Crown Controls, Inc. v. Smiley

• Decision Date: 09 June 1988
• Docket Number: No. 54253-8,54253-8
• Citation: 756 P.2d 717,110 Wn.2d 695
• Court: Washington Supreme Court
• Parties: CROWN CONTROLS, INC., a Washington corporation, Respondent, v. Jim SMILEY, an individual, Petitioner, and North American Drill Supply, Inc., an Oregon corporation, d/b/a Industrial Associates, Defendants.

Page 695

110 Wn.2d 695

756 P.2d 717

CROWN CONTROLS, INC., a Washington corporation, Respondent, v. Jim SMILEY, an individual, Petitioner and North American Drill Supply, Inc., an Oregon corporation d/b/a Industrial Associates, Defendants.

No. 54253-8.

Supreme Court of Washington En Banc.

June 9, 1988.

Trujillo & Peick, P.S., John C. Peick, Bellevue, for petitioner.

LeSourd & Patten, P.S., Jeffrey C. Wishko, Seattle, for respondent.

DURHAM, Justice.

The issue presented in this case is if the "election of remedies" doctrine should be applied when an agent fails to adequately disclose the identity of the principal on whose behalf he is contracting. This court has previously held that in such circumstances, a creditor must elect whether it will seek to hold the agent or the principal liable for the debt. Under prior law, a judgment received against one discharges the other from liability, as long as the creditor has already learned of the existence and identity of the previously undisclosed principal. However, this "election of remedies" doctrine has become outdated and unjustifiably restrictive of creditors' rights. Accordingly, we conclude that the doctrine should no longer be applied in this context. Instead, agents and undisclosed principals henceforth face joint and several liability.

I. FACTS

Crown Controls, Inc. is a Washington corporation based in Lynnwood that acts as a sales representative for various suppliers of chemical control equipment. Its president and principal stockholder is Michael Slomer.

Jim Smiley operates a manufacturer's representative/distributorship business out of his residence in Bend, Oregon. Smiley used to own the trade name "Industrial Associates", but in January 1983 he transferred ownership of that name to an Oregon corporation called North American Drill Supply, Inc. (Drill Supply). Pursuant to the laws of Oregon, Drill Supply registered its ownership of that name. On that registration form, Smiley is listed as the authorized representative of Drill Supply. Moreover, as of the time relevant to this case, Smiley was the president of Drill Supply and owned 75 percent of its stock, while his ex-wife owned the other 25 percent.

In June 1983, Smiley and Drill Supply had a customer in Guam who needed gas chlorination equipment for an irrigation project. Smiley telephoned Slomer of Crown Controls, identifying himself as an agent of Industrial Associates. After several telephone discussions regarding various items of equipment and their prices, Slomer agreed to supply and Smiley agreed to purchase gas chlorination equipment. It was subsequently delivered to and accepted by Smiley and Drill Supply's shipping agent in Portland, Oregon. Crown Controls billed Industrial Associates for $9,136.03.

Throughout the course of the negotiations between the parties, Smiley never disclosed to anyone at Crown Controls that he was acting on behalf of a corporate entity; he indicated only that he was an agent for "Industrial Associates". Crown Controls was not informed of Drill Supply's existence until litigation commenced.

At the same time as this transaction, Smiley and Drill Supply also ordered pump control valves from Crown Controls. The Guam customer eventually encountered problems with these valves and returned them to Crown Controls' supplier.

In December 1983, in response to repeated demands for payment for the gas chlorination equipment, Smiley tendered a check to Crown Controls in the amount of $5,547.92, an amount less than the $9,136.03 that was billed, on the "express condition that it is in full and complete satisfaction of all my obligations to you ..." The lower amount represented an offset for damages attributable to the problems encountered with the rejected pump control valves. Crown Controls refused to accept payment on this condition and returned the check to Smiley.

Crown Controls filed a complaint against Smiley and Drill Supply in Snohomish County in order to collect the full amount billed for the chlorination equipment. Drill Supply responded by suing Crown Controls in an Oregon state court, seeking to recover damages attributable to the pump control valves. Smiley and Drill Supply also asserted these same damages as an affirmative defense in the Snohomish County action. The Oregon action was removed to federal court, where Drill Supply eventually received judgment in the amount of $3,363.11, plus interest.

In the Snohomish County action, Crown Controls moved for summary judgment. The trial court granted summary judgment against Drill Supply, doing business as Industrial Associates, but refused to grant summary judgment against Smiley, concluding that a material issue of fact existed concerning if Smiley had disclosed that he was acting on behalf of Drill Supply. Crown Controls tried to collect on the judgment against Drill Supply by garnishing its bank account in supplemental proceedings, but this proved unsuccessful because that account had already been closed.

