Automatic Retailers of America, Inc. v. Evans Cigarette Service Co.

Digges, J., delivered the opinion of the Court. We are here concerned with a contract which appears innocent on its face but its effect is made complicated by a series of corporate mergers and transactions. This apparently simple agreement is the basis of this equity action brought in the Circuit Court No. 2 of Baltimore City where Judge Meyer M. Cardin awarded the plaintiff damages for its breach. In order to understand the dispute, its rather complex fact pattern must be set forth in some detail.

Late in 1959, in an effort to supply some sustenance for the large number of workers employed in the then recently completed Social Security Building, located near Baltimore City, the General Services Administration (GSA) awarded a contract to the Warr-Bach Catering Company. By the terms of their agreement Warr-Bach was required to operate a cafeteria and maintain a vending machine service, including ¹⁰³ one for cigarettes, in the Social Security Building. In furtherance of this understanding the catering company verbally subcontracted the vending machine privileges to the Vendomat Corporation of America which, in turn, on March 24, 1960 entered into a written supply contract with the Evans Cigarette Service Company, the plaintiff below and appellee here. By this latter agreement, Evans was obligated to supply cigarette vending machines as well as an inventory of cigarettes and matches.

In return, Vendomat promised to keep the machines stocked, to collect all receipts from the machines, and remit the balance to Evans after retaining a 3(* per pack commission. But at no time did Vendomat obtain title to either the machines or the inventory. This business relationship was to continue as long as the condition set forth in clause 11 of the contract existed unless sooner terminated at Vendomat’s option upon the happening of any one of three specified events. Clause 11 provides that: “This Agreement shall continue in effect as long as Vendomat has the privilege and ability to maintain cigarette vending machines in the Social Security Building.” (Emphasis supplied.) And the events which authorize earlier termination were if: (i) S. Moe Kaminsky, president of Evans, dies or no longer has the right to vote 50% of the company’s voting stock; (ii) Evans or Mr. Kaminsky enters into competition with Vendomat in any field of business except the vending of cigarettes; or (iii) Evans relinquishes dominion, title or control to the machines.

The Vendomat-Evans business relationship continued until mid-1961 when Automatic Food Systems, Inc. (AFS) entered the picture. In July of that year, the shareholders of Vendomat unanimously agreed to exchange all issued and outstanding shares of their corporation with AFS in return for shares of stock in that company. At the same time, a supplemental agreement was entered Into which provided that additional shares of AFS stock were to be placed in escrow and transferred periodically to the former shareholders of Vendomat if the Warr-Bach agreement with Vendomat was still effective on specified dates. In ¹⁰⁴ effect, for a specified period, the longer the Warr-Bach agreement with Vendomat was kept in force, the greater the number of shares of AFS stock the former Vendomat shareholders were to receive.

It is clear, therefore, that a significant factor in this merger was Vendomat’s contract with Warr-Bach. It should be noted at this point that AFS was aware of Vendomat’s relationship with Evans as their understanding was listed in a schedule, captioned “Contracts With Suppliers”, which was attached to the stock acquisition agreement. Just six months after the Vendomat-AFS merger, a second significant corporate arrangement occurred when Automatic Retailers of America, Inc. (ARA), the defendant below and appellant here, acquired all of AFS’s assets, including its Vendomat stock. In connection with this acquisition, ARA agreed to assume, be responsible for, and discharge all contractual obligations, as well as all other liabilities of AFS.

This agreement specifically included the Vendomat-Evans contract; but excluded taxes and other exceptions. Throughout the entire period beginning with Vendomat, then with AFS, and finally with ARA, Evans continued to supply the vending machines and the inventory of cigarettes as required by the original Vendomat agreement. It is undisputed, and we think it is significant, that Mr. Charles Stouffer, the business manager of Vendomat, continued in that same capacity for each of the succeeding concerns. At the request of Stouffer, then acting as manager for ARA, Evans agreed in 1963 to substitute mechanical for electric vending machines.

