On appeal from the Superior Court of New Jersey, Bergan County, Law Division.
Crane, Milmed and King. The opinion of the court was delivered by King, J.A.D.
This case presents the question of whether a corporation which purchases the assets of another corporation for cash may avoid incurring products liability for personal injury claims arising from sales by the seller prior to the purchase of the assets.
Plaintiff Efrain Ramirez alleged that on August 18, 1975 he was injured when a power press he was operating at his job in Belleville, New Jersey, malfunctioned. The power press was
described as a Johnson Model 5, 60-ton punch press manufactured in 1948 or 1949 by Johnson Machine and Press Company (Johnson), a then-viable Indiana corporation. Plaintiff contends that defendant Amsted Industries, Inc. (Amsted) is liable to him under the doctrine of strict liability in tort, 2 Restatement, Torts 2d, § 402A at 347, as well as for negligence, as a successor to Johnson. At the conclusion of discovery Amsted obtained summary judgment on the ground that its ultimate acquisition of the assets of Johnson in 1962 imposed no product liability for injury caused by Johnson's machine which was made and sold prior thereto. Plaintiff appeals and contends essentially that, as a matter of public policy, a corporation which purchases all of a manufacturing corporation's assets and continues the business of the seller should not, by reason of the form of the transaction or by exculpatory language in the closing documents, be insulated from then-unripened products claims against the seller.
The deposition testimony of Malcolm W. Burnett, corporate counsel and employee of Amsted, and the agreement memorializing the August 1962 purchase by Amsted of the total assets of Bontrager Corporation (Bontrager), provide the operative and undisputed facts upon which the trial judge ruled. Amsted (originally American Steel Foundaries, Inc.) was formed in the early 1900s and is a diversified manufacturer of steel and railway products. It has engaged in a number of acquisitions over the last three-quarters of a century. Johnson had been in the business of manufacturing machinery in Elkhart, Indiana, since 1937.
On August 28, 1956 Johnson sold all of its assets to Bontrager, an Indiana corporation. Burnett testified that according to the original minutes and resolutions of Johnson's board of directors in his possession Bontrager assumed all of Johnson's liabilities as part of that transaction. On August 31, 1962 Bontrager sold all of its assets to defendant Amsted. This sale included all the Johnson assets which Bontrager had acquired in 1956. As part
of this transaction Amsted sought to avoid assumption of any of Bontrager's potential liability for machinery previously sold by Bontrager or Johnson. After the 1962 acquisition of Bontrager's assets Amsted assigned its rights under the purchase agreement to South Bend Lathe, Inc. (South Bend I), its wholly-owned subsidiary, which thereafter functioned as the operating company. Included in this assignment of assets was the one outstanding share of common stock of Johnson, which had survived only as a corporate shell after Johnson's assets had been sold to Bontrager in 1956.
This sole outstanding share of Johnson's stock was held thereafter by Amsted until July 30, 1965, when Johnson was dissolved as an Indiana corporation. Burnett testified that from the time of the 1962 purchase from Bontrager until this dissolution of Johnson as a corporate shell in July 1965 Amsted's officers served as the "officers and directors of Johnson." On September 30, 1965 South Bend I, the wholly-owned subsidiary of Amsted, was dissolved, and "its assets and liabilities were assumed by Amsted" according to Burnett. After South Bend I was dissolved its business "was taken over and run by Amsted as an unincorporated division under the name of South Bend Lathe Company." On June 30, 1975 Amsted sold the business of the South Bend Lathe division to a newly-formed Indiana corporation, named South Bend Lathe, Inc. (South Bend II).
Amsted has an agreement with its purchaser South Bend II "to indemnify them for losses incurred arising out of machinery sold prior to the closing date" -- June 30, 1975. Burnett stated that the indemnity agreement contemplated any liability befalling South Bend II for any machines marketed by any corporate predecessor: "If South Bend Lathe [II] could be held liable for something done by Johnson Machine and Press, it would come within the terms of the indemnity agreement."
The fate of Bontrager is not revealed by the present record. It has not been joined as a party defendant. With respect to the transaction described above, one court has found that Bontrager
was ultimately liquidated by a distribution of cash to its shareholders, Ortiz v. South Bend Lathe Co. , 46 Cal.App. 3d 842, 846, 120 Cal.Rptr. 556, 558 (D.Ct.App.1975). Another court has found that Bontrager had continued an "inert corporate existence." Korzetz v. Amsted Industries, Inc. , 472 F. Supp. 136, 144 (E.D.Mich.1979). Defendant Amsted does not contend here that Bontrager is presently viable and able to respond in damages to plaintiff in the event of a judgment. Whatever Bontrager's ultimate fate may have been it is irrelevant to our conclusion in this case.
Pursuant to the August 1962 contract Amsted purchased substantially all of the assets of Bontrager. These assets represented the Elkhart, Indiana, manufacturing facility operated by Johnson before 1956. The contract recited the transfer of (1) all inventory, (2) all machinery, equipment, fixtures, tools, etc., (3) "all other tangible personal property . . . owned by Seller on the closing date, wherever located," (4) all patents, trademarks, trade names, copyrights, applications therefor, and trade secrets, (5) all real property at the manufacturing plant in Elkhart, (6) all pending contracts and (7) all books and records. The contract specifically called for the transfer of the single share of outstanding capital stock in Johnson (referred to therein as the "subsidiary.") The purchase price was $1,200,300. Bontrager's representations set forth in the contract clearly contemplate the transfer of a viable, operating manufacturing company to the buyer, Amsted.
Section 4(g) of the contract conferred on the buyer the exclusive right "to adopt and use the name 'Johnson Machine & Press Corporation'." Burnett testified that "the name Johnson appears as a trade name that was one of the transferred assets." Bontrager also agreed to use "its best efforts to make available to purchaser the services of all of seller's present employees" with the exception of seller's three principals, who covenanted personally not to compete with the buyer in the United States for five years.
Regarding the liabilities of Bontrager, the contract at section 2(c), entitled "Assumption of Liabilities," provided that Amsted would assume responsibility for:
(i) Obligations of Seller (other than those in default or arising from any breach or default of Seller) accruing subsequent to the close of business on the Closing Date under the contracts described in Section 1(d) but only with respect to benefits received thereunder by Purchaser subsequent to the close of business on the Closing Date;
(ii) All normal credit balances owing to Seller's customers appearing in Seller's accounts at the close of ...