Krick v. Dougherty

Barnes, J., delivered the opinion of the Court. This appeal contains three appeals in one record. The ¹⁰⁰ principal questions presented to us are whether the Circuit Court for Anne Arundel County, in Equity (Wray, J.), (1) in its decree of October 18, 1971, properly granted specific performance of a contract resulting from the exercise by the appellee, John H. Dougherty, Jr., plaintiff below and cross-appellant, of a written option, dated May 21, 1969, whereby Frank Krick and Mildred Krick, his wife, appellants, defendants below and crossappellees, and Walter C. Hoerl and Bertha Hoerl, his wife, trading as “Whitey & Walt’s Tavern,” granted Dougherty the option to purchase a tavern in Anne Arundel County and (2) whether the chancellor erred in declining to enforce an alleged settlement agreement dated November 4, 1970. Dougherty also contends that the chancellor erred in overruling his demurrer to the Amended Answer of the Kricks and in declining to consider Dougherty’s petition for a review of the decree filed after the entry of the order for appeal by the Kricks but prior to the enrollment of the decree.

The Hoerls were defendants below but did not appeal to this Court from the decree of October 18, 1971. Dougherty’s mother was married to Hoerl, who was employed by a gas conversion company. As part of his duties, he moved from town to town as each job was completed. Mrs. Hoerl became tired of moving from town to town.

In order to provide his stepfather with a local business, Dougherty and Hoerl looked for and discovered, as a potential local business, a property of approximately one acre and improvements located at 3 Ritchie Highway, Anne Arundel County, then owned by the Third District Women’s Democratic Club (the subject property). This club not only owned the subject property but held an Anne Arundel County liquor license. Dougherty knew that his stepfather, Hoerl, had never been in business for himself and was not familiar with the operation of a tavern business. He thought that Hoerl should have a partner who was familiar with such an operation and, having known Krick for a number of ¹⁰¹ years as a person who had been in the tavern business most of his adult life, introduced his stepfather to Krick in 1961.

As a result of this introduction, Hoerl and Krick formed a business partnership to operate “Whitey & Walt’s Tavern.” The partnership leased the subject property from the Club with an option to buy it. Toward the end of the first lease period, Dougherty advised the partners to purchase the subject property. He requested The Laurel Building Association of Prince George’s County, located in Laurel, Maryland (Building Association), where Dougherty owns and operates a pharmacy, to appraise the property to ascertain whether the Building Association could arrange financing for the partners to purchase the property. This financing was arranged and the partners exercised their option to purchase the property in 1964.

From 1964 to 1967 the partnership apparently did not experience any financial problems. In 1967, however, payments on the mortgage on the subject property were not made when due; and in April of 1968 the Building Association made a tentative decision to foreclose the mortgage on the subject property. Officials of the Building Association notified Dougherty of the financial difficulty prior to instituting foreclosure proceedings. Dougherty then conferred with both of the partners, Krick and Hoerl, and told them to straighten out the matter with the Building Association as soon as possible, which they did.

In May of 1969, however, payments were late again and the Building Association decided to institute foreclosure proceedings. Thereafter, Dougherty requested the Building Association not to foreclose and to give him a week’s time to talk to Krick and Hoerl in an effort to straighten the matter out. The Building Association agreed not to foreclose if Dougherty would see to it that the Association was paid. In order to prevent the foreclosure in May 1969, Dougherty called Krick and Hoerl to his home on May 10, 1969, to discuss and hopefully to resolve their finan ¹⁰² cial crisis.

At this conference Dougherty determined how much of the indebtedness of Krick and Hoerl would have to be paid immediately. This amounted to approximately $4,000.00, including the back payments on the mortgage. Dougherty told Krick and Hoerl that if they wanted him to resolve their present financial difficulties, they would have to grant him an option to buy the business and the subject property. Dougherty presented them with a form of option he had prepared with a blank space for the insertion of the amount of the purchase price.

An agreement of $65,000.00 for the purchase price was reached and this figure was inserted in the blank in the form of option agreement. Dougherty testified that the $65,000.00 figure was broken down as $30,000.00 for the business and subject property (this was the amount of the original purchase price by Krick and Hoerl), $20,000.00 for the inventory, $10,000.00 for fixtures and equipment and $5,000.00 for good will. Krick broke the $65,000.00 figure down as follows: $35,000.00 for the mortgage, $10,000.-00 for the stock and $20,000.00 for the fixtures. Krick and Hoerl read the proposed option; and the figure of $65,000.00 was inserted, the partners placing their initials over the inserted amount.

