Mellgren Plumbing Shop, Inc. v. Lewis & Tinsley, Inc.

• Decision Date: 10 May 1958
• Docket Number: No. 9658,9658
• Citation: 77 S.D. 193,90 N.W.2d 78
• Parties: MELLGREN PLUMBING SHOP, Inc., Plaintiff and Respondent, v. LEWIS AND TINSLEY, Inc., Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 78

90 N.W.2d 78

77 S.D. 193

MELLGREN PLUMBING SHOP, Inc., Plaintiff and Respondent, v. LEWIS AND TINSLEY, Inc., Defendant and Appellant.

No. 9658.

Supreme Court of South Dakota.

May 10, 1958.

Bangs, McCullen & Butler, Rapid City, for defendant and appellant.

Roswell Bottum, Burnell H. Hendricksen, Rapid City, for plaintiff and respondent.

SMITH, Judge.

As an assignee, the plaintiff, by its complaint prays judgment for $14,430.13 alleged to be due from defendant as the final payment under a contract to furnish and install plumbing and heating equipment. The answer asserts (1) the contract for the described installation is illegal because made and performed by persons then engaged in business under a fictitious name contrary to SDC 49.08, and (2) the assignment to plaintiff is invalid because prohibited by the construction contract. The trial was to the court and resulted in a judgment for plaintiff as prayed. Defendant has appealed.

In 1950 L. F. Olsen and Peter Mellgren, copartners, were engaged in the plumbing and heating business under the name of Mellgren Plumbing Shop. On April 13, 1950, under that name, they entered into a contract with defendant to furnish the labor and material for a building under construction at Rapid City. Article 33 of the 'General Conditions' included in the contract reads as follows: 'Neither party to the contract shall assign the contract or sublet it as a whole without the written consent of the other, nor shall the contractor assign any moneys due or to become due to him hereunder, without the previous written consent of the owner.' The architect's certificate authorizing final payment of $14,430.13 was delivered to the contractor and by it to the owner in November 1951.

In April 1954 the plaintiff corporation, 'Mellgren Plumbing Shop, Inc.' was organized by the copartners, and one Donald A. L'Esperance, their accountant, and the business and assets of the copartnership were transferred to the plaintiff corporation. The copartners each received 1,249 shares of the capital stock and Donald A. L'Esperance received 2 shares of such stock. Since that time the plumbing and heating business has been carried on by the corporation.

While operating under the fictitious name Mellgren Plumbing Shop the copartners failed to file the statement required by SDC 49.08. Such a statement was filed in the office of the clerk of courts of Pennington County by the copartners on Feb. 2, 1955. Thereafter on Feb. 8, 1955 this action was commenced.

After the foregoing facts had been established the plaintiff rested. Thereupon the defendant moved for findings and judgment for the reason, first, the original contract was not assignable, and second, it was illegal at its inception and created no rights in the assignors or the assignee. The motion was overruled and thereafter, defendant having stood on its motion, findings and judgment were entered for plaintiff.

The first proposition presented by defendant is that the assignment to the corporate plaintiff, without the consent of the defendant, of the claim of the copartnership for the final payment is invalid because prohibited by the contract.

For the purpose of this decision, we assume, as contended by the defendant, that the parties by the provision of their contract reading '* * * nor shall the contractor assign any moneys due or to become due to him hereunder, without the previous written consent of the owner' intended to prohibit the assignment of a claim for money due under the contract.

On principle and by the weight of authority a provision clearly prohibiting such an assignment is valid and enforceable. The cases are collected in the annotation following Allhusen v. Caristo Construction Corp., 303 N.Y. 446, 106 N.E.2d 891, 37 A.L.R.2d 1245, at page 1251. Cf. Carter v. State, 8 S.D. 153, 65 N.W. 422; Public Opinion Pub. Co. v. Ransom, 34 S.D. 381, 148 N.W. 838, Ann.Cas.1917A, 1010; 2 Williston, Contracts, Rev.Ed., Sec. 422, p. 1213; and 4 Corbin, Contracts, Sec. 873, p. 487.

In Allhusen v. Caristo Construction Corp., supra, it is written [303 N.Y. 446, 103 N.E.2d 893]: 'In the light of the foregoing, we think it is reasonably clear that, while the courts have striven to uphold freedom of assignability, they have not failed to recognize the concept of freedom to contract. In large measure they agree that, where appropriate language is used, assignments of money due under contracts may be prohibited. When 'clear language' is used, and the 'plainest words * * * have been chosen', parties may 'limit the freedom of alienation of rights and prohibit the assignment.' State Bank v. Central Mercantile Bank, supra, 248 N.Y. at page 435, 162 N.E. at page 477, 59 A.L.R. 1473.'

