Russell Hardware & Implement Manufacturing Co. v. Utica Drop Forge & Tool Co.

112 A.D. 703, 98 N.Y.S. 777, 1906 N.Y. App. Div. LEXIS 753

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: May 2, 1906
• Status: Published

Opinion

Kruse, J.:

The plaintiff, a foreign corporation organized under the laws of the State, of Missouri, was engaged in the business .of manufacture ing and selling the Russell staple puller, a device for pulling staples-. It was located and commenced manufacturing the device at Kansas City in October, 1895, it having become the owner of letters patent granted to inventor of said device. It continued the business lintil Janüary 11, 1900. The device was extensively advertised by the plaintiff, all of the profits of the business having been spent for'that purpose, and it became widely known and had a large and extensive salé. This was the condition of the business when the defendant entered into negotiations for the contract, which- was finally entered into by the parties on the lltli day of January, 1900.

By this contract the plaintiff granted to the defendant the exclusive right to manufact " and sell the device according to the letters patent in the United States and other nations. Each party agreed to endeavor to detect and prevent infringements and communicate promptly to the other any information relative thereto; the prosecutions for the infringements to be assumed and directed by the plaintiff, or in the case of • failure of plaintiff,-then by the defendant, and the expense to, be repaid from the license fee, so called, provided for in the contract, so that ultimately the expense was to be borne by'the plaintiff.

The defendant agreed to have its plant in full operation by January 1, 1901, sufficient to supply the trade as demanded and take the entire charge and control of manufacturing such device, but in the meantime the plaintiff was to continue its factory at Kansas City and deliver the entire output as might be required to defendant, beginning February 1, 1900, upon certain terms and fixed prices, but .when defendant was prepared to manufacture, as has been stated, plaintiff should cease manufacturing the tool.

The defendant agreed to pay for all goods manufactured by it upon the sale of such goods, a royalty of fifty cents a dozen flat, payment to be made at the end of each month from and after February 1,1900. The said licensee (the defendant) to furnish statements • from month to month of all sales made by it during the. previous month, and the licensor (the plaintiff) to have the right at all reasonable times to examine the books of the said licensee so as to verify the correctness of the said statements. *

It was further provided that for default in the payment of the royalties, or failure to manufacture the article according to the terms of the contract and keep the trade properly canvassed, the privilege of such manufacturing and selling should become null and void after giving the defendant six months’ notice.

It was further provided that on and after February 1, 1900, the defendant should have full charge and control of the sales, fill the orders of customers at certain prices, and all agencies or contracts for the sale of the article made between the plaintiff and its agents and salesmen should be canceled, and no contracts or prices made by plaintiff for future sales, but all contracts and prices to be made by the defendant.

It will thus be seen that the contract contemplated the giving up by the plaintiff of its entire business and the good will thereof, closing down its works and turning it all over to the defendant and giving it the absolute and sole control thereof, subject only to the terms of the contract. This was done, the plaintiff closed up its works and went out of business as soon as the defendant was ready, the defendant beginning about April 1, 1901 to manufac7 ture the article, and has ever since continued to manufacture and sell it.

The Bussel-l patent was issued in 1895, and, for the purpose of fortifying that patent, the plaintiff acquired another patent on March 12, 1900, for a similar device, known as the Heard patent, issued June 14, 1892,' which inured to the defendant’s benefit, and thereafter the article was stamped with appropriate reference to both patents. The article was changed slightly from time to time to improve it, but in its essential features it has remained unchanged, and the trial judge finds that from the commencement of the manufacturing of the tool by the defendant down to about March 1, 1904, the tool was stamped with the words “ Fat’d. Sept. 3, 1895 ; Bat’d. June 14, 1892,” and that the tool was advertised and sold as the Bussell staple puller, and further finds that the defendant failed to perform the contract; that defendant made false statements of sales, and failed to account for all the sales made by it arid remitted less than the true amount due; that from about March 1, 1904, the defendant failed to stamp the tool as patented, arid changed the name to evade liability for payment of royalties and drive the Bussell staple out of the market and substitute therefor the same device under another name, and has sold the device since about'March 1, 1904, many thousand of them, under the name of the Utica improved staple puller, and the Bussell staple puller under its true name has been withheld from the market.

We think the evidence justified these findings, as well as the decision made by the trial court, that the plaintiff was entitled to recover the unpaid royalties and the damages the plaintiff had sustained by these violations of the contract.

The trial court "did not,.however, determine in its decision the amount of the unpaid royalties, nor what amount of damages the plaintiff had sustained from these violations, but directed an interlocutory judgment to be entered establishing the defendant’s liability, and of its own motion ordering a reference “ to take the proofs as to the amdunt due plaintiff for royalties and the amount of damages it has sustained, * * * and report such proof with his opinion thereon to this court; ” and the question as to whether the plaintiff was entitled to injunctive relief was also réserved by the interlocutory judgment until the coming in of the 'referee’s, report. The defendant excepted to this decision, and specifically to the provision ordering a reference.

We think that this practice cannot be sustained and that it resulted in a mistrial, and that the interlocutory judgment and the final judgment, based on the evidence taken before the referee and his findings thereon, must be reversed.

Counsel for the respondent relies upon sections 827 and 1015 of the Code of Civil Procedure. We think neither of these sections authorizes a compulsory reference as was done in this case, nor does section 1013 of said Code furnish such authority.

It must be remembered that this action was brought and the relief demanded in the complaint was for a monéy judgment and an injunction restraining certain violations of'the contract. The final, judgment awarded both, but the interlocutory judgment awarded neither.

The essential questions raised by the pleadings should have been determined upon the evidence given upon the trial, and not left in abeyance to be tried upon the evidence given before the referee, supplemented by his findings and opinion thereon. (Kirkwood v. Smith, 72 App. Div. 429 ; Standard Fashion Co. v. Siegel-Cooper Co., 44 id. 121.) These two questions were not merely incidental to the primary relief; they were the very questions involved in the issues raised by the pleadings. The reference Was not limited to merely taking an account of the sales, but it directed generally that proof be taken of the amount due the plaintiff for royalties and the amount of damages it had sustained, and mentioned in the fourtli conclusion of law which was the “ compensation for the damages it has sustained in consequence of defendant’s acts in making, advertising and selling said tool under a new name and without being stamped as covered by plaintiff’s patents, and in consequence o"f the withdrawal of said Russell staple puller from the markets under its true name and properly stamped,” and even so far as the reference was merely upon incidental questions, which is'permissible under section 1015 of the Code of Civil Procedure, it is not in the form required by that section, for it only authorized the referee, to take proof and report the same with his opinion thereon.

The question of the power of the court to order a compulsory reference under these sections and the form of reference has been passed upon by the Court, of Appeals in Doyle v. M. E. R. Co. (136 N. Y. 505) and again in Standard Fashion Co. v. Siegel-Cooper Co. (44 App. Div. 121), and.we regard these cases decisive upon that question and decisive of this case.

. The judgment should be reversed' and a new trial granted, with costs to abide the event. '

All concurred.)

Interlocutory and final judgments reversed and new trial ordered, with costs-to the appellant to abide event