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Interchemical Corp. v. Uncas Printing and Finishing Co.

Decided: February 23, 1956.

INTERCHEMICAL CORPORATION, A CORPORATION OF THE STATE OF OHIO, PLAINTIFF-RESPONDENT,
v.
UNCAS PRINTING AND FINISHING CO., INC., DEFENDANT-APPELLANT



Goldmann, Freund and Conford. The opinion of the court was delivered by Goldmann, S.j.a.d.

Goldmann

Defendant appeals from a Law Division judgment in favor of plaintiff for $19,492.11 and costs. The matter arose out of a claim for unpaid royalties due plaintiff under its licensing agreement with defendant.

On April 1, 1952 the parties entered into an agreement whereby defendant, in exchange for a license to use plaintiff's patented compositions and methods in its textile decorating business, agreed to pay a royalty equal to six percent of "the cost of the compositions used" by it under the license. It also agreed to furnish plaintiff with a quarterly report of the cost of the compositions so used and the royalties payable. Plaintiff was given the right to examine defendant's records, defendant agreeing to

"* * * keep and preserve for a period of at least two years adequate records (including original invoices of all purchases by Licensee during the terms of this Agreement of compositions suitable for use under this license and of materials adaptable for incorporation in compositions for such use) showing the quantities and cost of (a) each composition used by Licensee under this license and (b) of each material that was incorporated by Licensee in compositions that were used by Licensee under this license, and showing also, in each case, the calendar quarter in which it was so used. * * *"

Defendant paid royalties in 1952 and 1953, but none in 1954. Plaintiff thereupon instituted this action for damages, alleging that defendant had failed to submit quarterly reports and refused to permit plaintiff to inspect and audit its records. Judgment was demanded in the sum of $20,000, together with interest and costs. Defendant's answer denied the alleged failure and refusal, or that anything was due plaintiff.

In pretrial discovery proceedings plaintiff moved for an order directing defendant to produce certain books and records. After a hearing at which defendant's attorney appeared

the court entered an order on September 10, 1954 requiring defendant to produce at its North Bergen Township office on September 20, for inspection and copying: (a) all books, records and papers of original entry from January 1, 1952 to date; (b) all cost and production records for the same period; (c) general books of account and such other supporting records and papers as established costs for that period; (d) original invoices of all purchases; and (e) detail sheets of last inventory, together with summaries thereof.

About six weeks later plaintiff moved for an order directing the arrest of Leo Salkind, managing director and president of the defendant corporation, for defendant's refusal to comply with the order to produce entered on September 10, 1954, and for such other relief as was appropriate under R.R. 4:27-2. The supporting affidavit of plaintiff's accountant showed that when he attended defendant's New York City office at a time designated for inspection of its records, Salkind's partner handed him a number of sheets which did not give the required information, and told him the office was strictly a sales office and there were no other records. Salkind's affidavit in opposition stated that defendant had no production records and that invoices could not reasonably be furnished plaintiff because of their volume. The court thereupon, on November 10, 1954 and in the presence of defendant's attorney, again entered an order directing defendant to produce the named records for inspection.

Following this Salkind furnished plaintiff's accountant with a record of disbursements and purchases, together with about half of the original invoices for materials subject to the licensing agreement. He flatly refused to furnish the general ledger. Plaintiff was accordingly obliged to move once more for an order compelling defendant to comply fully with the original order to produce. This time defendant's attorney consented to the entry of an order, dated February 11, 1955, directing defendant to produce at its North Bergen Township office for inspection the required books, records and documents, and extending the time for discovery. An

inspection of all available invoices and the general ledger followed. However, no production records were exhibited, Salkind stating that none were kept.

Thereafter, and for the purpose of discovering the facts which were not disclosed by its inspection of the disbursement and purchase records, invoices and general ledger produced under the three mentioned court orders, plaintiff propounded and served interrogatories on April 20, 1955 which, among other things, required defendant to set forth (a) reports for every calendar quarter from April 1, 1952 to date, not theretofore furnished, giving the cost of the compositions it had used under the license and the amount of royalties payable in respect thereto; (b) the royalties which defendant contended were presently due and owing plaintiff; (c) a statement of all purchases made by defendant from April 1, 1952 to date of compositions suitable for use under the license; (d) a similar statement of purchases of materials adaptable for incorporation in compositions for use under the license, and (e) if all the purchases detailed under (c) and (d) were not used by defendant under the license granted, a statement giving "specifically and in detail which purchases were not so used." After waiting more than four months for answers to the interrogatories, plaintiff on September 8, 1955 obtained an order, entered in the presence of defendant's attorney, directing defendant to answer within 30 days or suffer the suppression of its ...


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