National School Studios, Inc. v. Mealey

Collins, J., delivered the opinion of the Court. This is an appeal from an order dismissing appellant’s bill of complaint. ¹¹⁹ On October 10, 1955, National School Studios, Inc., (National), appellant, filed a bill of complaint asking that Joseph R. Mealey, appellee, be enjoined for a period of thirty months from engaging in school or commercial photography and from soliciting accounts from said schools. On February 10, 1956, an answer, under oath, was filed to that bill by Mealey, in which he gave as his reasons for terminating the contract that National breached the conditions therein by not satisfactorily developing the pictures, and in spite of repeated complaints by him, National refused to improve the quality of pictures and failed to deliver said pictures to him in time to honor the commitments which he had made and, therefore, he was forced to terminate the contract. On March 12, 1956, a temporary injunction was granted by the chancellor covering the territory of Maryland and the District of Columbia, with the understanding that the case was to be heard at once.

Interrogatories were filed and answers to interrogatories. Testimony was taken before the chancellor from March 7, 1956, with interruptions, through April 23, 1956. Upon petition filed on March 14, 1956, by leave of court, National’s petition for injunction was very slightly amended so that it alleged that the contract relied on “was entered into by and between the parties hereto dated 24 August, 1951,” instead of “that on or about the 24th day of August, 1951, a certain contract was entered into by and between the parties hereto” as in the original petition. On March 29, 1956, an amended answer was filed by Mealey to the amended petition in which he alleged that National did not provide him with the territory set forth in the contract; that National took part of the territory actually assigned him; that he was not permitted to take group pictures; that National had not furnished him with an accurate accounting of salary or commissions earned as well as charges made against earnings since the date of the contract; that National failed to pay him in accordance with the terms of the contract since August 24, 1951; that National failed to supply the equipment, facilities, supervision, sales aids and instructions as called for in the contract; that in spite of advice of the poor quality of the finished pictures National failed and ¹²⁰ refused to improve said quality and failed to deliver said pictures promptly; that National refused to permit him to compete with other firms in the same field of endeavor in reference to commissions paid to schools; that National abrogated the contract by abandoning it on or about March 1, 1955; and that National abrogated said contract by requiring him to go to Virginia.

In said answer he admitted that he was then engaged in competition with National but did not so compete while he considered said contract in full force and effect. On March 23, 1956, the chancellor dissolved the temporary injunction and on June 13, 1956, dismissed the amended bill of complaint. The appellant appeals here. National in Minneapolis, a Minnesota corporation, is engaged in the nationwide business of school photography.

In order to conduct its business the nation is divided into regional districts which contain one or more states. A regional manager is assigned under a written contract to each region. In order to promote the business of taking photographs of individual students in public and private schools, the prime duty of that manager is to solicit contracts through the principals or headmasters of the schools. Harold W. Orth was the regional manager of the district including Maryland and the District of Columbia at the time of the employment of the appellee, Joseph R. Mealey.

As the manager alone could not handle this business he was authorized by the appellant to hire as many assistants as he deemed necessary who were called third party employees. In October, 1946, Orth employed one assistant, Russell Thomas. During September, 1950, it became apparent that the business in Thomas' district was too large to be handled by one employee. Thomas, who objected to the employment of another assistant, was told by Orth that if he did not get someone to assist him, he, Orth, was going to send someone to help him.

Thomas testified that he selected Mealey, twenty-three years of age with no prior experience in this work, who was employed by National in September, 1950, at $75.00 per week with certain allowances for his automobile and other things, which salary was charged to Thomas by Orth. Thomas was given credit for all the pictures taken in Maryland and in the ¹²¹ District of Columbia. Mealey’s employment was approved by Orth. Thomas said: “We had a contract and Mealey signed the same kind of contract that I had.” That contract is not before us here.

Mealey’s duties consisted of calling on principals of schools; soliciting contracts for the taking of pictures in the schools; the taking of individual pictures of the students; mailing the films to Minneapolis for processing; returning to the schools again; collecting the money for the pictures which had been paid for, the normal price of which was $2.00; and collecting the undelivered pictures which had not been sold. Ordinarily the schools received a percentage of the sale price which was an inducement to participate in National’s plan. Mealey collected the balance and forwarded it to the office in Minneapolis. In February, 1951, Mealey’s salary was raised to $85.00 per week.

