Turner v. Bituminous Cas. Co.

• Citation: 397 Mich. 406,244 N.W.2d 873
• Decision Date: 01 December 1974
• Docket Number: No. 14,14
• Parties: Charles TURNER, and Gertha Turner, Plaintiffs-Appellants, v. BITUMINOUS CASUALTY COMPANY, a Foreign Corporation, et al., Defendants- Appellees. ,
• Court: Supreme Court of Michigan

Page 873

244 N.W.2d 873

Charles TURNER, and Gertha Turner, Plaintiffs-Appellants, v. BITUMINOUS CASUALTY COMPANY, a Foreign Corporation, et al Defendants- Appellees.

No. 14, December Term, 1974.

397 Mich. 406, 244 N.W.2d 873

Supreme Court of Michigan Aug. 26, 1976.

Ripple & Chambers, P.C., by John F. Chambers, Detroit, for plaintiffs; Craig, Farber & Stein, by Martin E. Stein, Detroit, of counsel for plaintiffs on appeal.

Alexander, Buchanan & Seavitt, by John N. Highland, Detroit, for Harris-Intertype Corp. and T. W. & C. B. Sheridan Co.

Morton E. Schneider, Thomas M. McGuire, Detroit, for amicus curiae.

WILLIAMS, Justice.

Introduction

This is a products liability case.

After the transfer of the name, personnel, properties and products of a manufacturing corporation in a cash sale, and the corporation's subsequent dissolution as a part of the acquisition plan, an injury occurred on a press manufactured and sold by that corporation prior to the corporate transfer. The purchasing corporation was sued in tort and defended on the basis that it was a corporate stranger to the manufacturer and hence not liable.

Where the corporate transfer involves either a merger or a de facto merger, the law is clear that liability attaches to the consolidated or acquiring corporation. The issue here narrows down to whether an acquisition for cash should be treated the same as an acquisition for stock; and, if so, under what circumstances.

In our opinion there may be a cause of action where the totality of the transaction demonstrates a basic continuity of the enterprise.

I--FACTS

Charles Turner was injured by a power press while working at the Seaman Manufacturing Company on July 26, 1969, and, as a result, both his hands were amputated. Identifying marks on the press indicated it had been manufactured by the T. W. & C. B. Sheridan Company. Plaintiff received worker's compensation benefits from his employer, and filed a third party action against the manufacturer of the press on July 11, 1972.

However, the following events had occurred prior to his accident.

The manufacturer of the press, the T. W. & C. B. Sheridan Company (hereinafter, Old Sheridan), a New York corporation, was established in 1903.

The press was apparently purchased by Turner's employers second-hand in 1968.

On April 13, 1964, Old Sheridan and the Harris Intertype Corporation executed an agreement by which Harris was to purchase the entire business, good will, name and assets of Old Sheridan. This 'Agreement To Sell and Buy, and Consideration' also provided that Harris would assume certain liabilities of Old Sheridan by separate agreement. ¹

On April 27, 1964, Old Sheridan filed a certificate changing its name to Nadirehs, Sheridan spelled backward. Also, on April 27, incorporators acting on behalf of Harris filed a certificate of incorporation in New York state under the name T.W. & C.B. Sheridan Company.

On April 30, 1964, Harris designated New Sheridan as its subsidiary to acquire and accept the assets of Old Sheridan.

On May 1, 1964, representatives of Harris and Old Sheridan executed an Assumption of Liabilities contract. ² Four days later, on May 5, following payment by Harris of $6.38 million, and distribution of these assets to its shareholders, Old Sheridan was dissolved. New Sheridan remained a wholly-owned subsidiary of Harris until July 24, 1968, when it formally merged with Harris and became the Sheridan Division of Harris-Intertype Corporation.

The circuit judge, finding that Harris and New Sheridan had no relationship to the equipment sold and manufactured by Old Sheridan and that Old Sheridan had gone through the process of dissolution and liquidation, granted the motion of defendants Harris and New Sheridan for summary judgment. The court held that Harris and New Sheridan 'are not responsible for a product to which they are corporate strangers in the manufacture, sale and distribution thereof, and for which they neither in fact nor law assumed legal liability.'

The Court of Appeals denied leave to appeal. We granted leave June 27, 1974. 392 Mich. 763 (1974).

