Big Top Stores, Inc. v. Ardsley Toy Shoppe, Limited

• Decision Date: 29 September 1970
• Parties: , 1970 Trade Cases P 73,379 BIG TOP STORES, INC., Plaintiff, v. ARDSLEY TOY SHOPPE, LTD., Defendant.
• Court: New York Supreme Court

Page 897

315 N.Y.S.2d 897

64 Misc.2d 894, 1970 Trade Cases P 73,379

BIG TOP STORES, INC., Plaintiff, v. ARDSLEY TOY SHOPPE, LTD., Defendant.

Supreme Court, Westchester County.

Sept. 29, 1970.

[64 Misc.2d 895] David Harrison Storper, New York City, for plaintiff.

Lawrence B. Florio, New York City, for defendant.

DECISION

GERALD NOLAN, Referee.

The plaintiff and the defendant are domestic corporations, having their principal places of business in Westchester County, New York. Plaintiff operates through its subsidiaries a number of stores, which engage in the wholesale distribution and retail sale of toys, stationery, books, sporting goods and related merchandise. In addition it has selected locations for an supplied equipment to a number of 'BIG TOP' retail stores which have been sold to independent franchised dealers, who operate under plaintiff's trade name, 'BIG TOP' and purchase merchandise from the plaintiff in most cases pursuant to written franchise agreements. It is plaintiff's claim that it has developed a plan, method, system and design for the operation of toy, stationery and variety stores of which its franchisees have the benefit, and that its franchisees also benefit from the good will and customer acceptance of its trade name 'BIG TOP', which has been developed by the plaintiff and its wholly owned subsidiaries over a period of many years. The franchise system gives to plaintiff's franchisees the benefit of plaintiff's experience and expertise in the selection of locations for the operation of their stores, the selection and making available to them of the newest and lattest items in the toy, stationery and sporting goods field, and, by providing warehouse facilities eliminates the need, on the part of the individual stores, to maintain large stocks of inventory, furnishing them with a ready source of supply for their merchandise needs.

Plaintiff's method of operation is to select promising sites for 'BIG TOP' stores, to lease and equip such stores, and to operate them, through its subsidiaries, or to sell them to independent franchised operators who will agree to purchase from plaintiff a specified percentage of their needs in the lines of merchandise stocked and sold by plaintiff.

Plaintiff holds no patents nor does it have a registered trademark. Neither does it manufacture any of the merchandise that it sells to its franchisees. The evidence does not disclose that it has any secret or confidential formulae or method of operation which would be protected by the enforcement of the contract which is the subject of this action.

Prior to the date of the contract, defendant's president became interested in acquiring a store such as those operated by plaintiff and its franchisees, and communicated with plaintiff. Plaintiff's system of operation was explained, and some of its stores were shown to him, and he thereafter again communicated with plaintiff requesting that if a new location should be developed by plaintiff, he should be kept in mind as a possible purchaser thereof. In June or July 1963, plaintiff communicated with him and informed him that a store at Arsdley, New York would be available, and that it was at a good location in an established trading area. During a discussion concerning the store he was told that if it should not be sold to a franchised dealer, plaintiff would itself operate it as a 'BIG TOP' store. He was told also, on inquiry, that the store could not be purchased except under a Big Top franchise, and that it would be necessary under the franchise to purchase Ninety (90%) Percent of his merchandise needs from the plaintiff, or plaintiff's designees.

On August 27, 1963, Howard Lippin and Fred Stern, the principal officers of the defendant, as 'purchaser' entered into an agreement with TOP ALL VARIETIES, plaintiff's wholly owned subsidiary, as 'seller', for the acquisition of the lease of the store, located at 711 Saw Mill River Road in Ardsley, which agreement recited the fact that the purchaser desired to acquire the lease to said premises and the equipment to be installed therein upon the terms and conditions set forth in the agreement. Among other conditions were provisions for the purchase of the fixtures and equipment for FORTY-EIGHT THOUSAND ($48,000.00) DOLLARS, payable FOUR THOUSAND ($4000.00) DOLLARS down, and the balance in seventy-five (75) monthly installment. It was further provided that at the closing the purchaser should execute a 'BIG TOP' franchise agreement covering the store premises, a copy of which had been exhibited to and initialed by the purchaser and its attorney.

