Opinion
No. 200.
Argued January 2, 1974. —
Decided February 25, 1974.
APPEAL from a judgment of the circuit court for Milwaukee county: HARVEY L. NEELEN, Circuit Judge. Reversed and remanded.
For the appellants there were briefs by Laurence C. Hammond, Jr., William A. Stearns and Quarles, Herriott, Clemons, Teschner Noelke, all of Milwaukee, and oral argument by Mr. Stearns.
For the respondent there was a brief by Levin, Blumenthal, Herz Levin of Milwaukee, and oral argument by William Jon Marquardt of Milwaukee.
The action was commenced by Sol Price, Earle Brodie, and Harry Evons, hereinafter plaintiffs, to recover payments and damages for an alleged breach of a contract of assignment of an Arthur Murray, Inc., franchise. The plaintiffs requested a conveyance of Ross' interest in the franchise, the payment of past-due installments, and damages. The total amount of the plaintiffs' demand, exclusive of interest, exceeded $118,000. The case was tried to the court, and a judgment in the amount of $2,000 in favor of the plaintiffs was entered on May 1, 1972. The plaintiffs have appealed from that judgment.
Arthur Murray, Inc., is a corporation which franchises dancing studios throughout the world. In exchange for the right to use its name and various services offered by Arthur Murray, Inc., the franchise holder is obliged to pay a royalty on his gross receipts. The franchise is transferrable from one franchise holder to another with the consent of Arthur Murray, Inc.
Harry Evons held a number of Arthur Murray franchises and operated dance studios throughout the country until, in 1955, he decided to sell them. One of the franchises which he agreed to sell was an Arthur Murray license to operate in Milwaukee. On April 20, 1955, he agreed to sell his franchise and the lease to the Milwaukee studio to Arthur P. Niedland. Arthur Murray, Inc., acquiesced in the transaction and awarded the franchise to Niedland. On May 9, 1955, Evons conveyed the studio property, the lease, and the right to an escrow fund created under the existing franchise to the Milwaukee School of Dancing, Inc., of which Niedland was president. Niedland continued to operate the studio until June 25, 1958, when Garry M. Ross, the defendant in this action, after protracted negotiations, entered into an agreement with Harry Evons, Arthur Niedland, and the Milwaukee School of Dancing, Inc., by which he became the assignee of the May 1955 franchise agreement. At this time, Ross assumed the $292,419.56 debt the Milwaukee School of Dancing, Inc., still owed Evons, and he agreed to pay Evons $250 a week and to make quarterly payments of five percent of the studio's gross receipts, less the amount that was paid in weekly installments. It is basically this transaction consummated on June 1958, that is the genesis of the present action. Among other things, the agreement provided:
"11. . . . in the event of any such uncured default, upon demand by Evons, Ross shall transfer to Evons all of his right, title and interest in and to the franchise agreement from Arthur Murray, Inc., transferred to him under this agreement, and Niedland shall, if necessary, waive any right he may have in connection with such transfer."
The 1958 contract also provided:
"13. If for any reason beyond Ross' control the Arthur Murray, Inc., franchise assigned to Ross hereunder shall be cancelled by Arthur Murray, Inc., while the obligations above set forth remain outstanding and not discharged . . . then any balance of the aforesaid obligations of Ross to Milwaukee or its assigns remaining unpaid at the date of such cancellation . . . shall be deemed to be cancelled automatically and absolutely. In the event of cancellation of said franchise . . . Ross shall have no further responsibility or obligation hereunder to Milwaukee or its assigns . . . or Niedland free and clear of all liens, claims and encumbrances of whatever nature . . . ."
In 1962, prior to the expiration of the original franchise assigned by the 1958 agreement, Ross and Arthur Murray negotiated a new franchise agreement. That agreement had an expiration date for the new franchise of August 31, 1968, with provisions for annual renewal thereafter. In May of 1965 Evons agreed to accept weekly payments of only $150 from ross instead of the $250 required by the contract. There was no change, however, in the percentage of the gross receipts to be paid quarterly to Evons. Evons claimed that the reduction was temporary and for the purpose of helping Ross, who had incurred obligations elsewhere. Evons testified that, prior to this reduction in weekly payments, as well as subsequently, Ross was delinquent in his payments.
In July of 1966, Evons borrowed $78,000 from Sol Price and Earle Brodie and assigned to them his 1958 contract with Ross. Ross thought that thereafter he was to make $150 per week payments to Brodie and Price. However, on March 23, 1967, the attorney for Brodie and Price, wrote to Ross reminding him that he had obligated himself to pay the assigned portion of the balance due on the contract to Brodie and Price. The attorney stated that, under the basic agreement, $250 per week was to be paid and that, unless appropriate payments were made, collection proceedings would be commenced for the entire amount. Ross refused to make the $250 payments and advised his attorneys of the demand by Brodie and Price. Some installments in the amount of $150 were subsequently made by Ross, and the last payment was made on August 10, 1967.