II--PLAINTIFFS' CONTENTIONS

Plaintiffs' essential case is that:

'. . . the defendants Harris-Intertype Corporation and T. W. & C. B. Sheridan Company (1964) held themselves out to the public as the manufacturer of the press in question. It would be totally unfair to permit an organization to assume the name of another, to use that name, to manufacture identical products and then when the crunch comes, to deny that it is one and the same as its predecessor.' (Plaintiff's Brief, p. 9)

Plaintiffs principally rely on Shannon v. Samuel Langston Co., 379 F.Supp. 797 (W.D.Mich.1974). The transaction in Shannon was similar to that in the case at bar, even to the presence of Harris-Intertype as the acquiring corporation. Although Shannon may be distinguished from the instant case by the use of stock as consideration, the policy factors relied on in Shannon to find defendant liable for the post-transaction injury are also found in the present case. Judge Fox recognized the importance of the stock transfer, but significantly stated:

'* * * The public policy behind the evolving common law of products liability is that the enterprise, the going concern, ought to bear the liability for the damages done by its defective products. While the incidence and amounts of such damages are not perfectly predictable, they are nonetheless regarded as an economically and socially necessary cost of doing business.

'In this case, the enterprise, Samuel M. Langston Company, continued substantially unchanged after it had been acquired by the Harris Intertype Corporation in 1966. Harris Intertype got all the advantages of an established going concern, including expertise, reputation, established customers, and so forth. Public policy requires that Harris Intertype, having received the benefits of a going concern, should also assume the costs which all other going concerns must ordinarily bear * * *.'

'The solvent natural person cannot avoid his liability for injuries caused by him simply by changing the form of his property or by changing his name or by changing the numbers on his bank accounts. Similarly, solvent corporations, going concerns, should not be permitted to discharge their liabilities to injured persons simply by shuffling paper and manipulating corporate entities.' 379 F.Supp. 802, 803.

Plaintiffs and amici also attempt to interpret the agreement between the parties to include the products liability suit as a 'contingent or otherwise' liability 'on the balance sheets * * * on the date hereof.' See fn. 2, Supra. However, since this opinion disposes of the matter on the basis of tort liability, the argument on contractual interpretation will not be considered.

III--DEFENDANTS' CONTENTIONS

Defendants' substantive argument is that:

'A Bona Fide purchaser of corporate assets for $6.38 million in cash, who voluntarily agrees to assume every known liability of seller as of the closing date of May 1, 1964, is not liable for a products liability claim against seller which did not arise for some four years later, where seller and purchaser were at all times complete corporate strangers having no common control whatsoever.'

Defendants distinguish Shannon by interpreting liability of the successor corporation as based on a finding that the transaction between the two corporations was a de facto merger. Defendant urges that a de facto merger can occur only when a transfer of the latter assumed the name of the selling would be impossible in the instant case, where only cash is involved.

Defendant then argues as follows:

'The facts are uncontroverted that Harris did form Sheridan 1964, and that the later assumed the name of the selling corporation (Sheridan 1903). Obviously, Harris is a well-known corporation on the New York Stock Exchange and has been a well-known corporation for years. It would make no business sense for Harris to change its name. Obviously the only prudent business decision was for Harris to form a new corporation which could inherit the name of the selling corporation, and thus, hopefully, continue on with the goodwill which the selling corporation had established with the public over a period of approximately sixty years. There is nothing unusual or fraudulent in Harris setting up a corporation to inherit the name of a corporation which Harris paid a huge sum of cash to, where part of the assets purchased were the goodwill and name of the selling corporation. Michigan has long recognized that good will is a legitimate corporate asset to be purchased. Brown v. Weeks, 195 Mich. 27, 38--39 (161 N.W. 945) (1917). If goodwill is to be indeed acquired, it certainly will not occur if the purchaser operates its business under a new name, foreign to the public. Obviously, there must be continuity in the eyes of the public.' (Defendant's Brief, pp. 22--23)

In passing we observe that defendants have thus cogently marshalled reasons for, and facts showing, 'continuity' between Old Sheridan and New Sheridan.

IV--PRODUCTS LIABILITY LAW MUST GOVERN

This is a products liability case first and foremost.

Products liability law is a fast-developing area. All the rules have not yet been formulated and products liability law, as it matures, has to shake off various impediments associated with traditional concepts, which, while relevant to other problems, are inappropriate for this new area.

Thus, for example, it was not until Spence v. Three Rivers Builders & Masonry Supply, Inc., 353 Mich. 120, 135, 90 N.W.2d 873 (1958) that we rejected the indirect approach and forthrightly abolished the requirement of privity in products liability cases. We did so because we were persuaded that the concept of privity of contract had nothing to do with liability or nonliability predicated on the law of torts.

In a similar vein, the New York Court of Appeals rejected the contractual st...