On certification to the Superior Court, Appellate Division.
For affirmance -- Justices Clifford, Schreiber, Pollock and O'Hern. For reversal -- Chief Justice Wilentz and Justices Pashman and Handler. The opinion of the Court was delivered by Clifford, J. Pashman, J., dissenting. Chief Justice Wilentz and Justice Handler join in this opinion.
[90 NJ Page 211] This appeal questions a trial court decision, affirmed by the Appellate Division, that an interest in royalties terminated on a specific date. The issue turns on interpretation of the contract granting that interest. The Chancery Division determined that a transfer by the widow of Alton Glenn Miller (Glenn Miller) to the appellant's father, David Mackay, now deceased, of a one-third
interest in certain royalties accruing from the sale of recordings of the Glenn Miller Orchestra terminated on March 15, 1967. The Appellate Division affirmed substantially for the reasons expressed by the trial court. We granted Mackay's petition for certification, 87 N.J. 407 (1981), and now affirm.
Because our holding is based principally upon inferences drawn from the circumstances surrounding the parties' dealings with each other, a recitation of the somewhat complicated facts is necessary. Beginning in 1939 David Mackay served as attorney and advisor to Glenn Miller. Until Miller's disappearance in 1944 while on a military flight, Mackay performed various legal services for Miller and assisted him in the negotiation and execution of several performance and recording contracts. Miller paid Mackay for these services. After the War Department officially declared Miller dead in 1945, Mackay served as attorney for Miller's estate. Under Miller's will, which was admitted to probate in Probate Division of the Bergen County Court (Miller having died a domiciliary of New Jersey), Miller's wife, Helen D. Miller, was named the sole beneficiary and executrix.
Although Helen Miller was executrix, Mackay handled all the finances of the estate. The estate's income, principally from royalties from the sale by RCA Victor (RCA) of recordings made by the Glenn Miller Orchestra before Miller's death, was sent to Mackay, who deposited it in the estate account. Mackay prepared any checks written on the estate account and mailed them to Mrs. Miller for her signature. During the years immediately following Miller's death the income from the RCA recording royalties declined steadily, from approximately $54,000 in 1948 to slightly less than $14,500 in 1951.
In response to this decline Mackay discussed with Mrs. Miller a proposal for a project that would increase the estate's earnings. This proposal involved the possible use of recordings of radio broadcast performances of the Glenn Miller Orchestra.
These recordings, known as library reference recordings or "air checks," were made directly from the broadcasts and were intended by Miller to be used solely to evaluate the broadcasts and to improve the orchestra's performance. The sound quality of these recordings was poor, owing both to the static and noise attendant to the radio broadcasts and to the low level of technology in the recording process. Mackay had preserved these air checks after Miller's death.
In 1951 Mackay suggested to Helen Miller that perhaps RCA could do something with the air checks to "clean them up" and make commercial quality recordings from them. When Mrs. Miller agreed to this proposal, Mackay catalogued the air checks and later monitored their recording -- a task characterized by an expert witness as "a monumental job." RCA determined that it was feasible to make commercial quality recordings from the air checks.
As a result Helen Miller, as executrix of the Glenn Miller estate, entered into a contract with RCA dated August 8, 1951. The contract provided that RCA would release one album a year for three years, each album to contain eight selections recorded from among 250 of the air checks. RCA agreed to pay the estate a six percent royalty on 91 1/2 percent of all sales, to be paid semi-annually. The contract gave RCA the perpetual right to manufacture and release records of the selections made under the contract.
On the same day that she signed the RCA contract, August 14, 1951, Mrs. Miller signed a document, handwritten by Mackay, the legal effect of which is the issue in this appeal. The document stated:
For value received the undersigned hereby sells, assigns, transfers and sets over unto David Mackay a sum equivalent to one-third of the royalties to accrue to the undersigned from the agreement of August 14, 1951 entered into simultaneously herewith between the undersigned and Radio Corporation of America covering the recordings and releasing of phonograph records to be made from Glenn Miller radio broadcast library reference recordings.
The recordings released pursuant to the 1951 contract met with greater commercial success than any of the parties had anticipated, wherefore the parties entered into a new agreement in 1954. Significantly, this agreement, and all later agreements discussed below, did not contain the distinctive feature of the 1951 contract that gave RCA a perpetual right to manufacture and release air check recordings. Indeed, Mackay acknowledged at trial that the earlier contract had been "superseded" and that the 1954 document became the "controlling agreement." The 1954 agreement provided that the estate would turn over to RCA all recordings of the Glenn Miller Orchestra, in any form, that had not previously been released. RCA agreed that between 1954 and 1959 it would re-record and release a minimum of 80 performances from these recordings and would pay the estate six percent of 90 percent of all sales. The new agreement also modified the method of payment, apparently to create a tax advantage to the estate. RCA agreed to pay the estate $50,000 a year from 1955 to 1959. Any income exceeding that amount would be retained by RCA as a reserve fund against future payments. Whenever the reserve fund exceeded $250,000, however, RCA would pay the estate the excess semi-annually as earned.
