Hall v. Barlow

Finan, J., delivered the opinion of the Court. The appellants brought this action in contract premised on the appellee’s breach of implied warranty in failing to obtain the endorsement of The Barlow Corporation on a purchase money promissory note on which $316,800.00 was due and owing. 1 Moorman, J., sitting without a jury found the claim barred by limitations; however, anticipating the possibility of appeal and seeking to relieve the parties from circuitous litigation, the court proceeded to decide the case on its merits, finding in favor of the appellee-defendant. For the reasons which follow, we think the judgment of the lower court should be reversed. This action was instituted by the plaintiffs (appellants), W. Luther Hall and Elizabeth M. Hall, his wife, against Milton Barlow and Prospect Properties, Inc. defendants below, in a five count declaration filed August 2, 1967, and amended to two counts on April 8, 1968.

The first count in the amended declaration is against Milton Barlow for breach of his implied warranty that he had authority to secure the endorsement of The Barlow Corporation to the note. The second count is against Prospect Properties, Inc., for money due on the note. (Judgment ³³⁰ was rendered against defendant, Prospect Properties, Inc., from which it did not appeal.) The action arose out of a transaction whereby the Halls negotiated the sale of property on Prospect Street and High Street in Friendship Heights Subdivision, Chevy Chase, Maryland, to Milton Barlow for the sum of $600,000.00 for which the note was given as part of the purchase money. Milton Barlow was president of Prospect Properties, Inc. and of The Barlow Corporation.

He was also one of the three directors of each corporation. His wife was vice-president of both and a director of both. All of the stock of Prospect Properties, Inc. was owned by The Barlow Corporation. All of the voting stock of The Barlow Corporation was owned by Milton Barlow.

The nonvoting stock was owned by a trust established by Milton Barlow for his children. Additionally, Mrs. Hall testified that, at one point in the negotiations between the parties, Milton Barlow stated “I am the Barlow Corporation.” The contract of sale was executed August 3, 1964. It was agreed that the contract could be assigned by Milton Barlow without his incurring any personal liability and it was subsequently assigned. The parties also executed an “Addendum to Annexed Contract,” which addendum was to be considered a part of the total agreement for the sale of the property.

The addendum begins with the provision that “The contract shall be subject to the following conditions:” and then five provisions are recited. These included provisions relating, among other things, to zoning and a deed of trust. Provision number four states: “The purchase money note secured by a second deed of trust shall contain the following conditions: (b) The Barlow Corporation shall guarantee by endorsement the purchase money note.” Condition number six states: “This contract may be assigned without personal liability to Milton Barlow.” Numbered paragraph 17 of the contract also provides “That the provisions hereof shall survive the execution and delivery of the deed aforesaid and shall not be merged therein * * Milton Barlow signed both the ³³¹ contract and the addendum and assigned the contract to Prospect Properties, Inc. On or about January 18, 1965, settlement occurred and title was passed to Prospect Properties, Inc. At this closing, which was held in the offices of the District Realty Title Insurance Company, Washington, D. C., there were present Milton Barlow and his attorney, Mr. Carmody; the Halls; Mrs. Edwards, a real estate agent; and Mr. Glasgow, the Halls’ attorney. The appellee believes it significant that at this meeting neither the Halls nor their attorney mentioned in any way paragraph 4 (b) of the addendum, whereby The Barlow Corporation was to guarantee the purchase money note.

On January 22, 1965, Prospect Properties, Inc. executed and delivered to District Realty Title Insurance Company the purchase money note and a deed of trust in favor of the Halls. Milton Barlow and his wife signed the instruments in their capacities as officers of Prospect Properties, Inc. The face amount of the note was $352,000 and was subordinate to a first deed of trust held by the Riggs National Bank in the amount of $13,500,000. The Halls did not receive a copy of the purchase money note until on or about May 28, 1965. Upon receipt of the note Mrs. Hall (who claimed ignorance of what a note should look like) placed it in her safe deposit box, her husband being unaware of its receipt.