On September 1, 1967, Ross and Arthur Murray entered into a new franchise agreement. The old franchise was terminated as a result of a notice sent by Arthur Murray to all franchisees, including Ross, by a letter dated July 31, 1967. Ross signed the agreement with a new Arthur Murray franchise to commence on September 1, 1967, and to be effective until December 31, 1970. The Arthur Murray representative at the trial stated that the intent was to offer new franchise agreements where the old franchises were up for renewal. At trial, counsel for Arthur Murray, Inc., acknowledged that Ross' franchise agreement was not due to expire until August 31, 1968.
Meanwhile, on December 14, 1967, because of Ross' alleged default, Price and Brodie demanded that the Arthur Murray franchise be transferred to them as the assignees of Evons' rights, pursuant to paragraph 11 of the 1958 contract. The franchise was not transferred, and on February 24, 1968, Price, Brodie, and Evons commenced action. That action first reached this court in Price v. Ross (1969), 45 Wis.2d 301, 172 N.W.2d 633, wherein the demurrer to the original complaint was sustained. The present appeal grows out of the trial that followed on the complaint as it was finally amended.
On August 12, 1969, Ross sold the franchise and the studio to Frank O'Neill.
The court concluded, after a trial without a jury, that the plaintiffs were entitled only to $2,000, the arrearage under the assignment computed on the basis of $150 a week. The court also held that Ross had no further obligations to the plaintiffs because the termination of the franchise by Arthur Murray in 1967 triggered the exculpatory clause of the 1958 contract, which provided that Ross' obligations to Evons would be cancelled "If for any reason beyond Ross' control the Arthur Murray, Inc., franchise assigned to Ross hereunder shall be cancelled by Arthur Murray, Inc. . . ."
The plaintiffs have appealed, claiming that they are entitled to $250 a week for the appropriate period, that the obligation to Evons and his assignees was not cancelled by virtue of the new 1967 franchise agreement, and that, as a consequence, the transfer of the franchise to O'Neill and the property involved constituted a conversion of the property rights in the franchise which under the original agreement were to be assigned back to the plaintiffs upon default and proper demand.
The plaintiffs make no claim for weekly payment arrearages prior to April 1, 1965. It was at that time or shortly thereafter that the weekly payments were reduced from $250 to $150 per week. It was agreed that, from that date until August 31, 1967, the date the trial judge concluded that the cancellation of the franchise by Arthur Murray terminated all obligations, Ross had paid $16,900. It was agreed that, if August 31, 1967, were the proper termination date and if the court found that only $150 per week was due, the amount owed the plaintiffs was $2,000. It was also agreed, however, that, if Ross were required to pay $250 a week after March 23, 1967, the date on which the attorney for Price and Brodie made the demand for the larger sum, then the difference due and owing the plaintiffs was $4,300 plus interest.
We conclude that the reduction to $150 per week granted by Evons was merely a temporary accommodation to Ross and was rescinded by the Price-Brodie letter of March 23, 1967.
The evidence supports the plaintiffs' contention that the reduction in payments was a temporary measure only, and Ross concedes as much in his brief, although he argues that the temporary reduction could not be rescinded by Price and Brodie alone.
The exhibits reveal that, as a memorandum recapitulation of a telephone conversation between Evons and Ross, Evons wrote to Ross on June 2, 1965, stating, "I agreed to temporarily accept $150 per week or 5% of the gross." Ross responded to that letter on June 8, 1965, asking for clarification of the quarterly computation of 5 percent of the gross, but did not dispute or refer to the statement in Evons' letter that the reduction was "temporary."
Ross claims that, when he consented to the assignment to Brodie and Price, the assignment was conditioned on the permanent reduction of the weekly payments. That consent to assignment contains no conditions, and the argument that the assignment was conditioned is not supported by the record.
Ross in his brief argues that at trial he testified that it was his understanding that he would only be obligated to pay $150 a week after the date of the assignment to Brodie and Price. That statement was objected to, and the judge ruled, "The instrument itself would be the best evidence." Accordingly, with the exception of the statement by Ross, which was in effect stricken from the record, there is no evidence supporting the contention that Ross' consent to the assignment was in consideration of, or conditioned on, continued reduced payments.
Ross argues, in any event, that the finding of the trial court should be upheld because Price and Brodie consented to the $150 weekly payments by continuing to accept them and by not taking any action subsequent to their demand letters. The record reveals to the contrary. The letter of April 13, 1967, by the attorney for Price and Brodie, renewed the demand for $250 per week and stated that, unless payments were made in that sum, "they will have no alternative but to proceed with further action." Further action was taken when a demand was made on December 14, 1967, for the transfer of the franchise, and when suit was commenced early in 1968. Nothing in these transactions would have the effect of altering or waiving the assigned contract obligations.
