Allen v. Kaplan

Singley, J., delivered the opinion of the Court. William L. Allen and Rose F. Allen, his wife (the Al-lens) brought suit against Milton Kaplan in the Circuit Court for Prince George’s County to enforce what they conceived to be Kaplan’s obligation as co-maker of a promissory note. From an order entering summary judgment in Kaplan’s favor for costs, the Allens have appealed. In 1961, the Allens sold a tract of 138 acres in Prince George’s County to Harrison Construction Co., Inc. (the Harrison Company) for approximately $600,000, of which $494,190.40 was represented by the deed of trust note signed by the Harrison Company and Kaplan, and secured by a, deed of trust on the property, executed by the Harrison Company.

The note called for annual payments of $49,419.04 in reduction of principal commencing on 31 May 1962; for semi-annual payments of interest beginning 30 November 1961 on the unpaid balance of principal at the rate of 3% per annum; for interest at the rate of 6 % on arrearages of interest; in the ⁴¹² event of default, for current interest at the rate of 6% and for the acceleration of maturity; for a late charge of 1% on payments more than 15 days in arrears; and for the payment by the obligors of “all costs of collection, including a reasonable attorney’s fee if [the note was] referred to an attorney for collection after default.” The note was not only signed by the Harrison Company and Kaplan, but contained the provision: “The undersigned, Milton Kaplan, hereby agrees to be bound by and liable on all the terms, conditions and covenants of the deed of trust securing this note.” In October, 1961, less than three months after the consummation of the purchase, the Harrison Company filed a petition in bankruptcy. When the instalment of interest due 30 November 1961 was not paid, the Allens gave the obligors notice of acceleration of maturity, and demanded payment. After considerable procedural sparring in the bankruptcy court, v/hich is of no consequence here, the property subject to the deed of trust was sold by the bankruptcy trustee along with other property owned by the Company. Of the sale price, $604,632.85 was allocated to the Allen tract, and from this the unpaid principal amount of the debt owed the Allens, $494,-190.40 was ultimately paid.

It would appear that the balance of the sale proceeds would have been sufficient to pay the additional amounts now claimed by the Allens, but the record does not disclose the extent to which the claims of unsecured creditors of the bankrupt were satisfied. Then commenced a contention as to the amounts to which the Allens were entitled in satisfaction of the provisions of the note which provided for 6% interest on arrearages, the late charge and interest after. default at the rate of 6%, and the stipulation that the obligors would pay “all costs of collection, including a reasonable attorney’s fee.” ⁴¹³ The Allens claimed an amount of $84,171.28, of which $64,171.28 was interest and $20,000 represented counsel fees. The referee allowed them $41,026.12, of which $36,-026.12 was interest and $5,000.00 was an allowance of counsel fee. The difference between the amount claimed and the amount allowed, other than the reduction in the amount of the counsel fee, is explained by the fact that the referee reduced the rate of interest claimed from 6 % to 3%, except as to the sum of $65,000, which the Allens had borrowed from Citizens National Bank of Laurel, pledging the Harrison Company-Kaplan note as security.

Because the interest charged on this loan was 5 Yz%> the referee allowed 5Ys % on $65,000. 1 In disallowing the full amount of the interest claimed, the referee relied on broad equitable principles, Vanston Bondholders Protective Committee v. Green, 329 U. S. 156 , 67 S. Ct. 237 , 91 L. Ed. 162 (1946); United States v. Harrington, 269 F. 2d 719 (4th Cir. 1959), but was careful to point out that the order was not intended to preclude further action against a party other than the Harrison Company: “This Order is made without prejudice to the rights of the Allens against any party, other than the Bankrupt, or any guarantor or endorser of the Deed of Trust Note evidencing the obligations of the Bankrupt to the Allens, and this Order has no effect upon the rights of the Allens against any party other than the Bankrupt by reason of the Note or the Deed of Trust.” The Allens took no appeal from the referee’s order but sued Kaplan on the note and the deed of trust in the Circuit Court for Prince George’s County. Their declaration claimed damages in the amount of $60,000. A detailed computation of the amount which they claim totals $56,607.29. In summary, this is made up of unpaid ⁴¹⁴ principal, interest on arrearages of interest, late charges and the interest differential, together with $16,946.40 of attorneys’ fees and expenses not allowed in the bankruptcy proceeding, and additional attorneys’ fees incurred in the Prince George’s County suit amounting to $3,500.

