On May 19, 2026, in Cobalt Falcon, LLC v. AXS Investments, LLC, Judge Andrea K. Bouressa of the Texas Business Court, First Division determined that the phrase “in perpetuity,” in an acquisition agreement governed by Delaware law, consistent with the plain language of the agreement, means forever.
This case offers important reminders for M&A parties and practitioners about the weight courts give to contractual language in transaction agreements.
Link to Background & Key Facts Background & Key Facts
The dispute arose from a transaction in which AXS Investments acquired assets from Cobalt Falcon related to the management and operation of a High Yield ETF Fund. The parties’ Transaction Agreement required AXS to compensate Cobalt Falcon through monthly payments calculated under a specific formula tied to the Fund’s assets under management (AUM).
Critically, Schedule 2.4 of the Transaction Agreement stated these payments would be made “in perpetuity (unless otherwise agreed).” The Court also found that the parties had represented to a fixed AUM amount following the Fund’s closure.
After the Fund eventually closed, the parties disagreed about whether the payment obligation survived. Cobalt Falcon argued that the payments must continue indefinitely, as the contract plainly stated. AXS countered that the obligation logically ended when the Fund ceased to exist.
Link to The Court’s Analysis The Court’s Analysis
Applying Delaware law (which governed the Transaction Agreement), based on the Court’s review of Delaware case law establishing some of the fundamental, well-established principles of contract interpretation:
- Contracts must be read as a whole, giving effect to all terms;
- Clear and unambiguous language controls and must be enforced according to its plain meaning; and
- Mere disagreement between parties does not create ambiguity.
The Court held that “in perpetuity” is unambiguous. Citing Black’s Law Dictionary, the Court noted that the phrase means “forever; without end.” The Court further reasoned that “deviation from the plain language requires two or more reasonable interpretations,” and therefore examined whether the Transaction Agreement was susceptible to more than one reasonable interpretation.
Link to Was Cobalt Falcon’s Interpretation Reasonable? Was Cobalt Falcon’s Interpretation Reasonable?
Yes. The Court concluded that interpreting the payment obligation to continue indefinitely – regardless of the Fund’s existence – gave proper effect to the contract’s express language. The Transaction Agreement required payments “for all calendar months following the Closing” with no stated end date, reinforcing the “without end” nature of the payment obligation. The Court found that creation of a permanent revenue stream was not inherently absurd.
Link to Was AXS’s Interpretation Reasonable? Was AXS’s Interpretation Reasonable?
No. AXS argued that enforcing perpetual payments would (1) render parts of the contract superfluous, and (2) produce an absurd result, potentially obligating AXS to pay more than a trillion dollars over time for rights that became worthless when the Fund closed.
The Court rejected this reasoning for several reasons:
- Superfluous Argument: The Court reasoned that the other contractual terms raised by AXS had “no connection” to the disputed obligation and would not be rendered meaningless by enforcing the perpetual payment provision.
- Unilateral Control Problem: The Fund’s closure was entirely within AXS’s control. Accepting AXS’s interpretation would mean Cobalt Falcon surrendered its revenue stream in exchange for payments that AXS could terminate at will simply by closing the Fund. The Court found this result equally – if not more – difficult to reconcile with the parties’ agreement.
- The Formula Still Works: The parties agreed that “Conversion AUM” was a defined, calculable amount. Even after the Fund closed, the parties had represented that the monthly payment could be determined based on a fixed AUM (approximately $74,062.45). The contractual provision retained meaning regardless of the Fund’s operational status.
- Express Terms Enforced Despite Regret: Delaware law generally does not permit courts to rewrite obligations that are expressly stated in plain terms simply because the obligated party comes to regret the bargain that it struck. Delaware law only permits a remedy for unilateral mistake if enforcement of the contract would be unconscionable, the mistake concerns consideration, the mistaken party exercised ordinary care, and the status quo can be maintained for the non-mistaken party.
Link to Plain Language Prevails Plain Language Prevails
The Court ultimately held that “in perpetuity (unless otherwise agreed)” means precisely what it says. The payment obligation continues unless and until the parties mutually agree otherwise. The Court declined to rewrite the contract, noting that reformation is not available simply because one party is dissatisfied with the terms of its bargain.
Link to Practical Considerations Practical Considerations
This decision highlights several critical considerations to keep in mind when drafting and negotiating contracts:
- Draft with Precision: Contract disputes often turn on the plain language of the agreement. If a provision is intended to have a specific meaning or effect, that intent should be expressed explicitly. Courts generally will not imply limitations that do not appear in the contract.
- Consider Who Controls the Trigger: When payment obligations are tied to the existence or performance of an asset, it is worth considering which party controls that asset’s fate. The interaction between unilateral control and contractual payment obligations can have significant consequences, as this case illustrates.
- Anticipate Future Scenarios: Whether or not the parties to this agreement contemplated what would happen upon the Fund’s termination, the Court applied the contract as written. Careful attention to future contingencies during the drafting process – and explicit treatment of those contingencies in the agreement – can help avoid disputes of this nature.
Cobalt Falcon v. AXS Investments is an application of foundational Delaware contract principles, but it serves as a reminder that in M&A transactions, the words on the page matter – and Texas courts will hold parties to them.