The ultimate question for decision is, does it follow, as a matter of sound construction, that because the parties intended by this provision to prohibit the assignment of a claim for money due under the contract that they intended thereby to prohibit an assignment to this particular corporation which was organized to take over the business of the copartnership, and which is owned, controlled and managed by the individual copartner contractors.

The words we are considering are contained in a printed form which the architect of the owner made use of in preparing a contract for execution by the parties. Separately considered, they convey a single sweeping meaning. However, to arrive at a reasonable and sound construction of the contract of the parties, it is our opinion we must read this provision in the light of the purpose for which it was so obviously employed. 12 Am.Jur., Contracts, Secs. 242 and 250.

In 3 Corbin, Contracts, Sec. 545, p. 90, it is written: 'When it becomes clear that the parties intended to produce a certain factual result, interpretation should be affected by reasonable and necessary inplications, so that the legal effect then given to the instrument will be such as to attain the intended factual result. A court may thus be able to realize the aims and purposes of the parties, even though their express words would otherwise be interpreted differently and would produce a different legal effect. This may be done without the necessity of any formal decree of reformation.'

To assure the active and sustained interest of the contracting parties until their contract was fully performed, and to protect against any character of intervention by third parties was the obvious factual and legal result the parties sought to achieve through this contractual provision. Hence they provided against the assignment of both duties and rights although the change in form from a copartnership to a corporation has operated to inject a third legal entity, it has not defeated the real purpose the parties had in view. The obligation of the copartners remained unchanged. 6 C.J.S. Assignments Sec. 112, p. 1164. The corporate plaintiff is and has at all times been owned, controlled and managed by the individual copartners. The assignment has neither interrupted their services to the defendant nor has it had any tendency to diminish their personal interest in giving the defendant complete satisfaction. The project has been completed and the architect has certified the final payment to be due. To adopt the construction for which the defendant contends, would be to permit it to use that which was intended as a shield for its proper protection as a technical and unfair weapon with which to frustrate or defeat the contractors from gaining the agreed consideration they have been promised. Such a construction would square neither with the manifest intention of the parties nor justice. Therefore we hold the contention untenable.

In Trubowitch v. Riverbank Canning Co., 30 Cal.2d 335, 182 P.2d 182, 188, the California court considered a case in which a corporation was party to a nonassignable contract, and upon voluntary dissolution its right was assigned to its sole stockholders who carried on as a copartnership. In upholding the validity of the assignment to the copartnership the majority of the court said, '* * * if an assignment results merely from a change in the legal form of ownership of a business, its validity depends upon whether it affects the interests of the parties protected by the nonassignability of the contract. Model Baking Co. v. Dittman, Tax.Civ.App., 266 S.W. 802, 803; Walker v. Mason, 272 Pa. 315, 116 A. 305; Bradford & Carson v. Montgomery Furniture Co., 115 Tenn. 610, 617, 92 S.W. 1104, 9 L.R.A.,N.S., 979; Fisher v. Berg, 158 Wash. 176, 179, 290 P. 984; Gulf States Creosoting v. Loving, 4 Cir., 120 F.2d 195, 199; see 6 C.J.S. Assignments, Sec. 26, p. 1075.' Further the court wrote, 'If the dissolved corporation had brought an action for the delivery of the goods, the real parties in interest would have been its shareholders, and the purchase price would have been payable by the shareholders out of the assets of the corporation distributed to them or out of their other property. To require an action to be brought under such circumstances by the dissolved corporation rather than by the copartnership formed by its shareholders, which owns all the assets of the corporation and carries on its business, is to require compliance with a shallow formality that serves no substantial interest of the seller.' And cf. Thompson v. Commissioner of Internal Revenue, 3 Cir., 205 F.2d 73.

Was the contract illegal and void because made by the copartners while doing business under the name of 'Mellgren Plumbing Shop' before they filed the statement required by SDC 49.08? The foundation of defendant's contention that the contract was illegal and therefore void must be set forth.

Prior to 1933 our statutes required every partnership transacting business under a fictitious name to file and publish a certificate showing the name and residence of every partner. The right to maintain an action in court on contracts was denied to such a partnership which failed so to do....