiff sold merchandise on credit to Automotive Warehouses, Inc. In the summer of 1969, plaintiff decided to require a personal guaranty of payment of the corporate indebtedness. Rosen, president of the corporation, and Katz, a stockholder, signed a guaranty prepared by plaintiff.

The guaranty recited that it was in consideration of “merchandise sold or consigned or hereafter sold or consigned and credit given or hereafter given from time to time” to the Warehouse corporation. The signers jointly and severally guaranteed payment to plaintiff of all indebtedness “now existing or hereafter created or arising.” The guaranty was to be continuing and to remain in effect until written notice of discontinuance be received by plaintiff, but in no event until any and all indebtedness created or existing before receipt of such notice shall be fully paid. “Notice of the creation and existence of any-of said indebtedness, and of . the acceptance of this guaranty, and of any and all extensions of credit and indulgence hereunder, are hereby expressly waived.”

Katz added a notation opposite his signature, the notation also being signed by him: “This guaranty is limited to $150,000 — ; and must be renewed annually; and effective only as long as I remain an officer, director or stockholder.” In a note to plaintiff accompanying the guaranty, Katz warranted his net worth to be in excess of $500,000, and added: “Please note the restrictive covenant I place on my personal guarantee.”

The signed guaranty was received by plaintiff October 2. On October 10 and thereafter, plaintiff shipped goods to the Warehouse corporation on credit.

On October 28, a representative of plaintiff wrote to the Warehouse corporation enclosing a new form of guaranty, prepared by plaintiff’s law department. The new form incorporated the $150,000 limitation, and modified the provisions as to notice of termination. The new form did not provide automatic termination in the event Katz ceased to be an officer, director, or stockholder, nor termination at the end of a year unless renewed. The letter pointed out that Mr. Katz could terminate at any time in compliance with the notice provisions.

This form of guaranty was never signed, and the district court deemed it a counter offer and thus a rejection of the signed guaranty. We think, with respect, that the court overlooked the character of the original guaranty as an offer by Katz (as well as Rosen) which ripened into a contract upon the contemplated extension of credit and needed no return promise or other manifestation of acceptance by plaintiff.

During November, plaintiff shipped additional goods to the Warehouse corporation on credit.

On November 21, plaintiff's representative wrote to Mr. Rosen, saying, among other things:

“Harold, according to my records, we still have not received the personal guaranty form from Mr. Katz. I wish you would talk to him and get this matter resolved since if we do not get this document shortly, I will have no choice but to suspend all further shipments. I am sure we both do not wish to see this happen. If you think it would be more effective, please let me know and I will contact Mr. Katz myself.”

Although the Oct. 28 form of guaranty was never signed, plaintiff continued to make shipments on credit and ultimately the unpaid obligations exceeded $230,000.

Mr. Katz testified that on January 2, 1970, he sold his stock in return for a note, secured by the stock. On February 6, he wrote plaintiff as follows:

“This is to inform you that I am notifying Union Carbide Corporation of my desire to revoke the restricted and limited personal guarantee for Automotive Warehouses, Inc. which was executed by me on August 20, 1969.”

“I am doing this in as much as there has been a decided change in my own personal financial and stockholding position.”

Plaintiff acknowledged receipt of the letter revoking the executed guaranty and stated that “as soon as the purchases made during the period in which your personal guarantee was in effect are paid” the guaranty would be returned.

Mr. Katz responded on February 18. He took the position, in substance, that the guaranty he executed was void because he had ceased to be an officer, director, or stockholder. Although he noted that he had never signed the October 28 guaranty, it is clear from the context that he was pointing out that his notice complied with the guaranty he had executed and that he was not bound to comply with the October 28 provisions as to notice. We read the letter as suggesting the defense that when the executed guaranty was terminated, he no longer had an obligation with respect to indebtedness outstanding at the time of termination. The record does not show when he first took the position, advanced at trial, that the guaranty he executed had never become a contract.

The guaranty executed by Mr. Katz, including, of course, the terms he wrote in, was an unconditional offer to guarantee payment of credit extended by plaintiff to the Warehouse corporation. It was characterized in the document itself as “a continuing, absolute and unconditional guaranty.” The additions made by Mr. Katz did not detract from that character, but limited the amount of his liability, and made certain new provisions as to termination.

Such unconditional offer to guarantee payment of plaintiff’s extensions of credit was accepted by plaintiff’s October 10 extension of credit. Frost v. Standard Metal Co., 215 Ill. 240, 74 N.E. 139 (1905); Mamerow v. National Lead Co., 206 Ill. 626, 69 N.E. 504, 508 (1903). See Restatement, Security § 86, Contracts § 56. Notice of acceptance was expressly waived.

Assuming Mr. Katz ceased to be an officer, director, or stockholder on January 2, 1970, the guaranty then terminated, unless his delay in notifying plaintiff of the change might estop him from relying on that event. In any case, the guaranty was terminated no later than notice of revocation February 6. Mr. Katz was not liable for extensions of credit after termination, but was liable up to $150,000 for indebtedness created before termination and remaining unpaid. Mamerow v. National Lead Co., supra, p. 507; Tausig v. Reid, 145 Ill. 488, 32 N.E. 918, 919 (1893).

