Buyers of assets typically like to pick and choose the assets and liabilities that they will acquire. In general, the law permits this. Thus, a corporation that purchases the principal assets of another corporation, will not assume the seller’s liabilities unless:
Ray v. Alad Corp., 19 Cal. 3d 22, 28 (1977). The Supreme Court in Alad established an exception to foregoing exceptions. Thus, a corporation that purchases the assets of a manufacturing business assumes the seller’s liabilities for a defective product when all of the following elements are established:
19 Cal. 3d at 31.
In an opinion published yesterday, the Court of Appeal applied these elements to find that a buyer of the assets of a car rental business was not liable as a successor under Alad. Hernandez v. Enterprise Rent-a-Car Co., 2019 Cal. App. LEXIS 618. In reaching this conclusion, the Court found that the first prong of the Alad exception was not met because the seller continued to exist until it was merged into another company (not the buyer).
The facts of this case are more complicated than the typical asset purchase transaction and those interested in the subject should read the entire opinion carefully. Further, the Court of Appeal's opinion may not prove to be the last word. In a lengthy dissent, Justice Jon B. Streeter, expressly invites the Supreme Court's attention "if not in this case in some future case".