U.S. Naval Academy Alumni Ass'n v. American Pub. Co.

• Decision Date: 14 April 1950
• Docket Number: 142.
• Parties: UNITED STATES NAVAL ACADEMY ALUMNI ASS'N et al. v. AMERICAN PUB. CO.
• Court: Maryland Court of Appeals

72 A.2d 735

195 Md. 150

UNITED STATES NAVAL ACADEMY ALUMNI ASS'N et al. v. AMERICAN PUB. CO.

No. 142.

Court of Appeals of Maryland.

April 14, 1950

Dissenting Opinion April 18, 1950. John D. Alexander and James R. Crook, Jr. Baltimore (Samuel K. Dennis, John G. Rouse, Jr., James C Morton, Jr., and Constable & Alexander, Baltimore, on the brief), for appellants.

William J. McWilliams, Annapolis, for appellee.

Before MARBURY, C. J., and COLLINS, GRASON, HENDERSON and MARKELL, JJ.

HENDERSON, Judge.

This appeal is from a judgment of the Superior Court of Baltimore City for $17,811.09, in favor of The American Publishing Company, in a case tried by the court without a jury. The court denied a counterclaim filed by the appellant and entered judgment for costs. The suit was for an unpaid balance of $21,000.65 alleged to be due under a profit-sharing contract dated January 30, 1945 in connection with the publication of the 1945 and 1946 editions of the Register of Graduates of the Naval Academy. The counterclaim, in an identical amount, was based on an alleged miscalculation of the net profits due to (1) the failure of the plaintiff to allow any deductions for overhead and expenses, or publishing costs, of the defendant for the editions from 1938 to 1944 inclusive, and (2) the failure to allow proper deductions for publishing costs of the 1945 and 1946 editions. The questions presented are whether the deductions are permissible under the series of contracts between the parties, and, if so, whether they are substantiated by the evidence presented.

The American Publishing Company is not a publisher in the strict sense, but is engaged almost exclusively in the solicitation and sale of advertising for publications issued by schools, alumni associations, athletic associations, trade associations and the like. The Naval Academy Association performs the usual functions of an alumni organization, and for some years has published 'Shipmate', a monthly magazine devoted to naval affairs and activities of the alumni, and the 'Register', which is a roster of the alumni by year, class standing, rank and address, kept up to date with each annual issue. Prior to 1935 it had attempted to publish a Register without advertising, but found it a losing proposition. Prior to 1945, when it acquired the Ogle House in Annapolis, it occupied one small room in the Naval Museum.

In 1935 the parties entered into a written contract whereby the Company was constituted sole publishing agent for the sale, distribution, and advertising to appear in the Register. All letters soliciting advertising, the prospects to be solicited, and the form of the advertisements were subject to approval by the Association. The Company agreed to attend to all details of advertising copy, billing and collections, and to arrange for the sale of the Register at $1.00 per copy. After an allowance to the Company of 25 per cent of advertising proceeds for the cost of solicitation, and 10 per cent for Company expenses in procuring advertising, it was provided in Item 5(d) that 'after the deduction of the expenses which shall include the cost of printing, overhead and expenses, the net profits from the sale of advertisements and the net profit from the sale of Registers shall be equally divided between' the parties. The Company was also to be allowed a bonus of 5 per cent on all advertising in excess of $20,000. The Association agreed to compile the Register, and to assist the Company by furnishing leads for advertising, signing solicitation letters, and forwarding answers to solicitation and subscription letters.

A new contract, identical in terms, was executed in 1937, to run for four years. However, another contract was substituted in 1940, paragraph two of which provided: 'The Association shall be the publisher of the Register, and shall have the entire right to solicit subscriptions for, to sell, and to retain the proceeds of sale of, copies of said Register.' Paragraph 3 provided: 'The Company shall have the exclusive privilege of, and shall be the sole agent for, soliciting and selling advertising in all issues of the Register published by the Association during the life of this agreement.' Pararaph 6 provided: 'The Company shall attend at its own expense to all matters incident to the solicitation and sale of advertising in the Register, the securing of advertising copy therefor, and the billing and collection of all amounts payable by the purchasers of said advertising.'