The fact that extensions of credit aggregated more than $150,000 was not a complete defense. The limitation to that amount was a limitation upon his total liability, and not upon the aggregate extension of credit. Frost v. Standard Metal Co., supra; Tausig v. Reid, supra.

Plaintiff’s October 28 request for execution of a new guaranty with somewhat different terms did not, by operation of law, repudiate or reject or establish nonreliance upon the offer of guaranty previously executed by Katz. Essex International, Inc. v. Clamage, 440 F.2d 547, 551 (7th Cir., 1971); Pharis Tire & Rubber Co. v. May, 192 Ark. 760, 94 S.W.2d 1040 (1936); American Woolen Co. v. Moskowitz, 159 App.Div. 382, 144 N.Y.S. 532, 534 (1913); Bryant v. Food Mach. & Chem. Corp. Niagara Chem. Div., 130 So.2d 132, 134 (3rd Dist. Ct. of Appeal Fla., 1961); Cinerama, Inc. v. Sweet Music, S.A., 355 F.Supp. 1113, 1120 (S.D.N.Y.1972).

The district court made no finding that in shipping goods to the Warehouse corporation, plaintiff did not in fact rely on the guaranty signed by Katz. Its request for execution of the new guaranty and its unexecuted threat to stop shipments if not signed would be the only evidence possibly tending to indicate lack of reliance. In the face of all the other circumstances a finding of lack of reliance would have been clearly erroneous.

The district court did not reach the question whether the termination occurred January 2 or February 6. Consequently there was no finding of the amount of indebtedness unpaid at the date of termination. It appears probable that the figure even at January 2 exceeded $150,000. If so, judgment should be entered for $150,000. If, on remand, the district court decides that a further hearing is required to determine whether the figure was less than $150,000 on January 2, 1970, there should be a hearing to determine whether the date of termination was January 2 or later and the figure as of that date. Plaintiff will be entitled to interest from the date of demand, as well as costs. Feucht v. Clarke, 299 Ill.App. 477, 20 N.E.2d 312 (1939).

The portion of the judgment appealed from is reversed and the cause remanded for further proceedings, if required, and entry of judgment for plaintiff, consistent with this opinion.

      . Jurisdiction is founded on diversity. All parties consider that substantive questions are controlled by the law of Illinois.


author: PELL, Circuit Judge.

text:
    Victor FREITAG, Individually and on behalf of others similarly situated, Plaintiff-Appellee, v. James Y. CARTER, Individually and in his official capacity as Commissioner of the Public Vehicle License Commission of the City of Chicago, and the City of Chicago, a municipal corporation, Defendants-Appellants.
    No. 72-1679.
    United States Court of Appeals, Seventh Circuit.
    Argued May 31, 1973.
    Decided Dec. 10, 1973.

      Richard L. Curry, Corp. Counsel, William R. Quinlan, Asst. Corp. Counsel, Chicago, 111., for defendants-appellants.
    Thomas P. Stillman, Chicago, 111., for plaintiff-appellee.
    Before PELL and STEVENS, Circuit Judges, and REYNOLDS, District Judge.

       Chief Judge John W. Reynolds of the Eastern District of Wisconsin is sitting by designation.

      . Freitag had been an in-patient for two months in 1957 and an out-patient for four months thereafter. At the time of his commitment, lie had “lost his civil rights.” However, these rights were restored in October 1957 by a state court which found him to be “without mental illness” and adjudged him- “mentally competent to manage his business, personal and civil affairs without endangering himself or others.” In his complaint, Freitag alleged that he has received no treatment for mental illness since 1957.

   PELL, Circuit Judge.

After the Public Vehicle License Commission of the City of Chicago allegedly denied his application for a chauffeur’s license, Victor Freitag filed a class action against the head of the Commission and the City of Chicago challenging the constitutionality of the City’s licensing ordinance. The complaint, grounded on 42 U.S.C. § 1983, alleged that the ordinance failed “to provide for notice of reasons for denial of a [for] a hearing.” In addition to a declaration of the ordinance’s unconstitutionality, Freitag sought an injunction and, for himself, $25,000 damages. license and

Both plaintiff and defendants moved for summary judgment. While these motions were pending, the Commissioner issued the license to Freitag. The district court declined to hold that the case was mooted and granted Freitag’s motion for summary judgment. The court concluded (1) the ordinance was invalid on its face, and (2) plaintiff had been denied due process. The defendants appeal, raising four issues: (1) the judicial remedy of mandamus was readily available against an improper denial of a license; (2) whether Freitag, in fact, had been denied due process by the defendants; (3) whether the case has been mooted; and (4) if the constitutionality issue is not moot, whether a licensing ordinance, to be valid, need expressly provide for notice and hearing.

I

On January 4, 1971, Freitag, wishing to drive a taxicab within the City of Chicago, applied to defendant Carter, the Commissioner of the Public Vehicle License Commission, for a public chauffeur’s license which Chicago cab drivers are required to have.

