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Guerrero v. Allison Engine Company3/22/2000
v. Rich Ladder Co., Inc., 441 N.E.2d 996, 999 (Ind. Ct. App. 1982).
C. The Indiana Product Liability Act and Freedom of Contract
In a product liability suit, it is not dispositive that an agreement exists between a successor corporation and its predecessor that the successor is not to assume the predecessor's liabilities. Lucas v. Dorsey Corp., 609 N.E.2d 1191, 1201 (Ind. Ct. App. 1993). In McGraw-Edison Co. v. Northeastern Rural Electric Membership Corp., 678 N.E.2d 1120 (Ind. 1997), our supreme court addressed the question of whether a disclaimer of liability in a purchase agreement barred a strict liability claim brought under Indiana's Product Liability Act.
We are interpreting the interplay between the provisions of the Uniform Commercial Code -- Sales, Ind. Code § 26-2-2-719, which generally supports the enforceability of limitations of liability in commercial transactions, and the Indiana Product Liability Act, Ind. Code § 33-1-1.5-3, which codified strict liability and makes some of these choices that would otherwise be left to the court. Id. at 1122.
The Indiana Supreme Court reasoned and concluded as follows:
The General Assembly enacted the Product Liability Act against that background of its judicial patina and commentary as they sat in 1978. . . that climate was hostile to disclaimers. . . . e conclude that the legislature has chosen to override the considerations of freedom of contract in the interest of encouraging safety of products and responsibility for products that are defective under the standards imposed by the statute. That is a judgment the legislature can make, and in Indiana our General Assembly has made it. Id. at 1124-25.
Justice Sullivan, in his dissent, summarized the rule of law announced in McGraw-Edison Co., as follows: "the Product Liability Act mandates that any disclaimer as to products liability with respect to a product covered by the Act will be ineffective unless there has been a `knowing waiver' of the purchaser's rights thereunder." Id. at 1125.
D. Successor Corporation Non-Liability - General Rule and Exceptions
When one corporation purchases the assets of another, the buyer does not assume the debts and liabilities of the seller. Sorenson v. Allied Products Corp., 706 N.E.2d 1097, 1099 (Ind. Ct. App. 1999) (citing Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1233 (Ind. 1994)). However, there are four generally recognized exceptions to this rule:
(1) an implied or express agreement to assume the obligation;
(2) a fraudulent sale of assets done for the purpose of escaping liability; (3) a purchase that is de facto consolidation or merger; or (4) instances where the purchase is a mere continuation of the seller. Id.
Under these exceptions, a successor corporation is liable only when the predecessor corporation no longer exists. Id.
E. The Product Line Exception
The product line exception was originally articulated by the Supreme Court of California in Ray v. Alad, 136 Cal.Rptr. 574, 560 P.2d 3 (1977).
party which acquires a manufacturing business and continues the output of its line of products . . . assumes strict tort liability for defects in units of the same product line previously manufactured and distributed by the entity from which the business was acquired. Id. at 582, 560 P.2d at 11.
Only a minority of states have adopted the product line exception. See Garcia v. Coe Mfg. Co., 123 N.M. 34, 933 P.2d 243 (1997); Martin v. Abbott Laboratories, Inc., 102 Wash.2d 581, 689 P.2d 368 (1984); Dawejko v. Jorgensen Steel Co, 290 Pa.Super 15, 434 A.2d 106 (1
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