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Issue: Under a comprehensive treatment of cases in Washington and nationwide, is a surviving corporation in a merger or consolidation bound by the obligations of a constituent corporation to deal exclusively with a customer of the constituent corporation and not any of its competitors?
| Area of Law: | Business Organizations & Contracts, Corporate & Securities |
| Keywords: | Merger or consolidation; Surviving corporation; Obligations of a constituent corporation |
| Jurisdiction: | Federal, Washington |
| Cited Cases: | 665 N.E.2d 1083; 28 Wash. App. 394; 624 P.2d 194; 695 F.2d 281; 834 F.2d 306; 942 F.2d 1467; 256 F. Supp. 291; 69 Wash. App. 590; 594 F.2d 687; 705 A.2d 579; 313 A.2d 145; 18 P. 3d 782 |
| Cited Statutes: | None |
| Date: | 12/01/2000 |
Under the general principle that a surviving corporation in a merger or consolidation is bound by a predecessor corporation’s obligations and liable for breach thereof, there is substantial authority that a surviving corporation in a merger or consolidation is bound by the obligations of a constituent corporation to deal exclusively with a customer of the constituent corporation and not any of its competitors.
Although it is a Delaware Chancery Court opinion rather than an appellate opinion, the case of Universal Studios, Inc. v. Viacom Inc., 705 A.2d 579 (Del. Ch. 1997), is very instructive. Events leading to the Viacom litigation started in 1981, when Time Inc. and Gulf & Western Industries, Inc. formed a New York partnership for the purpose of engaging in the business of providing to cable television systems a national, video, advertiser‑supported basic cable network known as the USA Network. Id. at 583. The written joint venture agreement between Time and G & W included a noncompetition provision prohibiting the participants from engaging in the same business and requiring them to promote the activities of the venture so as to ensure its success. Id. Also, Time and G & W executed separate guarantees of their subordinate participants’ obligations under the agreement. Id.
Shortly after the agreement was consummated, MCA Incorporated joined the venture by purchasing a one-third interest each from Time and G & W, resulting in a three-way partnership. Id. Also, by this time each of the participants’ interests became owned by […]