Summary
explaining that a party cannot divest itself of liability to another by contracting with a third party to assume the liability
Summary of this case from Crew v. Home Depot U.S.A., Inc.Opinion
April 14, 1975.
June 24, 1975.
Negligence — Personal injuries — Traumatic amputation of plaintiff's hand and forearm when accidentally caught in food grinding machine — Corporations — Liability of company to which assets have been transferred — Merger — Consolidation — Contractual limitation or elimination of liability for personal injuries — Standards for establishing immunity from liability — Exculpatory clause — Immunity from liability not established as matter of law — Interpretation of writing.
1. The plaintiff suffered a traumatic amputation of his right hand and forearm when it accidentally became caught in a food grinding machine. It was alleged that a predecessor company of the defendant had manufactured the machine and had sold it to additional defendant, H.J. Heinz Company. The defendant also joined SCM Corporation as an additional defendant on the ground that SCM and not the defendant succeeded to the liabilities of the manufacturer of the food grinding machine. A contract was entered into by a predecessor of the defendant in which it assumed liabilities "in connection with the manufacture and sale of products assigned hereunder." The lower court granted the motion of additional defendant, SCM, for summary judgment on the ground that the contract between SCM's and defendant's predecessors effectively divested SCM of any liability for any defects in the grinding machine. It was Held that the court below erred in granting the additional defendant's motion for summary judgment.
2. Ordinarily, when one company sells or transfers all its assets to another company, the latter is not liable for the debts and liabilities of the transferor simply by virtue of its succession to the transferor's property.
3. In order to find that this general rule is not applicable and that the transferee does acquire such liability, one of the following must be shown: (1) the purchaser expressly or impliedly agrees to assume such obligation; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is fraudulently entered into to escape liability; or (5) where the transfer was without adequate consideration and provisions were not made for creditors of the transferor.
4. In Pennsylvania, contractual limitation or elimination of liability for personal injuries, whether by assignment to another or by an exculpatory clause in the contract between the principal parties, is closely hedged with stringent standards.
5. Although such contracts are not invalid per se, they must meet the following standards: (1) contracts providing for immunity from liability for negligence are to be construed strictly; (2) they must spell out the intention of the parties with the greatest of particularity, showing the intent to release from liability beyond doubt by express stipulation keeping in mind that no inference from words of general import can establish it; (3) such contracts must be construed against the party seeking immunity from liability under their provision; (4) the burden of establishing the immunity is upon the party asserting it.
6. These principles apply to contracts wherein the immunity from liability is in the nature of an indemnity agreement as well as those wherein it is essentially an exculpatory clause.
7. Where the intention of the contracting parties is not clear due to an ambiguous expression in the written instrument, the writing is construed most strongly against the party drafting it.
8. Where a clause to assume liability is one of general import, it may not be concluded with certainty that the parties intended an assignment of liability for personal injuries resulting from a defective machine.
9. A party with an original obligation to another cannot divest himself of liability to that party merely by contracting with a third party to assume that liability.
10. In torts, although a person or organization can indemnify itself by agreement with another party against damages arising from its actions, it still remains liable to the injured person.
11. A plaintiff's cause of action is considered apart from the agreement between the transferor and transferee of liability.
Practice — Summary judgment — Circumstances in which entry of summary judgment is appropriate — Absence of genuine issues of fact — Pa. R.C.P. 1035.
12. Summary judgment is made available by Pa. R.C.P. 1035 when the pleadings, depositions, answers to interrogatories, admissions on file and supporting affidavits considered together reveal no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law.
13. Summary judgment should only be granted in cases where the right is clear and free from doubt.
14. To determine the absence of genuine issues of fact, the court must take the view of the evidence most favorable to the non-moving party, and any doubts must be resolved against the entry of the judgment.
Before WATKINS, P.J., JACOBS, HOFFMAN, CERCONE, PRICE, VAN der VOORT, and SPAETH, JJ.
