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Candalaus Chicago, Inc. v. Evans Mill Supply





APPEAL from the Circuit Court of Cook County; the Hon. REGINALD J. HOLZER, Judge, presiding.


Rehearing denied August 23, 1977.

Candalaus Chicago, Inc. (Candalaus), plaintiff and counterdefendant, filed a complaint against Evans Mill Supply Company (Evans), defendant and counterplaintiff, alleging nonpayment of $41,306.61 *fn1 for merchandise sold to Evans. In its answer Evans admitted receiving certain merchandise from Candalaus but asserted that the goods received did not conform in quantity or quality to the goods ordered. Evans further counterclaimed against Candalaus, alleging in count I that $2294.95 was due Evans for merchandise sold to Candalaus; in count II that Evans had to replace the nonconforming goods received from Candalaus and also allow discounts to customers for defective goods, and that as a result Evans incurred damages of $31,124; and in count III that through knowledge received in its transactions with Evans, Candalaus maliciously contacted and sold to Evans' customers at "cut rates" the merchandise so rejected by Evans, resulting in damages of $300,000 to Evans in lost sales, profit and good will. In its answer to the counterclaim Candalaus denied the allegations, but asserted that as to count I any amount it might otherwise have owed Evans could be set off against the sum alleged in its complaint against Evans.

After a trial without jury, the trial court dismissed Candalaus' complaint, finding that the sales from Candalaus to Evans as therein alleged constitute an indivisible contract which was materially breached by Candalaus thereby barring recovery. The trial court also dismissed count II of Evans' counterclaim, but entered judgment for Evans against Candalaus on count I for $2294.95, and on count III for $30,000.

Candalaus appeals from the dismissal of its complaint and the judgments entered in favor of Evans on its counterclaim. No appeal has been taken by either party as to count II. The issues presented for review are whether the transactions between Candalaus and Evans constitute an indivisible contract; whether Candalaus made a prima facie showing as to the amount allegedly due; and whether there was sufficient evidence to support the judgment on Evans' counterclaim.

The complaint of Candalaus was tried first, followed by a trial on Evans' counterclaim. The following evidence was adduced in Candalaus' case in chief.

Candalaus is a manufacturer of corrugated paper products which produces to order, among other items, paper products used in the pizza industry. Included are corrugated circles and folders for the delivery of hot pizzas, corrugated boxes called "regular slotted containers," and dividers. Evans is a jobber or distributor who purchased such paper products from Candalaus and sold them to its own customers, some of whom were distributors who in turn resold the merchandise in smaller quantities to pizza restaurants. Evans also sold and delivered certain goods to Candalaus.

Evans started purchasing from Candalaus in 1971. The parties did not use written purchase order forms in their transactions with each other. Instead, from time to time, Evans would telephone Candalaus and request that Candalaus manufacture to order and pack for shipping certain quantities of its product of an agreed quality at an agreed price. The goods so produced would then be counted by hand and packed in sealed cases for shipping. In the manufacturing process Candalaus would stamp to order some of the boxes with Evans' name or logo. The cases were then either picked up by Evans or delivered by Candalaus to Evans' warehouse or directly to Evans' customers. As Evans or its customer received goods, it would sign a copy of a shipping invoice; the invoice was later extended by Candalaus, posted to ledger sheets, and then mailed to Evans. Certain dies and printing plates used to stamp the boxes were obtained by Candalaus and billed to Evans along with the manufactured goods.

Candalaus introduced into evidence 75 invoices allegedly representing orders placed by and delivered to Evans between March 3, 1972, and October 17, 1972, for which Candalaus claims $40,755.81 is due and owing. Evans stipulated that 53 of the 75 invoices were orders placed by and delivered to Evans, but regarding these invoices counsel reserved the right to cross-examine as to "conformity." Other invoices were testified to by Rodney Bjerke, Candalaus' comptroller, as indicating whether orders were picked up by or delivered to Evans. The trial court admitted the 75 invoices into evidence as records kept in the regular course of business, expressly stating that at that time it did not pass on the validity of whether Evans received the orders.

Witnesses called by Evans in defense testified at trial that between March 3, 1972, and October 17, 1972, Evans' customers complained to Evans that shipping cartons contained fewer pizza folders than the 50 per carton for which they were billed. They further complained that some folders were crinkled, that folding tabs or "ears" were missing on some folders and/or slots were not cut out, and that when some folders were assembled, the white surface intended for the inside was on the outside and the less desirable brown surface was on the inside. John Taglianetti, sales manager and vice president of Evans, testified that he verified the complaints Evans had received and credit allowances were issued to the customers for short counts and defective goods; further, that when he notified Candalaus of the complaints, Candalaus acknowledged the complaints and promised to make credit adjustments with Evans.