On May 27, 1965, the Halls executed the subordination agreement whereby their own deed of trust and the note was subordinated to the deed of trust of the Riggs National Bank. It was not, however, until January of 1967 that the Halls first realized that the endorsement of The Barlow Corporation had never been affixed to their note from Prospect Properties, Inc. Although the record would support the fact that the Halls were unaware that the guarantee of The Barlow Corporation had not been placed on their note, it would appear from the record that Mr. Barlow was quite aware of the absence of the guarantee. Sometime after settlement on January 18, 1965, Mr. Barlow had a conversation with Mr. Glasgow, the Halls’ ³³² attorney, as to what would be required before the Halls would sign the subordination agreement. Mr. Glasgow informed Mr. Barlow that the Halls wanted the note endorsed by The Barlow Corporation and shortly before May 27 or 28, 1965, Mr. Barlow orally agreed to provide the guarantee called for by paragraph 4 (b) of the addendum to the contract.

Mr. Barlow stated unequivocally that the note would be guaranteed by The Barlow Corporation at the meeting to execute the subordination agreement. In fact, Mr. Barlow told Mr. Glasgow to rough out a letter for his signature, setting forth the matters in the contract that required completion. Mr. Barlow agreed that he would rewrite such a letter on his stationery and sign it, which he did. This letter dated May 21, 1965, is quite important to this case and in pertinent part reads as follows: “Dear Mr. Glasgow: Paragraph 4(b).

It is my understanding that the Halls will produce at settlement their note to which there will be affixed an endorsement by Barlow Properties, Inc., [Barlow Corporation] guaranteeing payment. Respectfully submitted, PROSPECT PROPERTIES, INC. by /s/ Milton A. Barlow Milton A. Barlow President” The meeting was held on May 27 or 28, 1965, (the record not being precise as to the exact date), as a result of which the Riggs National Bank advanced a $13,500,000 construction loan to Prospect Properties, Inc. The endorsement of The Barlow Corporation was not affixed to the Halls’ note at this meeting, nor did the subject come up. It would appear that the next conversation that Mr. Barlow had with anyone concerning this note was in late 1966 or early 1967, when Mr. Glasgow called on the telephone to inform him that the note had not as yet been guaranteed by The Barlow Corporation and asked Mr. ³³³ Barlow to remedy the situation. Mr. Barlow refused.

At this time the Halls had, many months before, fulfilled all that they had promised to do under the contract or addendum. On May 22, 1968, Mr. Barlow received a letter demanding the guarantee of The Barlow Corporation on the Prospect Properties, Inc. note to the Halls. Mr. Barlow has consistently refused to secure The Barlow Corporation’s guarantee on the note. The Halls in obvious frustration filed an action in contract against Milton Barlow and Prospect Properties, Inc. on August 2, 1967, and amended their declaration on April 10, 1968.

It was stipulated by all parties at the hearing below that Prospect Properties, Inc. was, as of the time of the hearing, insolvent. The Halls also made an admission of fact that they had received one payment of $35,200 on the principal of the purchase money note. For a full understanding of this case it should be noted that certain peripheral actions have been filed in the Circuit Court for Montgomery County, Maryland. Equity No. 32731 was filed by the Riggs National Bank against Prospect Properties, Inc. to foreclose its deed of trust covering the property involved in this case. 2 Equity No. 34816 is an action now pending and brought by the Halls against The Barlow Corporation for reformation of the note, which is the subject of controversy in this suit, whereby they seek to have The Barlow Corporation endorse the note of Prospect Properties, Inc. In this latter suit the chancellor below sustained a demurrer to the action based on the statute of limitations; however, on appeal we reversed and remanded for further proceedings.

Hall v. Barlow Corporation, 255 Md. 28 , 255 A. 2d 873 (1969). Also pending is Equity No. 33748 whereby the Halls are endeavoring to enforce their second trust against the Riggs National Bank. Upon argument of the case at bar, this Court was also informed by counsel for the appellants that an action was pending by the Halls ³³⁴ against their attorney Glasgow, the nature of which was not disclosed. In the instant case, the court below entered judgment for the Halls against the insolvent Prospect Properties, Inc., and judgment in favor of defendant Milton Barlow, from which judgment the Halls have appealed.

