Law School Case Brief
Sharon Steel Corp. v. Chase Manhattan Bank, N.A. - 691 F.2d 1039 (2d Cir. 1982)
Boilerplate provisions are not the consequence of the relationship of particular borrowers and lenders and do not depend upon particularized intentions of the parties to an indenture. There are no adjudicative facts relating to the parties to the litigation for a jury to find and the meaning of boilerplate provision is a matter of law rather than fact
Plaintiff UV Industries issued debt instruments pursuant to five separate indentures. The debentures, notes and guaranties contained clauses permitting redemption by UV prior to the maturity date. Each contains a "successor obligor" provision allowing UV to assign its debt to a corporate successor, which purchases "all or substantially all" of UV's assets. If the debt is not assigned to such a purchaser, UV must pay off the debt. After a brief bidding contest, UV and plaintiff Sharon Steel Corporation (Sharon) entered into an "Agreement for Purchase of Assets" and an "Instrument of Assumption of Liabilities" on November 26, 1979. Under the purchase agreement, Sharon purchased all of the assets owned by UV on November 26. Under the assumption agreement, Sharon assumed all of UV's liabilities, including the public debt issued under the indentures. UV thereupon announced that it had no further obligations under the indentures or lease guaranties, based upon the successor obligor clauses. Defendants Chase Manhattan Bank, U.S. Trust and Manufacturers issued virtually identical notices of default as a result of UV's purported assignment of its obligations to Sharon. Plaintiffs, corporation and trustees of liquidating trust, appealed from a decision by the United States District Court for the Southern District of New York that granted summary judgment to defendants, indenture trustees and debenture holders.
Was there a proper assignment of the debt obligations to plaintiff Sharon Steel?
The court found the debentures, notes and guaranties were general obligations of plaintiff liquidating trust and permitted redemption prior to the maturity date in exchange for payment at a fixed redemption price. They also contained successor obligor provisions that allowed plaintiff liquidating trust to assign its debt to a corporate successor. Plaintiff corporation argued that the language of the successor obligor clauses clearly permitted its assumption of the public debt. However the court found the assumption of debt was not made properly. Thus the court affirmed the summary judgment decision. The court also affirmed the attorney's fees and expenses to defendants.
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