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SHANE v. HOBAM

June 15, 1971

Douglas SHANE
v.
HOBAM, INCORPORATED


Higginbotham, District Judge.


The opinion of the court was delivered by: HIGGINBOTHAM

HIGGINBOTHAM, District Judge.

 I. INTRODUCTION

 On June 17, 1968 the plaintiff, Douglas Shane, allegedly sustained serious injuries while operating a meat grinding machine in his place of employment, Shane Enterprises, Inc., in Chester, Pa. The meat grinding machine operated by the plaintiff at the time of the accident was manufactured and sold in 1948 by the John E. Smith's Sons Co. of Buffalo, New York. In June, 1962, the defendant, Hobam, Inc., purchased the assets of the Smith Company. The plaintiff alleges that from the time of the purchase of the assets of Smith until the time of the accident, the defendant operated the John E. Smith's Sons Company under its original name as a division of Hobam, Inc. In the present action, the plaintiff seeks to hold Hobam liable for any damages arising from defects in the design, manufacture and delivery of the meat grinding machine manufactured by the Smith Company in 1948.

 Two questions are raised by the defendant's motion for summary judgment: First, whether Hobam, Inc. can be held liable, either under a theory of strict liability or a theory of breach of a duty of reasonable care, for physical injuries and consequent damages resulting from alleged defects in the manufacture, design and delivery of the meat grinding machine by Smith in 1948; and second, whether the first issue may appropriately be resolved on a motion for summary judgment. After considering the issues raised by the present motion, I have concluded that defendant's motion for summary judgment should be granted in part and denied in part.

 II. THEORIES OF LIABILITY

 A. INTRODUCTION

 The general rule is that "a mere sale of corporate property by one company to another does not make the purchaser liable for the liabilities of the seller not assumed by it." Copease Mfg. Co. v. Cormac Photocopy Corp., 242 F. Supp. 993 (S.D.N.Y. 1965). *fn1" There are, however, certain exceptions to this rule. Liability for obligations of a selling corporation may be imposed on the purchasing corporation when (1) the purchaser expressly or impliedly agrees to assume such obligations; (2) the transaction amounts to a consolidation or merger of the selling corporation with or into the purchasing corporation; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape liability for such obligations. Kloberdanz v. Joy Manufacturing Co., 288 F. Supp. 817, 820 (D. Col. 1968).

 B. INTENTION OF HOBAM AS EVIDENCED BY THE AGREEMENT FOR THE SALE OF ASSETS

 As the first ground for opposing the entry of summary judgment, the plaintiff contends that certain questions of material fact regarding Hobam's intention to assume responsibility for product liability claims in respect to equipment manufactured by Smith prior to 1962 arise from alleged ambiguities and conflicts in the "AGREEMENT FOR PURCHASE AND SALE OF ASSETS" (hereinafter "the Agreement"). Concerning this first contention, I conclude that the Agreement itself creates no issue of material fact concerning the explicit intention of Hobam to assume responsibility for product liability claims in regard to equipment manufactured by Smith prior to the effective date of the agreement. Paragraph 14 of the Agreement provides that "Smith shall indemnify Hobam against all claims arising out of breach of contract (other than breach of warranty) and product liability arising from sales or contracts of sale made by Smith prior to June 30, 1962." (Emphasis added) As between Smith and Hobam, this provision leaves no doubt that Smith is to bear ultimate responsibility for any product liability claim assessed against Hobam in regard to equipment manufactured and sold by Smith prior to June, 1962. *fn2" The other provisions of the agreement cited by plaintiff do not create material issues of fact arising from any conflict of ambiguity between these provisions and the product liability indemnity provisions of Par. 14. *fn3" I therefore find that the Agreement did not explicitly provide for (or create any issue of material fact concerning) the responsibility of Hobam for any product liability claims arising in regard to equipment manufactured and sold prior to June, 1962. I therefore conclude that pars. 4, 13 and 14 of the agreement did not indicate an intention by Hobam to assume responsibility for product liability claims in regard to equipment manufactured and sold by Smith prior to June, 1962.

 III. HOBAM'S HOLDING ITSELF OUT AS THE SMITH COMPANY: THE DUTY TO IMPROVE PRODUCT SAFETY AND NOTIFY PAST PURCHASERS OF SIGNIFICANT IMPROVEMENTS IN PRODUCT SAFETY

 The basic issue presented by this case was considered in Chadwick v. Air Reduction Co., 239 F. Supp. 247 (E.D. Ohio, 1965). In Chadwick, the plaintiff was injured in 1963 by an incubator manufactured and sold in 1952 by the Gordon Armstrong Co. In 1961, Gordon Armstrong sold all its assets to the Air Reduction Company. As a basis for assessing liability against the Air Reduction Company for injury caused by the incubator manufactured by Gordon Armstrong, the plaintiff in Chadwick alleged that "at the time of, and subsequent to, the acquisition of the assets of the Gordon Armstrong Company, the Air Reduction Company had knowledge of other claims against Gordon Armstrong arising out of the defective design of baby incubators." Because of this knowledge the plaintiff contended that the purchasing corporation was under a duty to notify the past purchasers of the incubator of the danger presented by the incubator manufactured and sold by the Gordon Armstrong Company.

 In Chadwick, the court stated that the issue presented was "whether a corporation which purchases the assets of another corporation, and as a consequence of purchase becomes aware that the seller corporation had put a negligently designed device into the channels of commerce, is under a duty to warn third persons of its vendor's negligence." 239 F. Supp. at 249. The court noted that in regard to this question neither counsel had cited "any authority directly in point, and independent research has failed to disclose any such decision." (239 F. Supp. at 250) *fn4" ...


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