CROWN CONTROLS, INC. v. SMILEY

CHAN, J.*

Jim Smiley appeals from a judgment rendered against him for $9,136.03 plus interest, stemming from the purchase of certain industrial equipment from Crown Controls, Inc. He contends the court erred: (1) in assuming personal jurisdiction over him; (2) in finding him liable as an agent of an undisclosed principal; (3) in failing to determine there had been an election of remedies; and (4) in awarding prejudgment interest. We affirm, but remand for entry of judgment against both the principal and agent.

Jim Smiley operates a manufacturer's representative/distributorship business from his home in Bend, Oregon. Smiley uses various trade names for his businesses, including "Industrial Associates," "Industrial Associates International," "Engineering Products Manufacturing Company," and "Consolidated Leasing." Smiley is also the president of North American Drill Supply, Inc. (NADS), an Oregon corporation. The trade name "Industrial Associates" is owned by NADS and was registered pursuant to Oregon law.

Crown Controls, Inc., is a Washington corporation. It is a manufacturer's representative for chemical controls equipment suppliers.

In June 1983, Smiley telephoned Crown Controls and spoke with its president, Michael Slomer. Smiley identified himself as an agent of Industrial Associates. After several telephone discussions regarding various items of equipment and their prices, Crown Controls agreed to supply and Industrial Associates agreed to purchase certain gas chlorination equipment. The equipment was duly delivered to and accepted by Industrial Associates' agent in Portland, Oregon, and it was then shipped to an Industrial Associates customer in Guam. Crown Controls invoiced Industrial Associates for these shipments in July and August 1983, for a total principal sum of $9,136.03.

At the time of this transaction, Industrial Associates, through Smiley, also purchased certain pump control valves from Crown Controls. The Roll Seal Valve Company, located in Irvine, California, supplied the valves to Crown Controls. Industrial Associates' customers were dissatisfied with these valves and returned them directly to Roll Seal Valve Company.

At no time did Smiley disclose to Crown Controls he was acting on behalf of a corporate entity in general, or NADS in particular. He only disclosed he was acting on behalf of "Industrial Associates." Crown Controls requested credit references from Smiley after some of the equipment had been ordered, and Smiley supplied two bank references. Crown Controls only investigated one of them, which was in the name of "Industrial Associates-International." The second bank account indicated the existence of NADS, Inc., on the monthly statements, but not on the printed checks. Mr. Slomer first knew of the existence of NADS, Inc., when his attorney sent him a copy of the complaint in this case.

Crown Controls was not paid and commenced this action in February 1984. In March 1984, NADS commenced litigation in Oregon against Crown Controls regarding the pump control valve problems. NADS also claimed the pump control valve problems constituted a partial setoff to the amount claimed in this action. In August 1984, Crown Controls obtained a partial summary judgment against NADS in this action for $5,547.92 plus prejudgment interest. There remained for trial the issues of Smiley's personal liability and the claimed setoff. In February 1985, NADS obtained judgment against Crown Controls for $3,363.11 in the Oregon action. That sum was the exact amount alleged as a setoff in this action.

After the partial summary judgment but before trial in this action, Crown Controls conducted a supplemental proceeding against Smiley as president of NADS. Crown Controls then attempted to garnish NADS' bank account, but the account was closed.

Trial of this action proceeded against Smiley in March 1985. The Superior Court found Smiley had failed to disclose the identity of his true principal. The court also ruled Smiley had sufficient contacts with Washington to justify imposition of personal jurisdiction under the long-arm statute, RCW 4.28.185. The court granted Crown Controls the option of taking judgment against Smiley and vacating the partial summary judgment against NADS. Crown Controls selected that option and judgment was entered against Smiley for $9,136.03 plus pre- and post-judgment interest.1 Smiley timely appeals.

Smiley first contends he did not have the minimum contacts with Washington necessary under the due process clause to justify personal jurisdiction under the long-arm statute. Crown Controls argues Smiley waived any minimum contacts argument by failing to raise it in a responsive pleading or written motion. See CR 12(h). The issue was thoroughly litigated by the parties at trial and we will address the issue.

