Bryans Road Building & Supply Co. v. Grinder

Wilner, J., delivered the opinion of the Court. The "nice sharp quillets of the law” 1 are both weapon and shield, thrust and parry. Or, as appellant would say in this case, "my technicality prevails over your technicality.” In the end, it is the Court’s technicality, unrecognized as yet by either party, that will prevail. This proceeding commenced on May 1, 1978, when appellant, a building supply company, sued Elvin Grinder, individually and trading as Grinder Construction, in the Circuit Court for Charles County, for some $5,900.

The suit was for goods sold and delivered on a long-standing open account. Attached to the Declaration was a motion for summary judgment, accompanied by an affidavit and copies of monthly statements sent to Elvin Grinder showing the periodic status of the account and the final balance due. On June 20, 1978, Mr. Grinder, individually, filed a general issue plea to the Declaration and an answer to the motion for summary judgment. In this answer, Grinder asserted that, since May 1, 1973 (a date earlier than any of the purchases sued upon), he had made all purchases from appellant on behalf of a corporation known as G. Elvin ¹² Grinder Construction, Inc., of which he was president, that he never guaranteed the corporate obligation personally, and that he was not, therefore, liable for its indebtedness in his individual capacity.

With this assertion, he sought to defeat summary judgment on the basis of having raised a genuine dispute of material fact. The court agreed, and, on June 29, 1978, denied appellant’s motion. Appellant responded on August 15, 1978, with an Amended Declaration in which it (1) expanded its action against Grinder individually with a claim that the corporation was his "alter ego,” that Grinder undercapitalized the corporation during its corporate life, and that he caused it to incur debts when there was no reasonable possibility that it had sufficient assets to cover those debts, and (2) brought the corporation in as an additional defendant. General issue pleas were filed to the Amended Declaration on behalf of both Grinder individually and the corporation.

Appellant then propounded rather extensive interrogatories to both defendants, seeking detailed information about their relationship and the fiscal affairs of the corporation. After a three-month wait, the defendants served answers that gave virtually no information. Most of the questions were not answered at all. Appellant, on February 23, 1979, moved for summary judgment against the defendant corporation, relying primarily upon Grinder’s admissions contained in his answer (and affidavit) filed in response to appellant’s earlier motion against him.

As the corporation was penniless and defunct, no one opposed this new motion; and, on May 25, 1979, it was routinely granted. On that day, judgment in the amount of $5,912.68 was entered against G. Elvin Grinder Construction, Inc. Trial of the case against Grinder individually had previously been set for June 4,1978, and no attempt was made to disturb that proceeding. No further pre-trial pleadings were filed. At trial, appellant’s position was that the account in question was opened in 1961, that it was in the name of Elvin Grinder, individually, trading as Grinder Construction, and that it was never changed to or ¹³ superseded by a corporate account.

Appellant maintained that all purchases were made on this one account, that there never was a corporate account, and that appellant was never informed of the corporate existence. This was significant, appellant argued, because of its policy of not extending credit on corporate accounts without individual guarantees. Grinder’s response, and its defense to the claim, was that, by taking judgment against the corporation, appellant had, at least implicitly, recognized the existence of the corporation and the status of the account in question as a corporate one. Otherwise, he argued, appellant had no right to a judgment against the corporation.

Thus, by seeking and taking that judgment, appellant was estopped from claiming that the account was an individual one and pursuing judgment against Grinder individually. As counsel for Grinder said in summation, "the proceedings narrow down to a rather narrow issue, was there a corporate account or not.” It was in the context of that "narrow issue” that he argued the relevance of the corporate judgment. The court was more precise. It saw the case as involving two quite different issues: (1) was the individual account ever replaced with a corporate one, and (2) in any event, if Grinder, individually, was acting as agent for the corporation and the corporation at the time was an undisclosed principal, did the taking of judgment against the principal constitute an election sufficient to preclude judgment also against the agent?

The court initially answered both questions in the negative and thus awarded judgment against Grinder individually, notwithstanding the prior judgment against the corporation. It found that appellant was unaware of the corporate existence and relied upon Grinder’s individual credit and integrity. In effect, it concluded that even if Grinder was acting in the capacity of an agent, his principal — the corporation — was undisclosed insofar as appellant was concerned. Three days later, Grinder moved to strike the judgment, picking up the issue elucidated by the court and contending ¹⁴ that the court had erred in rejecting his theory of estoppel.

