Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

تمرين 4

FACTS American Standard, Inc., sold its Kewanee Boiler division to Kewanee Boiler Corporation, which is known as Oak- Fabco, Inc. The parties' agreement stated that OakFabco would purchase Kewanee assets subject to Kewanee liabilities. The phrase Kewanee liabilities was defined as "all the debts, liabilities, obligations, and commitments (fixed or contingent) connected with or attributable to Kewanee existing and outstanding at the Closing Date." The boilers manufactured by Kewanee had been insulated with asbestos, and as a result, many tort claims had been made in the years following the purchase of the business. Some of those claims were brought by plaintiffs who had suffered injuries after the closing of the transaction, allegedly attributable to boilers manufactured and sold before the closing.
American Standard brought an action against OakFabco, asking the court for a declaratory judgment on the issue of whether liabilities for such injuries were among the "Kewanee Liabilities" that OakFabco had assumed. The trial court entered a declaratory judgment holding that OakFabco had assumed the liabilities. An intermediate appellate court affirmed the trial court's ruling, and OakFabco appealed to the New York Court of Appeals.
ISSUE When a corporation purchases all of another corporation's assets and existing liabilities and debts, does that limit the purchasing corporation's liability for tort claims that arose after the closing date?
DECISION No. The New York Court of Appeals affirmed the intermediate appellate court's decision.
REASON The transaction in question "was a purchase and sale of substantially all of the assets of the Kewanee Boiler business 'subject to all debts, liabilities, and obligations connected with or attributable to such business and operations.' Nothing in the nature of the transaction suggested that the parties intended OakFabco, which got all the assets, to escape any of the related obligations."
OakFabco pointed to the fact that the definition of Kewanee Liabilities specified the debts, liabilities, obligations, and commitments existing and outstanding at the closing date. It argued that a tort claim could not be "existing and outstanding" before the tort plaintiff has been injured, because until then, it is not possible for a tort lawsuit to be brought.
The court, however, found that no intention to adopt this meaning was made clear by any clause in the agreement. Rather, the language in the agreement "clearly meant that the buyer would deal with any problems customers had after the closing date with boilers that had been installed previously." Consequently, the liabilities assumed by OakFabco included claims brought by tort claimants injured after the closing date by boilers installed before that date.
FOR CRITICAL ANALY SIS-Legal Consideration Generally, a corporation that purchases the assets of another is not automatically responsible for the liabilities of the selling corporation, with some exceptions. Which exception applied in this case? Explain.