Meleski v. Pinero International Restaurant, Inc.

Melvin, J., delivered the opinion of the Court. This case involves questions of partnership law, more particularly the liability of a partnership and its individual members to a non-partner for compensatory damages and punitive damages resulting from an alleged fraud practiced upon the non-partner by the partners in connection with a contract for the sale of a liquor license. To understand the precise issues presented it is necessary to set out in considerable detail the procedural history of the case below, tried before a jury in the Circuit Court for Anne Arundel County on special issues pursuant to Maryland Rule 560. On June 21, 1974, a partnership known as Fort George Associates and Elizabeth J. Meleski, "parties of the first part, vendors,” entered into a written "Agreement of Sale” with "International Restaurant, Incorporated, Maryland Corporation, second part, Vendee.” The agreement contained the following recitals: "Whereas the Vendors are the owners and possessors of a certain Class B liquor License issued by the Board of License Commission of Anne Arundel County for the premises known as 1630-32 Annapolis Road, unto Elizabeth J. Meleski trading as Butch’s Beef and Beer, and Whereas, the Vendee is the tenant of the adjacent property known as 1634 Annapolis Road, Odenton, Maryland and does intend to re-open the restaurant and tavern business on the said premises and Whereas, the Vendees [sic] do desire to transfer their interest in the said Class B Liquor License and the said Vendees do desire to acquire and purchase the Vendors said interest, these premises are made.” The agreement then provided that the vendors "do hereby bargain and sell and transfer and assign all their right, title ⁵²⁹ and interest in and to the Class B Seven Day Liquor License owned by them unto the said Vendee at and for the purchase price of Twelve Thousand Five Hundred Dollars ($12,500)... .” (Emphasis added).

The purchase price was to be paid in monthly installments over a three year period and if the vendee failed to make any monthly payment within ten days of its due date "the whole balance” became "due and collectable at once.” The agreement also provided that the vendors would "assist in any and whatever the Vendees in the matter of the transfer of the said License to them including whatever assistance it may render at the hearing before the Zoning Hearing Officer for Special Exception and before the Board of License Commissioners for the transfer of the said license.” (Emphasis added). 1 The agreement was signed on behalf of the partnership by one of the partners, John S. Collins. Collins was the managing partner and the attorney for the partnership. The agreement was also signed by Elizabeth Meleski individually, apparently in her capacity as the individual to whom a Class B liquor license had been issued in connection with the operation of the restaurant known as Butch’s Beef and Beer. There was testimony, however, that the partnership, Fort George Associates, was "in fact” the owner of the liquor license.

It seems that sometime in 1971 or 1972 Mrs. Meleski and her husband, Arthur Meleski, had bought into the partnership consisting of John S. Collins and Chas. H. Steffey, Inc. The partnership owned the property on which Mr. and Mrs. Meleski operated Butch’s Beef and Beer restaurant, but at the time of the agreement, the restaurant had been closed since April 30, 1973, and, according to Mr. Meleski, the building was demolished two or three months after the restaurant was closed "due to the fact that we [the partnership] were going to build motels in the back.” The motel was under construction in April 1974. Apparently, the ⁵³⁰ original building plans for the motel did not include a restaurant and there was testimony that the partnership considered it advantageous to have an operating restaurant with a liquor license next door as a convenience to the motel’s guests. The agreement was signed on behalf of the vendee, International Restaurant, Incorporated, by its president, Antonio Pinero.

Mr. Pinero is a native of Cuba. He cáme to the United States in 1957 and became a U. S. Citizen in 1966. Prior to coming to Anne Arundel County he and his wife had operated, successively, small restaurants in Pennsylvania, Delaware and Washington, D. C. He said that in 1973 when "we lost our lease” to the premises where his Washington, D. C. restaurant was located, he and his wife sought another restaurant location. They were unsuccessful in their search until, in April 1974, they came to Anne Arundel County in answer to a newspaper advertisement that the English Company had a restaurant for rent.

