Title: Industrial Alloy Fabricators v. Williams Industri
Citation: N/A
Docket Number: 981093
State: Virginia
Issuer: Virginia Supreme Court
Date: April 16, 1999

Present:  All the Justices 
 
INDUSTRIAL ALLOY  
FABRICATORS, INC., ET AL. 
 
 
 
OPINION BY 
v.  Record No. 981093 
CHIEF JUSTICE HARRY L. CARRICO 
 
 
 
April 16, 1999 
WILLIAMS INDUSTRIES, INC., ET AL.  
 
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND 
Melvin R. Hughes, Jr., Judge 
 
 
This is an indemnification and warranty case involving the 
purchase of corporate assets by Industrial Alloy Fabricators, 
Inc. (Industrial Alloy) and Precision Components Corporation 
(Precision Components) from Williams Industries, Inc. (Williams 
Industries) and IAF Transfer Corporation (IAF Transfer).  From a 
judgment in favor of Williams Industries and IAF Transfer, we 
awarded Industrial Alloy and Precision Components this appeal. 
 
Industrial Alloy is a Pennsylvania corporation with its 
principal place of business in Richmond, Virginia.  At all 
relevant times, it has been engaged in the business of providing 
customers with design and production of custom pressure vessels, 
tanks, reactors, distillation columns, and other process 
equipment.  Precision Components, which is also a Pennsylvania 
corporation, is “the majority holder” of Industrial Alloy.  
Precision Components’ principal place of business is in York, 
Pennsylvania. 
 
Williams Industries is a Virginia corporation with its 
principal place of business in Fairfax County.  IAF Transfer is 
also a Virginia corporation based in Fairfax County, and it is 
the wholly owned subsidiary of Williams Industries.  IAF 
Transfer formerly was known as Industrial Alloy Fabricators, 
Inc. (a Virginia corporation), but changed its official 
corporate name to IAF Transfer Corporation (a Virginia 
corporation) about the time the parties entered into an “Asset 
Purchase Agreement” (the Agreement), which is at the heart of 
the present controversy. 
 
The Agreement is dated October 31, 1994.  Pursuant to its 
terms, Precision Components and Industrial Alloy (the Buyers) 
agreed to purchase for $3,600,000 all the assets, including the 
corporate name, of the former Industrial Alloy Fabricators, Inc. 
from IAF Transfer and Williams Industries (the Sellers).  The 
Agreement provided that it was to be governed by and construed 
in accordance with the laws of the Commonwealth of Pennsylvania. 
 
In § 9.1 of the Agreement, the Sellers agreed to indemnify 
the Buyers “against and in respect of, any and all claims, 
damages, actions, judgments, losses, liabilities, and expenses, 
including reasonable fees and disbursements of counsel, incurred 
by [the Buyers] arising from or in connection with . . . (a) all 
Liabilities of [the Sellers], whether accrued, absolute, fixed, 
contingent or otherwise, other than Assumed Liabilities.”  The 
Sellers further agreed in § 9.1(b) to indemnify the Buyers 
against “any breach of any covenant or obligation of [the 
 
2
Sellers] incurred under this Agreement, or because any 
representation or warranty by [the Sellers] contained herein 
. . . shall be false or misleading.” 
 
In § 2.2 of the Agreement, the Buyers assumed certain 
liabilities shown on an October 31, 1994 balance sheet as well 
as liabilities or obligations arising under certain contracts.  
Section 2.1 provided, however, that, except for the assumed 
liabilities, the Buyers would not be “liable for any debt, 
claim, responsibility, damages, fines, penalties, costs, 
expenses, liability or obligation of [the Sellers] . . . whether 
disclosed or undisclosed . . . fixed or contingent [and] whether 
due or to become due.” 
 
Section 6.14 of the Agreement provided that the Sellers 
shall comply with the provisions of the Virginia  Bulk Sales 
Act, Code §§ 8.6-101 through -111, “in connection with this sale 
of assets.”1  In this section of the Agreement, the Sellers also 
warranted that “there are no creditors of any type or nature 
which have not specifically been disclosed by identity and 
amount” to the Buyers. 
 