After a hearing, the court concluded that the matter was controlled by the doctrine of "election” enunciated most recently in Traylor v. Grafton, 273 Md. 649 (1975), and, ignoring appellant’s argument that that defense was not properly before the court, struck the judgment and entered judgment in favor of Grinder. 2 In doing this, the court correctly stated the substantive law, but wrongfully applied it. (1) Appellee’s Technicality In Codd Company v. Parker, 97 Md. 319, 325 (1903), the Court made clear that "where an agent contracts in his own name, without disclosing his interest, though in fact for the exclusive benefit of another person, who is afterwards discovered, the creditor may sue either, but after he has elected whom to sue and has sued, either the agent or principal to fínal judgment, he cannot after that sue the other, whether the first suit has been successful or not.” (Emphasis in the original.) This doctrine of "election” 3 was explained in somewhat greater detail in Hospelhorn v. Poe, 174 Md. 242 (1938), and again in Traylor v. Grafton, supra, 273 Md. 649 . See also Wheaton Lumber Co. v. Metz, 229 Md. 78 (1962). The "bottom line” of it, as stated in both Hospelhorn (p. 261) and Traylor (p. 675) is this: "If the third party contracts] with an agent for an ¹⁵ undisclosed principal, he may hold the agent or, upon discovery, the principal, but the third party cannot recover from both.

If the third party elects to hold the agent, the principal is discharged; and, conversely, if he elects to hold the principal, the liability of the agent is at an end.” (Emphasis supplied.) The third party is entitled to join both principal and agent as co-defendants in a single action, and he may thus proceed against both. The election does not occur "until he takes a fínal judgment against the one he thus elects to hold to the exclusion of the other.” (Emphasis supplied.) Hospelhorn at 259 ; Traylor at 674 . It is thus the final judgment that constitutes the election and bars recovery against the alternative defendant. This doctrine — appellee’s "technicality” — can come into play in a number of factual settings.

In Codd Company v. Parker, supra, the plaintiff had recovered judgment against the principal before suit was ever filed against the agent. The defense of discharge based on election thus existed at the time the second suit was filed. By way of contrast, in Wheaton Lumber Co., supra, principal and agent were joined as co-defendants in the same action, but judgment against one was entered upon pre-trial motion. 4 In that ¹⁶ situation, as in the one sub judice, the defense of election (and thus of discharge) arose during the proceeding and did not exist ab initio. This distinction is critical when considering, (2) Appellant’s Technicality It will be recalled that Grinder’s only plea to the Declaration and Amended Declaration was the general issue — "not indebted as alleged.” Maryland Rule 342 b. 3 provides that "[u]nder a general issue plea any matter of defense shall be admissible in evidence, except such matters as must be specially pleaded pursuant to section c of this Rule. ” (Emphasis supplied.) Section c. 1 of Rule 342 states, in relevant part: "The following matters of defense must be specially pleaded in an action ex contractu: (e) Pleas Puis Darrein Continuance Any defense on the merits arising after suit brought.” (Emphasis on "must” supplied.) This part of Rule 342 c serves merely to codify and perpetuate the common law plea puis darrein continuance (since the last continuance), which has been accepted as part of our system of common law pleading at least since Agnew v. Bank of Gettysburg, 2 H. & G. 479 (1828), where, at page 492, the Court of Appeals stated: "The cases are very conclusive to shew, that where matter of defence arises after the institution of the suit, it must in general be specially plead, and ¹⁷ cannot be given in evidence under the general issue, as in the case of of [sic] a release given after the commencement of the suit, or a reference and award made pendente lite, or hostile alienage happening after the commencement of the action, or coverture of the plaintiff after action brought, or any matter of abatement occurring after suit brought, or after plea pleaded to the merits.

All other matters which go to the foundation and gist of the plaintiffs action, at the time of its commencement, with some very special exceptions, which it would be unnecessary to enumerate, may be given in evidence under the general issue. Defences arising after the commencement of the action should be plead puis darrein continuance, or against the further maintenance of the suit.” (Emphasis supplied.) This "doctrine,” the court said at p. 492, is "founded in justice, and calculated to prevent surprise.” 5 It served not only to prevent the defendant from offering evidence of the new circumstance raised in defense (expiration of the plaintiff bank’s charter after suit was filed), but also from availing himself of the fact to nonsuit the plaintiff. At p. 492: "Whether the bank was dissolved or not pending the suit, was not in issue, and the fact of the dissolution of the charter having taken place after the commencement of the