NORTHERN PLBG. & HEATING, INC. v. Henderson Bros., Inc. , 83 Mich. App. 84 ( 1978 )

83 Mich. App. 84 (1978) 268 N.W.2d 296

NORTHERN PLUMBING & HEATING, INC.
v.
HENDERSON BROTHERS, INC.

Docket No. 77-201.

Michigan Court of Appeals.

Decided May 8, 1978.

Richard H. School, for plaintiff.

Warner, Norcross & Judd (by Robert H. Skilton and Joseph G. Scoville), for defendant Phoenix Contractors, Inc.

Before: DANHOF, C.J., and M.J. KELLY and T.M. BURNS, JJ.

T.M. BURNS, J.

Plaintiff Northern Plumbing and Heating, Inc., appeals by right from the trial court's grant of summary judgment to defendant Phoenix Contractors, Inc., under GCR 1963, 117.2(3). Summary disposition of Northern's claims against Phoenix was improper and is reversed.

I

The underlying facts of this controversy arose out of bidding for construction contracts on the waste water treatment plant additions for the City of Cheboygan. Defendant Henderson Brothers, Inc., planned to bid as the general contractor for this project and solicited bids from various mechanical subcontractors, including Northern and Phoenix. In its bid to the city, Henderson listed Northern as a subcontractor, and this was done on the belief that Northern was the low bidder for the mechanical subcontracting work.

What happened from the time of the submission of the bid by Henderson listing Northern as a subcontractor until Henderson signed the contract with the city with Phoenix as the subcontractor, forms the basis of this action and should be submitted to a jury for factual determination.

II

Northern filed this suit against Henderson and Phoenix, claiming that it had a contract with Henderson to do the mechanical subcontracting work based on the custom in the trade and alleging a conspiracy between Henderson and Phoenix to breach that contract, tortious interference by Phoenix with the contract, and, alternatively, if no contract was found, tortious interference by Phoenix of an advantageous business relationship with Henderson. In this appeal, only Northern's claims against Phoenix are involved.

In response to the complaint, Phoenix filed motions for accelerated judgment, GCR 1963, 116.1(5), based on the statute of frauds, MCL 566.132; MSA 26.922, and summary judgment, GCR 1963, 117.2(3), claiming there were no genuine issues of material fact with regard to the happening of acts of interference by Phoenix employees or causation, i.e., that Henderson did not contract with Northern, or that Henderson breached its contract with Northern, if one existed, solely for its own reasons, rather than any act by Phoenix.

After the parties had taken some depositions and submitted affidavits, the trial court granted Phoenix' motion for summary judgment. In doing so, the court assumed the existence of a contract but held that there was no showing that Phoenix had interfered with or caused Henderson to breach that contract. In effect, the court ruled that it was solely Henderson's decision not to proceed with Northern as the subcontractor on the Cheboygan project. In doing so, the court erred.

III

The courts are liberal in finding that genuine issues of material fact do exist, especially in tort cases, and a motion under rule 117.2(3) should be granted only where it is obvious that the nonmoving party's case is subject to some deficiency which cannot be overcome at trial. Rizzo v Kretschmer, 389 Mich. 363; 207 NW2d 316 (1973).

In ruling that no issue of fact exists, the court must be careful to avoid substituting a trial by affidavit and deposition for trial by jury. Freeman v Massachusetts Mutual Life Insurance Co, 27 Mich. App. 572; 183 NW2d 832 (1970). The court is not allowed to make findings of fact or to weigh the credibility of affiants or deponents. Bilicki v W T Grant Co, 382 Mich. 319; 170 NW2d 30 (1969), Baker v Detroit, 73 Mich. App. 67; 250 NW2d 543 (1976). The test is not whether plaintiff has presented facts sufficient to show a jury submissible case in response to the motion, but rather, whether there are genuine issues of material fact. Smith v Woronoff, 75 Mich. App. 24; 254 NW2d 637 (1977).

