Hill v. County Concrete Co., Inc.

• Decision Date: 01 September 1995
• Docket Number: No. 975,975
• Citation: 672 A.2d 667,108 Md.App. 527
• Parties: Cecil F. HILL, Sr. v. COUNTY CONCRETE COMPANY, INC. ,
• Court: Court of Special Appeals of Maryland

Page 527

108 Md.App. 527

672 A.2d 667

Cecil F. HILL, Sr. v. COUNTY CONCRETE COMPANY, INC.

No. 975, Sept. Term, 1995.

Court of Special Appeals of Maryland.

March 4, 1996.

Richard H. Keller, Baltimore, for Appellant.

John A. Goodman, Bel Air, for Appellee.

Argued before WILNER, C.J., and HARRELL and EYLER, JJ.

EYLER, Judge.

This case is before us on appeal from a judgment entered in the Circuit Court for Harford County in favor of County Concrete Company, Inc. against Cecil F. Hill, Sr. The issue is whether Hill should be afforded limited liability status as an officer/stockholder of a corporation because the corporation existed de facto if not de jure or because County Concrete was estopped to assert individual liability where there has been a valid finding that Hill did not act in good faith. We find no error and affirm the judgment.

I.

County Concrete filed a complaint and motion for summary judgment against "C & M Builders, Inc." on June 6, 1991. The suit sought payment due on an open account. Soon thereafter, County Concrete filed a request to strike service of process, asserting that the "C & M Builders, Inc." served was not the entity with whom it had done business. It then served process on Hill as the correct agent to receive process for "C & M Builders, Inc." On September 25, 1991, County Concrete filed an amended complaint and motion for summary judgment against "C & M Builders, Inc.," Hill, and Michael Newman. Hill filed an answer to the complaint and a response to the motion for summary judgment. A judgment by default was entered against Newman on July 1, 1992, and summary judgment was granted against "C & M Builders, Inc." on January 1, 1992. County Concrete filed a second amended complaint on November 16, 1992. The second amended complaint contained three counts: breach of contract; breach of statutory trust pursuant to Real Property Art. 9-201; and breach of a construction contract pursuant to Real Property Art. 9-301 and 302. The case was tried without a jury before Judge Stephen M. Waldron on May 10, 1995. Hill's motion for judgment was granted at the conclusion of the plaintiff's case with respect to the two counts based on alleged violations of statutes. Judgment was entered in favor of County Concrete and against Hill with respect to the breach of contract count. County Concrete asserts that Hill never validly incorporated "C & M Builders, Inc." and, thus, is liable in contract to County Concrete. Hill asserts that County Concrete knew it was dealing with a corporation and the corporation existed de facto or, alternatively, County Concrete is estopped from pursuing Hill individually. The trial judge declined to apply Hill's theories, based on a finding that Hill had not acted in good faith.

II.

In 1988, Hill and Newman decided to start their own construction business, specializing in the pouring of concrete walls and foundations. In the latter part of that year, Hill and Newman sought the assistance of an attorney to form a corporation to be known as "C & M Builders, Inc." They were told by the attorney that the corporate name was available and that they could proceed with their business preparations. Hill and Newman ordered checks, painted trucks, and ordered letterhead, all imprinted or painted with the name "C & M Builders, Inc." A bank account was opened in the National Bank of Rising Sun in the name of "C & M Builders, Inc." on November 10, 1988. For reasons not reflected in the record, the attorney for Hill and Newman did not attempt to file the Articles of Incorporation until the end of February, 1989. At that time, Hill and Newman were informed by the attorney that the name, "C & M Builders, Inc.," had been previously registered with the State Department of Assessments & Taxation and was already being used; thus, it was no longer available to them. Hill and Newman decided to incorporate under another name, "H & N Construction, Inc."

The Articles of Incorporation of "H & N Construction, Inc." were dated May 3, 1989, and were filed with the State Department of Assessments & Taxation on May 4, 1989. An account was opened with National Bank of Rising Sun in the name of "H & N Construction, Inc." on July 31, 1989. H & N Construction, Inc. filed an application for a construction license and indicated in the application that it was trading as "C & M Builders." An organizational meeting occurred, shares of stock were issued, and tax returns were filed. In short, "H & N Construction, Inc." complied with all the prerequisites and was a de jure corporation. The record reflects that "H & N Construction, Inc." entered into a security agreement with National Bank of Rising Sun on January 7, 1991, establishing a lien on certain of its assets. The record also reflects that the charter of "H & N Construction, Inc." was forfeited on October 5, 1992.

