Quillen v. Kelley

Prescott, J., delivered the opinion of the Court. This is an appeal by the plaintiffs below from a decree of the Circuit Court for Worcester County. This decree “adjudged, ordered and decreed that the agreement of sale and purchase referred to in the proceedings is enforceable and that the petition for a declaratory decree * * * be and the same is hereby dismissed.” No question is raised as to the form of the decree. It, in effect, declared that the contract entered into by the parties was not so vague and indefinite as to have been unenforceable, and the appellants were not entitled to a return of the money paid by them thereunder upon the theory ⁴⁰⁰ that the contract was uncertain and indefinite, or upon any other theory; and we shall treat it as such.

The appellants and a certain Marie Codd Cook, as vendees, and Ethel M. Kelley and Harry P. Kelley, her husband, as vendors, entered into a written contract, dated September 1, 1952, for the purchase and sale of certain property known as “Hotel Royalton,” (a hostelry whose hospitable accommodations and delectable meals are well-known throughout Maryland) together with certain chattels therein, situate in Ocean City, Maryland. The purchase price provided for in the agreement was $257,500, and the vendees obligated themselves “jointly and severally” to pay the same. Actually, however, the vendors were to receive a net amount for the property of $245,000, as $12,500 was to be paid by the vendors to Mrs. Cook, one of the vendees, who was a licensed broker, as her commission; this fact being known by all' the parties. At the time of the signing of the contract, the three vendees paid the vendors $15,000, as was provided in the agreement.

The balance then remaining to be paid was $242,500. At this time, Mrs. Cook received from the vendors the sum of $5,000 on account of the commission to be paid her. Under the terms of the agreement, a further payment of $20,000 was due on November 1, 1952. On that date, the appellants paid the vendors $12,500 in part payment of the $20,000 instalment due, and, at the request of the vendees, the vendors gave the vendees a credit of $7,500 for the balance due Mrs. Cook for her commission.

Thus, the.payment due on November 1, 1952, was paid in full. The next payment due from the vendees was the sum of $40,000 which was payable on the last day of February, 1953. Mrs. Cook, one of the three vendees, departed this life, intestate and hopelessly insolvent, on November 25, 1952. Shortly after her death, one of the vendees notified the vendors’ attorney that the $40,000 payment due in February 1953, could not be made, and requested that the vendors agree to reduce the amount of said payment from $40,000 to $10,000, which was refused by the vendors.

Thereafter, there were several conferences and meetings between the parties and their coun ⁴⁰¹ sel, at all of which the vendees attempted to get the vendors to agree to a change in the terms of the agreement, but the vendors steadfastly adhered to the position that they expected payments in accordance with the provisions of the agreement. The vendors, being in possession of the property at the time of the vendees’ default, retained possession thereof; but the record does not disclose that the vendors claimed the contract to be at an end or that they were not ready and willing to complete the contract upon compliance with its terms by the vendees, until the vendors answered the interrogatories in this suit nearly 3 years after the default. On February 10, 1955, Ethel M. Kelley suffered a fatal automobile accident; following her death, Harry William Kelley qualified as executor of her estate. From the above, it will be seen that the vendees have paid unto the vendors the sum of $22,500; and the $40,000 payment due from the vendees on the last day of February, 1953, and all subsequent payments have not been made.

This suit was instituted in September of 1955. I The appellants place their first hope of reversal on the ground of unjust enrichment. They state and earnestly urge that, even though they were in substantial default, to allow the vendors to retain their $22,500 part payments as well as the property sold by the vendors would be both inequitable and unjustifiable, and result in the unjust enrichment of the vendors at the expense of the vendees, especially as there was no provision in the subject-contract for a forfeiture. They claim the breach upon their part was neither wilful nor deliberate, and to permit the vendors to retain their money is to grant them a benefit to which they are-not entitled.

This presents a very interesting question, and one of growing importance throughout the country. There can be little doubt that it was the common-law rule, which has been very generally followed and generally prevails today, that where the vendee of real property makes a part payment on the purchase price, but fails to fulfill the contract ⁴⁰² without lawful excuse, he cannot recover the payment if the vendor be ready and willing to perform his part of the contract, even though the vendor may have made a profit by reason of the default. Great United Realty Co. v. Lewis, 203 Md. 442, 446 , 101 A. 2d 881 . And this is true whether or not the contract contains a forfeiture clause. 31 A. L. R. 2d p. 96, sec. 17.

This rule has been followed in Maryland during the course of years with a long line of decisions. In applying this rule, there have been instances of harshness and injustice, which have caused a reconsideration of the same, in recent years, by the courts and by learned and renowned scholars and text-writers on the subject of contracts. The courts and text-writers, who do not advocate adhering to the strict common-law theory, seem to think the question of whether a plaintiff in substantial default should be givén a restitutionary remedy ought to be treated in the light of the equitable rules that frown upon the enforcement of penalties and forfeitures. Both Professor Williston and Professor Corbin strongly advocate a relaxation of the harsh common-law doctrine under proper circumstances, 3 Williston, Contracts, (Rev. Ed.), sec. 791; 5 Williston, op. cit., sec. 1473; 5 Corbin, Contracts, secs. 1122, etc. The common-law rule is regarded by the English Courts as unsound and intolerable. 31 A. L. R. 2d, p. 24.

