SHARON STEEL CORPORATION V. CHASE MANHATTAN BANK, N.A.
691 F.2d 1039 (2nd Cir. 1932)

PROCEDURAL POSTURE: 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.

FACTS: UV issued debentures that because of their value were worth significantly under fact value UV decided to sell its assets and Sharon Steel decided to buy one part of the assets for $107 million and to assume the debentures The total face value of the debentures as $411 million The issue before the courts was whether by virtue of the liquidation of UV, the debentures became due and payable The trial judge ruled for the holders and Sharon appealed contending that certain language in the contracts allowed for their assumption by a third party

ISSUE: Are debentures and instruments of long term debt financing creatures of contract law wherein the rights of parties are determined strictly from the contract between the parties'?

RULE OF LAW: Debentures and instruments of long term debt financing are creatures of contract law wherein the rights of parties are determined strictly from the contract between the parties

HOLDING: The United States District Court for the Southern District of New York, Henry F. Werker, J., 521 F.Supp. 104 and 521 F.Supp. 118, granted directed verdict and summary judgment in favor of indenture trustees and intervening holders of debentures and plaintiff appealed. The Court of Appeals, Ralph K. Winter, Circuit Judge, held that: (1) where purchasing corporation acquired only 51 percent of the total assets held by liquidating debtor corporation on the date the plan of liquidation was approved, the successor obligor clauses were not applicable, and liquidating debtor was in default on the indentures and the debentures were due and payable; (2) concerted activity engaged in by indenture trustees who were faced with a common breach of indenture agreements by liquidating debtor corporation and their arrival at a common position as to that breach did not violate the antitrust laws, since there was no anticompetitive purpose or effect in the concerted activity; and (3) where acceleration provisions of indentures were explicitly permissive and not exclusive of other remedies, indenture trustees were not precluded from seeking specific performance of the redemption provisions when liquidating debtor corporation caused the debentures to become due and payable by its voluntary actions.

ANALYSIS: Plaintiffs, corporation and trustees of liquidating trust, appealed from a judgment that granted summary judgment in favor of defendants, indenture trustees and debenture holders. The trial court found that plaintiff liquidating trust's liquidation and unsuccessful attempt to assign its public debt to plaintiff corporation rendered plaintiff liquidating trust liable for the principal and accrued interest on the debentures. The reviewing 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.