Stamatiades v. Merit Music Service, Inc.

Brune, C. J., delivered the opinion of the Court. This is an appeal from a decree of the Circuit Court of Baltimore City, enjoining the defendants, appellants here, from placing, or permitting any person or persons other than the plaintiff, appellee here, Merit Music Service, Inc., to place or locate any coin-operated amusement, music or vending machines in the premises in which the defendants conduct a restaurant or similar business until September 17, 1959. The plaintiff (sometimes referred to below as “Music Service”) owns and leases coin-operated equipment, such as the machines covered by the injunction, to the owners and operators of restaurants and other places patronized by the public. The defendants (sometimes referred to below as “Proprietors”) operate a restaurant at the premises known as No. 219 W. Franklin Street, in Baltimore.

In September, 1954, the Proprietors wished to enlarge their restaurant and for that purpose leased additional space in an adjoining building. They were in need of funds to make the alterations necessary for the enlargement and for other expenses in connection therewith. They had had coin-operated amusement devices on the original premises for some seven or eight years previously, which were furnished by someone other than Music Service. On September 17, 1954, following various negotiations, Music Service lent the Proprietors $3,000 and on that day the parties 1 entered into a written leasing agreement.

This agreement recited that “in consideration of a loan of Three (3) Thousand dollars no cents ($3,000) loaned by Operator [Music Service] to Proprietor [s], the parties hereto agree as followsThen followed six numbered paragraphs. By paragraph l.a Music Service agreed to install in the main room of the Proprietors’ premises three coin-operated devices, one of which was designated as a Console Amusement Ma ⁶⁰² chine, another as a Pinball Amusement Machine, and the third as a Coin-operated Music Box. Music Service also agreed by paragraph l.b that upon written notification from the Proprietors that any of the equipment was not functioning in a normal manner, it would put such equipment in proper operating condition within a reasonable time thereafter. The proprietors agreed, among other things, to keep the equipment in continuous operation during business hours during the term of the lease or any renewal thereof, not to install and operate on the premises, and not to permit any other party to do so, any electrical, manual or mechanical coin-operated equipment, machines or phonographs other than those furnished by Music Service; and they further agreed “by reason of the aforementioned consideration passing to him [them]” that a decree might be passed in a suit brought for such purpose enjoining them “from violating this covenant.” The agreement also provided that the rental for the equipment should be 50% of all monies paid by the public for the use of the equipment, payable each and every week (with a somewhat different provision as to cigarette machines, none of which is involved in this case).

By paragraph 4 of the agreement the Proprietors further agreed and guaranteed that Music Service’s share of the revenues should be not less than $70 per week each and every week, and that if the proceeds to Music Service should fall below that amount Music Service should have the right to terminate the agreement. The leasing agreement was to be effective for a period of five years from its date, with provision for renewals for like periods thereafter, subject to the right of either party to terminate the lease by written notice given sixty days prior to the expiration of the first term or of any renewal term thereafter. Paragraph 2 of the leasing agreement, upon which the appellants place their greatest reliance, reads in part as follows (the term “Operator” as therein used referring to Music Service and the term “Proprietor” referring to the defendants) : “2. The Proprietor agrees: c.

Should there be any necessity in the sole discretion of the Operator for the equipment ⁶⁰³ to be replaced or for the number of machines to be decreased, the Proprietor agrees to permit the Operator to change or to decrease the number of machines, but at no time shall Operator increase machines without Proprietor’s consent.” There was a dispute between the parties immediately prior to the execution of the agreement of September 17, 1954, as to whether or not the Proprietors were to receive what is spoken of as a “gratuity” of $1,000 from Music Service in connection with the installation of the latter’s machines. Music Service refused to agree to any “gratuity” and the leasing agreement was executed on the basis of there being a loan of $3,000, not a loan of $2,000 and a gratuity of $1,000. The appellants also executed a chattel mortgage which the appellee has neither released nor recorded. It is not now in issue and the appellants have abandoned any further claim of a “gratuity”.

A few weeks after the agreement of September 17th had been entered into, Mr. Silverberg, President of Music Service, found that his Company’s machines had been disconnected and were no longer in use, and either then or thereafter machines furnished by the same competitor whose machines had previously been installed in the Proprietors’ restaurant were again installed there. The Proprietors paid off the $3,000 loan at the bank from which Music Service had itself borrowed the money with which to make the loan to the Proprietors. This payment was made without the prior knowledge of Music Service. The Proprietors ordered Music Service’s machines removed from the restaurant, and Music Service did remove them.

