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04/25/89 Frank Novak and Sons, Inc. v. Sommer and Maca Industries

April 25, 1989

FRANK NOVAK AND SONS, INC., PLAINTIFF-APPELLEE AND CROSS-APPELLANT

v.

SOMMER AND MACA INDUSTRIES, INC., DEFENDANT-APPELLANT AND CROSS-APPELLEE



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION

538 N.E.2d 700, 182 Ill. App. 3d 781, 131 Ill. Dec. 325 1989.IL.593

Appeal from the Circuit Court of Cook County; the Hon. William Kelly, Judge, presiding.

Rehearing Denied May 25, 1989.

APPELLATE Judges:

JUSTICE HARTMAN delivered the opinion of the court. SCARIANO and EGAN,* JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE HARTMAN

This suit was filed by plaintiff-appellee and cross-appellant Frank Novak & Sons (Novak) to obtain payment based on numerous invoices submitted over a period of years to defendant-appellant and cross-appellee Sommer & Maca Industries (Somaca), representing goods shipped to and accepted by Somaca over that period. In a bench trial, judgment was entered for Novak in the amount of $353,898.78.

The issue raised in the appeal is when Novak's cause of action accrued for purposes of the applicable limitations period. The issue raised in the cross-appeal is whether Novak is entitled to prejudgment interest.

Somaca assembles, manufactures, and markets glass cutting and polishing machinery. Novak is operated by brothers Frank and Laddie Novak and fabricates sheet metal parts for use in various machines. Both are closely held Illinois corporations, which began doing business with each other in 1953.

The evidence reveals that, typically, Somaca submitted a written purchase order to Novak accompanied by drawings, blueprints, and specifications, which Novak would then fabricate accordingly. Somaca later integrated the parts into the machines it assembled. Novak's work was priced on a "time and material" basis. For every purchase order submitted by Somaca, Novak completed the work and the fabricated products were accepted by Somaca without objection. This business relationship continued until late 1976. The exact nature of this relationship is subject to contradictory testimony and conflicting, incomplete business records presented by both parties.

Sometime in the 1960s, Somaca began objecting to Novak's slow billing methods. In 1966, counsel for Somaca wrote three letters (the 1966 letters) to Novak strongly requesting that it send bills in a regular and timely fashion and outlining a new policy for payment when invoices were not sent within 30 days of delivery of the goods. These letters were personally shown to Frank and Laddie Novak in 1966 by Somaca employee Paul Proska. Frank read the letters and agreed with their contents. Proska kept possession of the letters; Frank had no copies. Thereafter, Novak sent some bills to Somaca.

Despite continued billing problems in subsequent years, business continued between the parties. In accordance with the August 15, 1966, letter from Somaca's counsel, when Novak did not submit an invoice within 30 days for work completed, Somaca's cost accounting department estimated the probable charges for Novak's products so that Somaca could price its own machines, which incorporated Novak's fabrications, for later sale to its customers. When Somaca received invoices more than 30 days after the goods were delivered, it paid Novak only the estimated amount, a compensation policy which also had been outlined in the August 15, 1966, letter. Novak accepted two such payments in 1968. Around 1969, Novak stopped sending invoices to Somaca, and Somaca stopped requesting them. Somaca continued to submit purchase orders to Novak, however, and Novak continued to deliver the fabricated products as ordered.

This somewhat unique business relationship between the parties persisted until October 1976. According to Somaca, Novak did not bill it from 1969 through 1976. Novak's former accountant, however, testified to billings of Somaca for about $30,000 in 1975 or 1976. Despite Frank Novak's concern about the uncompensated work, he explained he "just didn't have the time" to bill Somaca due to the amount of work and the small size of his business. In 1971 or 1972, Frank requested and received "advances" from Somaca totaling $7,840 and $9,800.

During this period, Somaca did not send Novak written requests for invoices, but Jack Hynes, Somaca's comptroller, testified that prior to 1971, he orally solicited prompt billing three times, which Laddie Novak laughed off. Somaca's independent auditor also averred he sent annual requests to Novak, which went unanswered, in an effort to determine the amount of the indebtedness. Somaca's records did not reveal any payments to Novak after 1972. According to one of Novak's outside accountants, however, Novak's records show it received $10,500 and $10,574.39 payments from Somaca in late 1974 or 1975.

During the 1969-77 period, Somaca recorded its estimates of the amount owed Novak as an account payable in its ledgers and as part of the accounts payable balance in its financial statements. The estimated costs of the goods were deducted from Somaca's corporate income. These estimations, kept on a running basis, eventually reached $353,898.78.

For the same period, Novak reflected the sales to Somaca as a running account in its own books. Somaca's work was such a major part of Novak's business that it maintained a separate Somaca general ledger accounts receivable line. The Somaca general ledger receivables ranged from $27,793 to $62,692 between 1971 to 1977. In 1977, the ledger amount owed by Somaca to Novak was $58,079. Novak later suggested that its ledger was not properly maintained and did not reflect the actual amount receivable from Somaca.

Novak's billing of Somaca was "speeded up" when the United States Internal Revenue Service began inquiring about the outstanding Somaca accounts receivable. In July 1977, Novak delivered a "batch" of invoices to Somaca for work completed in 1969 and following years. A second group was delivered in December 1977 or January 1978; in all, over 1,100 invoices reflected an amount owed to Novak, as stipulated by the parties, of $491,683.15. *fn ...


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