Section 9.3 of the Agreement required the “Indemnified 
Party” to notify the “Indemnifying Party” by registered mail 
                     
1 The Code sections formerly comprising the Bulk Sales Act, 
§§ 8.6-101 through –111, were repealed in 1997 and replaced by 
Code §§ 8.6A-101 through -110.  1997 Va. Acts ch. 121.  Because 
 
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whenever any claim for indemnification arises under the 
Agreement.  Section 9.4 gives the “Indemnifying Party” the right 
to participate in the defense of any claim or demand by any 
third party against the “Indemnified Party.”  And § 9.5 provided 
that “the Indemnified Party shall make no settlement of any 
claim that would give rise to liability on the part of the 
Indemnifying Party under an indemnity contained in this Section 
9 without the written consent of the Indemnifying Party.”  
(Emphasis added.) 
 
At the time the parties entered into the Agreement in 
October 1994, there was pending in the United States District 
Court for the Middle District of North Carolina a products 
liability action which had been initiated on March 31, 1994, by 
Unitex Chemical Corporation against the former Industrial Alloy 
Fabricators, Inc.  Unitex Chemical Corp. v. Industrial Alloy 
Fabricators, Inc., No. 2:94CV00164 (M.D. N.C., Greensboro Div.) 
(the North Carolina litigation).  It was stipulated below that 
the Buyers, prior to their purchase of the assets in question, 
received a letter signed by counsel for the Sellers which 
provided a description and analysis of litigation pending 
against the former Industrial Alloy Fabricators, Inc., including 
the North Carolina litigation.  It was further stipulated that 
                                                                  
this litigation arose prior to the revision, we will cite to the 
previous sections.       
 
4
the letter was incorporated by reference into the Agreement.  
However, it is undisputed that the claim asserted in the North 
Carolina litigation was not one of the liabilities assumed by 
the Buyers pursuant to § 2.2 of the Agreement. 
 
Core States Bank, N.A. (the Bank), had agreed to finance 
the Buyers’ acquisition of the assets, and the Bank wanted to 
protect the collateral that would act as security for the debt.  
Although the Agreement required the Sellers to furnish the 
Buyers a list of the Sellers’ creditors and the Buyers had 
requested such a list, none had been furnished as the date 
approached for closing under the Agreement, and the Bank refused 
to release the funds.  As a direct result, the parties and the 
Bank entered into an escrow agreement, which provided for the 
establishment of an escrow account to ensure the Sellers’ 
compliance with the Virginia Bulk Sales Act.  Although the 
Sellers believed the Bulk Sales Act did not apply to the 
transaction involved in the Agreement, they acquiesced in and 
agreed to the Buyers’ publication of a notice in the Richmond 
Times-Dispatch of the Buyers’ intent to pay the Sellers’ debts 
in full.2
                     
2 Code § 8.6-103(6) provided an exception to the Bulk Sales Act 
for “[t]ransfers to a person maintaining a known place of 
business in this State who becomes bound to pay the debts of the 
transferor in full and gives public notice of that fact.” 
 
 
5
 
The notice, prepared by the Buyers’ then counsel, stated 
that a bulk transfer was about to be made by the former 
Industrial Alloy Fabricators, Inc., as the seller, to the new 
Industrial Alloy Fabricators, Inc., as the buyer, and that 
“Buyer has become bound by the terms of a certain agreement 
between it and Seller to pay Seller’s debts in full.”  The 
notice appeared in the newspaper on November 3 and 10, 1994.  
The parties then proceeded to close the transaction for the 
asset purchase. 
 
On September 18, 1995, Unitex Chemical Corporation, the 
plaintiff in the North Carolina litigation, filed a complaint 
against the Buyers in the United States District Court for the 
Eastern District of Virginia alleging a violation of the Bulk 
Sales Act for the Buyers’ failure to give Unitex notice of the 
asset transfer.  Unitex Chemical Corp. v. Industrial Alloy 
Fabricators, Inc., Civil Action No. 3:95CV777 (E.D. Va., 
Richmond Div.) (the Virginia Bulk Sales litigation).  In their 
answer filed January 6, 1996, the Buyers responded that they 
“were not required to provide [Unitex notice] because the 
transaction was exempted, pursuant to Virginia Code § 8.6-103.”  
Unitex then sought leave to amend its complaint to seek a 
declaratory judgment that the Buyers had assumed the debts of 
the former Industrial Alloy Fabricators, Inc. by virtue of the 
notice published in the Richmond Times-Dispatch. 
 
