Hauswald Bakery v. Pantry Pride Enterprises, Inc.

⁴⁹⁸ WILNER, Judge. This case is mostly about executory accords, or, more particularly, alleged executory accords. The issues, which to date have not been squarely addressed in Maryland, may be summarized thusly: Plaintiff has sued defendant. At some point in the litigation, plaintiff forms the belief that the parties have reached an executory accord to settle the dispute, calling for some payment or other performance by defendant.

Defendant denies any such accord. To what extent may plaintiff both pursue the underlying claim and seek to prove and enforce the alleged executory accord? If plaintiff must elect between one or the other, when must that election be made? And finally, if plaintiff elects to pursue one remedy and fails, may he then pursue the other?

That was the dilemma facing The Hauswald Bakery, and it is not at all pleased with how the Circuit Court for Baltimore County resolved the problem. I. Background Hauswald supplied baked goods to Pantry Pride Enterprises, Inc., which, until 1981, operated a chain of food markets in the Baltimore area. In October, 1978, Pantry Pride and several of its corporate relatives filed proceedings under Chapter 11 of the National Bankruptcy Act. At the time of that filing, Pantry Pride owed Hauswald approximately $274,000.

In order to allow Pantry Pride to continue its operations, the Bankruptcy Court approved the payment of certain “deposits” to Pantry Pride’s suppliers; Hauswald received a “deposit” of $275,000. The nature and purpose of this deposit are in some dispute. It is agreed, however, that the money was paid to Hauswald and that, as a result, Hauswald continued to supply baked goods to the Pantry Pride stores until July 28, 1981, when, without advance notice, Pantry Pride closed its Baltimore operation. During the week ending July 28,1981, Hauswald sold and delivered to Pantry Pride $60,711 of baked goods for which ⁴⁹⁹ it was allegedly not paid.

In May, 1984, Hauswald sued Pantry Pride in the Circuit Court for Baltimore County in an effort to collect that debt. The complaint contained two counts — one on the contract for the $60,711 plus interest and one in quantum meruit for the fair value of the goods. That case came to trial in June, 1986, but, for some reason neither clear nor relevant, a mistrial was declared. On July 18, 1986 — following the mistrial — Hauswald filed an amended complaint containing eight counts.

Counts I and II were repetitions of the initial complaint, seeking recovery for the goods shipped during the last week of July, 1981, or their value. Counts IV through VIII arose from other alleged dealings and agreements involving, directly or indirectly, the $275,000 deposit given to Hauswald in October, 1978. There were claims of breach of contract, promissory estoppel, fraud, conversion, misappropriation of funds, and engaging in a racketeering enterprise in violation of 18 U.S.C. § 1964 (the “RICO” statute). Count III — the one most at issue here — incorporated the allegations of Counts I and II and added that “[i]n June 1984, the Defendant admitted through its assistant general counsel ... its liability under Counts I and II herein and agreed to pay said sum to Plaintiff, but then failed to pay the same, causing Plaintiff to file this suit.” Upon Pantry Pride’s motion, the court dismissed Counts IV through VIII as barred by limitations, leaving open only the first three counts.

Just before the commencement of the retrial, Pantry Pride, which had filed an answer denying liability on those three counts, asked the court to require Hauswald to elect whether it wished to proceed on the underlying claim set forth in Counts I and II or on what the parties and the court regarded as an alleged executory accord pled in Count III. Over Hauswald’s objection, the court required the election and, in consequence, Hauswald chose to proceed on the executory accord. That, then, was the only issue tried and submitted to the jury. The dispute boiled down to whether one David Chiras, an assistant general counsel for Pantry Pride, had acknowl ⁵⁰⁰ edged liability on the part of his client and promised to pay the $60,711.

In its defense against that claim, and over Hauswald’s objection, Pantry Pride produced evidence regarding the nature of the $275,000 “deposit,” evidence tending to show that (1) that deposit was intended as security for future deliveries of products and not as payment of any then-existing debt, (2) amounts due for such deliveries were credited against the deposit, (3) as of July 28, 1981, there was a balance of the deposit sufficient to cover the $60,711, and (4) accordingly, nothing was owed to Hauswald by reason of those last deliveries. The end purpose of this evidence was to convince the jury that, as nothing was owed to Hauswald, it was unlikely that Mr. Chiras would ever have acknowledged the liability, much less agreed to pay Hauswald the $60,711. The jury was apparently persuaded by this or other evidence offered by Pantry Pride, for it returned a defendant’s verdict. Upon the entry of that verdict, Hauswald renewed its objection to the forced election and asserted the right, having lost in its attempt to enforce the alleged executory accord, to proceed on the underlying claims.

