Colpitts v. L.C. Fisher Co.

• Decision Date: 10 January 1935
• Citation: 289 Mass. 232,193 N.E. 833
• Parties: COLPITTS et al. v. L. C. FISHER CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

289 Mass. 232

193 N.E. 833

COLPITTS et al. v. L. C. FISHER CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

January 10, 1935

Suit in equity by Guilford W. Colpitts and others against the L C. Fisher Company, the L. C. Fisher Company, Incorporated and others. From an unsatisfactory final decree, the L. C Fisher Company, Incorporated, appeals.

Decree reversed, and bill dismissed.

Appeal from Superior Court, Suffolk County; Keating, Judge.

J. R Larkin, of Boston, for plaintiffs.

C. B. Cross, of Boston, for defendants.

LUMMUS, Justice.

On March 21, 1932, the plaintiffs were employees of the defendant L. C. Fisher Company, and held its notes for money lent to it. Its indebtedness upon notes was greater than its indebtedness for merchandise. On that day, that corporation decided to make an assignment for the benefit of its creditors, and its officers with a creditor named Bova decided to form a new corporation to be called L. C. Fisher Co., Inc., to succeed to the business. All the stockholders of the new corporation agreed orally with the plaintiffs on that day that if the plaintiffs would not enforce their claims against the old corporation, but would let its assets be used to satisfy the merchandise creditors, the new corporation would continue to employ the plaintiffs and would pay the notes given them by the old corporation. The judge found that this arrangement conferred a benefit on the new corporation. The assignee for the benefit of creditors sold all the assets of the old corporation to Bova for $3,000, which was used to pay dividends to the merchandise creditors, and then Bova turned the tangible assets over to the new corporation for a consideration. The plaintiffs forebore to enforce their claims against the old corporation, and continued in the employ of the new corporation until they were discharged, but their notes have not been paid.

This bill was brought to require the new corporation, L. C. Fisher Co., Inc., to pay the notes. The final decree dismissed the bill as against the other defendants, but established liability against the new corporation, which appealed to this court.

The record shows that the first meeting of the new corporation was held on March 21, 1932, the date of the alleged agreement, but fails to show that on that date the articles of organization had been filed in the office of the ‘ state secretary’ so as to give the new corporation legal existence and capacity to contract. G. L. (Ter. Ed.) c. 156, §§ 11, 12; Lennox v. Haskell, 253 Mass. 334, 148 N.E. 811; Falls Rubber Co. of Akron, Inc., v. Applebaum, 286 Mass. 18, 189 N.E. 833. If we assume in favor of the plaintiffs, without so deciding, that a later adoption or re-making of the contract by the new corporation could be found (North Anson Lumber Co. v. Smith, 209 Mass. 333, 95 N.E. 838; Washington & Devonshire Realty Co., Inc., v. Freedman, 263 Mass. 554, 161 N.E. 883; Shumaker v. Lucerne-In-Maine Community Association, 275 Mass. 201, 204, 175 N.E. 469), the question remains whether recovery against the new corporation would not be precluded by the statute of frauds.

The new corporation sets up that any promise made by it was a ‘ special promise to answer for the debt, default or misdoings of another’ upon which G. L. (Ter. Ed.) c. 259, § 1, provides that ‘ no action shall be brought’ in the absence of written contract or memorandum. This statute applies only to a promise made to the creditor (Hawes v. Murphy, 191 Mass. 469, 472, 78 N.E. 109, and cases cited), whereby the promisor purports to add his liability to a continuing liability on the part of a principal debtor. Williston, Contracts, §§ 466, 469, 475. If liability on the part of another never existed ( Alexander v. Dove, 231 Mass. 362, 365, 121 N.E. 74; Hammond Coal Co., Inc., v. Lewis, 248 Mass. 499, 501, 143 N.E. 309; compare Dexter v. Blanchard, 11 Allen, 365; Williston, Contracts, § 454), or is extinguished by a novation (Langdon v. Hughes, 107 Mass. 272; Curran v. O'Donnell, 236 Mass. 357, 128 N.E. 408; Slotnick v. Smith, 252 Mass. 303, 147 N.E. 737; for the converse case, see Dows v. Swett, 120 Mass. 322; Id., 134 Mass. 140, 45 Am.Rep. 310), the promise is ‘ original’ and not within the statute. In the present case, the liability of the old corporation was not extinguished, but continued.