6
 
The district court never ruled on Unitex’s motion to amend 
because, on March 20, 1996, the Buyers entered into a 
“Stipulation and Settlement Agreement” with Unitex “to settle 
all claims asserted” in the Virginia Bulk Sales litigation.  
Pursuant to this agreement, Unitex dismissed the Virginia Bulk 
Sales litigation in exchange for the Buyers’ agreement to pay 
any judgment returned for Unitex in the North Carolina 
litigation. 
 
The Sellers were aware of the filing of the complaint in 
the Virginia litigation and of the fact that depositions were 
scheduled to be taken in the case.  However, the Buyers neither 
gave the Sellers prior notice of the settlement of the 
litigation nor sought their consent to the terms of the 
settlement agreement. 
 
The Buyers participated in settlement discussions 
concerning the claim asserted in the North Carolina litigation 
and ultimately contributed $300,000 toward settlement of that 
claim.  The parties to the litigation entered into a “Settlement 
Agreement and Mutual Release of All Claims” dated June 10, 1996. 
 
The Buyers then made demand upon the Sellers to comply with 
the indemnification provisions of the Agreement.  The Sellers 
made no response to the demand, and, on October 3, 1996, the 
Buyers filed in the court below a two-count motion for judgment 
against the Sellers seeking to recover the $300,000 the Buyers 
 
7
had contributed to settlement of the North Carolina litigation, 
plus attorneys’ fees and costs. 
 
In Count I of the motion for judgment, the Buyers alleged a 
breach of warranty by the Sellers for their failure to disclose 
all the creditors of the former Industrial Alloy Fabricators, 
Inc.  In Count II, the Buyers sought to enforce the 
indemnification provisions of the Agreement.  In their grounds 
of defense, the Sellers responded, inter alia, that they were 
not liable to the Buyers because the sums for which the Buyers 
sought indemnification “were the product of a settlement [of the 
Virginia Bulk Sales litigation] of which [the Sellers] were 
given no advance notice, and to which [the Sellers] did not 
consent.” 
 
Both the Buyers and the Sellers filed motions for summary 
judgment.  The trial court denied the Buyers’ motion and took 
the Sellers’ motion under advisement.  At a bench trial, the 
Sellers contended that the Buyers were not entitled to recover 
because they failed to give notice of, or obtain the Sellers’ 
consent to, the settlement of the Virginia Bulk Sales 
litigation, as required by §§ 9.3 and .5 of the Agreement.  The 
Buyers contended that the notice and consent provisions of the 
Agreement were not applicable because the Sellers’ liability to 
indemnify the Buyers did not arise from the settlement of the 
Virginia Bulk Sales litigation.  Rather, the Buyers said, the 
 
8
Sellers’ liability was a preexisting obligation arising from the 
publication in the Richmond Times-Dispatch of the notice whereby 
the Buyers agreed to be bound to pay the Sellers’ obligations in 
full, in which publication the Sellers acquiesced.  
 
Upon conclusion of the trial, the court issued a letter 
opinion, which it incorporated into its final order by 
reference.  The court rejected the Buyers’ contention that the 
notice and consent provisions of the Agreement were not 
applicable and agreed with the Sellers that the Buyers’ “failure 
to adhere to [the consent requirement of] Section 9.5 of the 
Asset Purchase Agreement will preclude the [Buyers] from 
obtaining indemnification for their contribution to the North 
Carolina litigation.” 
 
As noted previously, the Agreement provides that it is to 
be governed by and construed in accordance with the laws of the 
Commonwealth of Pennsylvania.  In that Commonwealth, 
“indemnification clauses are generally ‘not favored by the law’ 
and are subject to a strict construction compelling an 
interpretation ‘against the party seeking their protection.’”  
Lackie v. Niagara Mach. & Tool Works, 559 F. Supp. 377, 378 
(E.D.Pa. 1983) (quoting Dilks v. Flohr Chevrolet, Inc., 192 A.2d 
682, 687 (Pa. 1963)); see also Kiewit Eastern Co. v. L & R 
Constr. Co., 44 F.3d 1194, 1202 (3d Cir. 1995) (Pennsylvania law 
 
9
requires that an indemnity agreement be strictly construed 
against party asserting it.) 
 