Smiley argues "a single telephone call" is not sufficient to subject an Oregon resident to Washington jurisdiction. An unchallenged finding states Smiley initiated the transaction between the parties, and there were "several" telephone conversations before the parties agreed on a contract. This finding is a verity on appeal. Davis v. Department of Labor & Indus., 94 Wn.2d 119, 615 P.2d 1279 (1980). It is also supported by substantial evidence, as the president of Crown Controls testified Smiley initially telephoned him and he spoke with Smiley approximately four times. In addition, one item was ordered by Crown Controls from a Washington company and shipped to Industrial Associates "F.O.B. Bellevue."

A Washington court may exercise personal jurisdiction if these criteria are met:

Sorb Oil Corp. v. Batalla Corp., 32 Wn.App. 296, 298-99, 647 P.2d 514 (1982), quoting Lewis v. Curry College, 89 Wn.2d 565, 568, 573 P.2d 1312 (1978).

[1] Griffiths & Sprague Stevedoring Co. v. Bayly, Martin & Fay, Inc., 71 Wn.2d 679, 430 P.2d 600 (1967) is directly on point. There, plaintiff was a Washington insurance broker and defendant was a California insurance broker. Defendant solicited plaintiff by telephone and mail to procure insurance for one of its customers; plaintiff obtained it from Lloyds of London. The customer failed to pay the premium, and plaintiff sued defendant in Washington to recover the amount. The court held it would not violate due process to impose personal jurisdiction:

Griffiths & Sprague Stevedoring Co. v. Bayly, Martin & Fay, Inc., supra at 684-85.

In Peter Pan Seafoods, Inc. v. Mogelberg Foods, Inc., 14 Wn.App. 527, 544 P.2d 30 (1975), defendant was a New Jersey corporation which initiated a business relationship with plaintiff Washington corporation. This court held defendant's conduct in soliciting a series of sales, traveling to Washington to inspect plaintiff's facilities, and the fact most of the goods were delivered "F.O.B. Seattle," provided the minimum contacts necessary to justify imposition of personal jurisdiction. The court particularly relied upon the fact the defendant initiated the contacts. Peter Pan Seafoods, Inc., at 532. The court further held the trial court on remand would have discretion to dismiss on forum non conveniens grounds if the requisite circumstances were shown.

This court followed Griffiths and Peter Pan Seafoods in Sorb Oil Corp. v. Batalla Corp., supra. There, the defendant was a Texas corporation which had ordered products from a Washington distributor. The products were ordered at irregular intervals and in varying quantities over approximately 18 months. The products were shipped directly from the manufacturer in Indiana to defendant. The court recognized the amount of business was less than that in Peter Pan Seafoods, and that defendant did not initiate the transactions. The court nevertheless held defendant had the protection of Washington laws and thus it would not violate due process to impose jurisdiction. Accord, Cofinco of Seattle, Ltd. v. Weiss, 25 Wn.App. 195, 605 P.2d 794 (1980) (defendant purposefully entered into employment contract with Washington corporation, thereby invoking protection of Washington laws; personal jurisdiction upheld); Huebner v. Sales Promotion, Inc., 38 Wn.App. 66, 684 P.2d 752 (1984), review denied, 103 Wn.2d 1018 (Texas defendants solicited business in Washington through magazine advertisements and personal contacts; personal jurisdiction upheld because, inter alia, defendants could reasonably foresee being haled into Washington court for harm flowing from their activities), cert. denied, 474 U.S. 818, 88 L.Ed.2d 52, 106 S.Ct. 64 (1985).

Based upon the foregoing analysis, we hold it did not offend traditional notions of fair play and substantial justice to impose personal jurisdiction here. Smiley initiated the contacts and had the protection of Washington courts. We also note there is nothing in the record to indicate Smiley moved to dismiss on forum non conveniens grounds, even though NADS, Inc., commenced suit in Oregon against Crown Controls while this action was pending. See Peter Pan Seafoods, Inc. v. Mogelberg Foods, Inc., supra.

Smiley also argued in his brief that Crown Controls failed to file an affidavit of service as required by RCW 4.28.185(4). His counsel conceded at oral argument the affidavit was timely filed. We consider the issue to be moot.

Smiley next contends the court erred in finding he failed to sufficiently disclose his principal.

