One of the usual factors to be considered in the acquisition of one corporation by another is whether the transferee is to assume the transferor's liabilities. Often the intent of the parties can be effectuated by choosing one form of acquisition over another. For example, if the parties intend that the transferee assume all of the liabilities of the transferor, the transaction could be structured as a merger because, by operation of law, the transferee assumes all of the transferor's liabilities in a merger. On the other hand, if the parties decide that the transferee will assume none of the transferor's liabilities, the acquisition could be structured as a sale of assets. Subject to a few well-recognized exceptions, the general rule is that such a transaction will shield the transferee from the assumption of any of the transferor's liabilities. Several recent decisions have dealt with the issue of whether this general rule of nonassumption applies where a person is injured by a defective product manufactured and sold by a corporation that has since transferred its assets to another corporation. The courts have used two types of analyses to assign liability in such situations. On the basis of public policy, some cases have held that the rule of nonassumption does not apply to products liability claims arising after the asset transfer. Other cases have held the rule of nonassumption applicable in such situations and have construed the contract of sale to determine whether the transferee expressly or impliedly assumed such liability. This article will engage in a brief discussion of these cases and will attempt to demonstrate that these two seemingly disparate types of analysis must be welded into a single rule to insure compensation for an injured plaintiff while at the same time permitting maximum flexibility as to form in corporate acquisitions.
James R. Snyder,
Products Liability--Assumption of Liability in Sale of Assets,
W. Va. L. Rev.
Available at: https://researchrepository.wvu.edu/wvlr/vol79/iss1/9