Foodmaker, Inc. v. Denny

Thompson, J., delivered the opinion of the Court. Foodmaker, Inc., operator of Jack-in-the-Box restaurants, formerly Checkerboard Properties, Inc., (Foodmaker), the appellant and cross-appellee, brought a suit at law in the Superior Court of Baltimore City against William B. Denny, Avrum K. Rifman and The Title Guarantee Company 1 for compensatory and punitive damages resulting from an alleged breach of contract for the sale of real property. Denny and Rifman countered by bringing an action in equity against Foodmaker in the Circuit Court of Baltimore City for specific performance of the contract. Pursuant to a stipulation among the parties that the evidence presented at trial would serve as the basis for an entry of a judgment at law and a decree in equity, the case was tried in the Circuit Court of Baltimore City.

Prior to trial it was learned that George Goldberg was an additional owner of the subject property and his name was added as a defendant in the case at law and complainant in the equity case. On August 1, 1975, a final judgment in favor of the defendants in the Superior Court and a final decree for specific performance in favor of the complainants in the Circuit Court were entered. Foodmaker appeals contending that a denial of sign permits constituted the failure of a condition precedent entitling it to cancel the contract, and even if Foodmaker is found to have ³⁵² breached the contract, the appropriate remedy is the effectuation of a liquidated damages clause in the contract, not specific performance. The appellees cross-appeal contending that once they had been awarded specific performance of the contract they were entitled to interest as a matter of law.

During the late summer of 1969 Robert A. Parma, agent for Foodmaker, and Denny, who had authority to deal with the subject property as he saw fit, entered into negotiations for the sale of the property located at 414-418 W. Fayette Street in Baltimore City. The property is owned by Denny, Rifman, and Goldberg as partners. It is improved by a three-story building, leased on the first floor to the U.S. Post Office, and to commercial tenants on the second and third floors. These tenants continued to occupy the premises at the same rentals through the date of trial.

During the course of the negotiations leading up to the execution of the contract, Foodmaker’s agents explained to Denny the concept behind a drive-through restaurant. He was also shown a brochure containing drawings of the various aspects of the restaurant. Included in this were drawings of freestanding signs used to advertise the place and its menu. The testimony showed that Denny was completely indifferent about these plans since he was primarily concerned about the purchase price.

A purchase price of $198,000.00 was finally agreed upon. A rider to the contract was executed in September, 1969. The sections relevant to this appeal are as follows: “2. This Contract is contingent upon Purchaser’s ability to obtain building and sign permits plus site and driveway use for a typical Jack-in-the-Box restaurant within 120 days.

Purchaser shall use diligence in pursuing the acquisition of the permits and site use, however, Purchaser may withdraw from this transaction and be released of all liability hereunder should said permits be denied. “5. Seller hereby covenants and agrees to deliver full possession of the subject property to Purchaser ³⁵³ as of close of escrow free and clear of any and all lessees, tenants and/or other occupants. “7. When all contingencies set forth in this Contract and Rider, except those set forth in Paragraph 5 above, have been met and satisfied, Purchaser agrees to so notify Seller. Upon receipt by Purchaser thereafter of written notice from Seller that all tenants have vacated the subject property and that Seller is in a position to comply with the provisions of Paragraph 5 above, Purchaser shall deposit the balance of closing funds into escrow and instruct escrow agent to close escrow within 10 days after said receipt of said notice from Seller.

In the event of Purchaser’s failure to comply with the foregoing within said 10 day period and the failure of said escrow to close within said 10 day period through fault of Purchaser, escrow agent shall and is hereby authorized to disburse Purchaser’s deposit of $20,000.00 to Seller as liquidated damages and thereupon this agreement and any escrow agreement pursuant hereto shall cease and terminate and be of no further force nor effect and all rights and obligations of the parties hereto and of any party claiming under either of them against the other party hereto shall likewise cease and terminate.” Pursuant to this agreement Foodmaker obtained the necessary permits with the exception of sign permits. Belsinger Sign Works, Inc. of Baltimore was hired as a subcontractor to procure, among other things, the necessary sign permits. Harry Belsinger, President of Belsinger Sign Works, Inc. and member of the three-man Baltimore City Commission on Signs, informed Foodmaker that in his opinion the desired freestanding sign permits were prohibited by City Ordinance No. 663 which gave the Commission on Signs its power, and which at that time stated: “(e) Unlawful signs. It shall be unlawful, within ³⁵⁴ the area described, (1) for any commercial sign, billboard, or other advertising structure or device to project outward from the primary surface of the building to which it is attached for a distance of more than 12 inches.