The court reaffirmed its position, however, declared the case over, and entered judgment for Pantry Pride. This appeal ensued, in which Hauswald presents three questions for review: “1. Did the trial court improperly rule that plaintiff had to elect between trying the underlying claim and its claim of executory accord or was the underlying claim held in abeyance pending the determination of whether an executory accord existed? 2. Did the trial court improperly allow the defendant to admit evidence relating to its defense of the underlying claim since the only issue before the jury was the existence of a settlement agreement? 3.

Did the trial court improperly answer the jury’s question about how to calculate damages and lead the jury by including non-germane and extraneous matter in his answer?” ⁵⁰¹ Pantry Pride, for its part, has cross-appealed from the court’s refusal to impose sanctions on Hauswald, pursuant to Md. Rule 1-341, for filing the “RICO” claim without substantial justification. We shall answer Hauswald’s first question in the affirmative; we find no merit in any of the other complaints.

II

Election In Clark v. Elza, 286 Md. 208 , 406 A.2d 922 (1979), the Court pointed out that there are two somewhat similar, but legally distinct, methods by which parties to an action can resolve their dispute through compromise. They may enter into either a “substitute contract” or an “executory accord.” A “substitute contract,” as its name implies, takes the place of the underlying claim and thus immediately discharges that claim. The new contract itself constitutes performance of the defendant’s alleged obligation, and the plaintiff’s rights are thereafter to be found only in that contract. As the Court put it, at 214, 406 A.2d 922 , “[ujnder this latter type of arrangement, since the original claim is fully extinguished at the time the agreement is made, recovery may only be had upon the substituted contract.” An “executory accord,” on the other hand, denotes “ ‘an agreement for the future discharge of an existing claim by a substituted performance____ [I]t is the promised performance that is to discharge the existing claim, and not the promise to render such performance.’ ” Id.

(quoting from 6 Corbin on Contracts, § 1268 at 71 (1962)) (emphasis added). Thus, quoting further from Corbin, § 1274, the Court agreed that “ ‘An accord executory does not in itself operate as a discharge of the previous claim, for the reason that it is not so intended or agreed. In nearly every case, however, the parties intend that the duty created by the previous transaction shall be suspended during the period fixed for performance of the accord. As long as the debtor has committed no breach of the accord, therefore, the creditor should be allowed to maintain no action for ⁵⁰² the enforcement of the prior claim.

His right of action should be held to be suspended as the parties intended.’ ” 286 Md. at 216 , 406 A.2d 922 . See also id. at 217, 406 A.2d 922 : “Until there is a breach of the accord or a justifiable change of position based upon prospective non-performance, the original cause of action is suspended. As long as the ‘debtor’ ... neither breaches the accord nor provides a reasonable basis for concluding that he will not perform, the ‘creditor’ ... has no right to enforce the underlying cause of action.” Where an executory accord is indeed reached and the obligor — usually the defendant — breaches that accord by failing to tender the agreed-upon performance, the law gives the obligee (plaintiff) a choice. As currently stated in Restatement (Second) of Contracts § 281(2), “If there is sucfy a breach, the obligee may enforce either the original duty or any duty under the accord.” 1 This is the generally accepted rule, and it has been adopted in Maryland.

See City of Baltimore v. Landay, 258 Md. 568 , 267 A.2d 156 (1970); Fidelity Deposit v. Olney Associates, 72 Md.App. 367 , 530 A.2d 1 (1987); 6 Corbin on Contracts § 1271, at 93-94. Unfortunately, this notion of election merely begs, rather than resolves, the questions before us. Some good clues to the proper answers to these questions are provided by City of Baltimore v. Landay, supra, 258 Md. 568 , 267 A.2d 156 . Landay, having suffered periodic damage to his land from the overflowing of Her ⁵⁰³ ring Run, sued Baltimore City and Baltimore County, accusing them of canalizing large volumes of water into the stream and failing to take proper flood control measures.

As relief, he sought an injunction requiring those subdivisions either to cease depositing excessive amounts of water into the Run or to take adequate measures to control the flow of the water. At some point, the parties reached an executory accord, under which the two subdivisions agreed to take certain specific steps, within certain specified times, to correct the problem. Efforts were indeed undertaken by the defendants, and eventually they did more or less what they had agreed to do, but they clearly did not perform within the times specified in the agreement. After the time for the promised performance had passed without actual performance being complete, Landay filed a supplemental bill alleging the accord and its breach and seeking damages, principaly for flooding that had occurred since the execution of the accord.

The defendants never denied making the accord, although they did deny breaching it. By agreement of the parties, that issue was tried first. After holding the matter sub curia for some 14 months, the trial court held that the defendants had breached the accord by failing to perform within the specified time limits. By the time that decision was rendered,