Creamer v. Helferstay

• Decision Date: 04 August 1982
• Docket Number: No. 7,7
• Citation: 448 A.2d 332,294 Md. 107
• Parties: Ronald E. CREAMER, Indiv. & t/a Weinberg & Green et al. v. Charles HELFERSTAY et al.
• Court: Maryland Court of Appeals

Page 107

294 Md. 107

448 A.2d 332

Ronald E. CREAMER, Indiv. & t/a Weinberg & Green et al. v. Charles HELFERSTAY et al.

No. 7.

Court of Appeals of Maryland.

Aug. 4, 1982.

J. Alan Galbraith, Washington, D. C. (Brendan V. Sullivan, Jr., Michael S. Sundermeyer and Williams & Connolly, Washington, D. C., Wilbur D. Preston, Jr., Richard C. Whiteford, M. Natalie McSherry and Whiteford, Taylor, Preston, Trimble & Johnston, Baltimore, on the brief), for appellants.

David Freishtat, Baltimore (Paul Mark Sandler and Freishtat, Schwartz & Sandler, Baltimore, on the brief), for appellees.

Argued before MURPHY, C. J., and SMITH, DIGGES, ^* ELDRIDGE, COLE, DAVIDSON and RODOWSKY, JJ.

ELDRIDGE, Judge.

We granted certiorari in this case to resolve important questions concerning some of the grounds for rescission of a contract under Maryland law.

Several limited partners of a real estate partnership which had invested in a land venture known as the Route 29--Lewis Property Partnership, brought suit in the Superior Court of Baltimore City against the Baltimore law firm of Weinberg & Green and several of its partners individually, alleging negligent breach of fiduciary duties, breach of contract and fraud. ¹ These allegations arose out of the law firm's concurrent representation of the real estate limited partnership and of the general partner thereof (who is not a party to this case). In essence, the limited partners claimed that Weinberg & Green's representation of the general partner personally, and its relationships with him in business dealings, had created a conflict of interest and had resulted in financial loss to the limited partners. The limited partners alleged that Weinberg & Green had had a duty to disclose the full extent of its relations with the general partner and that, had it made this disclosure, the limited partners would not have invested in the partnership. The limited partners sought compensatory damages and, under the fraud count, punitive damages. ² Weinberg & Green counterclaimed for damages, alleging that, to the extent that the law firm caused the limited partnership to have lost money, the loss was due to the failure of certain of the limited partners to have disclosed information to the law firm which would have enabled the venture to have been profitable.

Responding to the suggestion of the trial judge presiding in the case, the parties negotiated a partial settlement agreement which was signed on October 24, 1979. The limited partners agreed to dismiss with prejudice the fraud count and to release Weinberg & Green from all other claims of fraud or conspiracy relating to the real estate partnership. Weinberg & Green agreed to dismiss its counterclaim, and "to enter into good faith settlement negotiations" on the negligence and breach of contract counts. The following provision was also included in the written agreement:

"This agreement ... constitute[s] the entire agreement of the parties. There are no additional promises made by the parties except those expressly set forth in this agreement."

Pursuant to the settlement agreement, the fraud count and the counterclaim were dismissed. Thereafter, the parties met three times to negotiate on the remaining counts, and at the third meeting Weinberg & Green offered $80,000 in settlement. The limited partners rejected this offer, and, as found by the trial court, their counsel "immediately announced his intention to seek rescission [of the settlement agreement] and acted upon that intention the following day by filing the motion for appropriate relief."

The limited partners argued that the settlement agreement should be rescinded and the fraud count reinstated because, they alleged, Weinberg & Green had intentionally made "false representations" during the negotiations which had induced the limited partners to enter into the settlement agreement. Specifically, the limited partners alleged that during negotiations they had repeatedly stated that any settlement would have to be in the range of $275,000 to $550,000. ³ Weinberg & Green, however, refused during those negotiations to agree expressly in writing or orally to a specific settlement range. Nevertheless, the limited partners claimed that, by certain statements, the law firm had caused them to understand that, even though the settlement agreement provided only for "good faith settlement negotiations," in reality the agreement was different. According to the limited partners, the law firm represented that, as soon as the fraud count was dropped, the law firm would offer to settle for between $275,000 and $550,000. ⁴

In an opinion, the trial court found that there was "no evidence of intentional misrepresentation" by Weinberg & Green. ⁵ However, the court did find that Weinberg & Green had made an "honest misrepresentation" which had induced in the respondents the belief that Weinberg & Green intended to negotiate a settlement in the $275,000--$550,000 range. The court further found that the limited partners had entered into the settlement agreement in reliance upon this misrepresentation. The trial court entered an order rescinding the settlement agreement and reinstating the counterclaim and the fraud counts. The trial judge based his order of rescission on the alternative grounds of misrepresentation and unilateral mistake. Weinberg & Green appealed to the Court of Special Appeals which affirmed on the ground of unilateral mistake. Creamer v. Helferstay, 47 Md.App. 243, 422 A.2d 395 (1980). ⁶ The law firm then filed a petition for a writ of certiorari, arguing that neither misrepresentation nor unilateral mistake furnished grounds for rescission of the settlement agreement under the circumstances of this case.

