United Book Press, Inc. v. Maryland Composition Company, Inc.

United Book Press, Inc., appellant, brought suit in the
Circuit Court for Baltimore County against Maryland
Composition Co., Inc., appellee, alleging breach of contract
and seeking indemnity. Appellant appeals from a judgment
entered in favor of appellee after the circuit court, at
trial, granted appellee’s motion for judgment at the close of
appellant’s case. In addition to general principles of
contract law, including the duty to mitigate damages, the
parties have urged consideration of judicial estoppel,
equitable estoppel, waiver, merger, accord and satisfaction,
and the preclusive effect of a confessed judgment. For
reasons that follow, we shall reverse the judgment of the
circuit court and remand for a new trial.

Factual Background

Appellant was
in the business of manufacturing books. It entered into a
contract with Strathmore Directories, Ltd. (Strathmore), to
print a “Who’s Who” directory. Strathmore provided appellant
with a computer disc containing the text to be included in the
book. Appellant entered into a contract with appellee, a
typesetter, to typeset the text. Appellant gave the disc to appellee. Appellant presented testimony that appellee was
obligated to proof read its work.

Appellee omitted the “K” section from the type that was
set, and the error was not discovered until after 4,962 books
had been printed and delivered to Strathmore. Strathmore
learned of the error from one of its customers. It advised
appellant, and appellant advised appellee. According to
testimony at trial, appellee acknowledged that the “K” section
had been deleted from its typeset and explained that it
occurred when the disc was converted to a format that was
compatible with its type setting system.

Strathmore refused to pay for the books. Appellant
attempted to correct the error in part by providing a limited
number of the missing “K” sections to be placed in some of the
books. This was done at a cost of $3,000.00. Appellant
contacted appellee and asked appellee to split the cost.
Appellee agreed and, subject to a $1,500.00 credit, appellant
paid appellee’s bill. Strathmore continued to refuse to pay
its bill.

On June 30, 1999, appellant filed a complaint in the
Circuit Court for Baltimore County against Strathmore.
Appellant sought a judgment by confession based on (1) the
contract between it and Strathmore which contained a confessed judgment clause; and (2) a supporting affidavit. Appellant
alleged in the complaint that, pursuant to the contract
between it and Strathmore, appellant provided page proofs to
Strathmore for approval prior to printing the books, and the
books as printed conformed to the page proofs as approved by
Strathmore. Appellant further alleged that it delivered
4,962 books to Strathmore and issued invoices in the total
amount of $97,667.64. Appellant asserted that Strathmore
refused to pay the invoices based upon the absence of the “K”
section in the books even though that section was absent from
the page proofs that had been approved by Strathmore. The
attached affidavit, in pertinent part, stated that the amounts
claimed were “justly due and payable.”

On June 30, 1999, a confessed judgment was entered in
favor of appellant in the amount of $97,667.64, attorneys fees
in the amount of $14,650.15, and costs. On July 13, 1999, a
notice of confessed judgment was served on Strathmore. The
notice advised Strathmore, a nonresident, that pursuant to
Rules 2-611(c) and 2-321(b)(1), it had 60 days from the date
of service to file a motion to open, modify, or vacate the
judgment. On August 26, 1999, within that 60 day period,
appellant entered into a settlement with Strathmore. Pursuant
to the settlement, Strathmore paid appellant $75,000.00 and the parties executed a mutual general release. Appellant
released Strathmore from any further liability but did not
release any other entities. The confessed judgment was not
vacated, and there was no motion filed seeking to vacate it.
The judgment was not entered satisfied on the record.

On July 6, 1999, appellant filed a complaint against
appellee in the case now before us. The complaint alleged
breach of contract and indemnity. In pertinent part,
appellant alleged that appellee had breached its contract with
appellant by omitting the “K” section from the directory, and
as a result, Strathmore had refused to pay for the books.
Appellant also alleged that “if it is found that [appellant]
breached its contract with Strathmore, then [appellee’s]
breach of contract proximately caused [appellant’s] breach”.
Appellant sought damages in the amount of $97,667.64,
attorneys fees, interest, and costs.

On January 4, 2001, the case was tried non jury. At
trial, appellant claimed damages in the amount of $22,667.64,
its invoice amount less the $75,000.00 received pursuant to
the Strathmore settlement. At the close of appellant’s case,
the circuit court granted appellee’s motion for judgment.

* * *

Appellant’s position may be summarized as follows.
First, there was uncontradicted evidence that appellee
breached its contract with appellant. Second, the confessed
judgment against Strathmore was not final when entered, and
appellant settled its claim with Strathmore before the
judgment became final; thus, the confessed judgment had no
preclusive effect. Third, appellant’s settlement with
Strathmore represented a reasonable mitigation of damages with
respect to its claim against appellee. Appellee asserts that
the circuit court judgment should be affirmed based on
theories of judicial estoppel, waiver, equitable estoppel, merger, and accord and satisfaction.