Trial was held on March 14, 1985 on the issue of Smiley's liability. The court concluded that it had personal jurisdiction over Smiley and that Smiley had breached his contract to pay for the chlorination equipment. The trial court further determined that Smiley had not sufficiently disclosed that he was acting on behalf of Drill Supply, causing Smiley to become personally liable for the debt. The court then held that Crown Controls had to elect whether it would pursue Smiley or Drill Supply in collecting on its judgment. Crown Controls elected to pursue Smiley, so the court vacated the earlier summary judgment Crown Controls had received against Drill Supply. Judgment was entered in the amount of $9,136.03, plus prejudgment and postjudgment interest.

Smiley appealed this judgment to the Court of Appeals. That court affirmed the trial court's holding that personal jurisdiction over Smiley was properly exercised, and that he had failed to properly disclose the existence and identity of Drill Supply. However, the Court of Appeals rejected the election of remedies doctrine. Instead, the court imposed joint and several liability against Smiley and Drill Supply. Crown Controls, Inc. v. Smiley, 47 Wash.App. 832, 848, 737 P.2d 709 (1987).

Smiley filed a petition for review in this court, challenging the Court of Appeals decision with respect to each of the issues discussed in the preceding paragraph. This court accepted review.

II. ANALYSIS

In his first two issues, Smiley challenges the Court of Appeals conclusions that he had subjected himself to long-arm jurisdiction in this state and that he failed to disclose adequately the identity of Drill Supply in his negotiations with Crown Controls. We conclude that the Court of Appeals opinion fully and properly analyzed these issues, and those portions of the opinion are adopted here.

In his third issue, Smiley argues that by obtaining a judgment against Drill Supply, and by attempting to collect on that judgment, Crown Controls elected to give up their rights against him. In support, Smiley points to this state's "election of remedies" doctrine. Under that doctrine, the liability of an agent and his undisclosed principal on a contract is only in the alternative. In other words, after learning all the relevant facts, a creditor must elect whether he will hold the agent or the principal liable for the debt. Maxwell's Elec., Inc. v. Hegeman-Harris Co. of Can., Ltd., 18 Wash.App. 358, 362, 567 P.2d 1149 (1977). A creditor who elects to hold the previously undisclosed principal liable thereby discharges the agent, even if the creditor subsequently discovers that the principal is insolvent. Pennsylvania Cas. Co. v. Washington Portland Cement Co., 63 Wash. 689, 116 P. 284 (1911); Chapman v. Ross, 152 Wash. 262, 277 P. 854 (1929). Furthermore, the entry of a judgment against the principal amounts to an election to forego collecting from the agent. Chapman, at 267-68, 277 P. 854.

As the Court of Appeals recognized, this doctrine has been a part of Washington case law since the turn of the century, and has been invoked many times, usually in dicta, although its rationale has never been set forth in any great detail. The cases cited by the Court of Appeals indeed bear this out. See Glover v. Tacoma Gen. Hosp., 98 Wash.2d 708, 658 P.2d 1230 (1983); Turnbull v. Shelton, 47 Wash.2d 70, 286 P.2d 676 (1955); Patent Scaffolding Co. v. Roosevelt Apts., Inc., 171 Wash. 507, 18 P.2d 857 (1933); Le Vette v. Hardman Estate, 77 Wash. 320, 137 P. 454 (1914); McDonald v. New World Life Ins. Co., 76 Wash. 488, 136 P. 702 (1913); Landers v. Foster, 34 Wash. 674, 76 P. 274 (1904).

Generally, opinions issued by this court are binding on the lower courts until they are overruled. State v. Gore, 101 Wash.2d 481, 487, 681 P.2d 227, 39 A.L.R.4th 975 (1984); Nielson v. Wolfkill Corp., 47 Wash.App. 352, 356, 734 P.2d 961, review denied, 109 Wash.2d 1008 (1987). In this case, the Court of Appeals rejected the "election of remedies" rule as being "illogical and contrary to the policy favoring full compensation of wronged parties." Crown Controls, 47 Wash.App. at 842, 737 P.2d 709. Accordingly, we accepted review to independently determine if a creditor should be forced to elect his remedies when suing an agent and an undisclosed principal. In undertaking that analysis, however, we have concluded that much of the Court of Appeals' reasoning is persuasive, portions of which are restated here.

Evaluation of the relative merits of the "election of remedies" doctrine in this context can be reduced to the following dilemma: legal commentators generally consider joint and several liability to be the better reasoned approach, but alternative liability has been the rule in this state for decades and it has long been the majority rule in other jurisdictions as well. For example, the Reporter for the American Law Institute stated that the Restatement adopted the theory of alternative...