Tift v. Forage King Industries, Inc.
322 N.W.2d 14, 108 Wis. 2d 72 (1982)
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Rule of Law:
A successor business entity can be held liable for injuries caused by a defective product manufactured by its predecessor, regardless of the predecessor's form of business organization (e.g., sole proprietorship), if the successor is substantially a continuation of the predecessor's business enterprise.
Facts:
- Prior to 1957, Vernon L. Nedland operated a welding business as a sole proprietorship.
- In 1957, Woodrow W. Wiberg purchased the business and continued to operate it as a sole proprietorship, eventually under the name Forage King Industries.
- In 1961 or 1962, Wiberg's sole proprietorship manufactured the allegedly defective chopper box that caused the injury.
- In 1968, Wiberg and Nedland formed a partnership, which shortly thereafter was incorporated as Forage King Industries, Inc.
- The new corporation retained the same employees, name, and dealers, and continued to manufacture the same products as the sole proprietorship.
- In 1975, Tester Corporation acquired Forage King Industries, Inc. by purchasing all of Wiberg's stock; the corporation continued its operations unchanged.
- On October 4, 1975, Calvin Tift, a seventeen-year-old, was severely injured while operating the chopper box manufactured by Wiberg's sole proprietorship in 1961-62.
Procedural Posture:
- Calvin Tift and his father sued Forage King Industries, Inc., and its insurer in the Circuit Court for Barron County (a state trial court).
- The defendants filed a motion for summary judgment, arguing the corporation was not liable for the acts of a predecessor sole proprietorship.
- The Circuit Court granted summary judgment for the defendants, dismissing the complaint.
- The plaintiffs appealed the dismissal to the Wisconsin Court of Appeals (an intermediate appellate court).
- The Court of Appeals affirmed the judgment of the Circuit Court.
- The plaintiffs then appealed to the Supreme Court of Wisconsin (the state's highest court).
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Issue:
Does a successor corporation that acquires the assets of a predecessor sole proprietorship and continues its manufacturing operations become liable for injuries caused by a defective product manufactured and sold by that predecessor?
Opinions:
Majority - Heffernan, J.
Yes. A successor corporation that is a mere continuation of its predecessor's business assumes liability for the predecessor's defective products, and it is irrelevant that the predecessor was a sole proprietorship rather than a corporation. The court held that substance should prevail over the form of the business organization. By applying the 'mere continuation' and 'de facto merger' exceptions to the general rule of corporate non-liability, the court found an 'identity' between the original sole proprietorship and the current Forage King Industries, Inc. This identity was established because the successor retained the same employees, manufactured the same products, kept the same name, and sold to the same dealers. The availability of the original proprietor, Wiberg, as a defendant does not absolve the successor corporation of its own liability, as the injured plaintiff should have recourse against either entity.
Dissenting - Day, J.
No. The record does not support the conclusion that Forage King Industries, Inc. is a merger, consolidation, or continuation of Woodrow W. Wiberg’s sole proprietorship under the traditional exceptions to successor non-liability. Therefore, the successor corporation should not be held liable.
Dissenting - Callow, J.
No. A successor corporation should not be held responsible for the independent acts of a three-transaction-removed sole proprietor. There is a fundamental legal distinction between a sole proprietorship and a corporation regarding successor liability; a sole proprietor remains personally viable for suit, so the policy justifications for imposing liability on a successor (to provide a remedy for the plaintiff) do not apply. The majority misapplied the 'mere continuation' exception, which traditionally requires continuity of the corporate entity (i.e., common identity of officers, directors, and stockholders), not just continuity of the business operation. Because Wiberg sold his interest and has no connection to the current company, the traditional test for continuation is not met.
Analysis:
This decision significantly expands successor liability in products liability cases by focusing on the continuity of the business enterprise rather than the continuity of corporate ownership or form. By holding that the predecessor's status as a sole proprietorship is irrelevant, the court prioritized consumer protection and the ability of injured plaintiffs to find a remedy over traditional corporate law principles that shield asset purchasers from liability. This precedent places a greater due diligence burden on companies acquiring business assets, as they may inherit tort liabilities from unincorporated predecessors. The ruling signals a shift from a formalistic application of corporate law rules to a substance-over-form analysis based on public policy in tort cases.
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