Garey v. Kelvinator Corp.

• Decision Date: 02 March 1937
• Docket Number: No. 85.,85.
• Citation: 279 Mich. 174,271 N.W. 723
• Parties: GAREY v. KELVINATOR CORPORATION.
• Court: Michigan Supreme Court

279 Mich. 174

271 N.W. 723

GAREY

v.KELVINATOR CORPORATION.

No. 85.

Supreme Court of Michigan.

March 2, 1937.

Action by Eugene L. Garey against the Kelvinator Corporation. From a judgment for plaintiff, defendant appeals.

Judgment vacated, and cause remanded for new trial. Appeal from Circuit Court, Wayne County; James E. Chenot, Judge.

Argued before the Entire Bench, except POTTER, J.

Wiley, Streeter, Smith & Ford, of Detroit, for appellant.

Edward N. Barnard, of Detroit, for appellee.

BUSHNELL, Justice.

Defendant appeals from a judgment entered in favor of plaintiff upon a verdict by a jury for $21,975 on a claim of $35,000 for legal services rendered to Nizer Corporation, a Maryland corporation. All the liabilities of Nizer, according to plaintiff's declaration, were assumed by Kelvinator Corporation of Michigan, then known as Electric Refrigeration Corporation, when it acquired the assets of Nizer.

Four questions are involved:

(1) If he be a creditor of the Maryland corporation, can plaintiff maintain an action at law against the Michigan corporation under the terms of a certain written agreement between the two companies?

(2) Was plaintiff's claimed agreement with Nizer illegal and contrary to public policy?

(3) Did the trial court err in admitting as a part of the proof of plaintiff's employment and the value thereof certain letters written by former officers and directors of Nizer?

(4) Was the jury's verdict excessive, contrary to the weight of the evidence, and the product of prejudicial and improper argument by plaintiff's counsel?

The enforcement of a refrigerating ordinance of the city of New York was in the hands of the fire department. The ordinance provided for a right of appeal from the orders of the fire commissioner to the Board of Standards and Appeals. The Nizer Corporation built and sold to the public automatic refrigerating cabinets, charged with sulphur dioxide, and intended for storing ice cream, etc. The use of this type of machine was made economically impracticable by the ordinance, although the Nizer unit, if approved by the fire commissioner, might come within the exemptions of the code.

Plaintiff, an attorney located in New York City, claims that he was retained to protect the interests of Nizer in the drafting and passage of a new refrigerating code, while defendant says that he was retained to handle certain complaints and notices having to do with ordinance violations, for which he was paid in full.

During the fall of 1926, while plaintiff claims that he was performing the services in question, Nizer sold all of its assets, except $10,000 in cash, to Kelvinator, then known as Electric Refrigeration Corporation, in consideration of the surrender and cancellation of all of Nizer's outstanding stock then owned by Electric, except a small amount, and Electric's written agreement to pay and discharge all of Nizer's liabilities.

Defendant argues that plaintiff, as a third party beneficiary to this agreement, does not have an action at law on his claim, but must seek his relief, if any, in equity, citing Pearce v. Schneider, 242 Mich. 28, 217 N.W. 761;Tapert v. Schultz, 252 Mich. 39, 232 N.W. 701;People's Savings Bank v. Geistert, 253 Mich. 694, 235 N.W. 888, and other authorities therein mentioned.

Plaintiff argues that he may maintain an action at law under the authority of Shadford v. Railway, 130 Mich. 300, 89 N.W. 960, and Morlock v. Fur Farms, 269 Mich. 549, 257 N.W. 880.

The retention by Nizer of $10,000 in cash at the time of transfer of all its other assets, the surrender and cancellation of 252,925 shares of its 253,087 shares of issued class B common stock, and the decrease of its authorized capital stock to 200 shares of class B common stock, left the assets of Nizer so small in comparison to its former size as to make the argument untenable that Nizer's creditors must either seek redress from the reduced assets or file a bill in equity. Agreement with this argument would ignore certain decisions of this court and the plain terms of Electric Refrigeration's written obligation which reads in part:

‘Electric Refrigeration Corporation, a Michigan corporation (hereinafter called the ‘Obligor’), for itself and its successors and assigns, hereby assumes and agrees to pay or cause to be paid or otherwise discharge or cause to be discharged from all obligations and liabilities, whether firm or contingent, of every name, nature and description (including, but without limiting the generality of the foregoing, liabilities for tort and liabilities for taxes), according to their tenor outstanding on the day of the date hereof of Nizer Corporation, a Maryland corporation (hereinafter called the ‘Vendor’); and the Obligor further agrees faithfully to perform, according to the terms thereof, all contracts and agreements existing at the date hereof, heretofore lawfully undertaken and made by the Vendor, but only to the extent that the Vendor would be required to perform the same.'