In the interpretation of a contract, Pennsylvania law 
requires that “‘each and every part of it must be taken into 
consideration and given effect, if possible, and the intention 
of the parties must be ascertained from the entire instrument.’”  
Bethlehem Steel Corp. v. MATX, Inc., 703 A.2d 39, 42 (Pa. Super. 
1997) (quoting Marcinak v. Southeastern Greene School District, 
544 A.2d 1025, 1027 (Pa. Super. 1988)); see also Department of 
Transp. v. Manor Mines, Inc., 565 A.2d 428, 432 (Pa. 1989) (when 
interpreting a contract, court must give effect to all its 
provisions). 
 
With respect to indemnification, the common law of 
Pennsylvania requires that “[w]hen a party settles a claim with 
an injured individual, then sues the party primarily responsible 
for the harm for indemnity, the settling party must prove[, 
inter alia,] that proper notice was given to the party from whom 
it seeks indemnity.”  Consolidated Rail Corp. v. Youngstown 
Steel Door Co., 695 F. Supp. 1577, 1581 (E.D.Pa. 1988); see also 
Tugboat Indian Co. v. A/S Ivarans Rederi, 5 A.2d 153, 156 (Pa. 
1939) (one secondarily liable for injury may recover indemnity 
from one primarily responsible provided he has given proper 
notice). 
 
10
 
On appeal, the Buyers contend, as they contended below, 
that the notice and consent provisions of the Agreement did not 
apply to their settlement of the Virginia Bulk Sales litigation 
because that “settlement did nothing more than recognize an 
obligation previously created [upon the Buyers] by virtue of the 
Bulk Sales Act public notice.”  The Buyers state that § 9.5 
requires consent when a settlement “would give rise to liability 
on the part of the Indemnifying Party.”  They then note that in 
Plymouth Township v. Borough of Larksville, 110 A. 801 (Pa. 
1920), the Pennsylvania Supreme Court defined the term 
“liability” as including “every kind of obligation, even 
obligations that are unascertained or imperfect.”  Id. at 802. 
 
From this, the Buyers argue that, “even though the monetary 
amount of the obligation to Unitex was unascertained at the time 
of the Agreement, liability still attached to Buyers at the time 
of the Bulk Sales Act public notice in November, 1994,” and that 
it was this event, which had the Sellers’ approval, and not the 
settlement of the Virginia Bulk Sales litigation, which “gave 
rise to the Sellers’ indemnification liability.”  Hence, the 
Buyers conclude, the settlement of the Virginia litigation “had 
no legal significance,” and the trial court erred when it 
selected the settlement “as the triggering event.” 
 
We disagree with the Buyers’ conclusion.  To adopt their 
view would, contrary to Pennsylvania law, require a strict 
 
11
construction of the indemnification provisions of the Agreement 
against the Sellers, rather than the Buyers,  fail to give 
effect to each and every part of the Agreement, deny the Sellers 
the right to prior notice as provided by § 9.3 of the Agreement 
and Pennsylvania common law, and effectively write the consent 
provision of § 9.5 out of the Agreement. 
 
Although we express no opinion on the subject, the Buyers 
may be correct in saying, as they say on brief, that upon 
publication of the Bulk Sales notice, they “became 
unconditionally liable to pay the North Carolina product 
liability claim.”  However, as the Sellers point out, § 9.5 of 
the Agreement “by its terms is not concerned with the time at 
which the basis of Buyers’ liability . . . arose” but, instead, 
“the event triggering the [Buyers’] obligation to seek and 
obtain the [Sellers’] consent is the [Buyers’] ‘settlement of 
any claim that would give rise to liability on the part of the 
[Sellers] under an indemnity contained in [the Agreement].’” 
 
