2d Cir. 1983.
-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.
(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.”
Notes: Meaning of “all or substantially all” is still unclear in most jurisdictions.