With these principles in mind, it is held: that issues of fact do exist in regard to the existence of a contract, any acts of interference by Phoenix, and whether those acts were the cause of Henderson's decision not to use Northern on this project. See, Hutchings v Dave Demarest & Co, 52 Mich. App. 274; 217 NW2d 72 (1974). The depositions of Phoenix' and Henderson's agents do tend to show that Henderson acted entirely on its own in proceeding with Phoenix as the subcontractor, but Northern's president's deposition raises the opposite inference. It is not for us or the trial court to decide this matter, but for the trier of fact. Given that the trial court allowed only a short period for plaintiff to show the existence of fact issues, it is not surprising that a complete case was not presented at the motion hearing.^[1]

IV

Since the trial court assumed the existence of a contract, it never reached the question of the statute of frauds, and the effect it would have on the tortious conduct alleged by plaintiff against Phoenix.

Northern alleged three distinct torts against Phoenix; (1) a conspiracy to breach a contract between Phoenix and Henderson, (2) tortious interference with an existing contract by Phoenix, and (3) tortious interference with an advantageous business relationship. The statute of frauds is not a bar to the second and third actions.

A. Conspiracy

Where there is an allegation that a contracting party and a stranger to the contract have conspired to cause a breach of that contract, the plaintiff must show a writing sufficient to satisfy the statute of frauds. Jaques v Smith, 62 Mich. App. 719; 233 NW2d 839 (1975), lv den, 395 Mich. 829 (1976).^[2] If the contract is not enforceable against the contracting party, he would have committed no wrong in not performing the contract, and neither would a stranger to the contract. 16 Am Jur 2d, Conspiracy, § 50. Different considerations apply to the other allegations in this case.

B. Tortious interference with an existing contract

To prevail on this theory, plaintiff must show that a contract existed, that it was breached, that Phoenix instigated the breach and that it did so without justification. Dassance v Nienhuis, 57 Mich. App. 422; 225 NW2d 789 (1975).

There is a division in the authorities concerning whether the interfering third party may rely on a contract defense, such as the statute of frauds, to defeat this action. See, 45 Am Jur 2d, Interference, § 9, p 286. Our Supreme Court has not specifically held for either position but in Coronet Development Co v F S W, Inc, 379 Mich. 302, 313; 150 NW2d 809 (1967), the Court stated:

"We are not unmindful of the strongly urged contention of plaintiff that the inducing of the breach of a contract, even though the contract be unenforceable under the statute of frauds, is actionable. With the proposition in general terms we have no disagreement. The authorities cited in support thereof sustain it."^[3]

The statute of frauds is not a bar to this type of action. This is a tort, not dependent on the enforceability of the contract per se, but rather, on the stranger's interference with it. Plaintiff must still show all of the elements for contract formation, that is, that a contract existed, but it is not necessary to show that the contract is enforceable in an action at law against the other contracting party.

C. Tortious interference with advantageous business relationships

"The basic elements which establish a prima facie tortious interference with a business relationship are the existence of a valid business relation (not necessarily evidenced by an enforceable contract) or expectancy; knowledge of the relationship or expectancy on the part of the interferer; an intentional interference inducing or causing a breach or termination of the relationship or expectancy; and resultant damage to the party whose relationship or expectancy has been disrupted. One is liable for commission of this tort who interferes with business relations of another, both existing and prospective, by inducing a third person not to enter into or continue a business relation with another or by preventing a third person from continuing a business relation with another." 45 Am Jur 2d, Interference, § 50, p 322.

Since this tort is not necessarily based on contract, the statute of frauds would be no bar.

V

The heart of this case is whether genuine issues of material fact exist relating to contract formation, whether Phoenix engaged in any acts of interference with the contract if one existed, or with an advantageous business relationship if no contract existed, and whether those acts induced Henderson to end its relationship with Northern. It is held that there are questions of fact, the summary judgment is reversed and the matter is remanded for trial. The type of actions alleged by Northern are not well developed in this state, and plaintiff should be allowed to proceed to trial. Hutchings v Dave Demarest & Co, supra. Whether Northern will ultimately prevail depends on the facts that it will be able to present at trial, not on affidavits and depositions.

