Curtis G. Testerman Co. v. Buck

CHASANOW, Judge. Appellants Curtis G. Testerman and Curtis G. Tester-man Company appealed to the Court of Special Appeals from a judgment entered by the Circuit Court for Cecil County confirming an arbitration award against both Appellants in favor of Appellees Walter and Gabrielle Buck. We granted certiorari on our own motion prior to review by the intermediate appellate court. Several questions are raised in this appeal.

First, whether the trial court erred by compelling Testerman, a non-signatory to the contract at issue, to arbitrate. Second, whether the trial court erred by confirming the arbitrator’s award of attorney fees when the arbitration clause in the parties’ contract did not contain a provision authorizing an award of attorney fees. 1 Facts This action arises out of a suit instituted by Walter and Gabrielle Buck (the Bucks) in the Circuit Court for Cecil ⁵⁷³ County against Curtis G. Testerman Company (the Company) and Curtis G. Testerman (Testerman) individually, seeking damages for, inter alia, breach of contract, negligence and violation of the Consumer Protection Act (CPA), Maryland Code, (1975, 1990 Repl.Vol., 1995 Supp.), Commercial Law Article, §§ 13-301 through 13-501. The underlying dispute involved construction work performed by the Company pursuant to a construction contract (the contract) signed by the Bucks as Owner and the Company as Contractor. 2 The contract called for the construction of an addition to the Bucks’ house and various other home improvements. The Bucks filed suit after the Company allegedly failed to complete the work within the time called for by the contract.

The Company moved to compel arbitration pursuant to the arbitration agreement in the contract between the parties. Section 10.8 of the contract provides in pertinent part: “All claims or disputes between the Contractor and the Owner arising out or relating to the Contract, or the breach thereof, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect unless the parties mutually agreed otherwise and subject to an initial presentation of the claim or dispute to the Architect as required under Paragraph 10.5. * * * The award rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof.” The circuit court granted the Company’s motion and ordered the Bucks and the Company to arbitrate their dispute. Testerman then filed a motion to dismiss the complaiiit against him individually claiming that he was not a party to the contract and was not personally liable for the acts of the corporation. The court denied Testerman’s motion to dismiss and, pursuant to the Buck’s motion to compel Testerman into ⁵⁷⁴ arbitration, ruled that Testerman was bound by the arbitration clause in the contract.

The Company, Testerman and the Bucks entered into arbitration. As a result, the arbitrator awarded the Bucks $65,-607.00 in damages and $20,758.75 in attorney fees and held the Company and Testerman jointly and severally liable. The trial judge confirmed the arbitrator’s award and entered final judgment in favor of the Bucks. Both Testerman and the Company noted their appeal to the Court of Special Appeals.

We granted certiorari prior to review by that court. We are asked by Appellants Testerman and the Company to determine the following issues: I. Whether one who is neither a party to the arbitration agreement nor a signatory of the underlying contract can be bound by an arbitration award.

II

Whether an arbitrator has the authority to award attorney fees when the contract between the parties did not provide for the recovery of attorney fees in the event of a dispute but the CPA, under which claimants also sought recovery, authorizes attorney fees to be awarded by a “court.” For the reasons set forth below, we answer “no” to both questions. Accordingly, we reverse and hold that the trial court erred as a matter of law. I. Testerman first challenges the trial judge’s order compelling him to join the Company and the Bucks in arbitration. Testerman does not dispute that he might be held personally liable for any negligence in which he participated, but contends that he cannot be forced to arbitrate his liability since he never agreed to resolve disputes through arbitration.

Testerman argues that the contract and its accompanying arbitration clause were entered into by the Company only, not by him individually. He claims he signed the contract on behalf of the Company as its president, not in his individual ⁵⁷⁵ capacity. Thus, Testerman argues that he cannot be bound by a provision to which he did not agree. The contract names the contractor as “Curtis G. Testerman, Inc.” and was signed in the following manner: OWNER CONTRACTOR /s/ /s/____ /s/_______ (Signature) (Signature) Walter Buck Curtis G. Testerman, Inc. Gabrielle Buck_ Curtis G. Testerman, President (Printed name and title) (Printed name and title) A. The Bucks argue that since the contract was executed in the name of “Curtis G. Testerman, Inc.” instead of “Curtis G. Testerman Company,” the actual corporate name, Tester-man entered into the contract on behalf of “an unincorporated entity and apparently unregistered trade name” and is therefore personally liable.