While investigating the application, Carter learned that Freitag had previously been a patient in a state mental hospital. Section 28.1-3 of Chapter 28.1 of the Municipal Code lists lack of “infirmity ... of mind” as a prerequisite for the issuance of a public chauffeur’s license. In a letter to Frei-tag dated January 19, 1971, Carter denied the application. However, the letter also stated, “If you wish to have this denial reviewed, please call at this office . . . .”

Freitag immediately asked for such a review and, on January 21, 1971, the Commissioner, after obtaining Freitag’s permission, wrote the state mental hospital requesting information regarding plaintiff’s condition at the time of his discharge from the institution and information pertinent to Freitag’s ability to drive a cab. In response, the Administrative Physician at the hospital gave a brief history of Freitag’s connections with the hospital,, described his mental condition at the time of his hospitalization, and stated that the hospital had had no contact with Freitag since October 1957. The record does not reveal that defendant Carter showed plaintiff the Administrative Physician’s letter or the hospital records.

Upon receipt of the letter, Carter’s office forwarded it to the Medical Section of the Chicago Police Department, which, on February 5, 1971, indicated that Freitag might be a “bad risk.” This evaluation apparently was based solely on the fourteen-year-old information, for no expert assessed Freitag's mental condition as of 1971. If so, it would appear to reflect an archaic attitude in the field of mental health. Indeed, the defendants never gave plaintiff any mental tests nor were there facts before the Commissioner to indicate any present questionable mental status.

Receiving no word from Carter on the reconsideration, Freitag in late February 1971 telephoned the Public Vehicle License Commission. Freitag claims that he was told his application had been denied by the Commission’s psychiatrist. He asked for an appointment to see Carter.

On February 22, 1971, the two met in Carter’s office. According to Freitag, Carter stated that the Commission doctor had -told him to deny the license. Carter supposedly then refused to explain why the doctor had so advised. According to the affidavit Carter made for the defendants’ summary judgment motion, Carter never announced a final denial of plaintiff’s application. The Commissioner maintains that he had merely indicated to Freitag that further investigation would be necessary.

After this conference, Freitag sought legal aid. His lawyer wrote Carter several letters and interviewed him in an effort to secure Freitag a license. On August 17, 1971, Freitag filed the present lawsuit.

II

Defendants contend that because of the “ready availability of the traditional mandamus procedure, which in Illinois has long been regularly employed to compel the issuance of licenses improperly withheld,” Freitag has “no justifiable claim of denial of due process to assert in a federal court.” However, the defendants deny that they are thereby arguing that an applicant must resort to the state mandamus remedy before proceeding in the federal courts to assert or preserve a claim of denial of due process.

The heart of Freitag’s complaint is the demand for a formal notice of reasons for the denial and a hearing at which he may cross-examine witnesses and present evidence on his behalf. The complaint does not request the immediate issuance of a chauffeur’s license, although it does include a prayer for $25,000 damages. We fail to understand why the existence of a state mandamus procedure forecloses Freitag from seeking relief in the federal courts. Perhaps the defendants are really arguing that the license ordinance should be read in conjunction with the state mandamus provisions in order to “save” the ordinance. Even if that is the proper way to construe the ordinance, that argument does not go to the availability of the federal forum. The mandamus contention, to the extent that the existence of this remedy is supposed to mean that the ordinance considered in the mandamus-availability context therefore provided due process, would not be sufficient to override an actual denial of due process if such is the fact.

Ill

The defendants contend that the district court improperly granted summary judgment on the issue of whether Frei-tag was in fact denied due process. They argue that plaintiff clearly was accorded due process or, alternatively, that “there were, at least, disputed material issues of fact . . . . ” We disagree. In our opinion there was “no genuine issue as to any material fact and . the moving party [was] entitled to a judgment as a matter of law.” Rule 56, Fed.R.Civ.P.

First, contrary to the defendants’ assertion, Commissioner Cárter did issue a “final” denial of Freitag’s application for a public chauffeur’s license. His letter of January 19th stated, “This is to advise you that your application . has been denied.” Later, after Freitag’s legal representative demanded that Freitag be issued a license, Carter wrote the City’s Corporation Counsel seeking advice:

“When [Freitag’s] fingerprints were returned from the FBI in Washington, it showed that he had been a patient at the Manteno State Hospital. [H]e agreed to sign a release letter to the hospital .... [W]e then presented [the hospital’s] information to the Medical Section of the Chicago Police Department for their opinion which was that Mr. Freitag would be a ‘bad risk.’ We then notified Mr. Freitag that his application for a public chauffeur’s license was denied.’’ [Emphasis added.]

The letter then describes Carter’s meeting on May 7, 1971, with Freitag’s legal representative: “No decision was reached other than the license was denied. . . . ” The representative’s recollection of the meeting corroborates this statement: “When I asked Mr. Carter the date he denied Mr. Freitag’s license, he said that it was not noted in Freitag’s file but the date of denial was within a week after receiving the letter of January 29 from Manteno.”