Joel Grossman, president of Evans, testified. In September or October, 1972, one of Evans' customers, Corrugated Processing Co., complained of short counts and defective goods. He verified the complaint and had the cases returned to Evans' warehouse where they were marked with the symbol "X." The cases so marked also bore Evans' name stamped on an outside panel. He then saw to it that the customer received replacements for the cases taken back to the Evans' warehouse. Grossman further testified that when he notified Candalaus of the incident, Candalaus also inspected the goods and agreed to take them back and issue credit to Evans. Candalaus subsequently picked up the entire shipment consisting of 400 to 500 cases from Evans' warehouse. Corrugated Processing Co. again notified Evans of defective merchandise, and when he returned to the customer's premises to inspect the goods, he saw the cases marked with "X." He inquired of Mr. Norian, president of Candalaus, how the cases got to this customer, and was told that Candalaus had sold the merchandise to Corrugated Processing Co. at a discount, and that he (Norian) would sell to whom he pleased since Evans did not pay its bill.

In rebuttal, Lewis Baughman, president of Corrugated Processing Co., testified on behalf of Candalaus that he had purchased pizza folders from Candalaus in September or October, 1972, but that neither the folders nor their shipping cases bore Evans' name.

Candalaus also introduced into evidence ledger sheets showing that for the period of March 3, 1972, to December 17, 1972, sales to Evans totaled $103,409.41, and that credit other than for cash payment was given to Evans for $11,895.77. Oscar Heldt, Jr., vice president of Candalaus, testified on behalf of Candalaus as to the content of the ledger sheets. During cross-examination of Heldt, counsel for Evans stated that he had "requested pursuant to Rule 216(b) that all records be produced * * * [but] we received no records whatsoever concerning credit memos, concerning anything." Heldt stated that he could not find "those records." Counsel for Evans stated that "in the Notice to Produce, I asked for invoices from Corrugated Processing and all other related matters and I have nothing." The trial court then ordered Candalaus to deliver to Evans originals or copies of all invoices from Candalaus to Corrugated Processing. Candalaus then rested its case in chief.

When trial commenced on the counterclaim, Oscar Heldt, Jr., was recalled, this time by Evans, and testified as follows. He produced at trial and testified with respect to Candalaus' ledger sheets for three accounts: Corrugated Processing Co., Ed's Cheese and Cody Manufacturing. Concerning the trial court's order to produce records, Heldt testified that the 1972 invoices for these three accounts had been destroyed, and that the file on credit memos had been purged after one year. The records had been stored atop the shipping office, and a complaint from the Village Fire Department about storing records there resulted in their destruction. He further testified that in the corrugated paper box industry it is customary for a manufacturer to sell identical goods to a customer and to a customer of its customer.

Edwin E. Grain, chairman of the board of Candalaus and in charge of its profit-making operation, testified that as a matter of course Candalaus solicited customers of its customers. He testified that the custom in the industry is that manufacturers do not have "exclusive rights nor do brokers do exclusive business in general with one corrugated box company. They generally do business with two or three or four."

John Taglianetti, vice president and sales manager of Evans, testified on behalf of Evans. He observed a shipment of "our product" delivered by Candalaus to Evans; the shipping invoice for these items was addressed to Ed's Cheese, but thereafter the Candalaus driver struck out the name Ed's Cheese. He also testified that items sold by Candalaus to Cody Brothers were of the same type that Evans had been purchasing from Candalaus for resale to Cody Brothers. He further testified as to certain accounts and sales lost by Evans due to complaints about inferior products.

William G. Bailes, vice president in charge of sales for Candalaus in 1972, and at time of trial vice president of Emisco Industries (formerly Evans), testified in part that it was not the custom in the industry for a manufacturer to directly solicit accounts of a broker.

Joel Stone, a certified public accountant and attorney licensed to practice in Illinois, testified on behalf of Evans as to certain documents prepared by him which purportedly reflected various sales and cost figures of Evans. Counsel for Candalaus objected that the reports upon which the documents were based were not in evidence. The trial court stated that it was interested in whether the witness could substantiate a loss of profit due to the conduct of Candalaus, and admitted the ...

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