While the arithmetical accuracy of these calculations does not appear to be in dispute, it is the entitlement which is challenged. The Allens question the correctness of the result reached by the court below, which concluded that the determination reached by the referee was res judicata as to their claim. The Allens rely principally on our decision in Pat Perusse Realty Co. v. Lingo, 249 Md. 33 , 238 A. 2d 100 (1968), which was also cited in the opinion of the lower court. As we see it, the Allens are right.

In Pat Perusse, Chief Judge Hammond, in the careful opinion which he filed for the Court, recognized that the rule of mutuality had always had its exceptions, modifications and extensions, and that our predecessors had intimated in at least two cases that the requirement of mutuality of parties might not be insisted on. Pat Perusse recognized the rule of the recent cases that “The criteria for determining who may assert a plea of res judicata differ fundamentally from the criteria for determining against whom a plea of res judicata may be asserted,” Bernhard v. Bank of America, 19 Cal. 2d 807, 811-12 , 122 P. 2d 892 (1942), cited with approval in Zdanok v. Glidden Co., 327 F. 2d 944, 954 (2d Cir. 1964) but also recognized the rule of Coca-Cola Co. v. Pepsi-Cola Co., 36 Del. 124, 132-33 , 172 A. 260 (1934) that “Where the plea of res judicata is raised by one not a party to the prior suit against one who was such a party * * * assuming the identity of the issues, we are of the opinion that a plaintiff who deliberately selects his forum and there unsuccessfully presents his proofs, is bound by such adverse judgment in a second suit involving all the identical issues already decided.” (emphasis added). While Pat Perusse widened the breach in the wall of mutuality and permitted the plea of res judicata to be raised ⁴¹⁵ by one not a party to the prior suit against one who was a party, mutuality still shelters the plaintiff who did not select the first forum. Not only did the Allens not choose the bankruptcy court as the forum in which to assert their rights against the Harrison Company, but the issues as regards the bankrupt, under the structure of the Bankruptcy Act, were significantly different from the issues as regards Kaplan, which are controlled by State law.

Vanston Bondholders Protective Committee v. Green, supra, 329 U. S. 156 , 67 S. Ct. 237 , 91 L. Ed. 162 (1946); Heiser v. Woodruff, 327 U. S. 726 , 66 S. Ct. 853 , 90 L. Ed. 970 (1946); Young v. Higbee Co., 324 U. S. 204 , 65 S. Ct. 594 , 89 L. Ed. 890 (1945); Prudence Realization Corp. v. Geist, 316 U. S. 89 , 62 S. Ct. 978 , 86 L. Ed. 1293 (1942); Meek v. Centre County Banking Co., 268 U. S. 426 , 45 S. Ct. 560 , 69 L. Ed. 1028 (1925); 30A Am. Jur. Judgments § 335 (1958) at 379. If the issues are not identical, the shelter of mutuality remains.

Pat Perusse, supra, 249 Md. at 38, 39, 40, 45 ; Polansky v. Orlove, 252 Md. 619, 624 , 251 A. 2d 201 (1969). Kaplan urges that collateral estoppel without mutuality is still available to him as a defense under the indemnitor-indemnitee exception to the mutuality rule, citing Ugast v. LaFontaine, 189 Md. 227 , 55 A. 2d 705 (1947) and Restatement, Judgments § 97 (1942). We think that the lack of identity of issues, heretofore discussed, is the answer to this contention, fortified by the results reached in the cases to be discussed below, where the scaling down of the debtor’s obligations in reorganization proceedings has been held to offer no solace to the solvent guarantor. We have been referred to no case, and have found none, which is precisely dispositive of the issue here presented.

There