Hotchner v. Neon Products, 10371.

• Decision Date: 08 September 1947
• Docket Number: No. 10371.,10371.
• Citation: 163 F.2d 672
• Parties: HOTCHNER v. NEON PRODUCTS, Inc.
• Court: U.S. Court of Appeals — Sixth Circuit

163 F.2d 672 (1947)

HOTCHNER v. NEON PRODUCTS, Inc.

No. 10371.

Circuit Court of Appeals, Sixth Circuit.

September 8, 1947.

W. C. Bachelder, of Indianapolis, Ind., and F. J. Gallagher, of Toledo, Ohio (Fraser, Shumaker, Kendrick & Winn, of Toledo, Ohio, and Bachelder, Bachelder & Fife and Albert Stump, all of Indianapolis, Ind., on the brief) for appellant.

Donald F. Melhorn, of Toledo, Ohio (Marshall, Melhorn, Wall & Bloch, of Toledo, Ohio, and Lippincott & Lippincott, of Lima, Ohio, on the brief), for appellee.

Before HICKS, ALLEN, and MILLER, Circuit Judges.

HICKS, Circuit Judge.

Fred Hotchner, inventor and co-owner of certain patents for an animated border for advertising clocks, brought suit against Neon Products, Inc., a sign manufacturer and license under those patents, for an accounting for royalties and judgment under the license contract embodied in Exhibits "A," "B" and "C" of the complaint, and for damages claimed to occur from defendant's breach of the contract in failing to supply monthly statements of sales, royalties, etc., in detail, as provided therein.

Neon denied that it owed Hotchner any money under the contract up to May 1942, the date the last royalties were accepted by Hotchner; and further denied that it breached the contract. It averred that by an oral agreement made with Hotchner on March 10, 1940, the detailed monthly statements were to be withheld and the information contained retained in its files subject to inspection by Hotchner. Neon filed a counterclaim.

The issues were referred to a Master who found for Hotchner in the sum of $2051.35 for royalties on sales made since the last payment accepted by him. Neon concedes its liability for that amount. The Master found against Hotchner on all other claims made by him. Neon's counterclaim was dismissed by the Master. The court confirmed the Master's report and entered judgment for the amount of his recommendation and dismissed Neon's counterclaim. Hotchner appealed. Neon did not appeal.

The appeal raises two principal questions — (1) whether Neon breached the contract; and (2) whether it was liable for additional royalties on 7157 signs under the terms of the contract.

The answer to the first question turns upon whether Hotchner by an oral agreement relinquished his rights under the terms of the contract to monthly detailed statements. Hotchner insists that if he had received those statements he would not have been put to the expense of an audit of Neon's books, the cost of which, plus certain other items, he claims as damages.

The answer to the second question depends upon the meaning of two clauses in the contract relating to sales, namely, "individually at retail" and "in quantity." If the sales were made "individually at retail," Hotchner was entitled to larger royalties on sales of 7157 signs than those allowed him by Neon upon its determination that the sales were made "in quantity."

Sam Kamin, President of Neon, met Hotchner in March 1939, when he brought his motionizer idea for an animated clock border to Neon's plant. Kamin testified that it had "possibilities" and that a sample was made up and "it looked good." Hotchner was shown over the plant and saw a list of their accounts. Kamin said, "* * * it was my job to show him that we were the logical company for him to hook up with; that we had a selling organization and that we could do a real job for both of us." Kamin told Hotchner of their national accounts in the soft drink industry (large concerns operating nationally either through jobber or dealer organizations) and of their retail sale organization of direct specialty salesmen who would buy a sample sign and sell them from door to door. The parties came to an understanding and operated under a preliminary contract for manufacture and sale of Hotchner's motionizer by Neon from March 1, 1939 to June 26, 1939, when the first of the three instruments embodying the written contract sued upon was executed.

These instruments (Exhibits A, B and C to the complaint) were entered into respectively on June 26, 1939; April 30, 1940, and November 17, 1941. Pertinent portions of Exhibit A are as follows:

"I. Grant

"(1) Hotchner hereby grants to the Company the sole and exclusive non-assignable right * * * to make, sell and use Electric Clocks having animated border effects produced by revolving interceptor disks which variously screen or filter the light of elongated illuminants according to said patents. * * *

* * * * * *

"II. Royalty

"(1) The Company agrees to pay royalties to Hotchner on all Portable Devices which it manufactures and/or sells or causes to be sold hereunder in quantity orders as follows:

"(a) For all devices having interceptors eight inches or less in diameter the sum of twenty-five (25¢) cents for each interceptor device.