After some negotiations between the parties failed this suit was instituted. The appellants contend that the injunction which was issued was a negative form of specific performance, and they claim that it was improperly issued because of the lack of mutuality of remedy under the agreement, because there was an adequate remedy at law, and because of Music Service’s power to terminate the agreement. ⁶⁰⁴ We shall take up first the appellants’ contention with regard to the adequacy of the plaintiff’s remedy at law and second the effect of its right to terminate the agreement if receipts were less than $70.00 a week. The appellants’ contention based upon the alleged adequacy of the appellee’s remedy at law is answered by Hendler Creamery Co. v. Lillich, 152 Md. 190 , 136 A. 631 , in which an injunction was sought restraining the defendant from selling any ice cream products other than the plaintiff’s. The Court said (at pp. 203-204 of 152 Md., pp. 635-636 of 136 A.) : “The only remaining question is whether the contract, being valid, is enforceable in a court of equity.

Of this we have no doubt. The damages which might be sought to be recovered in a court of law would be practically impossible of ascertainment, because of the difficulty of determining in advance the quantity of the commodities which will be used, and, further, the impossibility of determining in sums of money the damage which would result to the appellant by losing the advertisement of its own goods and having that of a competitor’s substituted at the appellee’s place of business.” An additional answer to this contention is that the appellants have neither shown their ability to respond in damages nor offered a bond with satisfactory sureties so to respond. Code (1951), Article 16, Section 101; Foster-Porter Enterprises v. De Mare, 198 Md. 20 , 81 A. 2d 325 . Their contention that the existence of a right on the part of Music Service to terminate the agreement if receipts from its machines in the Proprietors’ restaurant were less than $70 a week bars specific performance is also untenable.

The appellants say that there was no allegation in the amended bill, nor was there any testimony at the trial, to the effect that Music Service’s share of the receipts exceeded $70 per week. It would seem that the burden of establishing such a fact as to the period before the appellants’ repudiation of the contract, if material at all, rested upon them, and they have not met it. As to the period after they disconnected Music Service’s ma ⁶⁰⁵ chines and ordered them removed, they can derive no benefit from their own repudiation of the agreement. The contract does not purport to give them the option either to perform or to pay damages.

Armstrong v. Stiffler, 189 Md. 630 , 56 A. 2d 808 ; Linz v. Schuck, 106 Md. 220 , 67 A. 286 . Indeed, the only liquidated damages clause in the agreement is applicable only in case of the sale or transfer of the Proprietors’ business. The appellants’ violation of a material term of the contract, such as their refusal to keep the appellee’s equipment in operation, gives the appellee a right of termination quite independent of any default provisions of the contract, but such a right of termination does not of itself bar the appellee’s right to insist upon specific performance. See Foster-Porter Enterprises v. De Mare, supra.

The appellee’s additional right to terminate the agreement because of the inadequacy of receipts is a cumulative remedy, and the existence of such a remedy does not bar specific enforcement of the contract. Armstrong v. Stiffler, supra. See also, Restatement, Contracts, Sec. 376, and Corbin, Contracts, Vol. 5, Sec. 1202. The appellants’ principal contention is based upon the qualification of Clause l.a of the agreement, under which Music Service agrees to furnish machines, by the provisions of Clause 2.c quoted above, under which Music Service has the right in case of any necessity, in the sole discretion of Music Service, to change or decrease the number of machines.

In substance the appellants’ contention is that this places the performance of the contract entirely at the will of Music Service and that, accordingly, no decree could be rendered against Music Service requiring it to perform its obligations under Clause 1.a, and hence that the agreement is lacking in mutuality of remedy. The doctrine of mutuality of remedy as stated in Fry on Specific Performance is one which has received wide recognition in the law but which has also come under very severe criticism and is now either discredited or restricted within more narrow limits than those in which it was formerly stated as requiring that specific performance must be mutually available to both parties in order to be available to either. See Cor- ⁶⁰⁶ bin, Contracts, Vol. 5, Secs. 1180 et seq.; Williston, Contracts, Rev. Ed., Vol. 5, Secs. 1433 et seq.; Restatement, Contracts, Secs. 372-373. Section 372 of the Restatement, Contracts, reads as follows: “(1) The fact that the remedy of specific performance is not available to one party is not a sufficient reason for refusing it to the other party.” This is an express repudiation of the doctrine of mutuality in one of the forms in which it used to be stated.