The commercial sign, billboard, or other advertising structure or device shall be single-faced and shall not project above the top of the vertical wall of the building to which it is attached; (2) to erect any flashing, animated, or rotating signs; (3) for any commercial sign, billboard, or other advertising sign or device to be permitted or erected on the roof of any building; (4) for any commercial sign, billboard, or other advertising structure or device to be painted on any exterior wall of a building except as a substitute for a sign on the primary facade of said building.” Because of a delay in the procurement of these permits an extension until January 5, 1970 was granted to Foodmaker by Denny. On February 19, 1970 the freestanding sign permit was rejected by the Baltimore City Department of Housing and Community Development. An appeal was taken to the Commission on Signs where it was also rejected. On March 3, 1970 Foodmaker notified Denny of its intention to cancel the contract because of its failure to obtain these sign permits.

From Denny’s refusal to release Foodmaker from the agreement and return a $20,000.00 deposit these actions were initiated. In Chirichella v. Erwin, 270 Md. 178, 182 , 310 A. 2d 555 (1973), the Court of Appeals stated that: “A condition precedent has been defined as ‘a fact, other than mere lapse of time, which, unless excused, must exist or occur before a duty of immediate performance of a promise arises,’ 17 Am. Jur. 2d, Contracts, § 320. Similar definitions may be found in Bergman v. Parker, 216 A. 2d 581, 583 (D.C. App. 1966); In Re Roberts’ Estate, 190 Kan. 248 , 373 P. 2d 165, 171 (1962); Corbin, Conditions in the Law of Contract, 28 Yale L.J. 739 , ³⁵⁵ 747 (1919); 1 Restatement of Contracts, § 250 (1932); and 3A Corbin, Contracts, § 628 (1960).

The question whether a stipulation in a contract constitutes a condition precedent is one of construction dependent on the intent of the parties to be gathered from the words they have employed and, in case of ambiguity, after resort to the other permissible aids to interpretation, 17A C.J.S. Contracts, § 338; see United States v. Schaeffer, 319 F. 2d 907, 911 (9th Cir. 1963), cert. denied, 376 U. S. 943 , 84 S. Ct. 798 , 11 L.Ed.2d 767 (1964). It is clear that Foodmaker entered into the contract for the purpose of operating a profitable restaurant and that a quick-food restaurant cannot be operated properly without sufficient advertising by means of signs. Without first obtaining permits for suitable signs, Foodmaker had no intention or duty to complete the purchase of the site in question. This was expressly stated in the contract.

There was testimony that this particular site was unacceptable without a full complement of freestanding signs because it was at the convergence of two one-way streets. Visibility is poor for traffic proceeding west on Fayette Street and only fair for traffic proceeding north on Paca Street. The concept behind this type of restaurant and the procedure used by a potential customer is directly related to the signs. An approaching motorist would initially observe a freestanding pylon sign either cube or pancake shaped on which the words “Jack-in-the-Box” appear and usually having a rotating clown’s head on top.

The purpose of this sign is essentially advertising. The customer would then drive under a sign that says “drive through” which essentially directs the customer where to go. Next he would come upon a freestanding illuminated, menu board which allows him to choose what he wishes to order. He would then drive to a freestanding, illuminated clown’s head containing a microphone and speaker bearing the words “Jack Will Speak To You” and place his order.

Finally he would drive to the pick-up window where he would get and pay for his order and then drive off. It was further testified that it is ³⁵⁶ extremely critical for a business which is vehicular oriented to have the complete sign package in order “to identify, to locate, to advertise and to create the entire image” that the restaurant was attempting to project. In this respect the freestanding pylon sign, freestanding menu sign, and freestanding speaker box are considered mandatory and freestanding directional signs are considered desirable. The real issue in this case surrounds the ambiguous phrase, “sign permits ... for a typical Jack-ip-the-Box restaurant...”.

The question is whether by use of the word typical the parties meant freestanding. If they did and Foodmaker diligently pursued this, then a duty of performance never arose, but if they did not then Foodmaker has breached the contract. Some of the basic rules of contract interpretation were expressed in Canaras v. Lift Truck Services, Inc., 272 Md. 337, 352 , 322 A. 2d 866 (1974): “The court in interpreting a contract places itself in the same situation as the parties who made the contract, so as to view the circumstances as they viewed them and to judge of the meaning of the words and the correct application of the language to the things described. Sorensen v. J. H. Lawrence Co., supra.

If the language under consideration is ambiguous or uncertain the court must then determine the intention of the parties. In such a case the court may consider evidence of extrinsic factors, i.e., negotiations of the parties, the circumstances surrounding execution of the contract, the parties’ own construction of the contract and the conduct of the parties. See Mascaro v. Snelling & Snelling, 250 Md. 215, 229 , 243 A. 2d 1, 8, cert. denied, 393 U. S. 981 (1968).” The lower court in its finding of fact stated that during the course of the negotiations Denny was shown the brochure containing pictures and drawings of the freestanding signs. It found, however, that Denny was never specifically told what a typical Jack-in-the-Box restaurant was and that this . ³⁵⁷ typical restaurant necessarily includes freestanding signs; and therefore there was no meeting of the minds that freestanding sign permits were a condition precedent.

We find that this conclusion is not supported by the evidence. The testimony shows that Foodmaker considered freestanding signs to be