Whatever refinements may exist in the law of creditors' rights arising out of agreements to purchase, merge, or consolidate corporations, the Morlock Case, 269 Mich. 549, 257 N.W. 880, states the rule by which these parties are bound under the facts in the instant case. The conclusion in the Morlock Case was reached by reasoning from Grenell v. Detroit Gas Co., 112 Mich. 70, 72, 70 N.W. 413;Chase v. Michigan Telephone Co., 121 Mich. 631, 634, 80 N.W. 717;Shadford v. Railway Co., 130 Mich. 300, 89 N.W. 960; and Howell v. Lansing & Suburban Traction Co., 146 Mich. 450, 109 N.W. 846. On page 559 of 269 Mich.,257 N.W. 880, 884, in the Morlock opinion, we adopted 8 Thompson on Corporations (3d Ed.) p. 157, § 6074, which states: ‘Where a corporation purchased the assets of another and expressly agreed to pay its debts, the creditors of the latter may sue such purchasing corporation on the contract as a contract made for their benefit.’

Appellant contends that George Realty Co. v. Gulf Refining Co., 275 Mich. 442, 266 N.W. 411, which denied a legal action to a creditor of the selling corporation, limits and restricts the operation of the rule in the Morlock Case, supra, and that the reasoning of the George Realty Case should be applied here. Defendant points out that in the Morlock Case all of the assets in the selling company were transferred to the buying company and payment was made in stock, while in the George Realty Case, supra, only a part of the selling company's assets were transferred and payment was made in cash rather than stock. Appellant contends that, because of a similarity of facts, the George Realty Case is controlling.

In the instant case, plaintiff alleged in his declaration: ‘That sometime subsequent to the matters hereinbefore set forth defendant Kelvinator Corporation, which at the times aforesaid owned all or practically all of the capital stock of said Nizer Corporation, did enter into a transaction with said Nizer Corporation and certain other corporations in which it likewise owned all or practically all of the capital stock whereby among other things said Nizer Corporation did sell, assign and transfer over unto defendant Kelvinator Corporation all its property, assets and business and whereby defendant corporation did assume and agree to become liable for and to pay all the obligationsof Nizer Corporation, including its obligation to plaintiff as aforesaid.’

The record does not contain the details of the so-called merger or consolidation of Nizer with Electric Refrigeration Corporation, but defendant's answer to the declaration says: ‘As to paragraph 5, it denies that at the times aforesaid it owned all or practically all of the capital stock of the said Nizer Corporation. It admits that it afterwards acquired all the property, assets, and business of said Nizer Corporation. It denies that it ever assumed or agreed to pay any obligation owing by said Nizer Corporation to the plaintiff. It admits that it agreed with said Nizer Corporation to assume and pay such of its obligations as were then disclosed by said Nizer Corporation's books of account and balance sheet; and that the plaintiff's alleged claim was not so disclosed. It avers that said agreement was made in the State of Michigan and was personal to the said Nizer Corporation and was not made to or with the plaintiff. This defendant further says that said agreement with the said Nizer Corporation was made more than six years before the beginning of this action.’

This admission that Kelvinator acquired all the property, etc., of Nizer and the unqualified assumption of its liabilities as provided in the written agreement, from which we have quoted, brings the transaction squarely within the rule in the Morlock Case, supra, unaffected by the factual situation found in the George Realty Co. Case, supra. The question of the running of the statute of limitations was not briefed, and is not considered. Plaintiff, if a creditor of Nizer, may maintain an action at law against Kelvinator.

Appellant's second proposition is that the judgment should be set aside because the case was submitted to the jury in such a manner as to leave it free to award a verdict based in whole or in part on the plaintiff's alleged illegal services in paralyzing the New York City fire department in its enforcement of the then existing refrigerating ordinance; and that, in persuading inspectors and commissioners not to make or press criminal complaints against certain users of Nizer machines, plaintiff violated rules of public policy.

If the services rendered were illegal or contrary to public policy, plaintiff should not be permitted to recover.

‘Contracts in their nature calculated to influence the action of public officers, and the effect of which is to influence them one way or the other, are against public policy, and void.’ Robinson v. Patterson, 71 Mich. 141, 39 N.W. 21, 24.

The ordinance in question contains the following:

‘Sec. 221....