Williston, op. cit., Sec. 1440, refers to Sec. 372 (1) of the Restatement, and then quotes with approval Sec. 373 of the Restatement that “Specific enforcement may properly be refused if a substantial part of the agreed exchange for the performance to be compelled is as yet unperformed and its concurrent or future performance is not well secured to the satisfaction of the court.” The learned author then continues: “This rule is flexible enough to allow wide discretion in granting or refusing specific performance, thus obviating the difficulties inherent in stating a general rule to cover all the situations. For example, when the party seeking specific performance has fully performed, or is now tendering complete performance, clearly specific performance should be granted. Where the contract is executory on both sides, the court may still give specific performance if it is satisfied that the person seeking relief will continue to perform.” In accordance with Williston’s views just stated, it has been held in this State that where a contract involving the rendition of personal services on one side has been performed by the party agreeing to render such services, or performance has been prevented by the wrongful conduct of the other party, specific performance may be granted at the suit of the party who has performed (or has been prevented by the opposite party from performing) the agreed services. McKeever v. Washington Heights Realty Corp., 183 Md. 216 , 37 A. 2d 305 ; Snodgrass v. Stubbs, 189 Md. 28 , 54 A. 2d 338 ; Eastern Woodworks, Inc. v. Vance, 206 Md. 419, 112 A. 2d 231 .

Corbin, Contracts, Vol. 5, Sec. 1181, states: “It is believed that the chief if not the only pur ⁶⁰⁷ pose that underlies all the various formulations of the rule requiring mutuality of remedy — the rule that the plaintiff shall not get specific enforcement unless the defendant could also have obtained it had he been the injured party and can still do so in the future if it becomes necessary — is to make certain that the court shall not compel a performance by the defendant for which he may fail to receive the agreed exchange performance.” In Sec. 1183, Corbin adds: “The primary rule that the decisions will now sustain, in lieu of the broken-down requirement of mutuality of remedy, is this: The court may properly refuse specific enforcement if some substantial part of the agreed exchange for the defendant’s performanee has not yet been rendered and its performance is not sufficiently assured to the satisfaction of the court.” In Sec. 1184, Professor Corbin explains the reluctance of courts to grant specific performance for personal services to be rendered in the future on the ground that there is insufficient security for the rendition of such service. Among the many cases which Corbin explains on this basis is Reed v. Reed, 165 Md. 604 , 169 A. 798 , which is very strongly relied upon by the appellants. See also the comment on Reed v. Reed in Snodgrass v. Stubbs, 189 Md. 28, at p. 48 , 54 A. 2d 338, at p. 347 . There is a well recognized difference between mutuality of obligation and mutuality of equitable remedy.

Liggett Co. v. Rose, 152 Md. 146 , 136 A. 651 . Duvall v. Myers, 2 Md. Ch. 401, and Dixon v. Dixon, 92 Md. 432 , 48 A. 152 , both cited by the appellants, seem to accord with the rule as stated in the Restatement and by Williston and Corbin. In our view, the rule with regard to the true basis of the requirement of mutuality of remedy is correctly stated by these authorities. At the outset the appellants’ argument ignores any effect which may be given to the fact that a part of the consideration ⁶⁰⁸ for their agreement not to install or permit the installation of competing equipment in their restaurant has been received.

They got the $3,000 loan, which seems to have been the major objective of their bargaining with Music Service, and as we understand the contract they expressly agreed to an injunction on the basis of having received that very consideration. The case is very like Ziehm v. Steil Brewing Co., 131 Md. 582 , 102 A. 1005 . There, Ziehm wished to go into the saloon business and consulted the Brewing Company about finding a place of business. He did not have enough money to buy a saloon which the Brewing Company suggested and which he liked, and he could not borrow enough money on the security of the property alone to make the purchase.

He asked the Brewing Company for aid. As a result, the Brewing Company and its president guaranteed repayment of the loan to a building association which then granted the loan to Ziehm. An agreement was made between Ziehm