The restaurant was immediately adjacent to the property owned by the Fort George Associates partnership where Butch’s Beef and Beer restaurant had been operated. Before signing a lease with the English Company, Mr. Pinero, in early April, 1974, contacted Mr. Collins whose name had been mentioned to him as one who had a liquor license for sale. Collins told him of his (Collins’) association with Fort George Associates and that the partnership had a license they would transfer to him. According to Pinero, after the $12,500 price was verbally agreed upon, he asked Collins why he couldn’t "just get a new one” rather than pay $12,500 for the transfer.

Pinero said Collins replied that there was a "moratorium” on the issuance of new licenses and that "you have to buy an existing license.” Pinero testified that he regarded Collins as his lawyer in connection with all the "paperwork” necessary to the obtention of the transfer of the license, including the formation of International Restaurant Corporation to receive it, the preparation of the June 21, 1974 agreement of sale, and representation before the Anne Arundel County Zoning Hearing Officer and the County Liquor Board. He testified ⁵³¹ that although he had owned a beer license in connection with his restaurant in Washington, D. C., he "didn’t have any knowledge” of the liquor laws or "the different classes of licenses that existed in Anne Arundel County.” On September 7,1977, the partnership (then consisting of Mr. and Mrs. Meleski and Chas.

II

Steffey, Inc. — Mr. Collins having retired as a partner in 1976 — and Mrs. Meleski filed suit against International Restaurant Corporation. 2 The declaration alleged the existence of the June 21, 1974 written agreement of sale and that International had "wrongfully breached the contract by failing to pay” a balance claimed to be due on the purchase price of the liquor license they had sold to International. International had a perfect defense to this suit: the Class B liquor license that the plaintiffs purportedly owned and for which they sought payment from International did not exist on June 21, 1974. Although a valid Class B license had at one time been owned by the plaintiffs-vendors, it had been allowed to expire on April 30, 1974, after Butch’s Beef and Beer restaurant had ceased to operate. Thus, when these admitted facts became known to the court, at a pre-trial hearing, International's motion for Summary Judgment was granted as to the plaintiffs’ claim for payment.

In the meantime, International had filed in the proceedings a counterclaim against the original plaintiffs for fraud and deceit. It alleged that the counter defendants were partners in Fort George Associates and claimed a judgment against them "jointly and severally” for compensatory and punitive damages. International also filed in the proceeding what it called a "Third-Party Claim” against Mr. Collins seeking the same damages for the same fraud alleged in the counterclaim, i.e., that the partnership acting through one of the partners (Collins) falsely and fraudulently represented to International that the partnership owned a valid liquor ⁵³² license "with the intent to deceive and defraud Third-Party Plaintiff to pay valuable consideration for a non-existent commodity.” A separate count of the "Third-Party Claim” also sought damages against Mr. Collins for an alleged breach of duty owed to International as its attorney. The case went to trial by jury on International’s counterclaim and "Third-Party Claim” and the general issue pleas filed thereto.

At the close of the evidence, various issues were submitted to the jury pursuant to Md. Rule 560 with instruction from the court. Based on the jury’s answers to the issues submitted, the docket entries show that the following judgments were entered on October 2, 1979: "Judgment Absolute extended for the Counter-Plaintiff, Pinero International Restaurant, Inc., against the Counter-Defendant, Arthur W. Meleski, in the amount of $4,068.00 compensatory damages and $11,250.00 punitive damages ($15,318.00); for the Counter-Plaintiff, Pinero International Restaurant, Inc., against the Counter-Defendant, Elizabeth J. Meleski in the amount of $4,068.00 compensatory damages and $11,250.00 punitive damages; in favor of Counter-Plaintiff, Pinero International Restaurant, Inc., against the Counter-Defendant, Charles H. Steffey, Inc., in the amount of $4,068.00 compensatory damages and $22,500.00 punitive damages, and in favor of the Third-Party Plaintiff, Pinero International Restaurant, Inc., against the Third-Party Defendant, John S. Collins, in the amount of $4,068.00 compensatory damages and $22,500.00 punitive damages, jointly and severally and as partners in Fort George Associates, Inc.” All of the partners (Mr. and Mrs. Meleski, Chas. H. Steffey, Inc. and John S. Collins) joined in filing a single notice of appeal. One brief was filed on behalf of all appellants. 3 We shall consider the questions presented in the ⁵³³ chronological order in which the alleged errors of the trial court occurred.