Reversed and remanded for proceedings not inconsistent with this opinion. Costs to appellant.

M.J. KELLY, J., concurred.

DANHOF, C.J. (dissenting).

This controversy arose out of the construction project. Defendant, Henderson Brothers, Inc. (Henderson) is a general contractor which, through a trade publication, requested sealed bids from subcontractors, including both plaintiff, Northern Plumbing and Heating, Inc. (Northern), and defendant, Phoenix Contractors, Inc. (Phoenix). In submitting its own bid to the city, Henderson listed Northern as a subcontractor in the belief that Northern was the low bidder. From this point on the testimony and allegations are in conflict.

Mr. Buday, President of Northern, stated that when he arrived at Henderson's office to fill out equipment questionnaires, Mr. Robinson of Henderson's told him that two men from Phoenix had been in asking why Henderson had not chosen Phoenix, stating that Northern might not be capable of doing the job, and generally "badmouthing" Northern. Also at the meeting, Mr. Buday was questioned about Northern's ability to get a performance bond. Although this was never mentioned before, Henderson claimed that Northern must be bonded if Henderson was to get a performance bond which was required by the contract.

Mr. Buday also testified that he later asked Mr. Henderson if "someone was knocking on your back door" and that he answered that Phoenix was. Mr. Henderson says that he might have made this statement. Around August 4, 1976, over lunch, some men from Henderson attempted to get Northern to agree to withdraw its bid in return for other work on the project. No agreement was reached. A day or so later, Henderson attempted to get Mr. Buday to sign a hold harmless agreement, but he refused to do so. On October 16, 1976, the city signed the contract with Henderson as general contractor, listing Phoenix as a subcontractor. Henderson then placed a purchase order with Phoenix for subcontracting work. Plaintiff then filed suit. The trial judge granted Phoenix's motion for summary judgment stating that even if he assumed there was a contract between Henderson and Northern, he could not find allegations which would indicate that defendant tortiously interfered with plaintiff's contract.

In his complaint plaintiff alleges that Phoenix committed three distinct torts: (1) a conspiracy to breach a contract between Northern and Henderson, (2) tortious interference with an existing contract, and (3) tortious interference with an advantageous business relationship. The trial judge granted defendant's motion for summary judgment on the grounds that, assuming the existence of a contract, Phoenix had not taken any actions which amounted to tortious interference. I would hold that the order of summary judgment was proper since actions for wrongfully inducing a breach of contract are barred by the absence of an enforceable contract and because plaintiff's allegations failed to show that Phoenix took any action which amounts to tortious interference with an advantageous business relationship.

I

I agree with the majority that one must show an enforceable contract as a prerequisite to establishing a claim for conspiracy to breach a contract. When the statute of frauds, MCL 566.132; MSA 26.922, applies and there is no writing sufficient to satisfy the statute, there is no legal basis for a claim that defendant conspired to breach that contract, Jaques v Smith, 62 Mich. App. 719; 233 NW2d 839 (1975), lv den 395 Mich. 829 (1976). The statute is applicable since the construction time was estimated at 900 days with mechanical subcontracting being one of the last jobs to be performed. The principle is well settled that to satisfy the statute of frauds the memorandum must contain the substantial elements of a contract expressed with such certainty that they may be understood without resort to parol evidence, Messmore v Cunningham, 78 Mich. 623; 44 N.W. 145 (1889), Association of Hebrew Teachers v The Jewish Welfare Federation, 62 Mich. App. 54; 233 NW2d 184 (1975). Plaintiff contends that the requirements of the statute of frauds were satisfied by the proposal Henderson submitted to the city which listed Northern as the subcontractor and certain notes made by Henderson in computing the bids. These writings are not sufficient for the statute of frauds because they do not contain all the substantial elements of the contract.