We shall shortly begin our analysis by addressing the
theories advanced by appellee to support the circuit court’s
ruling. First, however, we point out an issue that is not
before us. After a confessed judgment was entered in favor of
appellant against Strathmore, the parties entered into a
settlement and executed a mutual release. No order of
satisfaction was filed in that case, however, and there was no
docket entry marking the case satisfied. Consequently, we do
not have before us the effect of such an entry which would
give rise to the question of whether a party could go behind
that entry and attempt to establish that the judgment was only
partially and not completely satisfied. See,e.g., Franzen v.
Dubinok, 290 Md. 65 (1981). What we do have before us is the
effect of a confessed judgment that was never vacated and was
not marked satisfied.

Judicial Estoppel

Appellee contends appellant sought and obtained a
judgment against Strathmore for the full amount of the damages
claimed on the basis of an assertion, under oath, that
Strathmore was solely responsible for the alleged loss.
Appellee concludes that appellant is judicially estopped from now asserting a right to collect an amount from appellee which
appellant was legally entitled to collect from Strathmore.

Appellee relies on the following cases, which we shall
discuss. In Edes v. Garey, 46 Md. 24 (1877), residuary
legatees filed a complaint in equity to enforce the personal
liability of sureties on a testamentary bond, based on alleged
wrongdoing by the executor. In a prior proceeding, the
plaintiffs had alleged facts totally inconsistent with the
wrongdoing and totally inconsistent with any alleged loss.
Edes, 46 Md. at 41. The Court found plaintiffs were estopped
from denying those facts. Id. at 42.

In Hall v. McCann, 51 Md. 345 (1879), there was an attack
on a lien securing an indebtedness on the ground that the
indebtedness had been paid. The Court held that it would not
act because the claimant had testified in another proceeding
that the plaintiff had no interest in the lien. Hall, 51 Md.
at 351.

The Court of Appeals, in Van Royen v. Lacey, 266 Md. 649
(1972), on an appeal from a motion to enforce a judgment (the
third appeal in the litigation) applied judicial estoppel
where the plaintiff had alleged during the trial and prior
appeals that the defendants were joint tenants but
subsequently sought to allege a tenancy by the entireties. Van Royen, 266 Md. at 651-52. The plaintiff was estopped from
doing so.

In Stone v. Stone, 230 Md. 248 (1962), a widower, during
the probate of his wife’s estate, took the position that
certain securities were part of the corpus of a trust of which
he was trustee. Subsequently, in an action for distribution
of the securities upon termination of the trust, he took the
position that the securities were his individual property.

* * *

In Wilson v. Stanbury, 118 Md. App. 209 (1997), the
plaintiff filed suit as a result of a motor vehicle accident
and alleged in the complaint that the accident was caused
solely by the named defendant. The plaintiff filed the suit,
knowing that the defendant was not negligent, because the
plaintiff had missed the statute of limitations with respect
to the negligent party. Wilson, 118 Md. App. at 210.
Subsequently, after settling that action, the plaintiff filed
a malpractice action against his attorney, alleging that the
attorney was negligent in missing the statute of limitations.
The Court applied judicial estoppel and barred the claim for
the express purpose of protecting the courts from being used
inappropriately. Id. at 215 (recognizing the similarity
between judicial estoppel and the “clean hands” doctrine).

In Kramer v. Globe Brewing Co., 175 Md. 461 (1938), a
personal injury action, the defendant stated in a pleading in
a prior case that plaintiff was the defendant’s employee, that
the injuries arose out of the employment, and that the
defendant had complied with workers compensation laws.
Kramer, 175 Md. at 464-65. In reliance on that statement, the
plaintiff dismissed the action and filed a workers
compensation claim. Id. at 465. The Court held that the defendant was estopped to deny in the workers compensation
proceeding that the plaintiff was its employee. Id. at 471.

Finally, in WinMark v. Miles & Stockbridge, 345 Md. 614
(1997), the question before the court was whether a debtor’s
nondisclosure of a claim as an asset during a reorganization
under Chapter 11 of the bankruptcy code barred the debtor from
post-confirmation litigation of that claim against defendants
not creditors in the bankruptcy action. The Court did not
apply judicial estoppel but, as this Court did in Wilson,
noted that the policy underlying judicial estoppel is the same
as that underlying the clean hands doctrine. WinMark, 345 Md.
at 627-28 (citing Manown v. Adams, 89 Md. App. 503 (1991)).
The Court explained that the doctrine is to protect the courts
from having to reward inequitable conduct. Id. at 628. The
Court also recognized the difference between judicial estoppel
and equitable estoppel, noting that the former focuses on the
connection between litigants and the judicial system, and the
latter focuses on the relationship between the parties. Id.
at 623 (citing Oneida Motor Freight, Inc. v. United Jersey
Bank, 840 F.2d 414, 419 (3d Cir. 1988)).

* * *

Click the case caption above for the full text of the Court's opinion.

Our interpretation of the circuit court opinion in this
case is that the court ruled that no damages were recoverable
against appellee, even if it breached its contract, because of
the preclusive effect of the confessed judgment.
Consequently, we vacate the judgment and remand for further proceedings
consistent with this opinion.

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