Whether an agent has disclosed the identity of his principal so as to avoid personal liability is a question of fact. Matsko v. Dally, 49 Wn.2d 370, 301 P.2d 1074 (1956). Accord, Maxwell's Elec., Inc. v. Hegeman-Harris Co., 18 Wn.App. 358, 567 P.2d 1149 (1977). Therefore this court will uphold the trial court decision if it is based upon substantial evidence. Ridgeview Properties v. Starbuck, 96 Wn.2d 716, 638 P.2d 1231 (1982).

[2] The parties do not cite any Washington authority, and our research has revealed none, addressing whether disclosure of a trade name is sufficient disclosure of a principal. However, courts in other jurisdictions have held the agent has the duty to disclose the true name of the principal, not just the principal's assumed name; the plaintiff does not have a duty to inquire; and the burden of proving disclosure is upon the agent. Myers-Leiber Sign Co. v. Weirich, 2 Ariz.App. 534, 410 P.2d 491 (1966); Brown-Wright Hotel Supply Corp. v. Bagen, 112 Ga.App. 300, 145 S.E.2d 294 (1965); Judith Garden, Inc. v. Mapel, 342 N.Y.S.2d 486 (Cir. Ct. 1973); 3 Am.Jur.2d Agency § 327 (1986).

Smiley argues Industrial Associates' true identity could have been revealed had Crown Controls followed up on the credit information he supplied. First, this information was supplied after some of the equipment had already been ordered. Disclosure must take place at the time of contracting. Matsko v. Dally, supra. Second, the monthly bank statement sent to Smiley, but not the printed checks, disclose the true situation. No evidence was produced from the bank indicating what it would have revealed in response to a credit inquiry.

Smiley relies upon Seattle Ass'n of Credit Men v. Green, 45 Wn.2d 139, 273 P.2d 513 (1954), which held plaintiffs had a duty to check assumed name filings.2 There, creditors of an insolvent corporation argued it had abandoned its corporate status by adopting an assumed name, and therefore its officers and directors were liable as partners by estoppel. The court held the term "Company" in the assumed name put the creditors at least on inquiry notice, as "Company" could denote either a partnership or a corporation. The court emphasized there was nothing deceptive or misleading about the assumed name.

Seattle Ass'n of Credit Men is distinguishable from the instant case. "Industrial Associates" connotes a partnership only. See Black's Law Dictionary (5th ed. 1979). The assumed name is misleading and would not put a creditor on inquiry notice. Furthermore, it has been repeatedly held the only consequence of filing an assumed name is the ability to sue in Washington courts. E.g., Griffiths & Sprague Stevedoring Co. v. Bayly, Martin & Fay, Inc., supra; McCombs Constr., Inc. v. Barnes, 32 Wn.App. 70, 77 n. 2, 645 P.2d 1131 (1982); Laliberte v. Wilkins, 30 Wn.App. 782, 638 P.2d 596 (1981).

As the court noted in Judith Garden, Inc. v. Mapel, supra, it is not unreasonable to place upon the agent the burden to fully disclose his principal's identity. This would seem to be especially true where, as here, an interstate transaction is involved. It would have been a simple matter for Smiley to disclose the existence of "NADS, Inc. dba Industrial Associates", whereas it would be unreasonable to impose upon Crown Controls the duty to inquire of the appropriate Oregon state official whether there was an assumed name filing for Industrial Associates.

[3] Smiley also assigns error to finding of fact 2.8 regarding a conditional tender he made to Crown Controls in response to a demand for payment. Whether the word "my" in the conditional tender meant Smiley or NADS, Inc., was immaterial to the court's decision that Smiley was an agent of an undisclosed principal. The court correctly relied upon the facts existing at the time of contracting. Any error in a finding that was not material to the court's decision is deemed harmless. Ulberg v. Seattle Bonded, Inc., 28 Wn.App. 762, 626 P.2d 522 (1981); Prager's, Inc. v. Bullitt Co., 1 Wn.App. 575, 463 P.2d 217 (1969).

We hold substantial evidence supports the trial court's conclusion Smiley is personally liable as an agent of an undisclosed principal.