In addition, in that same year, ARA and Evans negotiated for a different rate of commission to be retained by ARA. In short, ARA and Evans dealt with each other in all ways just as Vendomat and Evans had. Beginning in January of 1962, the assets of Vendomat were gradually transferred to ARA. Finally, that corporation ceased to exist when its charter was forfeited in late 1963 by a proclamation of the Governor for failure to pay franchise taxes.

On February 14, 1965, in accordance with its terms, the ¹⁰⁵ original prime contract between the General Services Administration and Warr-Bach came to an end. However, it was extended for one more year while bids were received for a second prime contract. During this extension, Evans continued to supply cigarettes and machines so that ARA could carry out its obligation to Warr-Bach. After considering all bids, the General Services Administration again awarded Warr-Bach the prime contract, but this time under different terms and conditions, with compensation based on a per item flat fee for each item sold rather than a management commission.

The second contract also provided for the installation of new machines. Warr-Bach then subcontracted the vending machine business to ARA which, on March 18, 1966, informed Evans that it was giving notice that their understanding had ended as of the termination of the first government contract. On March 25, Evans informed ARA that it considered the agreement still binding and, though their machines would be removed, court proceedings would be brought. As promised, Evans docketed this equity suit seeking to enjoin ARA from interfering with operations under their supply contract, and an accounting as well as monetary damages.

While this suit was pending, on December 8, 1967, Mr. Kaminsky died and ARA promptly exercised the option set forth in the Evans-Vendomat contract to terminate it. In this notice, ARA stated that it was doing so without prejudice to its position that the contract had already ended. This election to terminate mooted the injunction request and the case proceeded as one for damages arising from breach of contract. The continuation of these proceedings is proper, as once equity has obtained jurisdiction, it may continue to resolve the dispute between the parties though the equitable issues have dissipated and only legal issues survive.

Hardisty v. Kay, 268 Md. 202 , 299 A. 2d 771 (1973); Ledford Const Co. v. Smith, 231 Md. 596 , 191 A. 2d 587 (1963) and the cases cited therein. Here appellant argues that, under the contract, when Vendomat was merged and liquidated, or certainly when the first prime contract came to an end, Vendomat ceased to have “the privilege and ability to maintain the cigarette ¹⁰⁶ vending machines in the Social Security Building” and the agreement was therefore at an end. Concomitant with this allegation, ARA further argues that it was a separate corporate entity from Vendomat and as the Evans-Vendomat contract, particularly clause 11, did not specify that it would be binding on Vendomat’s successors and assigns, that agreement in no way affected the relationship between ARA and Evans. Therefore, it says, the continuance of business, from the time of the liquidation up until its termination in March of 1966, was evidence merely of a contract at will rather than being indicative of an assumption by ARA of the obligations under the original supply agreement.

Appellee, of course, sees it differently and posits that because of the merger ARA is in reality Vendomat; or, in the alternative, argues that if Vendomat had indeed ceased to exist ARA has nevertheless by its conduct acquiesced to an assumption of all of the responsibilities of Vendomat including its contract with Evans. It follows therefore, Evans says, that ARA is boünd by that agreement. Judge Cardin, the chancellor, agreed with the appellee and ruled that the termination of the first prime contract between Warr-Bach and GSA and the awarding of the second one between the same parties did not terminate the relationship started by Vendomat and continued by ARA with Evans. He decided that AFS and ARA were parties to the supply contract, as Vendomat had been, because by their conduct they affirmatively acquiesced to their being substituted for Vendomat, and by their actions impliedly agreed to be bound by the contract in question.

As curious as it may be, both ARA and Evans state that clause 11 of the supply contract is clear and unambiguous but, as we have already indicated, each thinks that its terms compel a result favorable to it. However, our recent decision in R.E.C. Management v. Bakst Serv., 265 Md. 238 , 289 A. 2d 285 (1972), a case with a factual pattern remarkably similar to the one at hand, makes a determination of whether ARA is in fact Vendomat, or its successor or assignee, irrelevant. In R.E.C. Management , we held that where the conduct of a party demonstrates an intent. to assume the terms and ¹⁰⁷ conditions of a contract between its predecessor and a third party it becomes bound by that agreement just as if it were in fact its predecessor. In that case, as here, there was a series of