The only documents in the record that suggest Carter never made a final denial are Carter’s affidavits attached to the defendants’ summary judgment motion and answer. In his second affidavit, Carter claimed:

“Although both Mr. Freitag and an employee of [his] legal counsel . . . misunderstood my actions and language and interpreted my failure to immediately issue a license to Freitag as a final denial of the issuance of the same, that was never my intention. Whether or not I actually stated that the failure to immediately issue a license to Freitag was preliminary, final, or otherwise, I intended that it be merely preliminary and assumed Freitag and [his legal representative] had understood it as such. ... I did not tell [Fréi-tag] that a final denial had been decided upon regarding his license nor did I authorize anyone else to make such a representation to him. . ” [Emphasis added.]

The firm characterization of lack of final denial is undermined by the unequivocal nature of the characterization of the action when it was actually taken. Under these circumstances, Carter’s speculations and eonclusionary statements concerning his intentions and words enunciated six months after the fact raise no genuine material issue of fact.

Second, the summary judgment documents reveal that the defendants failed to accord Freitag due process when denying him a public chauffeur’s license. A governmental licensing body which judges the fitness of an applicant must afford that applicant adequate notice and a hearing. See, e. g., Willner v. Committee on Character and Fitness, 373 U.S. 96, 83 S.Ct. 1175, 10 L.Ed.2d 224 (1963); Schware v. Board of Bar Examiners, 353 U.S. 232, 77 S.Ct. 752, 1 L.Ed.2d 796 (1957); Goldsmith v. United States Board of Tax Appeals, 270 U.S. 117, 46 S.Ct. 215, 70 L.Ed. 494 (1926). In Goldsmith, the Court held that the Board, although vested with the discretion to deny Goldsmith admission, could exercise that discretion only “after fair investigation, with such a notice, hearing and opportunity to answer for the applicant as would constitute due process.” 270 U.S. at 123, 46 S.Ct. at 217.

Here Carter’s “investigation” consisted of unearthing fourteen-year-old psychiatric records, see Schware, 353 U.S. at 243, 246, 77 S.Ct. 752, and checking whether Freitag had been convicted of a disqualifying offense. At no time did Carter inquire into the plaintiff’s present mental condition or show him the “evidence” against him. Only after he had denied Freitag’s application and Freitag had requested an explanation did the Commissioner mention the conclusion of the City doctor that plaintiff might be a “bad risk.” Carter refused to elaborate on that answer. There is no indication that Carter told plaintiff the name of the police department doctor or gave him an opportunity to question him. See Willner, 373 U.S. at 105, 83 S.Ct. at 1181:

“There seems no question but that petitioner was apprised of the matters the Committee was considering.

‘But a “full hearing” — a fair and open hearing — requires more than that. . . . Those who are brought into contest with . Government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairly advised of what the Government proposes and to be heard upon its proposals before it issues its final command.'

Morgan v. United States, 304 U.S. 1, 18-19, [58 S.Ct. 773, 82 L.Ed. 1129]

Petitioner had no opportunity to ascertain and contest the bases of the Committee’s reports to the Appellate Division, and the Appellate Division gave him no separate hearing.”

IV

Although the defendants apparently had originally urged mootness on the ground that Freitag in fact received a chauffeur’s license in October 1971, on this appeal their only mootness claim is that recent amendments to the Chicago Municipal Code have rendered the declaratory judgment (and injunctional) portion of the district court’s order holding the ordinance unconstitutional “not only erroneous, but also moot.” The amendments to which the defendants advert concern Chapter 101 of the Municipal Code, “General Licensing Provisions.” Adopted by the City Council on August 30, 1972, the amendments provide, as the defendants assert, “a definite time-scheduled procedure of administrative notice and hearing.”

The determinative issue, therefore, is whether the amended sections of Chapter 101 apply to applications for public chauffeur licenses, the specific subject of Chapter 28.1 of the Municipal Code. The matter admits of no easy resolution, for Chapter 101 is not a model of adept drafting and the ordinances contain no cross-referencing provisions.

The “due process amendments” are part of section 101-5 the pertinent passages of which refer to the Mayor, not to the Commissioner of the Public Vehicle License Commission: “If the mayor disapproves the license application the unsuccessful applicant shall be notified in writing, of the reasons for the disapproval,” etc. “The mayor shall within 15 days after such hearing has been concluded . . . .” Section 28.1-4 of Chapter 28.1 states in part: “If the commissioner shall be satisfied that the applicant is of good character and reputation and is a suitable person he shall issue the license.” [Emphases added.] Further, section 101-5 of Chapter 101, which also discusses investigations of license applications, provides for the city collector to play a role in the investigations but the city collector is nowhere mentioned in the investigation portions of Chapter 28.1.

These seeming inconsistencies lead Freitag to conclude that “it is doubtful that the General Licensing Ordinance controls the Public Chauffeurs’ Licensing Ordinance . . ., which has not been amended.” However, this conclusion ignores other sections of the General Licensing chapter that strongly suggests that the chapter is meant to apply to all licensing situations except where “otherwise specifically provided.” Because Chapter 101 does not itself note these “otherwise” exceptions, we must assume that we are to find the exceptions from a reading of the rest of the Municipal Code. In short, the duty to reconcile apparently conflicting chapters and to interconnect the various requirements set out in several chapters falls on the readers of the Code, the drafters of the Code having neglected such niceties. Cf. section 1-19: “All general provisions, terms, phrases, and expressions contained in this code shall be liberally construed in order that the true intent and meaning of the city council may be fully carried out.”