Smiley next contends Crown Controls' efforts to collect its partial summary judgment against NADS constituted an election of remedies. Smiley relies upon Pennsylvania Cas. Co. v. Washington Portland Cement Co., 63 Wn. 689, 116 P. 284 (1911). We agree that Crown Controls' acts of conducting a supplemental proceeding and garnishing NADS' bank account constituted an election by Crown Controls to hold NADS liable to the exclusion of Smiley. However, we believe the election rule pertaining to agents and undisclosed principals is illogical and contrary to the policy favoring full compensation of wronged parties. We therefore hold, for the reasons that follow, that Crown Controls may have judgment against both NADS and Smiley, although it may only have one satisfaction.

In dicta, Pennsylvania Cas. Co. v. Washington Portland Cement Co. recites the common law rule that, upon learning all the facts, a creditor who elects to hold the previously undisclosed principal liable thereby discharges the agent. The agent is discharged from liability even if the creditor thereafter discovers the principal is insolvent. Chapman v. Ross, 152 Wn. 262, 277 P. 854 (1929). Many Washington cases repeat this rule, mostly in dicta, and none discusses the rationale behind the rule. E.g., Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 658 P.2d 1230 (1983) (terming the case law in this area "sketchy"); Turnbull v. Shelton, 47 Wn.2d 70, 286 P.2d 676 (1955); Patent Scaffolding Co. v. Roosevelt Apartments, Inc., 171 Wn. 507, 18 P.2d 857 (1933); LeVette v. Hardman Estate, 77 Wn. 320, 137 P. 454 (1914); McDonald v. New World Life Ins. Co., 76 Wn. 488, 136 P. 702 (1913); Landers v. Foster, 34 Wn. 674, 76 P. 274 (1904); Roderick Timber Co. v. Willapa Harbor Cedar Prods., Inc., 29 Wn.App. 311, 627 P.2d 1352 (1981); Maxwell's Elec., Inc. v. Hegeman-Harris Co., supra.

[4] This court may abandon or modify a common law rule if, in the light of current conditions and thinking, the rule's precepts are incompatible with present-day society.3 Irwin v. Coluccio, 32 Wn.App. 510, 648 P.2d 458, review denied, 98 Wn.2d 1011 (1982); Wyman v. Wallace, 15 Wn.App. 395, 549 P.2d 71 (1976), aff'd, 94 Wn.2d 99, 615 P.2d 452 (1980).

A leading case abolishing the rule of alternative liability in the undisclosed principal context is Grinder v. Bryans Rd. Bldg. & Supply Co., 290 Md. 687, 432 A.2d 453 (1981). As in this case, the creditor there obtained a summary judgment against the undisclosed principal and then proceeded to a trial against the agent. The trial court held that the mere taking of a summary judgment against the principal did not estop plaintiff from obtaining judgment against the agent. The Court of Special Appeals (Maryland's intermediate appellate court) remanded to permit plaintiff to make an election, holding the taking of a nonfinal summary judgment did not preclude a later election. The Court of Appeals (Maryland's highest state court) agreed no final election had been made because the agent had not demanded it by motion or other appropriate pleading. Grinder, at 691 n. 3. Nevertheless, the court took the opportunity to review and abolish the election rule.

The court in Grinder first reviewed the three reasons commonly given for the election rule: (1) One contract-no windfall. This reason is based upon the notion it would be unjust to permit the creditor to pursue two causes of action when it made only one contract. (2) Avoidance of vexatious double litigation. The court stated the need to avoid double litigation through the election rule is greatly undercut by modern pleading and practice, which permits an agent who is sued to implead the principal or to cross-claim for indemnity against the principal if they are sued jointly. See, e.g., CR 13, 14, 18, 20. See also Pennsylvania Cas. Co. v. Washington Portland Cement Co., supra (addressing contention regarding misjoinder of parties defendant, which is no longer an issue under the liberal joinder provisions of CR 20(a)). (3) Merger. The court discounted traditional merger analysis as inconsistent with the rule that a principal is not discharged if the creditor recovers judgment against the agent before learning the identity of the principal.

The Grinder court adopted the law of Pennsylvania as the better reasoned rule and the one endorsed by legal commentators. Under that rule, the liability of the agent and previously undisclosed principal is joint and several rather than alternative.

Grinder v. Bryans Rd. Bldg. & Supply Co., supra at 698, quoting Beymer v. Bonsall, 79 Pa. 298, 300 (1875).