He testified that he was also to receive in addition a commission of three cents for each “shot” retroactive to September, 1950. Mealey testified that he never received these commissions and that in August or September, 1951, for the first time he signed a written agreement. That agreement is not before us here. He said Orth told him it was the contract that all his men signed.

The rate of pay in that contract was greater than that which Mealey was receiving. Mealey said Orth told him at that time that he would think about paying him at that rate of pay later, but he ordered him to sign it because it was a protection for National. Orth had full power to hire and discharge all employees. Mealey said he received no copy of the contract and received no additional duties or compensation.

He said he complained frequently to Thomas about National’s failure to pay him a bonus amounting to $227.00, which he had won, and the three cents each for all the pictures he had taken since October, 1950. He also complained about these things to Orth whenever he had an opportunity. In March, 1953, Thomas and Orth invited Mealey to meet with them at Thomas’ home to discuss the disagreements and complaints. At that meeting Orth took a memorandum of the terms and Mealey said Orth promised to have a contract written up and a copy sent to him.

Mealey said that he never ¹²² received a copy. Orth agreed to put him on a salary of $125.00 per week retroactive to September, 1952, so that from that date Mealey would work for $6,000.00 per year, plus five cents for each picture taken up to 40,000 “shots” and ten cents per picture over 40,000. He said that Orth also agreed to account to him for the commissions due him in his first year of work and the prize money. Orth also agreed to give him a check for $500.00 immediately to help him until the accounting took place.

Right after the meeting Mealey received a check for $625.00 from Orth. Mealey said $500.00 of this was to be credited to his commissions for the 1950-51 period. He said he never received an accounting of the balance of the commissions. At this meeting in Thomas’ home Orth told Mealey that Thomas’ territory had to be split because he could not have two salesmen call on the same schools.

A line was drawn through the center of a Maryland road map, going through the center of the city of Baltimore, to show the respective territories assigned to Thomas and Mealey. Mealey testified that the Eastern Shore was part of his territory and was later taken away from him and given to a man named Kinney. It was agreed that there might be some conflict about the line, as it was drawn roughly. A controversy arose about the city of Annapolis.

Thomas said he told Mealey that, as he had done quite a bit of work there and knew people there, he was to take Annapolis and all the territory on the east side of the Ritchie Highway. Mealey was still a direct employee of Thomas at that time. However, Thomas and Orth reached a private agreement whereby Orth would contribute $2,000.00 to Mealey’s salary. In February, 1954, at a teachers’ convention in Atlantic City, Orth submitted contracts to all his salesmen which were similar to the contract signed by Mealey on August 24, 1951, and this new contract was dated back to August 24, 1951.

Mealey refused to sign the contract because there was nothing in it about the $6,000.00 per year which was to be guaranteed to him under the last agreement. This new contract provided for a drawing account of $100.00 per week which was equivalent to $5,200.00 per year. Mealey also complained ¹²³ that the contract was for the entire State of Maryland and he wanted his territory set apart from Thomas’. Mealey told Orth he would not sign the contract.

Orth replied that if he did not sign it he would not send him any more checks. Mealey took the contract home and after thinking about it for a week or ten days received a letter from Orth demanding that he return the contract right away and further stating: “If you are going to stick with me, let me know.” Thereupon Mealey returned the contract signed and later received a signed copy of it from Orth. The contract, Exhibit 3, which is the contract before us in this case, dated August 24, 1951, between National as employer, Orth as second party employee, and Mealey as third party employee, contained, among other things, the following provisions which are pertinent to this case: The employer had been for a long time engaged in the business of photography. Orth had heretofore executed an employment contract with the employer and desired to obtain the assistance of Mealey to aid in promoting the business of National in the territory assigned to Orth.