They then signed the completed option on May 10, 1969. The written option of May 10, 1969, was as follows: “In Consideration of the sum of $1 dollar ($1.00), cash in hand paid, receipt of which is hereby acknowledged, we hereby give and grant unto John H. Dougherty, Jr., his heirs, assigns, or representatives, the exclusive option and right to purchase, for a period of three (3) years from the date hereof, upon the terms and conditions set out hereinbelow, the following-described land in Anne Arundel County, State of Maryland, to wit: Being the west side of Ritchie Highway, in Elvaton, Maryland, more specifically described as the Frank Krick and Walter ¹⁰³ Hoerl property, commonly called Whitey’s & Walt’s. This option includes property, all improvements, stock, fixtures, licenses, etc. pertaining to the aforementioned property. F.M.K. W.C.H. “Purchaser is to pay a total consideration of $65,000 Dollars ($65,000.00) payable in cash at the time of consummation of purchase. “Upon exercise of this option, the sale of said land, as contemplate [d] hereby, shall be consummated with [in] ninety (90) days from the date of delivery of notice of such exercise. “We agree to deliver to purchaser a good and sufficient warranty deed conveying said property in fee simple to the purchaser, or his assigns or representatives, contemporaneously with delivery by purchaser of the consideration as set out in paragraph one. “Witness in duplicate this 10 day of May, 1969:” After the conference, Dougherty assured the Building Association that it would be paid and that he had been granted a written option to purchase the business and subject property from Krick and Hoerl.

Dougherty also arranged for a $4,000.00 loan from the Citizens National Bank for Krick and Hoerl, Dougherty and his wife signing as guarantors of the note evidencing that loan. Later Dougherty was advised by a friend who was a member of the Bar of Maryland that if the subject property was titled in the names of the Kricks and Hoerls, the option to purchase should be executed by all of them and not merely by Krick and Hoerl and that he would be glad to have his secretary retype the option to provide for the signatures by the Kricks and Hoerls. This was done. The language of the retyped option is substantially identical in wording to the option of May 10 but with ¹⁰⁴ places for the four signatures and the addition of “(Seal)” after each signature.

Dougherty then told Krick and Hoerl that if they and their wives would sign the proposed retyped option, he would co-sign the Citizens National Bank note and that the Bank would only loan Krick and Hoerl the $4,000.00 if Dougherty cosigned the note. Krick and Hoerl and their respective wives executed the option to purchase on May 21, 1969, under seal, before a witness and acknowledged it before a notary public as their act. Krick then took the executed option of May 21 to Dougherty and Dougherty gave Krick the $4,000.00 check from the bank. The money from this check was used by Krick and Hoerl to bring the mortgage up to date and to pay other partnership debts.

Later, Dougherty obtained an accountant for Krick and Hoerl to help them establish proper business records and instruct them in how to keep them. All of Dougherty’s efforts to help Krick and Hoerl were unavailing, however, and in 1970 they again became delinquent in paying their retail sales taxes, in making their required mortgage payments to the Building Association and in making their payments to the bank on the note. The Building Association was about to foreclose and the Bank indicated that it wished Dougherty to pay off the balance of the note. Krick and Hoerl, since no bank would give them a checking account, had to pay cash in order to obtain any deliveries of liquor.

Krick and Hoerl closed the business voluntarily for a time during the early part of 1970. In view of the situation, Dougherty decided to exercise his option to purchase of May 21, 1969. The Kricks on April 30, 1970, received Dougherty’s written exercise, under seal, of the option of May 21, 1969. Dougherty, when he exercised the option, offered $65,000.00 to Krick and Hoerl.

The Kricks and Hoerls, however, would not convey the subject property, fixtures, stock and liquor license to Dougherty. Dougherty, on May 13, 1970, filed a bill of complaint in the Circuit Court for Anne Arundel County, in Equity, ¹⁰⁵ praying for specific performance of the agreement to purchase resulting from his exercise of the option of May 21, 1969, and for other relief. The Hoerls did not answer the bill of complaint; and on June 23, 1970, Dougherty obtained a decree pro confesso against them. The Kricks, however, answered the bill of complaint denying that they had granted an option to Dougherty and that Dougherty had orally notified them of his exercise of the option on April 24, 1970.

The trial of the case was scheduled for November 4, 1970. The day before the scheduled trial — November 3, 1970 — the Kricks and Dougherty agreed to try to settle the matter and had the case passed for settlement. Dougherty, in order to avoid additional costs of litigating the question of the validity of the option of May 21, 1969, was willing to pay $8,000.00 in addition to the $65,000.00 payable to Krick and Hoerl under the contract to purchase resulting from the exercise of the option and have the partnership pay the additional $8,000.-00 to Krick. According to Dougherty, the settlement of the suit was to have been consummated after the transfer of the liquor license was approved.