I Appellants contend that the court erred in granting summary judgment to International on the partnership’s original suit for breach of the June 21, 1974 agreement. Their argument here is that at the time the motion was granted there was evidence before the court from which it could be inferred that the original agreement had been changed by the parties and that International was indebted to them under the alleged new agreement or "novation.” The difficulty with this argument is that the appellants elected to sue on the original written agreement, claiming that International owed them a balance on the purchase price of a liquor license that they allegedly owned and had sold to International for $12,500. There is no indication or contention that they ever sought to amend their declaration to allege any other agreement. Having conceded to the court in oral argument that at the time of the written agreement on which their suit was based they had no liquor license to sell, it is difficult to comprehend how they could expect to recover its "selling” price from International.

The Summary Judgment was properly granted. Md. Rule 610. II During the course of appellant Collins’ testimony at trial, the trial judge asked him a number of questions. ’No objection was made to any of the questions as they were being asked by the judge, but shortly thereafter counsel for Chas. H. Steffey, Inc. asked the court to "tell the jury to disregard the questions and responses” on the grounds that the judge "clearly cross examined him Í Collins]” and "inevitably influenced the jury and prejudiced the jury.” Counsel for the Meleskis said that "the Court far exceeded its scope of examination...”, and counsel for Collins complained that "the way the questions were brought out, I think that the jury could have surmised that something important was being brought out that wasn’t brought out before, ⁵³⁴ yet it was brought out in such a way that it was indication to them to the prejudice of the defense in this case that it — it had more importance than it actually had.” The record does not show that either of these counsel asked the court to take any action.

On appeal, appellants contend that "the court below erred in refusing to grant an immediate instruction to the jury, or a mistrial, upon its hypercritical interrogation of John S. Collins.” They assert that the court’s "questions were unsettling, belittling and overbearing” and that "the prejudicial impact was .. . irreparable.” We find no reversible error. First of all, none of the appellants asked for a mistrial. That issue is therefore not before us. Md. Rule 1085.

Moreover, even though some of the court’s questions may have elicited answers that were harmful to the appellants’ case, we do not think that the questions were unwarranted under the circumstances. In any event, even if there had been error in any of the questions, the error was dispelled by the judge’s instructions to the jury at the close of the case: "You should not conclude from any conduct or words of mine that I favor one party or the other or believe or disbelieve the testimony of any witness. You and not I are the sole judges of the believability of the witnesses and the weight of the evidence. And you must not be influenced in any way by my conduct during the course of the trial.

I sometimes ask questions during a trial because I’m not clear about a witness’s testimony on certain points. You should not infer that this ... you should not infer that these matters are more important than others I did not ask questions about. I was merely seeking clarification. Even should you conclude that I may have come to certain conclusions of my own, you will not speculate as to what those conclusions are.

I’m not a juror and I have no function in your deliberations in deciding the facts and applying the law. You are the ones who must decide the case.” ⁵³⁵ See State Roads Comm. v. Wyvill, 244 Md. 163, 170 , 223 A.2d 146 (1965); Nicholson v. Blanchette, 239 Md. 168, 175 , 210 A.2d 732 (1965). 4 Ill Appellants contend that "the court erred in refusing to direct verdicts for appellants on the issue of fraud, punitive damages, and the statute of limitations.” (a) Fraud The appellants, citing Section 9-305 of the Corporations and Associations Article (Ann. Code of Md. 1975), 5 concede in their brief "that if fraud is established against one partner, the partnership (and thus all partners) are liable for that fraud. ...” With this correct concession, and in view of the absence of any real argument concerning the sufficiency of the evidence of fraud as to one of the partners (Collins), we find no merit to appellants’ contention that a directed verdict should have been granted in favor of any of the appellants. The issue was clearly one for the jury to determine on the conflicting evidence and inferences therefrom. (b) Punitive Damages As we understand the appellants’ argument here, it pertains only to the Meleskis and Chas.