Mealey agreed to make personal contact with the established trade and develop new business. Mealey further agreed “* * * during his employment and for a limited time after the termination thereof, that he will not become engaged in a competitive business or be employed by a competitor, either directly or indirectly, within the territory assigned to him and that he will not, directly or indirectly, solicit business from the heretofore established or future trade of the employer which may be developed by either employee, and the third party employee agrees that, in the event that he violates the restrictions imposed under this agreement, the liquidated damages herein provided for will be paid by the employee to the employer unless the third party employee is enjoined against continued violation.” Mealey agreed to devote his entire time to the promotion of his employer’s business in the territory assigned to him and not to enter the territory of any other employee for the purpose of soliciting business. The territory assigned to Mealey within the territory assigned to Orth was stated to be: “The State of Maryland and the District of Columbia.” National, during the term of ¹²⁴ employment, agreed to advance to Mealey the sum of $100.00 per week and to advance to him all film and necessary equipment required by him in the performance of his duties. National agreed, at its discretion, to furnish Mealey equipment for group photography.

Orth agreed to pay Mealey, out of the money collected from the sale of finished photographs taken by Mealey within the territory assigned, a schedule of rates specified in the contract. It was further agreed by Mealey in Paragraph VIII that he would “not, at any time, while in the employ of the employer and/or within thirty (30) months after leaving its employ within the territory assigned, either for himself or for any person, persons, firm or corporation, or in any manner whatsoever enter into the territory herein defined, for the purpose of contacting or soliciting present and/or future customers of the employer or attempt to obtain their patronage for a similar or competing business. Said employee shall not, in any manner whatsoever, directly or indirectly, solicit, divert, take away from or attempt to solicit, divert or take away from any of the customers business or patronage of the employer within said territory while the relationship of employee and employer exists and for a period of thirty (30) months after terminating same. If the said employee violates the provisions of this paragraph, he is to pay to the employer the liquidated damages herein provided for. * * * In the event that this agreement is terminated for any reason whatsoever and the third party employee violates the provisions of Paragraph VIII, the employer shall have the right to apply to any Court of competent jurisdiction to enjoin the said employee from continuing a breach of this contract, or the employer shall have the alternative remedy of demanding the payment of damages, and it is agreed between the parties that the damages so sustained by the employer are uncertain, speculative and difficult of ascertainment and that the parties, therefore, agree upon a method of determining the damages sustained by the employer and it is agreed that the amount so agreed upon is reasonable and shall be determined to be liquidated damages and not a penalty. * * * This agreement shall remain in force until the 24th day of August, 1952, and from year to year there- ¹²⁵ alter unless terminated by the employer or second party employee for cause or by the third party employee by giving thirty (30) days’ notice in writing to the employer and by paying all charges due the employer from the third party employee and surrendering all equipment furnished by the employer, together with records or information which the third party employee has which is in any way related to his employment under this agreement. * * * Wherever notice is required to be given under the terms of this contract, it shall be in writing and sent to the respective parties by registered mail addressed to the last known address of the party.” From that time on Mealey continued to work as before with no change in duties and received usually $125.00 per week for about forty-five weeks.

It was sometimes reduced to $100.00 per week in the summer, although the contract itself provided for $100.00 per week. Mealey testified that he still complained about the failure to pay him the balance of the commissions for the 30,000 pictures and said Orth promised to pay him the balance of the commissions due and also an accounting. Mealey testified that beginning in the fall of 1953 he received an increasing number of complaints about the quality of National’s photographs, particularly in their development and printing. Mealey passed these complaints on to Thomas, his immediate superior, and after the spring of 1954 to Orth when he became his immediate superior.

There were also complaints from the principals of schools about the failure to deliver the promised photographs on schedule. One of such instances was when Mealey and Thomas were required to pick up a Christmas shipment of photographs at the Washington airport and deliver them all night, in order to have the pictures distributed before the Christmas vacation began. Mealey said Orth told him he was taking the Eastern Shore territory away from him and giving it to Joseph Kinney because Kinney worked in Delaware and it would be much easier for him to go from Delaware to the Eastern Shore. Orth testified that Mealey never complained about this and that Kinney was merely allowed to take pictures on the Eastern Shore and Mealey still had the right to do so.

Mealey ¹²⁶ admitted that he took pictures in Cecil County in February, 1955. Mealey also complained that he never received all his commissions and was not provided with the sales aids, assistance and instructions, as provided in the contract. On March 1, 1955, Orth wrote a letter to Mealey in which he stated that competition was getting to be serious and that he was going to split the sales organization or