This occurred in December 1970 but Krick would not settle because he wished to deplete the alcoholic beverage stock during the Christmas season. Dougherty was still willing to settle and he and the Kricks again agreed to try to settle the suit sometime during the first week in January 1971. In the early morning of January 4, 1971, however, a fire occurred at the subject property and completely destroyed the premises, together with all stock and fixtures. At the time of the fire, Krick and Hoerl had fire insurance coverage on the building and its contents, the alcoholic beverages covered having a then wholesale value of approximately $8,500.00.

After the fire, Dougherty was still willing to go forward with the proposed settlement if the Kricks would agree that Dougherty was to receive the proceeds of the fire insurance policies in lieu of the burned improvements ¹⁰⁶ and stock; but the Kricks were no longer willing to go forward with the sale. Prior to the trial of the case in the lower court on May 4, 1971, Dougherty had to pay the balance of the $4,000.-00 loan from the bank. After the case came on for trial on May 5, the chancellor granted the Kricks leave to amend their Answer. On June 1, 1971, the Kricks filed a Supplemental Answer alleging that the option agreement Dougherty was seeking to enforce specifically was invalid but, if found to be valid, was superseded by an agreement of settlement entered into on November 4, 1970, between Dougherty and Krick whereby in settlement of the suit Dougherty would pay Krick only an additional $8,000.00 in settlement of all claims arising out of the suit.

The Supplemental Answer then continued: “Wherefore, the Defendants pray: (1) That the Option Agreement be declared null and void; (2) That the Court refuse to decree specific performance of the Option Agreement; (8) That in the alternative, the agreement of November 4, 1970 be specifically enforced; (4) That the Plaintiff pay the costs of these proceedings; (5) That the Defendants have such other and further relief as the case may require.” By an order dated July 21, 1971, the Kricks’ Supplemental Answer was marked “Amended Answer.” Dougherty, on August 4, 1971, filed a demurrer to paragraphs 4 and 5 (in regard to the alleged superseding settlement agreement) and to prayer for relief No. 3 (seeking specific enforcement of the alleged settlement agreement) on the grounds that these paragraphs and prayer for relief alleged a counterclaim and were not an answer to the bill of complaint and that paragraphs 4 and 5 failed to allege that the Hoerls were parties to the alleged novation agreement. ¹⁰⁷ The chancellor on October 18, 1971, filed an opinion in which he concluded that the alleged settlement agreement was “brought to naught when the fire occurred and Krick refused to relinquish the insurance proceeds” and that Dougherty was “entitled to specific performance of his contract, the insurance proceeds substituting for the burned premises and stock.” The decree of October 18, 1971, was as follows: “That the Plaintiff’s Demurrer be, and it is hereby, overruled; “That the Defendants be, and they are hereby, directed to perform their obligations under the option contract of 21 May 1969; “That the Defendants pay the costs of these proceedings.” The Kricks entered their order of appeal to this Court on November 4, 1971, from the decree of October 18. On November 12, Dougherty filed a petition for revision of the decree of October 18, alleging that although the chancellor in his opinion stated that Dougherty, as the plaintiff, was entitled to the insurance proceeds in lieu of the burned premises and stock, the decree of October 18 merely provided that the defendants were to perform their obligations under the option contract without any direction that the plaintiff, Dougherty, was to receive the land, premises and stock free and clear of any mortgages or other liens, although the prayer for general relief would cover such a ruling by the chancellor. It was further alleged that counsel for Dougherty, on or about November 1, 1971, had received a letter with an enclosed Assignment Agreement from an officer of the Building Association, indicating that the six insurance companies insuring the premises against loss from fire had denied all liability to the Kricks and Hoerls, trading as Whitey & Walt’s Tavern, and had paid the balance due under the mortgage on the subject property of $29,324.28 and had received an assignment of the mortgage, the payment in no way admitting liability to the Kricks and ¹⁰⁸ Hoerls. 1 The lower court, as well as Dougherty, did not know of the denial of coverage to the defendants when the decree of October 18 was passed. Paragraph 6 of the petition recites: “6.

That although this Court’s Memorandum of Opinion specifically provided that the insurance proceeds would substitute for the burned premises and stock, said Opinion and Decree did not provide for the contingency that coverage may be denied to Defendants, and,