Sunday, March 25, 2012

Sharon Steel Corp. v. The Chase Manhattan Bank, N.A. Case Brief

Sharon Steel Corp. v. The Chase Manhattan Bank, N.A.
United States Court of Appeals for the Second Circuit, 1982
691 F.2d 1039, cert. denied, 460 U.S. 1012, 103 S.Ct. 1253, 75 L.Ed.2d 482 (1983)
"Judicial Interpretation of Covenants"

-UV Industries was comprised of three separate smaller companies.
-UV issued five debt instruments which were payable by UV over time.
-Debentures had clauses that required acceleration of payments in cases of default in the agreement.
-Agreements also contained successor obligor clauses which defined the circumstances where an acquiring entity could have the debts transferred to them.
-UV started liquidating its assets by selling off the companies comprised UV at the time it acquired the debentures.
-UV attempted to sell a portion of the company to Sharon Steel, and as a result of the sale, Sharon would acquire UV's debt obligations.
-At the beginning, there was an agreement to put cash in a separate account in order to ensure timely payment on the debts, however, Sharon argued that they could withdraw from the account.  As part of the sale, UV shareholders would receive $18 per share.
-D, Chase Bank cross filed to prevent debt from being transferred and to prevent the $18/share payout, and force the payment of debts/accelerated payment remedy.

-The lower court found for Defendants, stating Sharon could not be considered a successor obligor for the purpose of transferring the debt obligations.

-Did UV properly assign the debt obligations to Sharon Steel?

-Sharon Steel did not satisfy the elements to be considered a successor obligor.  As a result, UV could NOT assign its debentures to Sharon. 

-Boilerplate provisions defining successor obligors as an entity which is acquiring all or substantially all of UV’s assets should be given the same scope as other successor obligor provisions.
-Boilerplate provisions should be given uniform scope to ensure reliance and continuity in contracting. -Because Sharon Steel acquired, at the most, 51% of UV’s assets, they could not be considered a successor obligor.

-Debentures and long term debt financing instruments are creatures of contract law.  The rights of parties are determined strictly from the contract between each other.

No comments:

Post a Comment

The Evolution of Legal Marketing: From Billboards to Digital Leads Over the last couple of decades, the face of legal marketing has changed a l...