Gladding v. Langrall, Muir & Noppinger

Digges, J., delivered the opinion of the Court. ²¹¹ This is a civil action begun in the Superior Court of Baltimore City by respondent Langrall, Muir & Noppinger, a certified public accounting partnership, to collect the balance allegedly due it from the petitioners, Harry L. Gladding and his mother, Virginia L. Gladding, for professional services rendered them under a contingent fee contract. Before the trial court, the Gladdings defended the suit by asserting: first, the respondent, by nonperformance, breached its obligation under the contract so as to prevent it from recovering any amount, a contention now abandoned in this Court; and second, in any event, the contingent fee called for by the contract proved to be so unconscionable that the obligation should be rescinded and, under their counterclaim, repayment of the retainer fee the respondent received from the petitioners should be ordered. At a nonjury trial, Judge Basil A. Thomas decided all issues in favor of the accounting firm and entered judgment for it in the amount of $30,639. In an unreported decision the Court of Special Appeals affirmed and we granted certiorari. 1 The record discloses that following an audit, the United States Internal Revenue Service, by its report dated June 16, 1969, assessed the Gladdings and several corporations they controlled or owned approximately $1,300,000 in additional taxes and penalties for the years 1961 through 1966.

Understandably concerned about such a mammoth tax deficiency, Mr. Gladding, at the suggestion of his personal attorney, John Demyan, Esq., contacted Mr. Herbert Langrall, senior partner in the respondent firm, concerning this Internal Revenue Service claim. When, after reviewing the matter, Mr. Langrall realized there would be considerable legal acuity involved in resisting the tax assessment, he suggested that Jacques Schlenger, Esq., a partner in the Baltimore law firm of Venable, Baetjer and Howard, be contacted and that a conference be arranged to discuss the taxpayers’ potential employment of each of these professional service firms. This suggestion was followed and at the ensuing meeting, which took place in early January of ²¹² 1970 with Messrs. Gladding, Demyan, Schlenger, and Langrall present, the employment of the two firms, and their respective obligations, was verbally agreed upon.

Separate formal documents recording the previous understanding relative to the employment of each firm were executed several weeks later by the respective parties. As to compensation, the Gladding-Langrall agreement, after providing for the payment to the accounting firm by the taxpayers of a $10,000 retainer fee, in pertinent part states: Upon the completion of the tax matters above described (whether by administrative agreement, closing agreement, litigation, etc.), in addition to the above described retainer, [Langrall, Muir & Noppinger] shall be paid, by such taxpayers, an additional sum equal to 4% of the first $700,000 of savings (as hereinafter defined) and 3% of any savings in excess of $700,000, such additional fee to be paid immediately upon consummation of such settlement, however arrived at. This represents the complete agreement between the parties and [Langrall, Muir & Noppinger] cannot guarantee any results and does not do so, but only guarantees its very best efforts. 2 The evidence discloses that, utilizing the inhouse review procedures afforded by the Internal Revenue Service, the tax dispute was eventually settled, largely through the efforts of Venable, Baetjer and Howard, with a resulting saving to the Gladdings of $1,121,000. When the petitioners, based on their assertion of nonperformance on the part of Langrall, declined ²¹³ to pay, after allowing a credit for the $10,000 retainer already received, the $30,639 allegedly due the accounting firm under the Langrall-Gladding contract, this suit was instituted.

It is undisputed that Langrall’s time sheets revealed the public accounting firm logged only seventeen hours of professional services in the matter and accordingly made a somewhat minimal contribution toward obtaining the favorable settlement these taxpayers enjoyed. While not urging in this Court, as they did below, that the respondent breached its contractual obligations, the Gladdings do vigorously contend here that the disparity between the work actually performed by the respondent accounting firm and the compensation contractually payable for those services is so great the agreement is unconscionable and therefore should not be enforced. 3 We do not agree. 4 The short answer to this contention made by the petitioners is, as the previous decisions of this Court make plain, that when determining whether an entire contract or any of its parts is so unconscionable as to justify its judicial rescission or cancellation, the matter will not be judged by hindsight but by the situation as it existed at the time the bargain was struck. Gross v. J & L Camping & Sports, 270 Md. 539, 546 , 312 A. 2d 270, 275 (1973); Pollin v. Perkins, 223 Md. 532, 544 , 165 A. 2d 908, 913 (1960); The Glendale Corp. v. Crawford, 207 Md. 148, 154 , 114 A. 2d 33, 36 (1955); Lucas v. Long, 125 Md. 420, 427-28 , 94 A. 12, 14-15 (1915); Cochran v. Pascault, 54 Md. 1, 18 (1880); E. Miller, Equity Procedure § 681, at 787-88 (1897). Put another way, and in the words of Chief Judge ²¹⁴ Bruñe for this Court in Pollin v. Perkins, supra, 223 Md. at 544 , 165 A. 2d at 913 , “the fairness or hardship of a contract is to be determined as of the time when it is made, not on the basis of subsequent changes in conditions which may make it less beneficial to one party and more beneficial to the other than at the time when it was entered into.” Cf.

Md. Code (1975), § 2-302 (1) of the Commercial Law Article (unconscionable contract for the sale of goods). With this well-established principle before us, it becomes obvious the Gladdings cannot avoid paying Langrall the agreed fee. Petitioners make no assertion, nor in our view could they successfully do so, that the bargain was in any way unfair at the time the understanding was reached by all the -parties involved. In fact, these taxpayers’ primary concern here — the