Paragraph 7 provided that the Association should pay the Company 'as entire compensation', (a) 36 1/2 per cent of all revenues received by the Association from the sale of advertising by the Company, (b) an additional 5 per cent of all advertising revenue in excess of $20,000, and (c) 50 per cent of the 'net proceeds from the sale of advertising * * * to be computed by subtracting from the total revenues received by the Association from the sale of advertising by the Company (I) the amounts paid or payable to the Company under sectios (a) and (b) of this paragraph, and (II) the total cost and expenses of printing and publishing * * * the Register.' Paragraph 9 provided that the Association should compile the Register.

A new contract was entered into in 1945, in substantially the same terms, except that the percentage of advertising revenues going to the Company was reduced from 36 1/2 to 35 per cent, and the 'bonus', or additional percentage of revenues in excess of $20,000, was reduced from 5 to 2 1/2 per cent for the 1945 issue, and eliminated thereafter. The agreement was to run until 1948, with option of yearly renewal thereafter.

At the conclusion of the testimony, the court admitted all testimony taken subject to exception, found that the contracts all formed a single series, and held that the contracts should be interpreted in the light of the conduct of the parties. Since during the period of ten years the Association never demanded reimbursement or credit for any of its general or particular expenses in connection with the compiling and publishing of the Register, but on the contrary accepted and paid the statements and bills rendered, the Court held that this was a practical construction of the contracts by a course of dealing. Allusion was also made to the fact that no auditor for the Association ever raised the point until suit was filed, and that the counterclaim was an 'afterthought'. Testimony that in 1943 and 1944 the Company agreed to allow, but charged instead of crediting, certain clerical expenses of the Association, was held to be immaterial in view of the undisputed testimony that these were 'donations' to cover a loss from the publication of 'Shipmate'. However, the court ruled that these amounts were allowable, reducing the claim by about $3,200. The court also remarked that the testimony of Mr. Hackeling, the auditor who set up the counterclaim, was 'very weak' and 'it might have been proper to rule out his allocation on the ground that he did not have enough information to know, really, what was done.'

Assuming, without deciding, that testimony as to the whole course of dealing between the parties was admissible, we do not agree that this course of dealing was controlling on the question of interpretation. The rule is well established that it is only in cases where the words of a contract are ambiguous that conduct may affect their construction. In Products Sales Co. v. Guaranty Co., 146 Md. 678, 682, 127 A. 409, 410, Judge Urner, speaking for the Court, said: 'It is argued that a different interpretation of the contract is required because, during the course of a long series of settlements under its terms, the interest and other charges deducted by the plaintiff were calculated upon the face value of the accounts which had been assigned. If the agreement were ambiguous as to the basis of the charges, the conduct of the parties could be considered upon the question as to its proper construction. But as there is no uncertainty in its provision as to the amounts upon which the interest and additional compensation must be computed, the submission of the defendant to erroneous exactions in the course of the previous accounting should not control our decision as to the meaning and effect of the contract in regard to the liability asserted in this action.' The same prerequisite was recognized in Hurt v. Pennsylvania Threshermen, etc., Casualty Ins. Co., 175 Md. 403, 2 A.2d 402; Mattingly Lumber Co. v. Equitable, etc. Association, 176 Md. 403, 409, 5 A.2d 458; Saul v. McIntyre, Md., 57 A.2d 272, 274, and Norman v. Century Athletic Club, Md., 69 A.2d 466. See also Williston, Contracts, Rev.Ed. § 623; Restatement, Contracts, § 235(e), comment (h). The evidence in the instant case could not support an inference of subsequent modification. Nor do we find any ambiguity in the relevant provisions of these contracts.

The relevant clause in the first contract is: 'After the deduction of the expenses which shall include the cost of printing, overhead and expenses, the net profits * * * shall be equally divided * * *', and in the later contracts the division is to be '50% of the net proceeds from the sale of advertising * * * to be computed by subtracting * * * the total cost and expenses of printing and publishing * * * the Register.' In short, there was to be an equal division of net profits or net proceeds between the parties, and in determining the net figure, the 'overhead and expenses' or the 'cost and expenses of * * * publishing', were to be deducted. As a matter of fact, no such items, except the amounts paid to the printer and the 'donations' above mentioned,...