MBE Rules · Torts
Successor Liability
Successor liability (products)
The rule
An asset purchaser avoids the seller's tort liabilities except on assumption, de facto merger, mere continuation, or fraud; a minority adds a product-line exception for continuing the same product.
In plain English
Successor liability means that when a company buys another company's assets, it usually doesn't inherit the seller's liabilities, including tort claims. However, there are exceptions, such as when the buyer assumes the liabilities, if the transaction is essentially a merger, if the new company is just a continuation of the old one, or if fraud is involved.
Worked example
Company A buys the assets of Company B, which has pending tort claims from a defective product. Company A did not assume any liabilities during the purchase. However, because Company A continues to produce the same defective product under a similar name, it may be held liable for those tort claims. Thus, Company A faces liability despite being a new entity.
Memory hook
New owners usually dodge old debts unless they play by the exceptions.
The trap
Exams often present scenarios where students must identify whether the exceptions to successor liability apply, which can be tricky if the facts are ambiguous. Students may mistakenly assume there is no liability without considering the specific exceptions.
How examiners test it
Questions typically involve fact patterns where a business acquisition occurs, and students must analyze whether the buyer is liable for the seller's torts based on the exceptions to successor liability.
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