Facts
- In 1975, 17-year-old Calvin Tift was injured while operating a tractor with a chopper box attachment on his father’s farm.
- Calvin was drawn into the chopper box and suffered severe injuries; the chopper box was alleged to be defectively designed and/or manufactured.
- The chopper box was manufactured in 1961–62 by a business operating as a sole proprietorship under the “Forage King” name.
- The business later transitioned into Forage King Industries, Inc., which continued essentially the same agricultural-equipment business.
- The corporation acquired substantially all assets associated with the predecessor enterprise and continued the same name, product line, and manufacturing operations, producing an almost identical product.
Issues
- Whether a corporation that acquires substantially all assets of a predecessor sole proprietorship may be held liable for injuries caused by a defective product made by the predecessor.
- Whether the “mere continuation” exception to successor nonliability can apply when the predecessor was not a corporation.
Decision
- The Wisconsin Supreme Court reversed the court of appeals’ decision affirming summary judgment for Forage King Industries, Inc.
- The court held that the predecessor’s status as a sole proprietorship, rather than a corporation, does not bar successor liability analysis.
- The court concluded that the “mere continuation” exception could apply because the successor corporation was substantially the same enterprise and manufactured an almost identical product.
- The case was remanded for further proceedings.
Legal Principles
- Under the general rule, an asset purchaser does not assume the seller’s liabilities unless an exception applies.
- Traditional exceptions include: (1) express or implied assumption of liabilities; (2) de facto merger or consolidation; (3) “mere continuation” of the seller; or (4) a fraudulent transaction to escape liability.
- The applicability of successor liability turns on continuity of the enterprise; the predecessor’s business form (sole proprietorship versus corporation) is not dispositive where the successor is, in substance, the same business.
- A successor that continues the predecessor’s business and product line after acquiring substantially all assets may face products-liability claims under the “mere continuation” exception.
Conclusion
The court allowed successor-liability claims to proceed against a corporation that continued a predecessor sole proprietorship’s business and product line, holding that the predecessor’s noncorporate form did not preclude applying the “mere continuation” exception.