When she signed the 1954 RCA contract, Mrs. Miller also executed, at Mackay's request, a document nearly identical in wording to the 1951 document that granted Mackay a one-third interest in monies accrued under the 1951 RCA contract. This new document gave Mackay a one-third interest in monies accruing under the 1954 RCA contract with the exception, however, that his percentage would be computed and paid only after the estate received the first $15,000 each year. The reason for this change was that Mrs. Miller believed that since the estate was earning about $15,000 per year in royalties before Mackay had arranged for releases based on the air checks, Mackay was not entitled to receive one-third of that amount.
The RCA releases continued to meet with commercial success. In 1955 the parties again entered into a new contract. RCA
now agreed to release a minimum of 120 selections in the period between 1954 and 1962. The $50,000 per year minimum payment was continued, but the reserve fund ceiling was increased to $400,000. In all other respects the 1955 contract with RCA continued the terms of the 1954 contract. Once again Mackay requested that Mrs. Miller execute a document entitling him to one-third of the proceeds, after the first $15,000 per year, accruing under the 1955 RCA contract, but this time Mrs. Miller balked. The record contains several letters written by Mackay in 1955 wherein he requests that Mrs. Miller execute such a document. There is also a letter from Mackay to Mrs. Miller, dated April 15, 1958, wherein he refers to her wish that rather than having a blanket assignment related to each RCA contract, she would prefer to grant Mackay his one-third interest on a year-to-year basis. Mackay told her, however, that such a plan would have an adverse tax effect on the estate. For whatever reason, sometime after April 15, 1958, Mrs. Miller signed the document transferring to Mackay one-third of the income accruing under the 1955 RCA contract.
Meanwhile, in January 1958, RCA and Mrs. Miller had again amended their agreement. Other than an adjustment in the royalty rate for record club sales, the only changes were that the yearly payments were extended through 1964, the annual minimum payment was increased to $100,000, and the reserve fund ceiling was increased to $700,000. After some prodding in the previously discussed April 15, 1958 letter from Mackay, Mrs. Miller executed a document giving Mackay a right to one-third of the proceeds of the January 1958 amendment to the 1955 RCA contract.
There were three subsequent amendments to the 1955 RCA contract: 1960, 1962, and 1963. In each, the annual minimum payments were extended through 1965, 1966, and 1967 respectively. The reserve ceiling was modified in the 1960 and 1962 amendments. In all other respects the 1955 contract, as amended in 1958, remained in effect. As to the transfer of one-third of the proceeds to Mackay in 1960, Mrs. Miller signed a document
that was identical to those already discussed, save in one important aspect. This document stated that Mackay was to receive one-third of the monies to accrue under the 1955 RCA contract "and any amendments thereof." Mackay subsequently took the position that this additional language obviated the need for similar documents in connection with the 1962 and 1963 amendments.
None of the documents in which Mackay was given one-third of the royalties made any mention of how long he would continue to collect that amount. He continued to collect one-third of the royalties up to and through the time of Helen Miller's death on June 2, 1966.
In her will, Mrs. Miller left her entire estate in two testamentary trusts, one for each of her children, Steven Miller and Jonnie Soper, the respondents in these proceedings. Mrs. Miller's will appointed David Mackay as executor of the estate and trustee of the trusts. Mackay received executor's fees under this appointment. In addition, under Glenn Miller's will Mackay was named, along with one Chalmers MacGregor, as successor co-executor. When MacGregor decided not to serve as co-executor (in response to Mackay's assurances that Glenn Miller's estate was almost completely settled and MacGregor was not needed), Mackay became sole successor executor under Glenn Miller's will and began to take executor's commissions. As indicated above, Mackay was also still receiving one third of the royalties that accrued under the 1963 payment schedule on the RCA contract, which was due to expire on March 15, 1967.
In letters to Steven Miller and Jonnie Soper, dated June 20, 1968, Mackay explained the arrangements that he had with Mrs. Miller concerning his receipt of one-third of the RCA royalties, after the $15,000 exclusion each year. He also explained that he had been receiving annual fees of $5,000 from the Glenn Miller estate for legal services. Mackay proposed that in the future the $15,000 exclusion be eliminated, thereby entitling him to one-third of all royalties, and also that the $5,000 legal services
fee be eliminated. Although it would appear that this would make no difference in Mackay's income unless the royalties fell below $15,000 in any year, in which case Mackay would earn less than he had before, it is worth observing that if Mackay had closed the Glenn Miller estate by December 31, 1967, as the trial court found that he should have, he would no longer have received the annual $5,000 for legal fees to the estate.*fn1 As it was, both Miller and Soper agreed to Mackay's proposal, and Mackay continued to receive one-third of the royalties thereafter.
Sometime in 1975, after a disagreement between respondents and Mackay, respondents initiated an investigation into Mackay's dealings in relation to the estate. As a result of that investigation respondents brought an action for an accounting and to surcharge Mackay for certain monies that they alleged he wrongfully took. After a fourteen day trial, the trial court issued an opinion containing several findings.
