Opinion ID: 498387
Heading Depth: 2
Heading Rank: 4

Heading: The License Agreements and 1984-1985 Advertising Plan

Text: 27 The license agreement which Sasson and Sportswear entered into in 1980 contemplated an arrangement by which each company was to mutually benefit from the promotion of men's apparel sporting the Sasson logo. In return for the exclusive right and license to use the Licensed Marks in designated areas, Sportswear was obligated to pay a three percent royalty based on net sales of the Licensed Products. The agreement stipulates that the three percent royalty was to be used for the sole purpose of advertising the Licensed Products    and details a procedure by which each party first submits its advertising plan for the other's approval. 2 The advertising plan for 1984-1985 further detailed how the three percent royalty was to be spent, allocating forty percent to Sasson for its promotional campaign, and sixty percent for cooperative advertising engaged in by Sportswear, subject to content approval by Sasson. Significantly, the plan mandates any unused portion of said 60% may be carried over for use in the next succeeding month up to March 31, 1985. If by March 31, 1985 there remains a portion of the aforesaid 60% unspent and uncommitted, Sasson shall have the right to allocate such balance to the foresaid use by Sasson. The evidence showed, and the bankruptcy court and district court so found, that the parties agreed to divide the 1985-1986 royalty payment in the same manner. 28 The license agreement and advertising plans clearly indicate that both parties intended Sportswear's royalty payments to Sasson be used to promote the sportswear manufactured by Sportswear and sold under the Sasson label. Sportswear did not unconditionally deliver its license payments to Sasson to spend as Sasson saw fit. Under no circumstances did the license agreement permit Sasson to spend this sum in furtherance of the Sasson business, apart from its venture with Sportswear. 29 It is well settled that if the plaintiff has made money payments to the defendant, and there is a failure of consideration whereby defendant materially breaches the contract, the plaintiff can maintain an action for restitution of the money so paid to the defendant, with interest. Adams v. Henderson, 168 U.S. 573, 18 S.Ct. 179, 42 L.Ed. 584 (1897); see also Mais v. Futuristic Foods, Inc., 90 Misc.2d 259, 394 N.Y.S.2d 359 (1977), aff'd, 95 Misc.2d 834, 414 N.Y.S.2d 822 (1978). Sportswear made monthly payments to Sasson with the expectation that Sasson would adhere to the license agreements and reimburse Sportswear for its cooperative advertisement expenses. Sasson breached that duty, and thus Sportswear is entitled to restitution of that part of the royalty payment which the license agreements set aside for Sportswear's advertising expenses. 30 The difficulty in awarding Sportswear the entire sixty percent of the royalty payment 3 is that the award assumes, absent Sasson's breach, that Sportswear would have spent the entire amount. Such an assumption is reasonable in light of Sportswear's evidence that it incurred fifty percent of its reimbursable advertising expenditures for the entire fiscal year by December of 1985, at which point it had concluded that any further expenditures would not be reimbursed. However, just as it would be inequitable to allow Sasson to retain the remainder of the amount allocated for cooperative advertising for its own purposes, so too is it unjust to grant Sportswear unfettered use of the money. Sixty percent of Sportswear's royalty payment, $268,621.27, was set aside to fund projects which promote Sportswear's products carrying Sasson's name. Judge Lifland found that $69,601.03 of the $83,000 Sportswear spent were valid and reimbursable expenses, and thus that $69,601.03 of the approximately $209,195.30 award can be properly characterized as reimbursement money which carries with it no restrictions. However, equity requires that the remaining $139,594.27 be used in furtherance of similar cooperative advertising projects. 31 Judge Lifland, to minimize future conflict between the parties, directed that Sportswear make its future royalty payments to an advertising agency which is to decide how the three percent advertising royalties are to be spent and authorize reimbursement for Sportswear's approved advertising. Thus, a mechanism already exists to enforce this court's decree. We remand to the district court to issue directions to the bankruptcy court that the $139,594.27 which exceeded Sportswear's actual expenditures in the 1985-1986 year be used to reimburse Sportswear for additional and supplementary advertising expenses exceeding the percentage of the royalty payments allocated to it for cooperative advertising expenses in future years. Thus, the fund will benefit both parties by increasing the funds available for advertising the Licensed Products.