Appeal, No. 102, April T., 1975, from judgment and order of Court of Common Pleas, Civil Division, of Allegheny County, April T., 1971, No. 2946, in case of John A. Husak, Jr. v. Berkel, Incorporated, and SCM Corporation, a corporation, and H.J. Heinz Company, a corporation, Additional Defendants. Judgment in favor of SCM Corporation reversed.
Trespass and assumpsit.
Order entered dismissing motion by original defendant for summary judgment and sustaining motion by additional defendant, SCM Corporation, for summary judgment, opinion by HESTER, J. Original defendant appealed.
William R. Tighe, with him Stein Winters, for appellant.
Thomas Hollander, with him Evans, Ivory Evans, for John A. Husak, Jr., appellee.
Charles Kirshner, with him Rosenberg, Kirshner Kaleugher, for SCM Corporation, additional defendant, appellee.
John D. Chinello, Jr., with him Chinello, Chinello, Maddy Shelton, for amicus curiae.
Argued April 14, 1975.
This appeal is from the order of the lower court granting the motion for summary judgment of the additional defendant SCM Corporation (hereinafter SCM), and denying the motion for summary judgment of the original defendant Berkel Incorporated (hereinafter Berkel). Appellant Berkel argues that the decisions were improper because, as between SCM and Berkel, SCM alone could rightfully be held liable in the personal injury action brought by the plaintiff in this case. We agree that SCM's motion for summary judgment was improperly granted and therefore reverse the lower court's order in that respect. We do not consider the propriety of the order below refusing Berkel's motion for summary judgment because that order is interlocutory at this stage and cannot be reviewed by this Court.
Appeal may be taken to the Superior Court only from final orders of the common pleas courts, except where provided by statute. Act of July 31, 1970, P.L. 673, No. 223, art. III, § 302, 17 Pa.C.S.A. § 211.302 (Supp. 1974-75). An order granting an additional defendant's motion for summary judgment has the effect of dismissing such defendant and is therefore final and appealable. Cf. Luitweiler v. Nortchester Corp., 456 Pa. 530, 319 A.2d 899 (1974); Brandywine Area Joint School Auth. v. VanCor, Inc., 426 Pa. 448, 233 A.2d 240 (1967); Rau v. Manko, 341 Pa. 17, 17 A.2d 422 (1941); Cummings v. A.F. Rees, Inc., 126 Pa. Super. 117, 190 A. 416 (1937). An order refusing a motion for summary judgment, however, is interlocutory and cannot be appealed until a final order is entered in the cause. Cf. Brandywine Area Joint School Auth. v. VanCor, Inc., supra; Mount Lebanon Township v. Hobbes, 201 Pa. Super. 30, 189 A.2d 316 (1963); Redding v. Stage, 188 Pa. Super. 195, 146 A.2d 333 (1958); Cummings v. A.F. Rees, Inc., supra.
The plaintiff, John A. Husak, Jr., instituted this action against original defendant Berkel claiming damages for personal injuries sustained on March 13, 1969, at the H.J. Heinz Company where he was employed as a cook. The plaintiff's complaint indicated that he had suffered the traumatic amputation of his right hand and forearm when it accidently became caught in a food grinding machine. It was alleged that a predecessor company of Berkel had manufactured the grinding machine and sold it to H.J. Heinz Company. The plaintiff sought to hold Berkel liable for his injuries on a theory of implied warranty. Berkel joined as additional defendants SCM and H.J. Heinz Company.
It was Berkel's position in support of its motion for summary judgment, and is its position now on appeal from the granting of SCM's motion, that SCM and not Berkel succeeded to the liabilities of the manufacturer of the food grinding machine here involved. The following facts established by the record are relevant to this contention. The food grinding machine was manufactured by Enterprise Manufacturing Company in 1924. At some time between 1924 and 1955 it was sold to H.J. Heinz Company. In 1955 the Enterprise Manufacturing Company was merged into Silex Company where an Enterprise Division was maintained which continued manufacture of the same items produced by Enterprise prior to the merger. The Enterprise Division of Silex divided its operations into two lines: a commercial and industrial line, and a domestic line.