We find no merit in this contention. The circuit court found that the use of “Inc.” instead of “Company” was a misnomer and therefore, “the company [wa]s the valid party to the contract.” Further, the record discloses no allegations that the Bucks thought they were contracting with Testerman in his individual capacity. The use of the term “Inc.” indicates corporate status. See Md. Code (1975, 1993 Repl.Vol., 1995 Supp.) Corporations and Associations Art., § 2-106(a) (corporate status is indicated if the name contains certain words or abbreviations including “Company” or “Incorporated”).

Thus, we conclude the Bucks knew that they were dealing with a specific corporation. We cannot allow the Bucks to use a simple misnomer in the corporate name to hold Testerman personally liable. We believe that “[a] mistake in setting out the name of a corporation in an instrument is not fatal where the identity of the corporation is apparent.” 7 William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations ⁵⁷⁶ § 3014, at 149 (perm. ed. rev. vol. 1988). See In re Goldville Mfg.

Co., 118 F. 892, 896 (1902) (“If the contract is expressed in writing and the identity of the corporation can be ascertained from the instrument itself, the misnomer is wholly unimportant.”), aff'd, William Firth Co. v. South Carolina Loan & Trust Co., 122 F. 569 (4th Cir.1903); Seaboard Commercial Corp. v. Leventhal, 120 Conn. 52 , 178 A. 922 (1935) (“[I]n case of a misnomer of a corporation in a ... written contract if there is enough expressed to show that there is such ah artificial being and to distinguish it from all others, the corporation is sufficiently named____”). Cf. Dart Drug Corp. v. Hechinger Co., 272 Md. 15, 28 , 320 A.2d 266,274 (1974) (assumed that the use of the name Dart Drug, Inc. instead of the actual corporate name, Dart Drag Corporation, on complaint was a “misnomer” and not fatal to plaintiffs case). Clearly, the identity of the corporation, Curtis G. Testerman Company, could be ascertained from the face of the contract and was apparent to the Bucks.

We hold that the trial judge in the instant case correctly ruled that the use of “Inc.” was a misnomer and that “the [Curtis G. Testerman] [C]ompany [wa]s the valid party to the contract.” Thus, the misnomer that appeared on the face of the contract is not sufficient to release the corporation from liability leaving Testerman, the Company’s agent, personally liable on the contract. B. In the alternative, the Bucks argue that Testerman, either as agent or corporate officer of the Company, is personally liable for and subject to the provisions of the contract, i.e., the arbitration clause. We disagree. First, if Testerman signed the contract on behalf of the Company, a disclosed principal, he cannot be held personally liable as an agent.

The rule in Maryland is clear that “if an agent fully discloses the identity of his principal to the third party, then, absent an agreement to the contrary, he is insulated from liability. However, this is subject to exception ⁵⁷⁷ when the purported principal that is disclosed is nonexistent or fictitious; or when the principal is legally incompetent.” A.S. Abell Co. v. Skeen, 265 Md. 53, 56 , 288 A.2d 596, 597-98 (1972) (citations omitted). Further, when, “upon the face of an agreement, a party contracting plainly appears to be acting as the agent of another, the stipulations of the contract are to be considered as solely to bind the principal” unless otherwise intended. Burkhouse v. Duke, 190 Md. 44, 46-47 , 57 A.2d 333, 334 (1948) (emphasis added) (citation omitted).

See also Ace Development Co. v. Harrison, 196 Md. 357, 366 , 76 A.2d 566, 570 (1950) (“[W]hen an official or agent signs a contract for his corporation it is simply a corporate act. It is not the personal act of the individual, and he is not personally liable for the corporate contract unless the matter is tainted by fraud____”). 3 Consequently, “[signing an arbitration agreement as agent for a disclosed principal is not sufficient to bind the agent to arbitrate claims against him personally.” Flink v. Carlson, 856 F.2d 44, 46 (8th Cir.1988). Here, Testerman clearly signed the contract as an agent for a disclosed principal. The contract identifies a corporation as the contractor, both in the heading and the signature page.