In February, 1989, County Concrete received an order in the name of "C & M Builders, Inc." for a specified amount of concrete. A principal of County Concrete testified that he had no knowledge of that entity and went to the job site identified in the order. He learned that Hill and Newman were involved with that corporation, and because he knew Hill by reputation, he agreed to establish an account in the name of "C & M Builders, Inc." The first payment was made to County Concrete by check dated February 10, 1989, bearing the name, "C & M Builders, Inc." Subsequently, payments were made by various checks bearing the same name. There were letters directed to County Concrete on stationery bearing the letterhead, "C & M Builders, Inc." The first delivery of concrete occurred on February 11, 1989. There were several deliveries thereafter, the last occurring on May 8, 1991. It is uncontroverted that County Concrete thought it was dealing with a corporate entity. It did not request a credit application from anyone, nor did it request a personal guaranty from either Hill or Newman. It extended credit based on the reputation of Hill, having been told that he was involved in the corporation.

Between February, 1989, and May, 1991, over $200,000 worth of product was purchased and paid for by "C & M Builders, Inc." The suit by County Concrete, which is the subject of this litigation, was for the balance due, in the amount of $55,231.77. ¹ It is uncontroverted that County Concrete was never advised of Hill and Newman's inability to incorporate as "C & M Builders, Inc.," nor was it advised of the incorporation of "H & N Construction, Inc." County Concrete learned that "C & M Builders, Inc." was an entity unrelated to Hill and Newman when it filed its complaint herein and served process on its resident agent. County Concrete did not learn that Hill and Newman had validly incorporated as "H & N Construction, Inc." until January, 1994, when this information was disclosed in a deposition of Hill. Hill explained that he and Newman continued to use the name, "C & M Builders, Inc." subsequent to February, 1989, because of "economic considerations," referring to the cost of obtaining new paper supplies and the repainting of vehicles.

III.

Hill phrases the questions to this court as follows:

Did the Circuit Court err in granting judgment against appellant?

Did the Circuit Court err in not applying the legal argument of corporate estoppel?

Did the Circuit Court fail to recognize a de facto corporation and de jure corporation?

IV.

Hill argues that he should not be personally liable because "C & M Builders, Inc." was a "de facto corporation." He bases this assertion on the fact that County Concrete knew it was dealing with a corporate entity and not with an individual or individuals. He asserts that the use of a wrong name was not material in that a contract entered into by a corporation under an assumed name may be enforced by either of the parties. For the same reasons, Hill argues that the doctrine of corporate estoppel should apply even if a de facto corporation is found not to exist. Hill relies heavily on Cranson v. International Business Machines Corp., 234 Md. 477, 200 A.2d 33 (1974), to support his argument. County Concrete asserts that the holding in Cranson is inapplicable to the facts of this case because of the absence of good faith by Hill. There is no assertion herein by either party that there was a contract between County Concrete and the de jure corporation, "C & M Builders, Inc." It is undisputed that Hill and Newman were not involved with that entity. The question is whether Hill has a defense to the contract claim filed against him.

We begin with a review of basic principles of contract law. If an agent fully discloses the fact that he is an agent and fully discloses the identity of his principal, the agent is not liable on the contract, and the principal is liable on the contract. Conversely, if an agent does not make such disclosures, the agent is liable on the contract. In this case, it is uncontroverted that Hill did not disclose the identity of "H & N Construction, Inc." as a principal. If we regard that failure under the facts of this case as one of complete lack of disclosure or, alternatively, as either a partial disclosure or an inaccurate disclosure, the result is the same. See Curtis G. Testerman Company v. Buck, 340 Md. 569, 575-78, 580, 667 A.2d 649 (1985), and Crosse v. Callis, 263 Md. 65, 282 A.2d 86 (1971).

In Crosse, the Court had before it a suit by a real estate broker against a party for commissions allegedly due for procuring the sale of certain property. Specifically, the question was whether the broker was employed by an agent for a disclosed principal. The Court stated:

Broker seeks to hold defendant under the statute by claiming that defendant was acting for an undisclosed principal and, therefore, under the holdings in Hospelhorn v. Poe, 174 Md. 242, 257, 198 A. 582 (1938), and Codd Company v. Parker, 97 Md. 319, 325, 55 A. 623 (1903), that defendant is responsible for the commissions.

The real situation...