H. Steffey, Inc. It is argued that the jury should not have been permitted to consider punitive damages against the Meleskis and Chas. H. Steffey, Inc. because there is no evidence that they individually "authorized, participated in, or ratified the ⁵³⁶ malicious act.” This argument is without merit for two reasons. First, there is evidence in the case from which the jury could have found that the Meleskis and Chas. H. Steffey, Inc. did authorize, or at least ratify, the action of Collins in entering into the alleged fraudulent agreement of June 21, 1974 to "sell” the non-existent liquor license.

By his own testimony, Mr. Meleski read the agreement before it was executed and authorized his wife to sign it. He also testified that Mr. John Steffey, chairman of the board of Chas. H. Steffey, Inc., was "aware” the agreement "was coming into existence.” There was also evidence from which the jury could have found that after the execution of the agreement the partners accepted, indeed insisted upon, payments from the appellee with full knowledge that the liquor license they had "sold” him did not exist. Secondly, it is uncontroverted that in executing the agreement on behalf of the partnership Collins was acting within the scope of the business of the partnership.

His allegedly fraudulent conduct in inducing the appellee to enter the contract was, then, a partnership act, and if as a consequence he is liable for punitive damages, so too are the partnership and all other partners — regardless of whether or not there is any affirmative proof that any of the other partners authorized, participated in or ratified his tortious conduct. Although we recognize there is authority to the contrary in other states, 6 we think the rule in Maryland is as we have stated it. In Schloss v. Silverman, 172 Md. 632 , 192 A. 343 (1937), the Court of Appeals stated the general rule of liability of a partnership and its several members for the torts of any of its members: "The liability of one copartner for the tortious acts of another is analogous to the liability of a principal for the acts of his agent, since each ⁵³⁷ partner acts both as principal and as the agent of the other as to acts done within the apparent scope of the business and purpose of the partnership and for its benefit. 1 Rowley on Partnership, secs. 509, 485; 47 C. J. 884; 20 R. C. L., Partnership, secs. 94, 126. The test of the liability of the partnership and of the several members thereof for the torts of any one partner is whether the wrongful act was done within what may be reasonably found to be the scope of the business of the partnership and for its benefit {Ibid; Cooley on Torts, sec. 88), and the scope of the authority of a partner is determined by the same principles as those which measure the scope of an agent’s authority.” 172 Md. at 638 .

The Court then went on to recognize that there is authority for the proposition that this general rule "is not applicable to the liability of one partner for the willful and malicious torts of another (Cooley on Torts, sec. 88), because such torts cannot be considered as within the usual scope of partnership business.” Id. at 638 . The opinion makes clear, however, that if a tort is "willful and malicious” [and therefore one for which punitive damages may be awarded] and is committed within the scope of the agency, the non-participating partners are equally liable. "... But it is not altogether certain that the general rule is not applicable to such cases, because the conclusion that willful and malicious wrongs are not within the scope of an ordinary partnership may be a mere factual inference.

The case of McIntyre v. Kavanaugh, 242 U.S. 138, 139 , 37 S. Ct. 38, 39 , 61 L. Ed. 205 , cited as in apparent conflict with the rule that willful and malicious torts are not to be considered as within the usual scope of the business of an ordinary partnership, does not go as far as that. The court there was dealing with a case in which a partnership engaged in business as brokers wrongfully converted certain securities. Thereafter the firm and its members were adjudged ⁵³⁸ bankrupts. The depositor then sued one of the partners, who pleaded his discharge, personal ignorance of and nonparticipation in any tortious act.