In other words, § 9.5 contemplates that regardless of the 
point in time at which liability may arise against the Buyers 
for a claim within the intendment of the Agreement, it is not 
the attachment of such liability to the Buyers but the 
subsequent settlement of the claim that is decisive.  Under the 
terms of § 9.5, not until that time arrives does there exist a 
“settlement . . . that would give rise to liability on the part 
 
12
of the Indemnifying Party under an indemnity contained in [the 
Agreement].”  The settlement of the Virginia Bulk Sales 
litigation was such a settlement, the Sellers’ consent thereto 
was required, and, in the words of the trial court, the Buyers’ 
“failure to [obtain the consent] will preclude [them] from 
obtaining indemnification for their contribution to [settlement 
of] the North Carolina litigation.” 
 
The Buyers, however, cite a statement in the trial court’s 
letter opinion that “a liability or debt cannot be ‘pre-
existing’ if it has yet to be imposed.”  The Buyers then argue 
that if the publication of the Bulk Sales notice did not impose 
indemnification liability upon the Sellers then the liability 
was not imposed until the Buyers contributed the $300,000 toward 
settlement of the North Carolina litigation.  This settlement, 
the Buyers say,  occurred with the Sellers approval, as 
demonstrated by two letters written by the Sellers’ corporate 
counsel shortly before the $300,000 was paid. 
 
However, the trial court made the explicit finding that 
“[n]either letter evinces ‘consent’ by the [Sellers] to the 
Virginia settlement nor is it a waiver of the consent 
requirement under the Agreement.”  Our reading of the two 
letters satisfies us of the correctness of the trial court’s 
finding.  Indeed, the first letter, addressed to the Buyers’ 
counsel, while noting that the addressee earlier had been 
 
13
authorized to contribute $300,000 toward the effort to settle 
the North Carolina litigation, stated that “[t]here has not been 
any waiver, settlement or other understanding between [the 
Buyers] and [the Sellers] regarding the efforts to settle or 
defend this case, and all rights have been reserved as asserted 
in the various correspondence or otherwise.” 
 
The second letter, addressed directly to Precision 
Components, while urging the Buyers to settle the North Carolina 
litigation, stated that “[the Sellers] believe that your 
voluntary assumption of the Unitex claim under [the agreement 
settling the Virginia Bulk Trades litigation], without notice to 
or consent by us, relieves us of any obligation to indemnify you 
for the claim and constitutes a violation of the Asset Purchase 
Agreement.” 
 
Finally, the Buyers argue that the trial court erred in 
denying them recovery on the breach of warranty claim alleged in 
Count I of their motion for judgment.  The Buyers base this 
claim upon a purported violation by the Sellers of § 6.14 of the 
Agreement, which required the Sellers to furnish the Buyers a 
list of creditors as described by Code § 8.6-104 of the Bulk 
Sales Act and to  warrant “that there are no creditors of any 
type or nature which have not specifically been disclosed by 
identity and amount to [the Buyers.]”  The Buyers complain that 
the Sellers did not provide them with a list of creditors and 
 
14
did not specifically disclose all creditors by identity and 
amount. 
 
The Buyers assert that the trial court implicitly held that 
the Buyers’ failure to comply with the consent provision of 
§ 9.5 “cut off their breach of warranty claim.”  However, we 
find nothing in the trial court’s letter opinion or final order 
to support this argument.  Rather, in its letter opinion, the 
trial court adopted the Sellers’ proposed findings of fact and 
conclusions of law.  Included was a finding that any failure of 
the Sellers to furnish a list of creditors was not the proximate 
cause of any damage to the Buyers since they had sufficient 
information from “the due diligence performed on [the Sellers]” 
to satisfy “any obligations [the Buyers] had under § 8.6-104 
[and –105] of the [Bulk Sales] Act to send notices to [the 
Sellers’] creditors.” 
 
Furthermore, as the Sellers point out, “the only creditor 
of [the former Industrial Alloy Fabricators, Inc.] relevant to 
this litigation is Unitex, and it is undisputed that Sellers 
specifically disclosed to Buyers the existence of Unitex’s 
outstanding claim . . . well in advance of the closing date of 
the asset purchase.”  Hence, any discussion of the Sellers’ 
failure to furnish a list of irrelevant  creditors would be 
purely academic. 
 
15
 
For the reasons assigned, we will affirm the judgment of 
the trial court. 
Affirmed. 
 
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