Our reading of Chapter 101 as a whole, with particular reference to sections 101-1 through 101-4, the sections preceding the “due process” provisions, convinces us that the city council did not intend to limit the chapter to only those licenses which the Mayor is authorized to grant. Under this interpretation, the administrative procedures set out in Chapter 101, section 101-5, apply to the denial of a public chauffeur’s license. We realize that this entails the substitution of the words “Commissioner of the relevant Commission” and “head of the pertinent department” for the word “mayor” in some of Chapter 101’s provisions, but this interpretation seems more consonant with the tenor of the General Licensing chapter than does Freitag’s approach. Nó completely satisfactory resolution of the problem is possible.

Turning to the judgment of the district court in the light of the foregoing discussion, we note that the order of February 14, 1972, which was incorporated by reference in the final judgment of June 5, 1972, held that Chapter 28.1 et seq. is unconstitutional because “it does not provide for adequate notice and hearing procedures in the event of disapproval of an application for a chauffeur’s license.” The order then stated, “Any applicant denied a chauffeur’s license shall be given adequate notice of the reasons therefor and a hearing which complies with the standards of procedural due process.”

The two-pronged attack of the defendants is that this portion of the holding is erroneous because it is not necessary that the ordinance expressly provide for notice and hearing and that, in any event, since another ordinance now provides for notice and hearing for chauffeur license applicants, the question is moot.

As we have indicated, the amended General Licensing Ordinance, which was not before the district court, can be so read as to provide for notice and hearing. We, therefore, do not deem it necessary to decide the facial constitutionality question, although we note the language of Judge Kiley in a recent decision of this court, Brooks v. Center Township, 485 F.2d 383, 385 (7th Cir. 1973):

“We hold that the statute is constitutionally infirm facially for want of due process in failing to provide, inter alia, a pre-termination hearing, an effective opportunity for Brooks to defend, and want of due notice of reasons for termination. Goldberg v. Kelly, 397 U.S. 254, 264-268, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970).”

Irrespective of the decision that might be reached on the facial uneonstitu-tionality question here, the fact is that the district court correctly determined that Freitag was denied procedural due process.

Although we have referred in this opinion to the “defendants,” under the authority of City of Kenosha v. Bruno, 412 U.S. 507, 93 S.Ct. 2222, 37 L.Ed.2d 109 (1973), and Monroe v. Pape, 365 U.S. 167, 81 S.Ct. 473, 5 L.Ed.2d 492 (1961), only Commissioner Carter is properly a party defendant. Neither party to the appeal questioned the jurisdiction of the district court but in the light of the last cited authorities the district court did not have jurisdiction over the municipality in this § 1983 action. Accordingly, we reverse the judgment as to the City of Chicago.

Insofar as the judgment of the district court orders “any applicant,” presumably referring to the members of the class in the action below, to be provided procedural due process, since the amendments to the General Licensing Ordinance were not effective at the time the final judgment order was entered, we affirm as to the Commissioner that portion of the judgment inasmuch as it merely makes it clear that any other applicant for such a license is entitled to due process irrespective of whether the chauffeur’s ordinance spells out the steps thereof. The defendants, conceding that the General Licensing Ordinance does spell out those steps and that they are applicable to the present type of situation, would seem to have little ground for complaint in the affirmance of the judgment below as to the Commissioner, which we now order. Finally, by virtue of the affirmance herein ordered, Freitag is entitled to recovery from the Commissioner of the stipulated damages in the amount of $1500. The cause is remanded for the entry of the damage judgment.

      . Chapter 28.1, “Public Chauffeurs,” provides in pertinent part:
      “28.1-3. Applications for public chauffeur licenses shall be made in writing to the commissioner upon forms provided by him therefor. They shall . . . disclose any information as to [the applicant’s] character, reputation, physical qualifications, past employment and conduct which the commissioner deems relevant to the question of qualification of the applicant ....
      “Every applicant shall . . . not be subject to infirmity of body or mind . . . which may render him unfit to drive a public passenger vehicle.
      “28.1-4. The character and reputation of each applicant shall be investigated under the supervision of the captain of the police district in which the applicant resides, and a report of such investigation . . shall be forwarded by the captain to the commissioner of police, who shall forward the same to the commissioner together with his recommendation. If the commissioner shall be satisfied that the applicant is of good' character and reputation and is a suitable person to be entrusted with driving a public passenger vehicle he shall issue the license. Pending such investigation the commissioner may issue a temporary permit ....
      “28.1-6. The fingerprints of each applicant shall be submitted to the commissioner of police for examination into the criminal record, if any, of the applicant.”

      . Before the lawsuit was filed, the Commissioner had written Freitag advising that his application had been reconsidered but was being held up until another set of fingerprints could be taken. The defendants complain of the fact that Freitag, instead of submitting a second set of fingerprints, proceeded with the filing of his lawsuit. The letter, however, does not clearly state that the application would be granted on the second submission of fingerprints, there merely being reference to the application’s being reconsidered. Further, the purpose indicated by the defendants for the second set of fingerprints was to ascertain whether Freitag might have been convicted of disqualifying offenses in the period of time elapsing after the first submission. This would seem to be a questionable basis for the request, as presumably the initial set of fingerprints could have been processed through criminal records for the ascertainment of any subsequent arrests or convictions. In any event, any damages from an earlier denial had already been inflicted.