The court there said: 'That partners are individually responsible for torts by a firm when acting within the general scope of its business, whether they personally participate therein or not, we regard as entirely clear. ... If, under the circumstances here presented, the firm inflicted a willful and malicious injury to property, of course, plaintiff in error incurred liability for that character of wrong.’ That case turned upon the fact that the tort was actually within the general scope of the partnership business, and is not inconsistent with the rule that a willful and malicious tort is not within the usual scope of an ordinary partnership. If the tortious act is a partnership act, it must also be severally the act of the partners; but if it is willful and malicious, and done by one of the partners without the knowledge or consent of the others, and not for the benefit or purposes of the partnership, it will not be considered as within the usual scope of an ordinary business partnership. In the case last cited the partnership received the securities, and the partnership appropriated them wrongfully to its use, sold them, deposited the proceeds to its credit, and used them as its funds.

That those transactions were partnership business was not a matter of inference, but was shown by direct and unequivocal proof. But whether regarded as an exception to the general rule, or as a mere application of it to appropriate facts, the weight of authority supports the view that, where one partner commits a willful and malicious tort not within the scope of the agency or the common business of the partnership, to which the other members have not consented, and which has not been ratified, they are not liable for harm thereby caused. ... [Citations omitted].” (Emphasis supplied). Id. at 638, 639. ⁵³⁹ In Schloss , the Court found no liability against a partnership and the non-participating partners for the tort (assault) of one partner, on the ground that the assault was not committed within the scope of partnership business. In the instant case, however, as we have already indicated, the conduct complained of as warranting punitive damages was uncontrovertedly within the scope of the agency or the common business of the partnership.

Consequently, even if there had been no evidence that the Meleskis and Chas. H. Steffey, Inc. had authorized, participated in or ratified that conduct, they would be jointly and severally liable for any punitive damages awarded therefor. The Maryland rule of derivative liability for punitive damages is well settled. In Safeway Stores, Inc. v. Barrack, 210 Md. 168 , 122 A.2d 457 (1956), it was argued by the appellant corporation that it was not liable for punitive damages because it had not authorized, ratified or participated in the tortious acts of its agent and employee, one Smith.

The Court said, at 210 Md. 176 -177: "The reasoning that would support an award of punitive damages against Smith would not necessarily apply to his employer. Some courts have held that a principal is not liable for punitive damages unless the principal authorizes, ratifies or participates in the act complained of. Lake Shore Ec. Railway Co. v. Prentice, 147 U.S. 101 ; Prosser, Torts (2d ed.), p. 21; Restatement, Torts, § 909.

Cf. Wardman-Justice Motors v. Petrie, 39 F.2d 512 (D. C.), and Safeway Stores v. Gibson, 118 A.2d 386, 388 (Mun. C. A., D. C.), in which cases the courts found evidence of express authorization or ratification from the terms of employment and the retention of the agent after the incident was reported. But the Maryland cases take a less strict view.

In Boyer & Co. v. Coxen, 92 Md. 366, 371 , punitive damages were allowed against an employer in an assault case, where there was no evidence of authorization, participation or ⁵⁴⁰ ratification. There was, of course, evidence that the servant was acting in furtherance of the master’s business, although his action in beating the plaintiff with a wrench was 'wanton, high-handed and outrageous’. See also Dennis v. Baltimore Transit Co., 189 Md. 610, 616 , and Balt. & Yorktown Turn. v. Boone, 45 Md. 344 .” (Emphasis added.) In Boyer & Co. v. Coxen, 92 Md. 366, 367-369 , 48 A. 161 (1901), the Court explained the reason for the Maryland Rule: "Some courts of high authority have adopted the rule that a principal is only liable in punitive damages for the act of his agent when the former has either given express authority to the agent or subsequently ratified his act, or was guilty of some misconduct himself in connection with it. When it is remembered that such damages are allowed by