The question is, whether the case falls within a class of cases in which the essence of the transaction is a purchase of property or rights, or the obtaining of some other benefit, by the promisor from the promisee, and the payment of the continuing debt of a third person in accordance with the promise is merely incidental and not the real object of the transaction. The leading case is Williams v. Leper, 3 Burr. 1886, and the leading cases in Massachusetts are Nelson v. Boynton, 3 Metc. 396,37 Am.Dec. 148, and Curtis v. Brown, 5 Cush. 488. The later case of Harburg India Rubber Comb Co. v. Martin, [1902] 1 K. B. 778, is illuminating. The reasoning is not unlike that by which a contract to manufacture goods especially for the buyer is deemed not to be a contract for the sale of goods, although incidentally a transfer of title must result. Goddard v. Binney, 115 Mass. 450, 15 Am.Rep. 112; M. K. Smith Corporation v. Ellis, 257 Mass. 269, 271, 153 N.E. 548.

Obviously, the mere existence of consideration for the oral promise does not bring a case within this class. Consideration is required by general principles of contract, and the statute of frauds would add nothing to the law if the statute should be satisfied as soon as consideration is shown. Nelson v. Boynton, 3 Metc. 396, 399, 400,37 Am.Dec. 148; Crowley v. Whittemore, 255 Mass. 99, 103, 150 N.E. 880. Even consideration which is not only a detriment to the promisee but also a benefit to the promisor, is not enough to take a case out of the statute. Curtis v. Brown, 5 Cush. 488, 492.Furbish v. Goodnow, 98 Mass. 296; Ames v. Foster, 106 Mass. 400, 8 Am.Rep. 343; Richardson v. Robbins, 124 Mass. 105. A promise by an owner (Gill v. Herrick, 111 Mass. 501; Collins v. Abrams, 276 Mass. 106, 176 N.E. 814; Witschard v. A. Brody & Sons, Inc., 257 N.Y. 97, 177 N.E. 385) or a mortgagee (Ribock v. Canner, 218 Mass. 5, 105 N.E. 462) of land, to pay a contractor what another owes him if be will finish the building according to his contract, has been held within the statute, although the owner or mortgagee obtains a benefit. Williston, Contracts, § 481.‘ A promise, upon which the statute of frauds declares that no action shall be maintained, cannot be made effectual by estoppel, merely because it has been acted upon by the promisee and not performed by the promisor.’ Brightman v. Hicks, 108 Mass. 246, 248.

The rule established in the calss of cases under discussion has often been stated as limited to cases in which the transaction ‘ is in the nature of a purchase of property or of a property right.’ Carleton v Floyd, Rounds & Co., 192 Mass. 204, 206, 78 N.E. 126, 127. In Ames v. Foster, 106 Mass. 400, 403,8 Am.Rep. 343, Morton, J., said, ‘ We think the authorities in this state have gone no further than to decide that a case is not within the statute, where, upon the whole transaction, the fair inference is, that the leading object or purpose and the effect of the transaction was the purchase or acquisition by the promisor from the promisee of some property, lien or benefit which he did not before possess, but which enured to him by reason of his promise, so that the debt for which he is liable may fairly be deemed to be a debt of his own, contracted in such purchase or acquisition.’ The statements in Dexter v. Blanchard, 11 Allen, 365, 367,Wills v. Brown, 118 Mass. 137, 138, and Crowley v. Whittemore, 255 Mass. 99, 103, 150 N.E. 880, are to the same effect. In Paul v. Wilbur, 189 Mass. 48, 52, 75 N.E. 63, 64,P. Berry & Sons, Inc., v. Central Trust Co., 247 Mass. 241, 245, 142 N.E. 58, and Washington & Devonshire Realty Co., Inc., v. Freedman, 263 Mass. 554, 560, 161 N.E. 883, the rule was stated in an abbreviated and possibly broader form, to the effect that the statute does not apply ‘ where the promisor receives something from the promisee for his own benefit’ ; but that statement does not mean that any consideration running directly from the promisee to the promisor is enough unless the obtaining of such consideration was the real object of the contract. In Harburg India Rubber Comb Co. v. Martin, [1902] 1 K. B. 778, 786, Vaughan Williams, L. J., said, ‘ In each of ...