The court found that Mackay had improperly computed certain executor's commissions. It refused to find, however, that Mackay had improperly charged attorney's fees to the Glenn Miller estate. Although these findings were the subject of appeal and cross-appeal in the Appellate Division, the parties do not raise them before us.
The sole issue that we face is whether there is sufficient credible evidence to support the trial court's conclusion that the documents executed by Mrs. Miller did not entitle Mackay to receive one-third of the income of the RCA royalties after March 15, 1967.*fn2 See State v. Johnson, 42 N.J. 146, 162 (1964).
On their face the documents that granted Mackay a one-third interest in the proceeds of the RCA royalties do not give any indication of how long Mackay was to continue to receive that interest. The trial court's task then was to resolve the ambiguity as to the duration of Mackay's interest by examining the intent of the parties in the context of well-settled principles of law. Perpetual contractual performance is not favored in the law and is to be avoided unless there is a clear manifestation that the parties intended it. West Caldwell v. Caldwell, 26 N.J. 9, 29 (1958); Koch v. Koch, 95 N.J. Super. 546, 550 (App.Div.1967); 1 Williston on Contracts § 38 (3d ed. 1957); 3 Corbin, Contracts § 553 (1960). The documents themselves contain no words that would indicate such intent. The trial court was unable to find any clear manifestation in the record that Mrs. Miller intended to give Mackay an interest that would last in perpetuity, nor did Mackay ever testify that Mrs. Miller acknowledged at any time that he had such an interest.
The parties' conduct, in fact, could reasonably be interpreted to indicate the opposite. Each time the payment schedule was extended, Mackay insisted that Mrs. Miller execute a new document. If, as appellant now argues, the original transfers gave an interest in royalties as long as they accrued, it would not have been necessary to modify those transfers merely because the payment schedule was modified. Also of importance
is the fact that Mrs. Miller expressed a desire to give Mackay an interest in the royalties on a year-to-year basis. Only when Mackay convinced her that such an arrangement would have an adverse tax effect did she sign the transfers as written by Mackay. Her attempt to pay Mackay yearly is a strong indication that Mrs. Miller never intended Mackay's interest to be perpetual.
In short, after canvassing the entire record, we conclude that there is sufficient support for the trial court's finding that Mrs. Miller did not intend Mackay to continue to receive a one-third interest in the RCA royalties for as long as they continued to accrue. See State v. Johnson, supra, 42 N.J. at 162.
The trial court next found that "the parties intended that Mackay's right to participate in the royalties run only as long as the period of the guaranteed payment for the royalties in the underlying contracts between RCA and the Glenn Miller estate." Those guaranteed payments ended on March 15, 1967, and, therefore, so did Mackay's interest.
In its effort to arrive at the termination date the trial court was again faced with the task of determining the parties' intent. Ordinarily, if a contract contains no express terms as to its duration, it is terminable at will or after a reasonable time. Esslinger's v. Alachnowitz, 68 N.J. Super. 339 (App.Div.1961); see P.S. & E., Inc. v. Selastomer Detroit, Inc., 470 F.2d 125, 128 (7th Cir. 1972); 1 Williston on Contracts § 38 (1957); 1 Corbin, Contracts § 96 (1967). As is pointed out in the Restatement of Contracts, when parties to a contract have not agreed in respect of a term that is essential to a determination of their rights and duties, a term that is reasonable in the circumstances is supplied by the court. Restatement (Second) of Contracts § 204 (1981).
Both the meaning of the words used and the probability that a particular term would have been used if the question had been raised may be factors in determining what term is reasonable in the circumstances. But where there is in fact no agreement, the court should supply a term which comports with community standards of fairness and policy rather than analyze a hypothetical model of the bargaining process. [ Id., comment d (emphasis supplied).]
Considering the effort that Mackay expended in connection with the RCA recording contracts and the return that he received for that effort (more than $400,000 between 1952 and 1967), there is adequate evidence buttressing the trial court's finding that March 15, 1967 was a reasonable termination date for Mackay's interest in royalties.
Moreover, if a definite period of time can be inferred from the conduct of the parties and the surrounding circumstances, then that time period should govern the duration of the agreement. Ricke v. Ricke, 83 Ill.App. 3d 1115, 1120, 39 Ill.Dec. 598, 603, 405 N.E. 2d 351, 356 (1980); Medders v. Medders, 40 N.C.App. 681, 685, 254 S.E. 2d 44, 47 (1979). Several facts support the inference that Mrs. Miller intended that Mackay's interest would end on March 15, 1967. Of greatest importance is the close link between the RCA royalty contracts and the documents transferring an interest in those royalties to Mackay. The 1954 and 1955 RCA contracts, and the subsequent amendments to the latter, contained fixed periods during which guaranteed payments were to be made. Each time the payment schedule was modified and extended, Mackay asked Mrs. Miller to sign a new document that gave him an interest pursuant to the new RCA agreement. Surely this supports the inference that Mrs. Miller understood that the interest she was assigning to Mackay was limited in time to the payment schedules in the underlying RCA contracts. ...