In 1956, Silex Company, pursuant to an agreement between Silex and U.S. Slicing Machine Company, Inc., (hereinafter U.S. Slicing), organized a corporation called Enterprise-1956-Incorporated to which it transferred most, but not all, of the assets of the commercial and industrial line of its Enterprise Division. Enterprise-1956 was planned as a temporary corporation and designed to continue in the operation of those portions of Silex's Enterprise Division which were transferred to it until its operations could be assumed by U.S. Slicing. U.S. Slicing did absorb all the assets and liabilities of Enterprise-1956, and in 1957 the interim corporation was dissolved. In 1970 U.S. Slicing changed its name to Berkel Incorporated. In the meantime, through a series of mergers, Silex became first, the Proctor-Silex Company, and later, SCM.
Ordinarily when one company sells or transfers all its assets to another company, the latter is not liable for the debts and liabilities of the transferor simply by virtue of its succession to the transferor's property. In order to find that this general rule is not applicable and that the transferee does acquire such liability, one of the following must be shown: (1) the purchaser expressly or impliedly agrees to assume such obligation; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is fraudulently entered into to escape liability. See Granthum v. Textile Machine Works, 230 Pa. Super. 199, 326 A.2d 449 (1974). A fifth circumstance, sometimes included as an exception to the general rule, is where the transfer was without adequate consideration and provisions were not made for creditors of the transferor. See Lopata v. Bemis Co., Inc., 383 F. Supp. 342 (E.D.Pa. 1974); McKee v. Harris-Seybold Co., Division of Harris-Intertype Corp., 109 N.J. Super. 555, 264 A.2d 98 (1970); 19 Am. Jur. 2d Corporations § 1546 (1965); 15 W. Fletcher, Cyclopedia of Corporations § 7122 (Perm. ed. 1973).
SCM contends that the first exception is applicable to Berkel in the present case and that Berkel, through its predecessor U.S. Slicing, expressly and impliedly agreed to assume liability for damages such as those claimed by the present plaintiff. In support of this position SCM cites a section of the 1956 agreement between Silex (SCM's predecessor) and U.S. Slicing stating terms of the transfer of assets to Enterprise-1956. The following provision is found therein: "Enterprise-1956 agrees to assume all liabilities, obligations, contracts, orders for the purchase of material and warranties of [Silex] made in connection with the manufacture and sale of products assigned hereunder to Enterprise-1956 as part of the commercial and industrial line." On the basis of this provision, and proof that Berkel's predecessor did indeed take over the bulk of assets of the commercial and industrial line, which line had previously produced the subject food grinder, the lower court entered summary judgment in favor of SCM.
Before considering whether the provision is effective in transferring liability for personal injuries resulting from a defectively designed machine, it is important to recall those circumstances in which the entry of a summary judgment is appropriate. Summary judgment is made available by Pa.R.C.P. 1035 when the pleadings, depositions, answers to interrogatories, admissions on file and supporting affidavits considered together reveal no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. This severe disposition should only be granted in cases where the right is clear and free from doubt. To determine the absence of genuine issue of fact, the court must take the view of the evidence most favorable to the non-moving party, and any doubts must be resolved against the entry of the judgment. Badami v. Dimson, 226 Pa. Super. 75, 310 A.2d 298 (1973); Prince v. Pavoni, 225 Pa. Super. 286, 302 A.2d 452 (1973); Kent v. Miller, 222 Pa. Super. 390, 294 A.2d 821 (1972); 4 Standard Pa. Practice 205 (1955). Therefore in passing on the cross motions in the present case, there must be a determination that no issue of fact which could influence the outcome of the case is in dispute, and that the additional defendant SCM is entitled to judgment as a matter of law.
The lower court concluded that because the contract between SCM's and Berkel's predecessors effectively transferred the commercial and industrial line of Enterprise machines, the clause providing for the assumption of liabilities "in connection with the manufacture and sale of products assigned hereunder" operated to divest SCM of any liability for any product manufactured by that line. It must now be determined on the basis of this record that such a result was clearly and without doubt the intention of the parties to the contract and the entry of summary judgment dismissing SCM from the case was therefore proper. See, e.g., Galvin v. Occidental Life Ins. Co., 206 Pa. Super. 61, 211 A.2d 120 (1965).