      . On this appeal, defendants do not argue that mootness resulted from the subsequent granting of the license.
      The order was silent as to plaintiff’s demand for damages. In June 1972, however, pursuant to Rule 68, Fed.R.Civ.P., the defendants made an offer of judgment for $1500. Freitag accepted. Payment of the $1500 was conditioned upon Freitag’s prevailing on this appeal. By their offer, the defendants did not admit that they are liable or that the ordinance is unconstitutional.

      . The application form contained the following: “Have you ever been under treatment at a hospital or asylum for a mental condition? No □ Yes □ If so, where and when?” While the record is not entirely clear, it would appear that the particular questions were physically separated from other questions on the form. The mental institution questions were not answered, although in fact Freitag had been a patient at such an institution. No explanation for the failure appears in the record. There is also nothing in the record to indicate whether the Commissioner’s treatment of the application may have been in part an adverse reaction to the omission.

      . Freitag’s statement in this respect is the only reference we are able to find in the record to indicate that the doctor in the Medical Section of the Chicago Police Department possessed any qualifications in psychiatry. The affidavit of the Commission employee who talked to Freitag merely states, “I told Freitag that his application and certain materials in his file had been reviewed by a doctor on the staff of the Chicago Police Department and that doctor had cautioned our office against an immediate issuance of the license sought since it appeared that Freitag may be a bad risk.”


author: KILEY, Circuit Judge.

text:
    LAWNDALE NATIONAL BANK, UNDER TRUST NO. 4846, Plaintiff-Appellant, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Defendant-Appellee.
    No. 72-1036.
    United States Court of Appeals, Seventh Circuit.
    Argued Jan. 26, 1973.
    Decided Dec. 7, 1973.

      George C. Rabens, Chicago, 111., for plaintiff-appellant.
    Edward A. McCarthy, Chicago, 111., for defendant-appellee.
    Before HASTINGS, Senior Circuit Judge, and KILEY and PELL, Circuit Judges.

      . In view of our finding we need not reach the question of whether the fire history question contained in the application was ambiguous.

   KILEY, Circuit Judge.

Plaintiff, Lawndale National Bank under Trust No. 4846 (Lawndale), brought this diversity action against defendant, American Casualty Company of Reading, Pennsylvania (American Casualty), to recover upon a fire insurance policy for fire losses on property, title to which Lawndale held under a land trust, for Albert Berland as beneficiary. The jury returned a general verdict for American Casualty. Lawndale has appealed from the judgment on the verdict. We reverse and remand.

On August 13, 1969 American Casualty, upon Berland’s application — and acting at the direction of the Illinois Fair Plan Insurance Program (Fair Plan)— issued a policy providing coverage for loss by fire of a 12-flat apartment building located in Chicago, Illinois. In his application for insurance Berland answered “none” to the following question: “Give the applicant’s 5 year loss record for fire and extended coverage perils.” The answer was false. The policy issued, a fire occurred thereafter, and Lawndale filed a claim under the policy for loss of $35,177.46. American Casualty rejected Lawndale’s claim and denied liability on the ground that coverage was void since the inception of the policy. Lawndale’s suit followed.

American Casualty’s answer asserted that the policy was void ab initio because of Berland’s false statement, and that the claimed loss was caused by Ber-land’s arson. Lawndale moved to strike the defenses. The motion was denied and the court instructed the jury with respect to both fraud in the application and arson asserted against Berland.

I.

Lawndale contends that the district court erred in denying its motion to strike the defense of Berland’s false representation. This contention is based on the proposition that American Casualty is precluded from relying on the affirmative defense of Berland’s misrepresentation since the application for insurance was not attached to or made a part of its policy.

The Illinois Insurance Code provides that:

No misrepresentation or false warranty made by the insured or in his behalf in the negotiation for a policy of insurance, or breach of a condition of such policy shall defeat or avoid the policy or prevent its attaching unless such misrepresentation, false warranty or condition shall have been stated in the policy or endorsement or rider attached thereto, or in the written application therefor, of which a copy is attached to or endorsed on the policy, and made a part thereof .... Ill.Rev.Stats. Ch. 73, § 766.

The reasons for the district court’s ruling upon the issue are that § 766 is inapplicable since “[t]his litigation . does not deal with the customary form of insurance contract;” that the Fair Plan is designed to serve a unique insurance function; and that the application for and issuance of a policy under the Fair Plan program are different from those in the standard insurance contract.

The Illinois Fair Plan is the result of federal and state statutes, 12 U.S.C. § 1749bbb et seq., Ill.Rev.Stats. ch. 73, § 1065.69 et seq., designed to make basic property insurance available in high risk urban areas where ordinary insurance would be unavailable. The federal statute provides that in exchange for participating in statewide Fair Plan insurance programs the federal government will protect the insurers from loss caused by riot and civil commotion through a system of re-insurance. The Illinois statute authorizes the administrative framework through which applications for insurance are received and policies are issued.

