In Firstair Group, Inc. v. Kreb, 4 N.Y.S.3d 557 (3d Dep't 2015), a New York appellate court recently considered the scope of the obligations of the assignee of an aircraft purchaser who did not expressly undertake the liabilities of the assignor. An individual, doing business as a sole proprietorship, entered into a contract to purchase an aircraft from the plaintiff. The agreement provided that the sole proprietorship would make monthly installment payments for approximately two years, at which time the plaintiff would deliver title. The individual defendant guaranteed the obligations of the sole proprietorship. During the pendency of the payment period, the sole proprietorship entered into an asset purchase agreement pursuant to which a corporation would purchase the sole proprietorship's equity in the aircraft in exchange for stock of the corporation. The corporation subsequently learned that the sole proprietorship was delinquent on its payment obligations and terminated the aircraft purchase agreement.
The seller sued the sole proprietor (the original purchaser), the individual (the guarantor), and the corporation (the acquirer of the sole proprietorship's assets) for breach of contract. The trial court denied the corporation's motion to dismiss on the basis that even though the asset purchase agreement expressly stated that the corporation did not acquire any of the liabilities of the sole proprietorship, plaintiff had sufficiently pled a de facto merger. On appeal, the Appellate Department, Third Division, noted there are exceptions to the general rule that a corporation that purchases the assets of another is generally not liable for the debts of the acquired corporation, such as where "there was a consolidation or merger of seller and purchaser." The appellate court held, however, that the trial court had erred in denying dismissal because New York's Business Corporation Law "bars merger of a corporation with a 'natural person' or sole proprietorship." Thus, as a matter of law, there could be no de facto merger because the acquiring corporation was barred from merging with the sole proprietorship.