As plaintiff asserts, the proposal submitted by Henderson may incorporate the city's contract which lists the materials required and specifications. Even though this would provide substantial details on some issues, it does not cover all the terms. It does not purport to spell out any of the many possible alternatives that could govern a contractor-subcontractor relationship, such as manner of payment or penalty provisions. In a very similar case, the Washington Supreme Court also concluded that "[s]uch essentials, as manner of payment, time for completion of the mechanical portion of the work, penalty provisions, bonding, etc., are normally critical to any construction contract". The Plumbing Shop, Inc v Pitts, 67 Wash 2d 514, 518; 408 P2d 382 (1965). The other internal working papers mentioned by the plaintiff do not cure this deficiency since they do not contain any internal reference to the proposal or each other, Hewett Grain & Provision Co v Spear, 222 Mich. 608; 193 N.W. 291 (1923). I agree with the majority that if a contract is not enforceable, then the contracting party would not be liable for damages for nonperformance and neither would he, or a stranger, be liable for agreeing to not perform.

II

However, I cannot agree with the majority that the absence of a binding contract is not a bar to a claim of tortious interference with a contract. This holding is not consistent with the holding on the conspiracy claim or the ratio decidendi of Jaques v Smith, supra. Since the claim of conspiracy to breach a contract requires an enforceable contract, Jaques v Smith, supra, so does the claim for tortious interference. These claims, even though they sound in contract, are both essentially tort claims, 16 Am Jur 2d, Conspiracy, § 56, p 154. As the Court stated in Roche v Blair, 305 Mich. 608, 613-614; 9 NW2d 861 (1943),

"The law is well established that in a civil action for damages resulting from wrongful acts alleged to have been committed in pursuance of a conspiracy, the gist or gravamen of the action is not the conspiracy but is the wrongful acts causing the damages. The conspiracy standing alone without the commission of acts causing damage would not be actionable. The cause of action does not result from the conspiracy but from the acts done."

See also Fenestra, Inc v Gulf American Land Corp, 377 Mich. 565; 141 NW2d 36 (1966), Bush v Sprague, 51 Mich. 41; 16 N.W. 222 (1883). The major difference between the conspiracy claim and the tortious interference claim is that the conspiracy claim contains an additional element of an agreement between the nonperforming party and the stranger. The tort of (nonconspiracy) interference with a contract does not require this agreement. The gravamen of the conspiracy claim is that plaintiff suffered damages from the nonperformance of an enforceable contract. If a person does not suffer recoverable damages from the nonperformance of a nonenforceable contract, or from an agreement between the other party and the stranger not to perform a nonenforceable contract, likewise he should not recover any damages from the nonperformance of a nonenforceable contract which is induced by a stranger.

III

The tort of interference with an advantageous business relationship does not depend on the existence of an enforceable contract and therefore the statute of frauds is not available as a defense to these claims. However, I would affirm the order of summary judgment for the reasons given by the trial court, specifically, because plaintiff failed to allege any actions by defendant which amounted to tortious interference with an advantageous business relationship. To establish tortious interference with an advantageous business relationship by a competitor, one must show the use of improper or illegal means, 4 Restatement Torts, § 768, p 71; 45 Am Jur 2d, Interference, § 31, p 308. Plaintiff has not alleged the use of improper or illegal means.

Not all actions which bring about the nonperformance of a contract or hinder the development of an advantageous business relationship are tortious interference. One is liable only for actions taken without justification, 4 Restatement Torts, § 766, p 49, 45 Am Jur 2d, Interference, § 27, p 304; Prosser, Torts (4th ed), § 130, p 949. Public policy considerations weigh heavily in determining what constitutes tortious interference and when liability is not imposed because the actions are justifiable. In determining the standard of conduct relating to tortious interference, the law for policy reasons distinguishes between tortious interference with a contract and tortious interference with an advantageous business relationship. Certain actions which constitute tortious interference with a contract are not tortious in reference to interference with an advantageous business relationship. In other words, the reasons justifying interference with an advantageous business relationship may not be sufficient to justify the same action if it will interfere with a binding contract.

