Opinion ID: 2521086
Heading Depth: 1
Heading Rank: 3

Heading: Continental's Liability

Text: Minton argues that Continental should be subject to liability under DuVon [5] and the RESTATEMENT (SECOND) OF TORTS, supra, [6] as the seller of a potentially dangerous and defective product. [7] The petitioners assert that Continental cannot be independently subject to liability because it ceased to exist prior to the accident. When two companies merge, the surviving company usually assumes the liabilities of both companies. Niven v. E.J. Bartells Co., 97 Wash.App. 507, 510, 983 P.2d 1193 (1999) (citing Hall v. Armstrong Cork, Inc., 103 Wash.2d 258, 261-62, 692 P.2d 787 (1984)). Minton rebuts the petitioners' assertion by citing United States Acme Granite & Tile Co. v. F.D. Rich Co., 437 F.2d 549 (9th Cir.1970). Applying Washington law, the Ninth Circuit held in Acme that the dissolution of a corporate entity does not necessarily relieve the corporation's assets or the stockholders who receive them from liability to its creditors. Id. at 552. This statement does not independently support a newfound liability against Continental, however. It merely supports the accepted legal proposition that a corporation's liabilities do not disappear entirely when it ceases to exist. Morgan County v. Allen, 103 U.S. (13 Otto) 498, 510, 26 L.Ed. 498 (1880). In this instance, Interstate has assumed Continental's liabilities in its merger. To reiterate, Continental's liability was to pay workers' compensation, which Interstate has accepted. [8] Minton also contends that Continental and Ralston are liable on the basis of a premerger contractual transfer warranty as to the dependable utility of what, actually, was a highly unreliable device. Resp't Br. at 12. Minton argues that Continental and Ralston assumed a duty to Minton pursuant to a sale and purchase agreement (Agreement) with Interstate. Resp't Answer to Pet. for Review at 9 (citing Kelley v. Howard S. Wright Constr. Co., 90 Wash.2d 323, 334, 582 P.2d 500 (1978) (an affirmative duty assumed by contract may create a liability to persons not party to the contract, where failure to properly perform the duty results in injury to them)). Minton asserts that section 3.25 of the Agreement with Interstate created an affirmative duty. Section 3.25 states in pertinent part, all such property is in reasonably good operating condition and repair, ordinary wear and tear excepted, and is suitable for the purposes for which it is used. Id. at 8. Continental and Ralston respond that Minton was not a third party beneficiary to the contract and therefore no duty arose. Pet. for Review at 13 (citing Burke & Thomas, Inc. v. Int'l Org. of Masters, Mates & Pilots, 92 Wash.2d 762, 767, 600 P.2d 1282 (1979) (holding that creation of a third-party beneficiary contract requires that the parties intend that the promisor assume a direct obligation to the intended beneficiary at the time they enter into the contract)). Ralston further asserts that the Agreement addresses the issue of third party beneficiaries and in plain language specifically states that any warranties made by the seller in the agreement are made to the buyer alone and that the agreement is not intended to confer any rights or remedies to non-parties. Id. at 13. The paragraph in the Agreement relative to third party beneficiaries states: This Agreement is not intended to confer upon any non-party any rights or remedies hereunder. Any representation or warranty made by Sellers in this Agreement is made to buyers alone, and solely for the purpose of selling the CBC stock, and Sellers have not made, and make no representation or warranty to any person other than Buyers. Any representation or warranty made by Buyers in this Agreement is made to Sellers alone, and solely for the purpose of purchasing the CBC stock, and the Buyers have not made, and make no representation or warranty to any person other than the Sellers. Br. of Pet'rs at 12. A manufacturer or seller who places a product into the stream of commerce accompanied by statements regarding the product to the ultimate consumer, can incur warranty liability to an injured customer. Baughn v. Honda Motor Co., 107 Wash.2d 127, 727 P.2d 655 (1986). However, Washington courts have recognized that a party must be intended as a third party beneficiary to benefit from a contract. Burke, 92 Wash.2d at 767, 600 P.2d 1282. An employee is not automatically considered a third party beneficiary covered by an employer's contract. Tooley v. Stevenson Co-Ply, Inc., 106 Wash.2d 626, 627, 724 P.2d 368 (1986) (holding nonshareholder employees of company covered by payroll insurance were not third party beneficiaries of insurance contract because they were not named in insurance contract). By the clear language of the Agreement, Minton was not an intended third party beneficiary because the clause delineating third party liability specifically limited recovery to the Seller and Buyer. Additionally, the warranty expired after one year, so it is inapposite even if Minton were a third party beneficiary. Accordingly, we hold that there are no genuine issues of material fact regarding Continental's liability, and summary judgment in its favor is appropriate.