Miramar Police Officers’ Retirement Plan v. Murdoch, C.A. No. 9860-CB (Del. Ch., Apr. 7, 2015). This Delaware Court of Chancery opinion addresses a dispute over whether a corporation created as part of a spin-off transaction is bound by provisions in a contract that the former parent corporation had entered into.  This decision provides useful contract principles that address those circumstances under which an assignee, transferee or the like, will be bound to the terms of an agreement entered into by its predecessor. One of the contract principles that the court relied on was that when an interpretation is so unreasonable as to lead to an absurd result which “no reasonable person would have accepted when entering the contract,” it will be rejected, as was the argument of plaintiff.  See footnote 50.

In addition, in order for a contract to be binding upon transferees, successors or assigns, there must be an intention to bind entities that assume, by legal succession, rights and obligations under contract.  By contrast, entities to which one may simply assign or transfer other assets or liabilities, are not typically bound.  See footnote 52. Notably, the court explained that the plaintiff provided no legal authority to support the broad interpretation that would broadly bind any transferee or assign.  The court referred generally to Section 271(a) of the Delaware General Corporation Law in connection with a sale of all or substantially all the assets of the corporation as opposed to a more modest level of asset transfer.