Moreover, the signature line containing Testerman’s signature is captioned by the title “President.” These facts suggest that Testerman signed the agreement in a representative capacity and that the Bucks were well aware that Testerman was acting as an agent for the Curtis G. Testerman Company. Therefore, Testerman is not bound by the arbitration clause in the contract as an agent. Alternatively, the Bucks argue that because Tester-man, as a corporate officer, may be liable for the torts of the corporation in which he has participated, he can be compelled to participate in arbitration. It is settled that officers of a corporation is personally liable for torts of the corporation in which they actively participated.

Metromedia v. WCBM Ma ⁵⁷⁸ ryland, 327 Md. 514, 520 , 610 A.2d 791, 794 (1992). The rule is clear, however, that an officer is not personally liable on an agreement when there is no evidence in the record that the officer intended to assume the obligation. See Security Ins. Co. v. Mangan, 250 Md. 241, 245 , 242 A.2d 482, 485 (1968). “In modem times most commercial business is done between corporations, everyone in business knows that an individual stockholder or officer is not liable for his corporation’s engagements unless he signs individually, and where individual responsibility is demanded the nearly universal practice is that the officer signs twice—once as an officer and again as an individual.

There is great danger in allowing a single sentence in a long contract to bind individually a person who signs only as a corporate officer. Salzman Sign Co. v. Beck, 10 N.Y.2d 63 , 217 N.Y.S.2d 55, 57 , 176 N.E.2d 74, 76 (1961). Since Testerman can only be held liable in tort and not on the contract as an officer of the Company, he cannot be subject to the contract’s provisions, i.e., the arbitration clause. Thus, the only way that Tester-man can be compelled to arbitrate is if an agreement to arbitrate exists between the Bucks and Testerman in his individual capacity.

C. The Maryland Uniform Arbitration Act, Md.Code (1974, 1995 Repl.Vol.), Courts & Judicial Proceedings Art., §§ 3-201 through 3-234, mandates that “[i]f the opposing party denies existence of an arbitration agreement, the court shall proceed expeditiously to determine if the agreement exists.” Section 3-207(b). The Arbitration Act leaves but one issue for the court to resolve: “is there an agreement to arbitrate?” Bel Pre Med. v. Frederick Contr., 21 Md.App. 307, 320 , 320 A.2d 558, 566 (1974), aff'd, 274 Md. 307 , 334 A.2d 526 (1975). See also Holmes v. Coverall North America, Inc., 336 Md. 534 , 649 A.2d 365 (1994) (court’s involvement extends only to determination of existence of arbitration agreement). Accord AT & T Tech., Inc. v. Communications Workers, 475 U.S. 643, 649 , 106 S.Ct. 1415, 1418 , 89 L.Ed.2d 648, 656 (1986) ⁵⁷⁹ (“the question of arbitrability ... is undeniably an issue for judicial determination”).

Since Testerman opposed the Bucks’ motion to compel arbitration on the basis that an agreement between them did not exist, the trial judge was vested with authority to decide this issue. The trial judge, believing that “there w[ere] enough allegations made to keep him in the case,” ordered Testerman to participate in arbitration with the Bucks and the Company. We hold that although there may have been “enough allegations” to hold Testerman liable, the trial judge erred by forcing Testerman to litigate his liability in an arbitral forum. Arbitration is a “process whereby parties voluntarily agree to substitute a private tribunal for the public tribunal otherwise available to them. * * * A party cannot be required to submit any dispute to arbitration that it has not agreed to submit.” Gold Coast Mall v. Larmar Corp., 298 Md. 96, 108 , 468 A.2d 91, 95 (1983) (emphasis added).

Accord United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 , 80 S.Ct. 1347, 1353 , 4 L.Ed.2d 1409, 1417 (1960). Arbitration is “consensual; a creature of contract. As such, only those who consent are bound. * * * In the absence of an express arbitration agreement, no party may be compelled to submit to arbitration in contravention of its right to legal process.” Thomas J. Stipanowich, Arbitration and the Multiparty Dispute: The Search for Workable Solutions, 72 Iowa L.Rev. 473, 476 (1987) (citing Martin K. Eby Constr. Co. v. City of Arvada, 522 F.Supp. 449, 451 (D.Colo.1981)).