The plaintiff's complaint against Berkel was brought in trespass and assumpsit. In it the plaintiff alleges his right to recover for personal injuries is based on three theories: negligence, strict liability and implied warranty. Although SCM would ordinarily be liable on these claims as the successor of the company which manufactured the allegedly defective machine, it now seeks to prove that the clause by which Berkel's predecessor assumed "all liabilities, obligations, contracts, orders . . . and warranties . . . in connection with . . . products assigned hereunder" included liability for personal injuries in connection with a machine produced 22 years before the contract was formed.
In Pennsylvania, contractual limitation or elimination of liability for personal injuries, whether by assignment to another or by an exculpatory clause in the contract between the principal parties, is closely hedged with stringent standards. Dilks v. Flohr Chevrolet, 411 Pa. 425, 192 A.2d 682 (1963). Although such contracts are not invalid per se, they must meet the following standards: (1) contracts providing for immunity from liability for negligence are to be construed strictly as they are not favorites of the law; (2) they must spell out the intention of the parties with the greatest of particularity, showing the intent to release "from liability `beyond doubt by express stipulation'" keeping in mind that "`[n]o inference from words of general import can establish it'" [ Employers Liability Assurance Corp., Ltd. v. Greenville Business Men's Ass'n, 423 Pa. 288, 292, 224 A.2d 620, 623 (1966), quoting from Perry v. Payne, 217 Pa. 252, 262, 66 A. 553, 557 (1907)]; (3) such contracts must be construed against the party seeking immunity from liability under their provision; (4) the burden of establishing the immunity is upon the party asserting it. For cases establishing and supporting these principles, see Employers Liability Assurance Corp., Ltd. v. Greenville Business Men's Ass'n, supra; Galligan v. Arovitch, 421 Pa. 301, 219 A.2d 463 (1966); Dilks v. Flohr Chevrolet, supra; Warren City Lines, Inc. v. United Refining Co., 220 Pa. Super. 308, 287 A.2d 149 (1971); Keystone Aeronautics Corp. v. R.J. Enstrom Corp., 499 F.2d 146 (3d Cir. 1974); Neville Chemical Co. v. Union Carbide Corp., 294 F. Supp. 649 (W.D.Pa. 1968), aff'd in part and rev'd in part, 422 F.2d 1205 (3d Cir.), cert. denied, 400 U.S. 826 (1970). It is clear that these principles apply to contracts wherein the immunity from liability is in the nature of an indemnity agreement as well as those wherein it is essentially an exculpatory clause. See, e.g., Dilks v. Flohr Chevrolet, supra; Warren City Lines, Inc. v. United Refining Co., supra; Gimbel Bros., Inc. v. William H. Vanderherchen, Inc., 468 F.2d 597 (3d Cir. 1972); Neville Chemical Co. v. Union Carbide Corp., 422 F.2d 1205 (3d Cir. 1970); Jamison v. Ellwood Consolidated Water Co., 420 F.2d 787 (3d Cir. 1970). Furthermore, the standards have been applied where a party to a contract has attempted to obtain a release from liability for claims of strict liability. See Keystone Aeronautics Corp. v. R.J. Enstrom Corp., supra.
The disputed contractual clause in the present case lacks sufficient precision to meet the standards required to relieve SCM, as a matter of law, of liability for negligence or strict liability in connection with the production of the defective machine by its predecessor. The assumption of liability by Berkel's predecessor "in connection with the manufacture and sale of products assigned hereunder" leaves open the question whether the parties intended to transfer liability for those assets and items actually changing hands at that time, or whether liability was being assumed for the entire line of products, including a defective machine produced 22 years earlier and already sold. Where the intention of the contracting parties is not clear due to an ambiguous expression in the written instrument, the writing is construed most strongly against the party drafting it. See, e.g., Egyptian Sands Real Estate, Inc. v. Polony, 222 Pa. Super. 315, 294 A.2d 799 (1972); Galvin v. Occidental Life Insurance Co., supra. As the instrument was prepared by the legal counsel of SCM's predecessor, application of this rule would suggest that the more conservative interpretation, that liability was only transferred as to those assets immediately changing hands, would be read into the ambiguous expression.
