Globe & Rutgers Fire-Insurance v. Jones
129 Mich. 664, 1902 Mich. LEXIS 531, 89 N.W. 580 (1902)
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Rule of Law:
A contract for personal services is not assignable without consent, and a corporation's merger into a new corporate entity constitutes a breach of such a contract with an employee or agent who is then expected to work for the new entity.
Facts:
- On March 1, 1898, James A. Jones entered into a five-year written contract to serve as the general agent for the Rutgers Fire-Insurance Company in Michigan.
- Jones held the officers and reputation of the Rutgers company in high regard.
- On December 20, 1898, the Rutgers Fire-Insurance Company merged with the Globe Fire-Insurance Company, forming a new entity, the Globe & Rutgers Fire-Insurance Company.
- Jones had objections to the reputation of the individuals in control of the Globe company, whom he considered 'wreckers.'
- After the merger, Jones withheld premium payments he had collected, totaling over $1,400.
- In March 1899, upon learning of the consolidation, Jones ceased all business under the contract and recalled policies he had written.
- In May 1899, Jones declined an offer to serve as the general agent for the newly formed company.
Procedural Posture:
- The Globe & Rutgers Fire-Insurance Company, as successor to the Rutgers Fire-Insurance Company, sued James A. Jones in a trial court for money had and received, seeking to recover withheld premium payments.
- Jones raised the defense of set-off, alleging that the Rutgers Company's merger constituted a breach of his employment contract, causing him damages.
- The trial court judge ruled that the consolidation was a breach of contract on the part of the insurance company.
- The trial court instructed the jury that Jones was entitled to offset the plaintiff's claim with any damages he sustained from the breach.
- The plaintiff, Globe & Rutgers Fire-Insurance Company, appealed the trial court's ruling.
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Issue:
Does a corporation's voluntary merger with another company, which creates a new corporate entity, constitute a breach of a pre-existing, fixed-term personal service contract with an agent?
Opinions:
Majority - Moore, J.
Yes, the consolidation was a breach of the contract. A contract for personal services is based on the specific qualities and identity of the parties involved. An employee or agent, having contracted to work for one specific corporate entity, cannot be compelled to render those services to a new and different corporation formed through a merger. The court reasoned that personal service contracts are not freely assignable, as a master cannot turn a servant over to another master without the servant's consent. Jones had a right to choose for whom he would work, and the merger effectively terminated his original employer, thus incapacitating it from fulfilling its side of the contract.
Analysis:
This decision solidifies the principle that personal service contracts are an exception to the general rule that contract rights and obligations are assignable or transferable. It establishes that a corporate merger that results in a new entity is not a mere continuation of the old one for the purposes of such contracts. The ruling protects an individual's right to choose their employer, emphasizing that factors like trust, reputation, and personal compatibility are material terms of a personal service agreement that cannot be unilaterally altered by corporate restructuring. This precedent is significant in both contract and corporate law, clarifying the limits of asset and liability transfers in mergers when personal employment relationships are at stake.