As an additional defense, Ross argues that the assignment by Evons to Price and Brodie was a partial assignment; and, therefore, only Evons could reinstate the contract rate of $250 per week. The plain meaning of the assignment leads to a contrary conclusion. The entire contract and earlier agreement was assigned in toto to Price and Brodie, together with any payments that became due thereunder. The assignment of the entire contract was to remain fully effective until the $78,000 which Evons owed to Price and Brodie was paid in full. This was not a partial assignment. It was an assignment of the entire contract, with the assignment to terminate at such time as the sum for which it was security was paid in full.
Accordingly, we conclude that the trial judge's finding should be reversed. Price and Brodie, as the assignees of the entire contract, had the authority to reinstate the $250 per week payment. The assignment was not conditioned on the continuation of the payments of $150 weekly.
In reversing the trial judge's finding, we do not need to reach the conclusion that it was contrary to the great weight and clear preponderance of the evidence. The question is one of law, the construction of a contract. Moran v. Shern (1973), 60 Wis.2d 39, 46, 208 N.W.2d 348.
Under the stipulation entered into by the parties, the plaintiffs should have received $4,300 for the arrearages incurred from April 1, 1965, to August 31, 1967. That stipulation, setting a cut-off time, however, was entered into in light of the possible finding of the trial judge that obligations ceased on August 31, 1967, when the existing franchise was terminated. That cut-off date has no significance, unless we conclude that Ross was relieved of all obligations on that date. Since we conclude, as will be discussed below, that the "termination" of the franchise did not relieve Ross, the arrearage at the rate of $250 per week continued to accumulate thereafter until the date of the alleged conversion.
As set forth in the statement of facts, Ross argues that, under the 1958 contract, all liabilities ceased when the franchise assigned to Ross was cancelled on August 31, 1967. We conclude, however, that the transaction which resulted in the termination of the original franchise and the issuance of a new franchise did not have that effect. The existing franchise was viable for another year. It was within Ross' control to have insisted upon the continuation of that franchise and to have prevented any possible cancellation. The termination was not "beyond Ross' control." Moreover, the 1958 contract was intended to relieve Ross of his obligation only if he lost all right to operate the dance studio under the Arthur Murray franchise. That intent is indicated by paragraphs 11, 12, 13, and 14 of the 1958 contract, which provided that, in the event of termination, the franchise was to be assigned back to Evons through Niedland. Paragraph 13 of the contract would not be triggered if Ross continued to operate the dance studio as he did under a successor franchise agreement. Reading the contract as a whole, it provides that, if beyond the control of Ross he loses the right to operate an Arthur Murray franchise, he will be exonerated of the debt; but that situation contemplates the reversion of the franchise to Evons. Under the circumstances of the termination of the existing franchise and the entering into a new Arthur Murray franchise with Ross, this could not happen.
The obligation under the 1958 agreement continued unaffected by the issuance of the new franchise in 1967, and weekly payments in the sum of $250 should have been awarded the plaintiffs for the period between August 31, 1967, and the sale of the franchise by Ross to Frank O'Neill.
Since the trial judge found that Ross was exonerated from his obligation, he did not consider the question of the damages sustained by Price, Brodie, and Evons as the result of the conversion which occurred when Ross sold the franchise to Frank O'Neill in 1969 in defiance of the prior demand made on Ross for the return of the franchise upon his default.
In the original complaint, which was considered in Price v. Ross, supra, the plaintiffs merely requested the reconveyance of the franchise, but the sale to O'Neill occurred subsequent to the first complaint and prior to the second amended complaint, which underlies the present action.
The plaintiffs are entitled to a recovery from Ross on the theory of conversion. Ross' failure to convey the studio to Price and Brodie when an appropriate demand was made after default constituted conversion. Prosser, Torts (hornbook series, 4th ed.), pp. 89, 90, sec. 15. We held in Topzant v. Koshe (1943), 242 Wis. 585, 588, 9 N.W.2d 136, that, where a defendant has sold converted property:
"`. . . the plaintiff may, at his election, recover as his damages the amount for which the same were sold, with interest from the time of the sale to the day of trial.'"
In the instant case, the plaintiffs are entitled to damages to be measured by the consideration paid by O'Neill. While the gross amount of that sale is set forth in the record, the payment was not simply a cash disbursement but involved a complicated scheme of future payments and the offset of debts. While the plaintiffs state that the consideration is clear from the record, the defendant disputes their figures and their interpretation. The actual damages due for the conversion should be determined by appropriate findings of the trial court.
Further consideration of the record may lead the trial judge to the conclusion that the record is sufficient to make the appropriate findings without the necessity of further evidence or testimony. If the record is deemed complete, he should make such finding. If, however, he concludes that additional testimony or evidence is required, he is directed to conduct further proceedings and to make the necessary findings and to order judgment in accordance therewith.
By the Court. — Judgment reversed, and cause remanded for further proceedings consistent with this opinion.