Lazorcak v. Feuerstein

Digges, J., delivered the opinion of the Court. When the Circuit Court for Montgomery County made final a judgment for the full claim of Daniel Feuerstein (appellee), the obligee on a cognovit note, it necessarily rejected, and we think quite correctly, the defense on equitable grounds as well as the counterclaim asserted by the obligor on that note, Stephen A. Lazorcak, Jr. It is the rejection of these which impels Lazorcak’s present appeal to this Court. There is no significant controversy concerning the facts. In the spring of 1972, Lazorcak, who was at that time a sales trainee for the Baltimore Chemical and Equipment Corporation, a company which sold, among other things, dry cleaning machines'; met, on one of his sales trips to the District of Columbia, Feuerstein, the owner of Park Plaza Valet, a laundry business being operated in the basement of 1629 Columbia Road, N.W. It was due to the impresario nature of the more experienced salesman, Harlan Weiland, who traveled with this trainee on the sales route, that Lazorcak and Feuerstein began the discussions which eventually brought about a sale of appellee’s laundry business to the appellant.

Before this sale of the business was consummated, Mr. Lazorcak, a novitiate at being an entrepreneur, “learned the ropes” at Park Plaza Valet under the tutelage of Mr. Feuerstein. During this education period the appellant was fully informed as to how both the major aspects of the business — the “drop off” laundry as well as the coin ⁷¹ operated dry cleaning machine — functioned and generated income. Ultimately settlement took place on April 7, 1972, after the parties 1 on that same day had signed an “Agreement of Sale,” wherein Feuerstein agreed to “sell, assign, transfer, and deliver” : “(1) All mailing and customer lists, as presently constituted; (2) All machinery, equipment, inventory and supplies owned by Seller, located on Seller’s business premises and used by Seller in his business as presently constituted . . . ; (3) All of Seller’s right to the existing lease with Plaza Joint Venture T/A Park Plaza Apartments for the premises in which Seller’s existing business is located; (4) All of Seller’s good will; and (5) All of Seller’s accounts receivable and customers’ property, subject to the assumption by Purchaser of all of Seller’s trade accounts payable.” And Lazorcak agreed to pay: “(a) The purchase price shall be Eighteeen Thousand Five Hundred Dollars ($18,500.00), of which amount the sum of Three Thousand Five Hundred Dollars ($3,500.00) shall be payable by certified check at closing and the balance of Fifteen Thousand Dollars, which shall be evidenced by Purchaser’s negotiable promissory note in the form of Schedule B attached hereto, shall be payable in 60 equal consecutive monthly installments of $250.00 each commencing one (1) month after the closing date.” With the consummation of this transaction, appellant ⁷² assumed control and went to work running his new enterprise. His initial efforts met with so much success that within only a few months he was aspiring to expand.

However, this enthusiasm was short-lived as appellant discovered during his investigation of the requirements incident to enlarging the business that the dry cleaning machine, which was included in the initial purchase and which was quite profitable, was being operated in the basement in violation of Title 7, Part 114 of the District of Columbia fire code. As a result of this dismal discovery, Lazorcak had his attorney send to Feuerstein’s attorney the following letter on July 19,1972: “On behalf of my client, Stephen A. Lazorcak, Jr., I am writing to suggest that certain circumstances have arisen which I believe justify a complete rescission of the agreement between Mr. Lazorcak and your client Mr. Feuerstein. The problems that have arisen relate to a contingent D.C. tax liability which was undisclosed by Mr. Feuerstein and which could easily result in a serious penalty being imposed upon Mr. Lazorcak or the business for willful failure to report certain amounts of income. Further, the business is being operated in a manner and in a place which I believe is in violation of the District of Columbia fire code, which raises a situation of commercial frustration.

Under the circumstances rather than take the chance of reporting these matters to the appropriate District of Columbia authorities, perhaps the best manner of handling the case would be for the parties to agree to a rescission, cancellation of all indebtedness and return of funds.' Perhaps a meeting should be set up to discuss these matters after you have spoken to your client.” (emphasis added). Even though appellant did not receive a response to this' letter, he conducted the business as he had in the past and did not fail to make the July, August and September ⁷³ payments on the purchase price indebtedness as they became due. Then, when Lazorcak continued to operate the business and receive its benefits, but was, nevertheless, remiss in making the October and November payments on the note, Feuerstein instituted this court action on November 30, 1972. Appellant responded by pleading the general issue and asserting specially: “That there has been a complete failure of consideration. “That for equitable plea states that he is entitled to a rescission on the basis of ‘Commercial frustration’ and total failure of consideration.” In addition Lazorcak filed a countersuit 2 in three counts which he characterizes as 1) “breach of contract”; 2) “fraud”; and 3) “equitable relief by way of rescission.” Following a full hearing, Judge Fairbanks, the trial judge, was not convinced as to the merits of Lazorcak’s pleas or counterclaim and accordingly entered judgment against him in the amount of $14,000 with interest, the balance then due on the purchase price of the laundry business.

In trying to persuade this Court to reverse the trial court’s adverse determination the appellant frames the issues here as follows: 3 I. “Whether it is a failure of consideration when a purchaser buys a business and machinery used in the business ‘as presently constituted’ and after the sale learns that certain of the machinery essential to the business as ‘constituted’ may not be used due to local licensing and fire regulations.” II. “Whether the purchaser of a business is entitled to a rescission of the contract of sale where ⁷⁴ the purchaser is prohibited from using certain equipment essential to the business due to local fire and licensing regulations when the seller of the business and those working for him, prior to the sale, assure the purchaser that the business and equipment as ‘constituted’ at the time of the sale is properly located and operating.” (emphasis added). Appellant calls the “failure of consideration” aspect “the basic underlying thrust of [his] case,” as his “counterclaims have had one thrust, ie., that he did not get what he bargained for, substantially.” Then becoming more specific, he urges that the “failure of consideration” resulted “from the ‘illegality’ of the operation of the business and the machinery located therein ‘as presently constituted,’ i.e., it violated a fire code,” which “illegality,” since it was not known or foreseen by him, appellant reasons, voids the contract as a matter of law. Before answering this contention we observe that although the appellant utilizes the term “failure of consideration” 4 he apparently does not question the existence of a sufficient consideration here to make this contract binding. Instead, since appellant’s dissatisfaction with the contract stems from the fact that he received a dry cleaning machine from the appellee, which he later discovered could not be legally operated in the place it was then located, Lazorcak is really seeking redress for Feuerstein’s failure to perform as originally anticipated by the agreement.

When a contracting party is displeased with the other’s performance he may follow either of two alternative courses of action, if under the facts they are open to him: (1) he can ⁷⁵ reaffirm the existence of the contract and seek specific performance when appropriate or claim damages for its breach, or (2) he can repudiate the contract altogether and request rescission. Kemp v. Weber, 180 Md. 362, 365-66 , 24 A. 2d 779 (1942); Corbin on Contracts, § 1102 (1964). Because specific performance was unavailable to the appellant under the facts here, and since he made no effort whatsoever, based on a breach of this contract, to prove specifically any monetary damages, we cannot authorize other than a nominal recovery under