In drafting the Restatement of Agency, the American Law Institute believed Pennsylvania's to be the better reasoned rule, but felt bound by the judicial precedent of the majority of other jurisdictions. See Grinder v. Bryans Rd. Bldg. & Supply Co., at 691-701, quoting Restatement of Agency § 435 explanatory notes, (Temp. draft 4, 1929); W. Seavey, Studies in Agency § 210 (1949) (American Law Institute "was coerced by the cases"). Legal commentary approving the minority rule is summarized in Grinder, at 703-06, and includes J. Story, Agency § 295, at 378 (3d ed. 1846); F. Wharton, Agency & Agents § 473, at 307-08 (1876); and F. Mechem, Agency § 159, at 105 (4th ed. 1952) (conventional rule deemed illogical and unfair).

[5] The Grinder court at pages 704-06 quotes extensively from Ferson, Undisclosed Principals, 22 U. Cin. L. Rev. 131, 142-44 (1953), to explain the illogic of the election rule and the unassailable logic of the Pennsylvania rule:

We agree with this analysis and hold a creditor is entitled to take judgment against both an agent and his previously undisclosed principal, although the creditor may have only one satisfaction.

We note the Minnesota Supreme Court followed Grinder in Engelstad v. Cargill, Inc., 336 N.W.2d 284 (Minn. 1983). The Oregon Court of Appeals has also indicated approval of the minority rule in Carter v. Forstrom, 80 Or.App. 213, 722 P.2d 23 (1986) (dicta). Accord, Ore. S.S. Corp. v. D/S A/S Hassel, 137 F.2d 326, 330 (2d Cir.1943) (election rule termed a "harsh doctrine, resting at most on a rather barren logic"); Johnson & Higgins v. Charles F. Garrigues Co., 30 F.2d 251, 254 (2d Cir.1929) (Hand, J., dissenting) ("no logical basis" for election rule); Joseph Denunzio Fruit Co. v. Crane, 79 F.Supp. 117 (S.D. Cal. 1948) (no reason to retain election rule in light of Federal Rules of Civil Procedure).

Smiley argues abandonment of the election rule will result in a windfall to Crown Controls. Crown Controls will not receive a windfall but rather satisfaction of its debt. On the other hand, the election rule results in a windfall to one debtor. Typically, as here, the creditor does not take discovery of defendants' assets before judgment is entered and discerns the judgment debtor's financial worth through supplemental proceedings. Thus the creditor is not in a position to make a considered decision at the time of the purported election. Nor is there any more of a windfall than in any other joint and several liability case.

Furthermore, as stated in Grinder, at 695, the election rule is not relied upon by people when they structure their business transactions:

(Citation omitted.)

We also believe our opinion has been presaged by the many exceptions created by the courts to mitigate the harshness of the election rule. See, e.g., Glover v. Tacoma Gen. Hosp., supra (in case involving vicarious liability, settlement and release of agent does not release principal if plaintiff not likely to be fully compensated by agent); Turnbull v. Shelton, supra (no election because creditor did not know of agency relationship); Maxwell's Elec., Inc. v. Hegeman-Harris Co., supra (plaintiff permitted to make election after trial); Letterman v. Tacoma, 53 Wn.2d 294, 333 P.2d 650 (1959) (an act done through ignorance or mistake does not constitute an election of remedies unless the defendant can show an estoppel); Ross v. Hagen, 51 Wn.2d 165, 316 P.2d 896 (1957) (subsequent action not barred by election of remedies doctrine where plaintiff reaped no benefit from previous action and defendant suffered no substantial detriment therein).

Smiley argues Crown Controls could have raised its claims against him in the Oregon action. Smiley appears to be rearguing collateral estoppel, although he has not assigned error to the trial court's ruling against him on that issue. We therefore will not consider it. RAP 10.3(a)(3).

Lastly, Smiley contends the court erred in awarding prejudgment interest. This issue is raised for the first time on appeal and will not be addressed. RAP 2.5(a). Smiley assigned error in this court to finding of fact 2.8 regarding a conditional tender, but he never raised the issue of prejudgment interest in the trial court.

Smiley's request for attorney fees on appeal is denied. The judgment is affirmed and remanded for entry of judgment against Smiley and NADS, jointly and severally.

CALLOW and REVELLE, JJ. Pro Tem., concur.

Reconsideration denied July 8, 1987.

Review granted by Supreme Court November 4, 1987.