"(b) * * * more than eight inches and twelve inches or less * * * the sum of thirty-five (35¢) cents for each interceptor device.

"(c) * * * more than twelve inches and eighteen inches or less * * * the sum of fifty (50¢) cents for each interceptor device.

"(d) * * * more than eighteen inches and twenty-four inches or less * * * seventy-five (75¢) cents for each interceptor device.

"(2) The Company agrees to pay royalties to Hotchner on all devices which it manufactures and/or sells or causes to be sold for permanent outdoor installation, sold individually at retail, and all Portable Devices sold individually at retail through its own sales organization according to the schedule above increased by fifty (50%) per cent.

* * * * * *

"V. Books of Account

"The Company agrees to keep full and accurate books of account of the business done hereunder and to give Hotchner or his duly accredited representative free access to said books at any time during the term of this agreement and for a period of six (6) months after its termination.

* * * * * *

"VI. Statements

"The Company agrees that on or before the tenth (10th) day of each and every calendar month during the term of this agreement it will mail to Hotchner a written statement showing all the devices sold during the preceding calendar month, identifying said devices by the customer's name and the general description or type designation of said devices. At the time of mailing each of said statements the Company shall pay to Hotchner the royalty due Hotchner on all devices for which payment has been received by the Company during said calendar month.

* * * * * *

"X. Term

"This agreement shall remain in full force and effect from the date hereof for a term of two years unless sooner cancelled in accordance with Clause XI, for an additional two years term by the consent of the parties hereto." (Italics ours.)

Exhibit A was executed by Hotchner and the Company and was "Approved by Montroy Electric Company Montroy Electrical Mfg. Co." Montroy seems to have had some interest in the patents, the nature of which is not clear.

Exhibit B modified Exhibit A but did not supplant it. Section II of Exhibit A was amended but clauses a, b, c, and d, of paragraph 1 thereof were left unchanged. New clauses e, f, g and h were added to fix the price upon various sizes of a new type of shifting or oscillating interceptor disks. Paragraph 2 of Article II of Exhibit A was amended to increase the royalty on devices sold "individually at retail" now reads as follows:

"The Company agrees to pay royalties to Hotchner on all devices which it manufactures and/or sells or causes to be sold for permanent outdoor installations sold individually at retail, and all Portable Devices sold individually at retail according to the above schedule increased by one hundred (100%) per cent, provided, however, that this provision shall not apply to Portable Devices sold in quantity to National Advertising Firms and resold by such firms to others." (Italics ours.)

Section IV on Statements amended Sec. VI of Exhibit A by adding two paragraphs, the second of which is material here:

"(3) At the time of the making of such statements the Company shall mail to Montroy Electric Company at Los Angeles, California, summaries of such statements showing all monies paid to Hotchner under this agreement."

Exhibit B extended the agreement to December 31, 1944.

Exhibit C incorporated into the previous agreement provisions relating to signs with "Pulsating Background" and did not distinguish between royalties for retail and quantity sales. Exhibit C was not approved by Montroy Electric Company.

Differences developed late in 1941. On March 12, 1942, Hotchner wrote Neon requesting that it "furnish by mailing to me . . . within three days a full and complete statement in writing showing all devices sold to date under said agreement, identifying said devices by the customer's name and the general description or type designation of said devices" pursuant to the provisions of Article VI of Exhibit A.

Kamin, President of Neon, answered this letter on March 16, 1942, reminding Hotchner that in April 1940 Neon had learned through Weiss, a salesman for electrodes to the sign industry, who dealt with both Neon and Montroy, that Montroy, co-owner of patents for the motionizer devices, had revealed to Weiss a great deal of information as to "amounts, types and customers who were buying and who were about to buy signs using the motionizer device, * * *" information which should have been confidential. We quote the next paragraph of the letter in its entirety:

"In this month we called you to our office and in the presence of Mr. Howenstine, you and I, discussed this phase of the contract and we all agreed for the time being that this information should be withheld, — that it was confidential and that no one had any right to this information outside of our immediate employees and yourself. This modification of the license agreement was not put into writing and it existed from that time more or less a gentleman's agreement."

Hotchner testified that he was advised by Neon in April...