I.

Before discussing the substantive rulings of the trial court and of the Court of Special Appeals, however, a procedural matter must be considered.

The appeal in this case was taken from the following order of the trial court "[I]t is this 31st day of December, 1979, by the Superior Court of Baltimore City ORDERED that:

1. The contracts which were executed by the parties on October 24, 1979 are rescinded; and

2. The orders filed October 24, 1979 dismissing the fraud count of the declaration and the counterclaim and all copies of such orders thereafter filed are stricken."

At oral argument, we raised the question of whether, in an action at law, a trial court has the power to affirmatively order the rescission of a contract. Although raised in the trial court, the parties did not raise this issue on appeal. Nevertheless, it is the type of matter which we ordinarily address when it comes to our attention even though not raised by the parties. See, e.g., Sec., Dep't of Human Res. v. Wilson, 286 Md. 639, 644-645, 409 A.2d 713 (1979), and cases there cited; Maryland Nat'l Capital Park & Planning Comm'n v. Washington Nat'l Arena, 282 Md. 588, 594, 386 A.2d 1216 (1978) (concerning "the power of the chancellor ... to award relief ...").

The original action brought by the limited partners against the law firm was at law for damages. The procedural distinctions between actions at law and suits in equity are, of course, still preserved in this State. In the counties, the circuit courts maintain separate law and equity dockets. See Dormay Corp. v. Doric Co., 221 Md. 145, 151, 156 A.2d 632 (1959); see generally Brown, The Law/Equity Dichotomy in Maryland, 39 Md.L.Rev. 427 (1980). In Baltimore City, the Superior Court is vested with the power to adjudicate only actions at law, while the Circuit Court of Baltimore City has exclusive authority to hear and determine suits in equity. Maryland Constitution, Art. IV, §§ 28, 29. ⁷

It is beyond dispute that the authority of a court to rescind or cancel a contract is purely equitable. ⁸ See, e.g., 1 J. Pomeroy, Equity Jurisprudence, §§ 110, 112(5) (5th ed. S. Symons 1941). Consequently, this Court has long held that a law court has no power to order a contract rescinded or cancelled. Ridgley, Exec. v. Beatty, 222 Md. 76, 85-86, 159 A.2d 651 (1960); Conner v. Groh, 90 Md. 674, 683-684, 45 A. 1024 (1900); Refining Co. v. Campbell & Zell Co., 83 Md. 36, 55-58, 34 A. 369 (1896). The Superior Court of Baltimore City was clearly without the power to order rescission of the settlement agreement in this case; the order appealed from must be vacated, and the case must be remanded.

Although a law court in Maryland may not ordinarily grant affirmative equitable relief absent statute or rule, it is competent to recognize defensive pleas on equitable grounds under Maryland Rule 342 d. 1. That rule permits any party to an action at law, by way of defense, to plead facts which could entitle him to relief on equitable grounds in a court of equity. ⁹ If the law court agrees that in equity the contract would be rescinded, although it does not have the power actually to rescind the contract, the law court will simply hold it unenforceable and deny relief. See Refining Co. v. Campbell & Zell Co., supra, 83 Md. at 56, 34 A. 369, pointing out that under the statutory predecessor to Rule 342 d. 1., where grounds for rescission of a contract exist, a law court can recognize the grounds " 'as a defense to any attempted enforcement' " but that the law court " 'could not go further, and furnish ... the protection of a cancellation or surrender of the written instrument ....' " See also Gladding v. Langrall, Muir & Nopp'r, 285 Md. 210, 213 n. 4, 401 A.2d 662 (1979); Whitaker v. McDaniel, 113 Md. 388, 78 A. 1 (1910). ¹⁰

On remand then, the limited partners will not be able to obtain an order of rescission in the Superior Court as they had originally sought. However, they may be able to invoke Rule 342 d. 1. and make the argument or file a replication that grounds exist upon which a court of equity would rescind the settlement agreement. ¹¹ The Superior Court, if it agreed with the limited partners' contention, could refuse to enforce the settlement agreement and...