Sharon Steel Corp. v. The Chase Manhattan Bank, N.A. case brief

Sharon Steel Corp. v. The Chase Manhattan Bank, N.A.
2d Cir. 1983.

FACTS
-Convertible debs had clause whereby holders could not prevent sale of “all or substantially all” of assets, or merger if bonds redeemed in full early or equivalent bonds are issued.
-Co. sells off main asset (>50% profits and book value).
-Trustees demanded payment and sign contract stating trustees will not enjoin asset sales/liquidation if cash fund is set aside.
-Co. liquidates remaining assets and gives proceeds to S/H. Sharon (S) (who bought most assets) issues supplemental indentures which trustees refuse to sign. Trustees sue claiming default, S countersues.

Holding:
(1) Successor obligor clause did not permit UV to assign its debt.

• Policy Reason: Consistency. Clause is boilerplate and should have consistent interpretation to facilitate efficient capital markets. Consistency is best assured by allowing ct., not jury to determine meaning. 
• Evidence of Intent irrelevant. Consistency requires 4-corners approach. 
• Purpose of clause is to protect both the company and creditors, not just company. Z
• Balance of Considerations. Interpretation should balance harms and benefits such that no party greatly sacrifices for another’s minor gain.
• “Boilerplate successor obligor clauses do not permit assignment of the public debt to another party in the course of a liquidation unless “all or substantially all” of the assets of the company at the time the plan of liquidation is determined upon are transferred to a single purchaser.”

(2) UV had to pay redemption premium. It makes no sense to allow companies to avoid redemption by willfully creating default.

Notes: Meaning of “all or substantially all” is still unclear in most jurisdictions.