The district court correctly characterized the issue as one uf first impression. Concededly Illinois law governs, and no Illinois case has decided the precise issue. In rendering our decision we must anticipate how the Illinois Supreme Court would decide the issue, were the issue before that court.

It is undisputed that the application containing the alleged misrepresentations was not attached to or made a part of the policy. The policy itself does not contain the misrepresentation nor is it contained in any endorsement on it or rider appended to it. Read literally the language of § 766 bars American Casualty from using the alleged misrepresentation contained in the application as a defense. Moreover, neither the federal nor the Illinois Fair Plan statutory scheme contains any express provision limiting the application of § 766 to the present situation.

We hold that the district court erred in denying Lawndale’s motion to strike the defense of misrepresentation in the application because that defense is precluded by § 766.

Since the late Justice Hugo Friend’s opinion in Anderson v. John Hancock Mut. Life Ins. Co., 316 Ill.App. 338, 45 N.E.2d 39 (1942), through Freberg v. Coronet Ins. Co., 96 Ill.App.2d 39, 238 N.E.2d 174 (1968), the Illinois appellate courts have consistently adhered to the construction of § 766 given in Anderson: that unless the application is attached to the policy or the claimed misrepresentation is in the policy itself or in an endorsement or rider attached thereto, the misrepresentation is not available for suit to invalidate the policy or in defense of a suit upon the policy. This is the general rule followed in states having similar statutes. 1 Couch on Insurance §§ 4:20-21.

In Anderson plaintiff brought suit under three industrial life insurance policies issued by defendant. Each of the three policies provided that the policy would be void by breach of any of the enumerated conditions. The court held that plaintiff in that case, who was ill prior to issuance of the policy but who stated in the application which was not attached to the policy that her health was good, could not recover because of the breach of one of the enumerated provisions contained in the policy. The dictum in the court’s discussion of § 766 is that in “policies of this character”— referring to industrial life insurance policies — the application need not be attached where the policies contain the conditions breached. The court considered plaintiff’s arguments that those insured in such policies would have had greater protection in having the application attached than in the policy’s small print alone and thus be better able to correct false or inaccurate statements to guard against possible fraud by agents. The court concluded these arguments should be addressed to the legislature.

In Auriemma v. Western & Southern Life Ins. Co., 323 Ill.App. 271, 55 N.E.2d 292 (1944), the court relied on the Anderson decision in holding that in industrial life insurance policies, conditions in the policy as to “sound health” apply to the health of the insured at the delivery of the policy. The issue now before us was there “abandoned” on appeal, although the question was raised by defendant’s answer. The court’s review was limited to the trial court’s decision striking the other defenses implied in the court’s holding.

In Loving v. Allstate Ins. Co., 17 Ill.App.2d 230, 149 N.E.2d 641 (First District, 1958), the court — of which court panel the author of this opinion was a member — first stated that in an automobile insurance policy, in order for Allstate to use the misrepresentation as a basis to deny “rights on the policy,” the application must, under § 766, be attached to the policy, and since the policy was not attached the defense of misrepresentation was not available. The court stated that § 766, inter alia, requires the insurer to place in the hands of the insured the “entire, contract” upon which it intends to rely, whether policy alone or with application, endorsement or rider. Id., at p. 236, 149 N.E.2d 641. The purpose of such a statute is “solely” for the protection of the insured. See 1 Couch on Insurance § 4:20. The court went on, however, to point out that the alleged Loving misrepresentations relied upon were in the policies themselves and therefore the defense was available. The summary judgment for Loving was reversed and the cause remanded for trial of the issue whether Loving had notice before application of refusal of a different insurer to renew his policy with that insurer.

The Illinois Appellate Court in Government Employees Ins. Co. v. Dennis, 65 Ill.App.2d 365, 212 N.E.2d 759 (Second District, 1965), an automobile insurance case, concluded that § 766 had no application to preclude insurer from declaratory judgment that the policy was void ab initio for misrepresentation of ownership because the alleged misrepresentation occurred not “in negotiation of the policy” but after the policy issued. The court noted that the application was not attached to the policy but the policy itself stated that the person who made the representation was the owner. The cause was remanded because of the trial court’s error in dismissing the insurer’s suit at close of its case and in rejecting insurer’s offer of express testimony on the assumption there was no evidence of misrepresentation.

Finally, in Freberg v. Coronet Ins. Co., supra, another automobile insurance case, the court affirmed the trial court’s decision that § 766 precluded defendant from proving misrepresentation in the application. The reason advanced was that the applications were not attached to Coronet’s policies. The court, on authority of Anderson and Loving, held that the “plain language” of the statute sustained the ruling.

The district court’s ruling, in the case before us, relied upon Anderson and Au-riemma. This reliance, as we have just shown, is unjustified. There is no basis for the district court’s conclusion that since the Illinois appellate courts there permitted the misrepresentation defense in a “special type,” i. e., industrial life insurance policies, permission ought be given here because Fair Plan is a special type. What justified the holdings in those cases was not that industrial life insurance was a special type of insurance. What made the insurance there a special type was that the policy issued without medical examination but contained conditions precedent to taking effect of the policy to which application is not attached or made part of the policy. The insurance does not take effect unless the insured is in good health when the policy is delivered, and the conditions under which the policy issues are in the policy itself.