The lower court predicated its finding for Milton Barlow on two premises: first, the running of limitations and second, that the Halls failed to prove any breach of warranty, expressed or implied on the part of Milton Barlow of his authority to endorse the note for The Barlow Corporation. We shall proceed to discuss both of these propositions, which, in the context of this case, present us with more of an analysis of facts than questions of law. Statute of Limitations In an able opinion (with which we disagree, however), Judge Moorman conceded that the Halls’ original declaration filed August 2, 1967, based on breach of an express contract, was filed within the three year statutory period of limitations. Maryland Code (1968 Rep.

Vol.) Art. 57, § 1. However, he noted that the amended declaration in which the Halls changed the theory of their case to a breach of implied warranty of authority was filed on April 10, 1968, after the three year period of limitations had expired. The lower court in its memorandum opinion points out that the amended declaration requires “completely different facts in order to prove a case, the elements are dissimilar and the measure of damages is different. * * * To sustain this action the plaintiff must allege and prove facts relevant, not t.o the terms of the contract, but to the relationship between the defendant (agent) and the principal (here The Barlow Corporation). They are different causes of action. * * *” In support óf its position the court cited Cline v. Fountain Rock Lime and Brick Co., 214 Md. 251, 258 , 134 A. 2d 304 (1957), a case involving the statute of limitations.

In that case the plaintiff in his original declaration, which was timely filed, relied upon an oral lease agreement, and ³³⁵ the amended declaration which was filed after the expiration of the statutory period, relied upon an alleged oral joint venture. This Court held the amended declaration was based on a new cause of action and thus barred by limitations. The case of Doughty v. Prettyman, 219 Md. 83 , 148 A. 2d 438 (1959) also cited by the lower court, further explores the question as to how far a plaintiff may go in amending his declaration without stating a new and different cause of action. After reading the cases and those which are cited in them we are not prepared to say that the lower court was right in its conclusion that the amended declaration in the case at bar is based on a new cause of action.

However, we need not decide that issue for the reason that we are of the opinion that there was a reaffirmation of the obligations set forth in the amended declaration which revived the remedy. As corollary to this, we believe the trial judge erred in holding August 3, 1964, the date upon which the contract between the parties was executed, as the date from which limitations should be computed. We address ourselves to the letter of May 21, 1965, which Milton Barlow signed as president of Prospect Properties, Inc. addressed to Glasgow, the Halls’ attorney, and assess its significance. That letter, composed by Glasgow and transcribed by Milton Barlow on his own stationery, was written in contemplation of the forthcoming meeting at which the subordination agreement was to be executed.

It reads in part: “Paragraph 4(b) — It is my understanding that the Halls will produce at settlement their note to which there will be affixed an endorsement by Barlow Properties, Inc., guaranteeing payment.” (Emphasis supplied.) This Court in Hall v. The Barlow Corporation, supra, interpreted the use of the personal pronoun “my” (which we will discuss later in this opinion) to mean that the statement in the letter was “by Milton personally.” We further construe the letter, in light of the circumstances ³³⁶ surrounding its writing, as the personal reaffirmation of Milton Barlow warranting the endorsement of the purchase money note by The Barlow Corporation, regardless of how he may have signed it. The lower court dismissed the relevance of this letter of May 21, 1965, with regard to its constituting a reaffirmation by Milton Barlow of his warranty that The Barlow Corporation would endorse the note, on the basis of lack of proof that he intended by the letter to reaffirm his authority, stating: “The burden is thus upon plaintiffs to establish ‘with proof of other circumstances’ that it was the intent of the defendant at the time the letter was written to reaffirm the warranty of his authority (if such was made). There is completely absent in the record sufficient evidence to establish this fact. There was no liability of Milton Barlow on the contract at the time the letter was written for he had already assigned it to Prospect Properties.

