Purchase of Assets. In January 1981, Frederick Brandt purchased a Tredex treadmill from Atlantic Fitness Products. The treadmill was manufactured by American Tredex Corporation. In July 1981, Nissen Corp purchased all of the assets of American Tredex,
as well as its goodwill and the name American Tredex. The contract for the purchase of assets expressly excluded assumption of liability for injuries arising from any product previously sold by American Tredex. Although Nissen did not continue to manufacture and sell the treadmills, it did continue to sell replacement parts for equipment that had been sold by American Tredex before the sale of its assets. After Nissen's purchase of American Tredex's assets, Brandt obtained replacement parts for his treadmill from Nissen. In the fall of 1986, Brandt was injured when he caught one of his fingers in the treadmill's operating mechanism while adjusting the treadmill. Brandt and his wife sued Nissen and Atlantic Fitness to recover damages, alleging, among other things, negligence and breach of warranty. Nissen moved for summary judgment, contending that it was not responsible for any injuries involving equipment sold or manufactured by American Tredex prior to the date of the asset purchase agreement (July 1981). Should the court grant Nissen's motion? Why or why not?
Purchase of assets
The trial court granted the seller's motion for summary judgment, the appellate court reversed, and on further appeal, the state's highest court reversed the intermediate appellate court's judgment. Generally, a corporation that purchases the assets of another corporation is not responsible for the liabilities of the selling corporation. Exceptions to this rule are made when (1) the purchasing corporation impliedly or expressly assumes the seller's liabilities, (2) the sale amounts to what in fact is a merger or consolidation, (3) the purchaser continues the seller's business and retains the same personnel (same shareholders, directors, and officers), or (4) the sale is fraudulently executed to escape liability. In this case, the buyer (Brandt) had urged the court to adopt a fifth exception for "continuity of enterprise" (that is, continuation of the business enterprise without the same shareholders, directors, and officers) with regard to defective products.
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