The American Law Institute recognizes the principle presented by the appellants in its famous section 357 of Restatement, Contracts, which apparently was prepared by Professor Corbin in collaboration with Justice Cardozo. 5 Corbin, Contracts, sec. 1135, n. 1. This section has been accepted in the Federal Courts, and most of the State Courts that have relaxed from the common-law rule use it as a standard. Amtorg Trading Corp. v. Miehle, etc. (C. A. 2nd) 206 F. 2d 103 ; Newcomb v. Ray (N. H.), 114 A. 2d 882 ; Schwartz v. Syver (Wis.), 59 N. W. 2d 489, 492 ; Woodliffe v. Al Parker Securities Co. (Mich.), 206 N. W. 499 ; Freedman v. Rector, etc. (Cal.), 230 P. 2d 629 . This Court recognized the modern trend of the law in this respect in the Lewis case, supra, 203 Md. 448 , but decided it had no application to the facts of that case.

Interesting and en ⁴⁰³ lightening articles upon the subject are listed below in a footnote. 1 If we assume, without deciding, that the appellants’ breach was not wilful or deliberate, and in a proper case we would accept the principles of said section 357, the appellants’ position on this point still fails for, at least, two reasons. First, section 357 of Restatement, Contracts, states: “(1) Where the defendant fails or refuses to perform his contract and is justified therein by the plaintiff’s own breach of duty or non-performance of a condition, but the plaintiff has rendered a part performance under the contract that is a net benefit to the defendant, the plaintiff can get judgment, except as stated in Subsection (2), for the amount of such benefit in excess of the harm that he has caused to the defendant by his own breach, in no case exceeding a ratable proportion of the agreed compensation, if (a) the plaintiff’s breach or non-performance is not wilful and deliberate; or (b) the defendant, with knowledge that the plaintiff’s breach of duty or non-performance of condition has occurred or will thereafter occur, assents to the rendition of the part performance, or accepts the benefit of it, or retains property received although its return in specie is still not unreasonably difficult or injurious. (2) The plaintiff has no right to compensation for his part performance if it is merely a payment of earnest money, or if the contract provides that it may be retained and it is not so greatly in excess of the defendant’s harm that the provision is rejected as imposing a penalty. (3) The measure of the defendant’s benefit from ⁴⁰⁴ the plaintiff’s part performance is the amount by which he has been enriched as a result of such performance unless the facts are those stated in Sub-sectional b), in which case it is the price fixed by the contract for such part performance, or, if no price is so fixed, a ratable proportion of the total contract price.” Thus, it is seen at the very outset that the doctrine is predicated upon the facts that the defendant refuses to fulfill his ■contract, is justified therein by the plaintiff’s own breach, and desires to retain a benefit accruing to him as a result of the plaintiff’s part performance under the contract.

Comment (b) under section 357 makes this doubly clear, wherein it is said: “The rules stated in the present Section are applicable only in those cases where the defendant refuses to perform as he promised and is justified in so doing by the plaintiff’s breach * * See also 5 Corbin, Contracts, sec. 1132, and pp. 579, 585. This is not the case of a mutual rescission of the contract. When there is no mutual rescission' of the contract, there must be a showing that the vendor considers the contract at an end to entitle the vendee to restitution, for there is no right to restitution so long as the vendor is entitled to specific performance. 5 Corbin, Contracts, p. .585; Restatement, Contracts, sec. 357, comment (b). In the ■instant case, the evidence fails to show a refusal by the appellees to carry out their part of the contract, either before ■or after default by the appellants.

In fact, it clearly shows that the appellees were desirous of consummating the sale: •as late as May, 1953, although they had been informed as ■early as December, 1952, that there would be a default in the payment due in February, 1953, (and there was the actual ■default) we find one of the vendors calling one of the vendees over the telephone stating that the vendors were willing and anxious to carry out the contract. It is true that the vendors, in answering the interrogatories herein nearly three years after default, denied that the vendees had any further rights under the contract. In this, under the circumstances of this case, we think they were justified. But, in so far as the rec ⁴⁰⁵ ord is concerned, the appellees may still be ready and willing' to perform the contract.

As the appellants have failed to bring the case within such a factual situation as that upon which the doctrine they advance is predicated, they cannot avail themselves of the doctrine. Second, even if the appellants had cleared the first obstacle, they still carried the burden of proof with reference to the amount they were entitled to recover. In a case of this nature, (if we continue to assume, without deciding, that the principles of said section 357 correctly state the law) appellants are not entitled to recover unless it is affirmatively shown that the appellees received from the appellants’ part performance more than the appellees lost, 5 Corbin, Contracts, p. 553, and to permit the appellees to retain the same would unjustly enrich them. “A person is enriched if he has received a benefit. * * * A person is unjustly enriched if the