In addition, it is uncertain whether the agreement "to assume all liabilities, obligations, contracts, orders for the purchase of material and warranties" is sufficiently specific to include a transfer of liability for negligence. In Morton v. Ambridge Borough, 375 Pa. 630, 101 A.2d 661 (1954), a reservation in a deed relieving the holder of an easement from any claims for damages arising from the construction, operation and maintenance of a system of pipes was held not to limit liability for negligence. The Court reasoned that because the instrument did not use the word "negligence," or a word of similar import, the language was not specific enough to eliminate liability in this respect. This principle has been followed in other decisions where it has been found that when the clause assigning liability is one of general import and fails to include any precise reference to negligence, it is not sufficient to transfer liability. See, e.g., Gimbel Bros., Inc. v. William H. Vanderherchen, Inc., supra; Neville Chemical Co. v. Union Carbide Corp., supra. In the present case, Berkel does not expressly assume SCM's liability for negligence or strict liability. Because the clause is one of general import, we cannot conclude with certainty that the parties intended an assignment of liability for personal injuries resulting from the defective machine.
Strict liability for products sold, Restatement (Second) of Torts, § 402A (1965), was first adopted in Pennsylvania in Webb v. Zern, 422 Pa. 424, 220 A.2d 853 (1966). It is difficult to imagine that in 1956 the parties to this contract intended to include strict liability in the general language of the clause assigning liability when the concept was not even adopted by Pennsylvania law. See Schwartz v. McGraw-Edison Co., 14 Cal.App.3d 767, 92 Cal.Rptr. 776 (1971).
The application of these rules of construction to the contract upon which SCM wishes to predicate its release from liability would be sufficient to find that the motion for summary judgment was erroneously granted. However, there is an additional reason for refusing this relief. The contract under consideration was between the two defendants to the plaintiff's cause of action. Any contract between the successor to Enterprise's liability and another party cannot affect that successor's original liability to the plaintiff. "The cause of action owned by the plaintiff is distinct from the cause of action arising out of the duty of the additional defendant to indemnify the defendant. Goodrich-Amram Rules of Civil Procedure, Comments on Rule 2252 (a)-9." Carlin v. Pennsylvania Power and Light Co., 363 Pa. 543, 545, 70 A.2d 349, 351 (1950).
It is basic contract law that an initially obligated party cannot delegate his responsibility by agreement with a third person. "Neither the delegation of performance by an obligor, nor a contract with the obligor by the person to whom the performance is delegated to assume the obligor's duty, extinguishes it or prevents recovery of damages from him if the duty is not performed." Restatement of Contracts, § 160(4) (1932). Cf. Saxe v. Feinstein, 366 Pa. 473, 77 A.2d 419 (1951); Beach v. Morris, 12 S. R. 16 (Pa. 1824); 3 S. Williston, A Treatise on the Law of Contracts § 411 (3d ed. 1960). A party with an original obligation to another cannot divest himself of liability to that party merely by contracting with a third party to assume that liability.
See also, Restatement of Contracts, § 141(1) (1932), which reads as follows: "A creditor beneficiary who has an enforceable claim against the promisee can get judgment against either the promisee or the promisor or against each of them on their respective duties to him."
Similarly, in torts, although a person or organization can indemnify itself by agreement with another party against damages arising from its actions, it still remains liable to the injured person. The plaintiff's action is considered apart from the agreement between the transferor and transferee of liability. See Carlin v. Pennsylvania Power and Light Co., supra; W. Prosser, Law of Torts 542, 544 (1971).
As a result of these considerations, we find that the additional defendant SCM did not prove, clearly and without doubt, that it has divested itself of all liability in the claim brought by the plaintiff John A. Husak, Jr. Accordingly, we find that the grant of summary judgment in SCM's favor was error.
Judgment in favor of SCM reversed.