Greenlee v. Sherman

• Decision Date: 12 January 1989
• Docket Number: No. 1,No. 2,1,2
• Citation: 142 A.D.2d 472,536 N.Y.S.2d 877
• Parties: Horace GREENLEE et al., Appellants, v. Peter SHERMAN, as Executor of the Estate of Philip Sherman, Deceased, Defendant, and Main Care Heating Service, Inc., Respondent. (Action) HANOVER INSURANCE COMPANY, Respondent, v. Peter SHERMAN, as Executor of the Estate of Philip Sherman, Deceased, Individually and Doing Business as Sherman's Oil Company, et al., Defendants, and Horace Greenlee et al., Appellants. (Action)
• Court: New York Supreme Court — Appellate Division

Page 877

536 N.Y.S.2d 877

142 A.D.2d 472

Horace GREENLEE et al., Appellants, v. Peter SHERMAN, as Executor of the Estate of Philip Sherman, Deceased, Defendant, and Main Care Heating Service, Inc., Respondent. (Action No. 1.)

HANOVER INSURANCE COMPANY, Respondent, v. Peter SHERMAN, as Executor of the Estate of Philip Sherman,

Deceased, Individually and Doing Business as

Sherman's Oil Company, et al., Defendants,

and

Horace Greenlee et al., Appellants. (Action No. 2.)

Supreme Court, Appellate Division,

Third Department.

Jan. 12, 1989.

Bouck, Holloway, Kiernan & Casey (Michael Jon Longstreet, of counsel), Albany, for appellants.

Francis E. Lehner (Edward C. Fassett, Jr., of counsel), Albany, for Main Care Heating Service, Inc., respondent.

Carter, Conboy, Bardwell, Case, Blackmore & Napierski (Dianne Bresee Mayberger, of counsel), Albany, for Hanover Ins. Co., respondent.

Before CASEY, J.P., and MIKOLL, YESAWICH, LEVINE and MERCURE, JJ.

CASEY, Justice Presiding.

These two actions arise out of a 1980 transaction between Horace and Annie Greenlee, plaintiffs in action No. 1, and Philip Sherman, the sole proprietor of Sherman Fuel and Oil Burner Service, whereby Sherman installed a combination wood/oil furnace in the basement of the Greenlees' house. The Greenlees used the furnace until March 30, 1984, when a fire substantially destroyed their house. It is alleged that the fire was caused by the improper installation of the flue pipe from the furnace, which resulted in the exposure of a wooden joist to intense radiant heat while the furnace was operating. This exposure to intense heat allegedly caused a chemical process, known as pyrolyisis, in the wooden joist which ultimately lowered the ignition temperature of the wood to the point where it was ignited by the flue pipe.

In action No. 1, the Greenlees seek to recover damages based upon Sherman's negligent installation of the furnace. Named as defendants in action No. 1 are the executor of Sherman's estate ^* and Main Care Heating Service, Inc. (hereinafter Main Care), as the successor in interest to Sherman Fuel and Oil Burner Service. In action No. 2, Hanover Insurance Company (hereinafter Hanover), which issued to Sherman a "Comprehensive General Liability Policy" that was in effect during the period April 1978 to April 1982, seeks a declaratory judgment declaring that it is not obligated to defend or indemnify Sherman's estate in action No. 1. Main Care moved in action No. 1 for summary judgment dismissing the Greenlees' complaint and Supreme Court granted the motion. In action No. 2, Hanover moved for summary judgment declaring that it was not obligated to defend or indemnify Sherman's estate in action No. 1. Supreme Court granted Hanover's motion. The Greenlees have appealed in both cases.

The issue raised by the appeal in action No. 1 is whether there exists a triable issue of fact on the question of Main Care's liability as a successor in interest to Sherman's business, pursuant to an agreement between Sherman and Main Care, dated November 19, 1980.

It is the general rule that a corporation which acquires the assets of another is not liable for the torts of its predecessor * * *. There are exceptions * * *. A corporation may be held liable for the torts of its predecessor if (1) it expressly or impliedly assumed the predecessor's tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations (Schumacher v. Richards Shear Co., 59 N.Y.2d 239, 244-245, 464 N.Y.S.2d 437, 451 N.E.2d 195 ).

Main Care relies upon this general rule, while the Greenlees contend that the second and third exceptions are applicable. In Grant-Howard Assoc. v. General Housewares Corp., 63 N.Y.2d 291, 296, 482 N.Y.S.2d 225, 472 N.E.2d 1, the Court of Appeals noted that these two exceptions "are based on the concept that a successor that effectively takes over a company in its entirety should carry the predecessor's liabilities as a concomitant to the benefits it derives from the good will purchased". But the court prefaced this remark with the following explanation of the genesis of the successor liability theory:

Allowing recovery in tort against a successor corporation is merely an extension of the concept of products liability, which calls for the burden of consumer injuries to be borne by the manufacturer, who can transfer the costs to the general public as a component of the selling price. Strict liability assures that a responsible source is available to compensate the injured party (id.).

The case at bar does not involve the concept of products liability. The Greenlees' action is based upon the negligence of Sherman in the installation of the furnace; there is no claim that Sherman manufactured or sold a defective product. The Greenlees contracted directly with Sherman for certain services to be performed by him, and their claim for damages is based upon Sherman's negligence in performing those services. In these circumstances, the public policy considerations underlying the concept of products liability (see, Codling v. Paglia, 32 N.Y.2d 330, 340-341, 345 N.Y.S.2d 461, 298 N.E.2d 622) are not present. Therefore, based upon the previously quoted language of the Court of Appeals in Grant-Howard Assoc. v. General Housewares Corp., supra, it appears that the successor liability theory is not applicable in this case.

In any event, we find no proof in the record to support the Greenlees' contention that there was a consolidation or merger of Main Care and Sherman's business or that Main Care is a mere continuation of Sherman's business. As to the consolidation or merger claim, Sherman, the sole proprietor of the selling business, did not become involved with Main Care, either as a shareholder or as an employee; Main Care did not acquire either the cash on hand or the accounts receivable of Sherman's business; Main Care did not hire any employee of Sherman's business; and Main Care did not install furnaces, which was at least a part of Sherman's business. As to the "mere continuation" claim, that exception refers to corporate reorganization (Schumacher v. Richards Shear Co., 59 N.Y.2d 239, 245, 464 N.Y.S.2d 437, 451 N.E.2d 195, supra ), which did not occur here. Main Care had been in existence for at least 12 years prior to its purchase of Sherman's business and it continued in substantially the same form thereafter, with the addition of Sherman's assets. In short, Main Care cannot be viewed as a "mere continuation" of Sherman's business. Thus, assuming that the successor...