Accord Messersmith, Inc. v. Barclay Townhouse, 313 Md. 652, 658 , 547 A.2d 1048, 1051 (1988) (“ ‘No one is under a duty to resort to ... [arbitral] tribunals, however helpful their processes, except to the extent that he has signified his willingness.’ ”) (citation omitted). An arbitration agreement cannot impose obligations on persons who are not a party to it and do not agree to its terms. 4 See A.B. Engineering Co. v. RSH ⁵⁸⁰ Intern., Inc., 626 F.Supp. 1259, 1263 (D.Md.1986). Hence, if Testerman was not a party to the agreement or underlying contract, he cannot be bound by the arbitration provision. The fundamental rule in the construction and interpretation of contracts is that the intention of the parties as expressed in the language of the contract controls the analysis.

Kasten Constr. v. Rod Enterprises, 268 Md. 318, 328 , 301 A.2d 12, 18 (1973). See also Crown Oil v. Glen, 320 Md. 546, 558 , 578 A.2d 1184, 1189 (1990). Here, it seems apparent that the Bucks and the Company never intended for the contract to bind Testerman individually. Had they so intended, Tester-man would have signed his name twice—once as an officer and again as an individual.

See Salzman, supra. Testerman, however, signed solely in his representative capacity. Further, there is ample evidence that the Bucks knew they were contracting solely with a corporation. Based upon a totality of the circumstances, it is clear that the parties to the contract were intended only to be the Bucks, as Owner, and the Company, as Contractor, and as a result, Testerman did not individually agree to arbitrate.

In their brief, the Bucks argue that both the Federal and Maryland Arbitration Acts 5 “express a policy favoring arbitration” and that “arbitration clauses are to be read liberally, with all doubts resolved in favor of arbitration.” The Bucks’ theory, however, fails in that an arbitration clause is only “liberally read” when an arbitration agreement in fact exists. See McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir.1994) (The liberal policy “does not extend to situations in which the identity of the parties who have agreed to arbitrate is un ⁵⁸¹ clear.”); A.B. Engineering Co., 626 F.Supp. at 1263 (“[N]o matter how broadly an agreement is construed, it cannot impose obligations on a person who is not a party to that agreement.”). D. Finally, the Bucks cite in their brief numerous cases in support of the proposition that an arbitration agreement can be enforced against non-signatories or non-parties to the agreement. The Bucks’ reliance on these cases, however, is misplaced.

Many of the cases involved federal statutes and principles which are inapplicable to the facts in the instant case. 6 For example, under certain circumstances, some non-signatories to an arbitration agreement, such as successor corporations of original parties to the arbitration agreement, may be made parties to the arbitration proceedings. In addition, in many of the cases cited by the Bucks, it was a party to the arbitration agreement who objected to the non-party or non-signatory asking to, or agreeing to, join in arbitration. 7 See Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110 (3rd Cir.1993) (non-signatory agent’s liabil ⁵⁸² ity held arbitrable over objection by party to arbitration agreement); Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100 (2nd Cir.) (active and voluntary participation in arbitration by employees manifested a clear intent to arbitrate the dispute albeit impliedly), cert. denied, 502 U.S. 910 , 112 S.Ct. 305 , 116 L.Ed.2d 248 (1991); Arnold v. Arnold Corp., 920 F.2d 1269 , 1281 n. 10, 1282 (6th Cir.1990) (“[T]he non-signatory defendants indicated that they wished to submit the dispute to arbitration and agreed that they would be bound by the decision of the arbitrator.” Further, the court found that “the language of the arbitration agreement indicate[d] that the [signatory] parties’ basic intent was to provide a single arbitral forum to resolve all disputes.... ”); Federated Dept. Stores v. J.V.B. Industries, 894 F.2d 862 (6th Cir.1990) (contractor’s parent corporation and alter ego could voluntarily join in arbitration even though it was not a party to the construction contracts); Letizia v. Prudential Bache Securities, Inc., 802 F.2d 1185, 1188 (9th Cir.1986) (broker’s employees, non-signatories to the arbitration agreement, permitted to join in arbitration as defendants over plaintiff customer’s objection; broker had “clearly indicated its intention to protect its employees through its Customer Agreement”); Mosca v. Doctors Associates, Inc., 852 F.Supp. 152 (E.D.N.Y.1993) (defendant employees sought to join in arbitration as