The franchise agreement, which is the subject of this action, was executed on September 30th, 1963, by and between the plaintiff and the defendant as assignee of the 'purchaser' named in the agreement of August 27th. It recited that the defendant desired to conduct at the store premises a franchised 'BIG TOP' store, and to acquire a franchise therefor. The franchise was granted upon the terms and conditions stated in the agreement, among which are the following:

'2. During the terms of this Agreement, the Operator covenants and agrees as follows:

(a) The Operator shall, during each three-month period commencing with the date of this agreement, purchase at least ninety (90%) per cent of its merchandise requirements of toys, stationery, books and sporting goods from the Company at the standard prices charged by the Company to the other 'BIG-TOP' Franchise Stores. During each such three-month period, the Operator shall purchase at least ninety (90%) of its other merchandise requirements from the Company or such affiliates, subsidiaries or other designees of the Company as the latter shall designate from time to time. In each case, the said ninety (90%) per cent shall be computed on the basis of the dollar volume, at Operator's cost, of its merchandise purchases during each three-month period. In the event of a breach of the foregoing, the Operator shall pay to the Company, upon demand, a sum equal to fifteen (15%) per cent of the cost price of all merchandise purchased from other sources in violation of this provision in addition to all other rights and remedies of the Company under this Agreement.

(e) The Operator shall continuously operate the said business at the above-described premises and the Company's supervisory personnel shall have the right to enter upon the premises at any reasonable time for the purpose of examining the same, conferring with the Operator's employees, inspecting and checking operation, merchandise, furnishings, supplies, and equipment and determining whether the business is being conducted in accordance with the aforesaid standards and with this agreement.

4. (a) if the Operator shall become in default beyond grace period under any mortgage, deed of trust, lease or sublease covering the described premises, or shall be adjudicated a bankrupt, or shall make an assignment for the benefit of creditors, or if a receiver shall be appointed to take charge of Operator's affairs, or if Operator shall default in the performance of any covenant or agreement made herein, including but not limited to, purchase of merchandise from the Company, its affiliates, etc., standards of operation, failure to obtain consent of the Company where required, payments of amounts due to the Company, and such defaults shall not be remedied to the Company's satisfaction within ten (10) days after notice of such default, the Company may, in addition to any other rights and remedies it may have, terminate this agreement And all rights of the Operator hereunder on five (5) days' notice to the Operator. (emphasis supplied)

(b) In the event of Such termination, the Company at its option, shall have the right to acquire from the Operator the leasehold on the said store premises without cost to the Company, as well as the right to purchase the fixtures, equipment and merchandise inventory in said premises. The purchase price of the fixtures and equipment shall be Operator's original cost less depreciation at the rate of 33 1/3% Per year. The purchase price of the merchandise inventory shall be Operator's original cost or market value, at wholesale, whichever is less. (emphasis supplied)

16. (b) The provision in Paragraph 2(a) for payment to the Company of 15% Of the Operator's cost of merchandise purchased from other sources shall not apply to merchandise ordered by the Operator from the Company, its affiliates, subsidiaries or other designees, which the latter have not been able to supply.'

At the same time the agreement of August 27th was carried out, the lease was assigned, and the necessary documents were executed and delivered in connection with the purchase of the fixtures and equipment. Defendant paid for the opening inventory, has also fully paid for the fixtures and equipment, and has operated and is still operating the store under a Big Top Franshise.

Shortly after that opening of the store it became apparent that defendant was not purchasing Ninety (90%) Percent of its merchandise requirements of toys, stationery, books, and sporting goods from the plaintiff, as required by the franchise agreement. After an audit of defendant's books, defendant was notified by plaintiff's attorney by letter dated June 24, 1966 that it was in default under paragraph 2(a) of the franchise agreement, and demand was made for payment of the sum of $2,821.85, representing Fifteen (15%) Percent of the cost of purchases made by defendant from suppliers other than the plaintiff or its designees, over and above the Ten (10%) Percent permitted by the agreement during the period from the opening of the store until December 31, 1965. On July 21, 1966, plaintiff's attorney notified defendant that there was a further default representing Fifteen (15%) Percent of the cost of purchases from others in excess of the permitted Ten (10%) Percent, during the period from January 1, to June 30, 1966, in the...