Plaintiffs further urge upon us the theory that the letter of May 21, 1965, is a reaffirmation or acknowledgment :>of the warranty and that the statute of limitations should be held to run from the date of the alleged reaffirmation or acknowledgment. It is the law in Maryland that the statute of limitations may be tolled or its bar removed with respect to an ordinary debt or obligation by new promises to pay the debt or obligation or an acknowledgment thereof. 14 M.L.E. pg. 382 and cases cited. However, the subsequent acknowledgment must refer satisfactorily or clearly to the obligation. Doughty v. Bayne, 222 Md. 361 .” The lower court, as well as the appellee, relied on the case of Doughty v. Bayne, 222 Md. 361 , 160 A. 2d 609 (1960), as setting forth the test to be applied when an acknowledgment of a pre-existing obligation revives the ³³⁷ remedy, the appellee quoting the following language from that case: “* * * In Maryland, unlike most other states, an acknowledgment of a subsisting debt [in this case the obligation to perform], unaccompanied by any qualification or declaration which, if true, would exempt a defendant from a moral obligation to pay, or such an acknowledgment accompanied by a refusal to pay, coupled with an excuse for not paying which itself furnishes no real objection to the payment of the debt [in the case at bar the obtaining of the endorsement] is sufficient to remove the bar of the statute * * * [W]e must also be mindful that the acknowledgment must be a clear, distinct and unqualified admission.

Crawford v. Richards, 197 Md. 289, 293 , 79 A. 2d 143 , and cases cited therein. The evidence of the acknowledgment must also be considered in its entirety, and the creditor cannot accept the admission and reject any qualification that might make the acknowledgment ineffective. Hidgon v. Stewart, 17 Md. 105, 111-113 ; Oliver v. Gray, supra, at 219 [1 H & G 204].” 222 Md. at 365 . However, one should not consider the language of Doughty v. Bayne, exclusive of its facts, for it is only in the application of the language to the facts that we are able to realize the full import of the opinion.

In Doughty v. Bayne, the plaintiff had loaned the defendant $2500 to assist the latter in his jewelry business and had taken a note as evidence of the debt. Nothing was ever paid on principal or interest. Approximately five years later the plaintiff (appellee) called the defendant on the telephone and stated that he needed the money and wanted it back. At first the defendant said that he did not remember the note.

The plaintiff further related: “* * * Then after I refreshed his memory he said, ‘Well, possibly I did sign it. But don’t you ³³⁸ think I have lost enough?’ I said ‘Yes, I realize you have lost quite a bit.’ ‘But’, I said, ‘this $2,000.00 that I personally loaned you is a lot of money to me.’ He said, ‘Well, I can’t pay you.’ I proceeded to go ahead. I said, T want my money.’ I said, ‘You gave me a note for it. You said you would be liable for it.’ ‘And’, I said, T want my money.

I need my money.’ He said, ‘Well, I haven’t got it. I can’t pay it. If you want to take it to an attorney and see what he can do about it, all right.’ ” 222 Md. 364 . It was upon such an affirmation of a pre-existing obligation that this Court in Doughty, affirmed the lower court’s judgment in favor of the creditor who was the plaintiff - appellee.

Chief Judge Bruñe writing for the Court pointed out that the debtor did not deny the debt but “merely said he did not remember the note and admitted he possibly could have signed it * * The Court also pointed out that the only reason the debtor gave for his not paying the note was that he could not afford it. The Court finally concluded, “as stated above, this could be interpreted to mean that the appellant acknowledged the note was his, and the only reason he could not pay was for lack of money, which excuse, of course, is not sufficient.” 222 Md. 361, at 366, 367 . In fact our reading of Doughty v. Bayne persuades us that the trial judge in the case at bar erred in the interpretation which he placed on the facts and circumstances surrounding the letter of May 21, 1965. The lower court in its memorandum opinion makes much of the fact that at the time that Milton Barlow, as president of Prospect Properties, Inc., wrote the