The primary reason for the requirement of "improper or illegal" means in a claim for tortious interference with an advantageous business relationship, rather than the standard used in contract cases, is to avoid unnecessarily stifling competition. The social desirability of encouraging competition will justify some actions in an advantageous business relationship case which would be tortious if a contract existed. A contract represents the final product of competition and when a contract is finally concluded, public policy favors the stability and planning made possible by it. Consequently, since most of the goals of competition have already been achieved, the law imposes liability on one who interferes with the performance of the contract. However, if a final agreement has not been reached, legitimate competition is still desirable. The courts are more reluctant to impose liability for actions taken in the furtherance of competition at this stage. The law does not want to unnecessarily restrict the available means of competition. It is for this reason, that one is only liable for tortiously interfering with an advantageous business relationship if he uses improper or illegal means.

To use the same standard in advantageous business relationship cases as is used in contract cases would unnecessarily restrict competition two ways. To apply this standard to all advantageous business relationship cases would unnecessarily limit the available means of competition in all advantageous business relationship cases. Also, because of the uncertainty of determining when an advantageous business relationship exists, the application of this standard of conduct could also chill competition in all cases on the fringe of an advantageous business relationship. The courts are reasonably certain of when an enforceable contract exists, but the perimeters of an advantageous business relationship have not been precisely established yet. Therefore, the fear of tort liability and the uncertainty of knowing whether an advantageous business relationship exists, could unnecessarily chill competition even in cases where an advantageous business relationship does not exist, if the standard used in interference with contract cases is applied.

Plaintiff has failed to allege any actions by defendant which meet the "illegal-or-improper means" requirement.^[1] The questioning of plaintiff's ability to secure a performance bond is not an improper means of competition. Plaintiff has not alleged any improper motive on the part of defendant in taking this action. Also the mere allegation of "badmouthing" is not sufficient. Plaintiff does not allege any fraud, defamation, or bad motive on the part of defendant or even that the statements made were untrue, Regal Home Distributors, Inc v Gordon, 45 Del 49; 66 A2d 754 (1949). Even accepting the allegations as true, and realizing that such a practice is of questionable ethics, it does not amount to an improper or illegal method of competition, 45 Am Jur 2d, Interference, § 31, p 308. Consequently, summary judgment was proper on plaintiff's claim of interference with an advantageous business relationship.

NOTES

[1] The hearing on these motions and plaintiff's request for an injunction was originally held on December 17, 1976. After plaintiff withdrew his application for an injunction, the court adjourned the proceedings until January 3, 1977, for the taking of depositions.

At the adjourned hearing, plaintiff presented testimony on the issues of contract formation (industry practice) and the relationship of Phoenix' bid to Northern's concerning which was lower. The depositions of employees and officers of the various companies involved were also presented, but it is clear that not everyone that plaintiff would call in the trial was heard from at this hearing.

[2] Williams v De Man, 7 Mich. App. 71; 151 NW2d 247 (1967), did not deal specifically with the statute of frauds question. The court there found that, in fact, no contract existed and held that there must be a contract, something which is not disputed here. The question isn't whether there must be a contract, but whether that contract is subject to contract defenses by a noncontracting party.

[3] It is not entirely clear from the report of Coronet Development Co v F S W, Inc, supra, whether the Court was dealing with a conspiracy case exclusively or also a claim of interference by noncontracting parties, or both. The language quoted would seem to apply only where the allegation is against only a noncontracting party.

[1] For cases interpreting "illegal or improper" means, see Show Management v Hearst Publishing Co Inc, 196 Cal App 2d 606; 16 Cal Rptr 731 (1961), Coleman & Morris v Pisciotta, 279 App Div 656; 107 NY Supp 2d 715 (1951), Terry v Dairymen's League Cooperative Association, 2 App Div 2d 494; 157 NY Supp 2d 71 (1956), Brause v First National Real Estate Trust, 25 App Div 2d 624; 267 NY Supp 2d 876 (1966), Regal Home Distributors, Inc v Gordon, 45 Del 49; 66 A2d 754 (1949), Martin v Phillips Petroleum Co, 455 S.W.2d 429 (Tex Civ App, 1970).