In none of the Illinois appellate court cases discussed above was leave to appeal to the supreme court sought. No Illinois Supreme Court case decided the issue. But see Campbell v. Prudential Insurance Co., 15 Ill.2d 308, 155 N.E.2d 9 (1958). Justice Schaefer in discussing construction of part of § 766 stated at p. 312, 155 N.E.2d at p. 11, “The section requires both warranties and representations to be stated in the policy or attached to it, if they are to have any effect upon the insurer’s liability.”

II.

Lawndale contends that the arson defense was waived when American Casualty rejected the insurance coverage, giving as its only reason that the policy was void from its inception due to fraudulent misrepresentations in the application for the insurance.

The district court in a pre-trial memorandum denied Lawndale’s motion to strike the arson defense on the ground of waiver because it was “not clear” at that time American Casualty could be charged with knowledge sufficient to assert the arson defense in rejecting Lawndale’s claim under the policy. The ruling was without prejudice to repeating the motion at a subsequent pretrial hearing and Lawndale does not argue that the appendix shows a renewal of the motion. No reference was made in the court’s instructions to a waiver, and no showing is made by Lawndale here that the court’s finding of insufficient knowledge is clearly erroneous. Under these circumstances we find no merit in the contention that the defense of arson was waived.

It is true that certain insurance defenses may be waived by an insurer if not timely raised, but not true of the defense of arson. Public justice, in our opinion, overcomes Lawndale’s technical argument in this case. Arson is pregnant with danger to persons not privy to the insurance contract, a criminal act which in Illinois is classified as a “forcible felony.” Arson is an act which transcends the insurance policy and has the potential of harm to innocent persons.

Lawndale contends that it is impossible to determine from the general verdict upon which defense — arson or misrepresentation — the jury relied in making its general verdict.

The two defenses are independent of each other, and it is impossible to say whether the verdict was based on the misrepresentation defense that should have been stricken or the arson defense that was properly submitted to the jury. We note that the district court, after the verdict was returned, stated that “we don’t even know whether they [jury] decided that the first affirmative defense was the clincher, or the second or both.” We hold, on authority of Maryland v. Baldwin, 112 U.S. 490, 5 S.Ct. 278, 28 L.Ed. 822 (1884), most recently followed in Sunkist v. Winckler, 370 U.S. 19, 30, 82 S.Ct. 1130, 8 L.Ed.2d 305 (1962), that the judgment and verdict must be set aside and the arson defense issue retried. The Baldwin court stated:

On the trial evidence was introduced bearing upon all the issues, and if any one of the pleas was, in the opinion of the jury, sustained, their verdict was properly rendered, but its generality prevents us from perceiving upon which plea they found. If, therefore, upon any one issue error was committed, either in the admission of evidence, or in the charge of the court, the verdict cannot be upheld, for it may be that by that evidence the jury were controlled under the instructions given. Id., 112 U.S. at p. 493, 5 S.Ct. at p. 280.

Cases cited to us by American Casualty are inapposite. In those cases the courts sustained verdicts for plaintiffs in holding that any good count in a mul-ti-count complaint is sufficient to sustain a verdict.

We cannot, without invading the province of the jury, decide that the evidence of arson justifies the verdict for American Casualty. Nor can we say, as a matter of law, that American Casualty was entitled to a verdict on that defense. We think the district court would have directed a verdict for American Casualty had the evidence been so overwhelming in its favor that a verdict against it could not have been upheld. Pedrick v. Peoria & Eastern R. Co., 37 Ill.2d 494, 229 N.E.2d 504 (1967).

For the foregoing reasons, the judgment of the district court is reversed and the cause remanded with directions for a new trial upon the issues raised by the arson defense.

      . The statute authorizes the establishment of a Placement Facility (known as the Illinois Property Insurance Placement Facility) which is made up of all property insurers doing business in Illinois. Application to the Placement Facility would be made either by the property owner, by his insurance agent or by the insurance company which previously had supplied him with coverage. Once the application was received by the Placement Facility, the property to be insured would be inspected and a report forwarded to the Placement Facility for a determination of rates and insurability. At times pertinent to this case, the Placement Facility, following statutory directive, would assign the duty of issuance of a standard insurance policy to one of its member insurance companies on a rotating basis. Under recent statutory amendment, the Placement Facility now issues policies in its own name. Ill.Rev.Stats. ch. 73 § 1065.72-1.

      . Federal law merely provides for the re-insurance for insurance companies undertaking liability. 12 U.S.C. § 1749bbb et seq. The Illinois statute basically mandates establishment of a facility to administer the program and carry out the federally enacted program. Ill.Rev.Stats. ch. 73 § 1065.72-1.

      . Furthermore, we point out that § 766 expressly removes maritime insurance, etc. from its scope. We presume the legislature knew of these exclusions. It had an opportunity to exclude Fair Plan from the scope also, but has not done so.