The demystification of contracts in Bankruptcy
Because bankruptcy necessarily accelerates all claims,22 the effect of section 365 is to divide all the debtor's contracts into partial-payment claims for breach (after rejection) or full'payment claims for performance (after assumption).23 The purpose of section 365 is to enable the trust...
Ausführliche Beschreibung
Gespeichert in:
| Autor*in: |
Westbrook, Jay Lawrence [verfasserIn] |
|---|
| Format: |
Artikel |
|---|---|
| Sprache: |
Englisch |
| Erschienen: |
2017 |
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| Rechteinformationen: |
Nutzungsrecht: © COPYRIGHT 2017 National Conference of Bankruptcy Judges |
|---|
| Schlagwörter: |
|---|
| Übergeordnetes Werk: |
Enthalten in: The American bankruptcy law journal - Bangor, Me. : [Verlag nicht ermittelbar], 1971, 91(2017), 3, Seite 481 |
|---|---|
| Übergeordnetes Werk: |
volume:91 ; year:2017 ; number:3 ; pages:481 |
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| 520 | |a Because bankruptcy necessarily accelerates all claims,22 the effect of section 365 is to divide all the debtor's contracts into partial-payment claims for breach (after rejection) or full'payment claims for performance (after assumption).23 The purpose of section 365 is to enable the trustee in bankruptcy to maximize the estate by choosing between those results for each contract, subject to the stated statutory constraints24 and to court approval.25 Because section 365 imposes burdens on counterparties, courts are constantly tempted to find a method to protect the counterparty despite the statute. [...]a court that desires to protect the trustee and the estate's lawyers from obloquy or worse for having missed the significance of the warranty can invoke the wild card and decide the contract is not executory. Because there is no settled rule about the effect of a contract' that-is-not-a-contract in bankruptcy,154 the court can say the counterparty is bound by its warranty and must pay for the post-petition damage because a "non-executory" contract cannot be rejected.155 The court can also find ample authority for the opposite conclusion about the impact of a "non-executory" contract, i.e. it cannot be assumed.156 The problem with wild cards is that chance-sometimes found under the mask of equity-can favor either player. From the trustee's desire to sell the interest to Welland, we can infer that the trustee believed the estate would benefit most from a sale to Welland rather than to the other LLC members. [...]it seems that the trustee wanted to reject the LLC operating agreement, i.e. breach it, and sell the debtor's economic and membership interest in the LLC (property of the estate) in violation of the right of first refusal. While we do look to state law to create the property rights that enter the bankruptcy estate, state law cannot attempt to remove those rights on the basis of insolvency.231 It is within the Bankruptcy Code where the protections for counterparties exists, not from state law, even though the Code may look to state law as it does in section 365(c). [...]it is even more important with LLC interests and LLC operating agreements that courts ask the correct question in analyzing an executory contract question-how does state law interact with federal bankruptcy law-because it is only then that the courts can identify and work through these other conflicts between state law and federal law that LLC operating agreements present. | ||
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[...]a court that desires to protect the trustee and the estate's lawyers from obloquy or worse for having missed the significance of the warranty can invoke the wild card and decide the contract is not executory. Because there is no settled rule about the effect of a contract' that-is-not-a-contract in bankruptcy,154 the court can say the counterparty is bound by its warranty and must pay for the post-petition damage because a "non-executory" contract cannot be rejected.155 The court can also find ample authority for the opposite conclusion about the impact of a "non-executory" contract, i.e. it cannot be assumed.156 The problem with wild cards is that chance-sometimes found under the mask of equity-can favor either player. From the trustee's desire to sell the interest to Welland, we can infer that the trustee believed the estate would benefit most from a sale to Welland rather than to the other LLC members. [...]it seems that the trustee wanted to reject the LLC operating agreement, i.e. breach it, and sell the debtor's economic and membership interest in the LLC (property of the estate) in violation of the right of first refusal. While we do look to state law to create the property rights that enter the bankruptcy estate, state law cannot attempt to remove those rights on the basis of insolvency.231 It is within the Bankruptcy Code where the protections for counterparties exists, not from state law, even though the Code may look to state law as it does in section 365(c). 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The demystification of contracts in Bankruptcy |
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Because bankruptcy necessarily accelerates all claims,22 the effect of section 365 is to divide all the debtor's contracts into partial-payment claims for breach (after rejection) or full'payment claims for performance (after assumption).23 The purpose of section 365 is to enable the trustee in bankruptcy to maximize the estate by choosing between those results for each contract, subject to the stated statutory constraints24 and to court approval.25 Because section 365 imposes burdens on counterparties, courts are constantly tempted to find a method to protect the counterparty despite the statute. [...]a court that desires to protect the trustee and the estate's lawyers from obloquy or worse for having missed the significance of the warranty can invoke the wild card and decide the contract is not executory. Because there is no settled rule about the effect of a contract' that-is-not-a-contract in bankruptcy,154 the court can say the counterparty is bound by its warranty and must pay for the post-petition damage because a "non-executory" contract cannot be rejected.155 The court can also find ample authority for the opposite conclusion about the impact of a "non-executory" contract, i.e. it cannot be assumed.156 The problem with wild cards is that chance-sometimes found under the mask of equity-can favor either player. From the trustee's desire to sell the interest to Welland, we can infer that the trustee believed the estate would benefit most from a sale to Welland rather than to the other LLC members. [...]it seems that the trustee wanted to reject the LLC operating agreement, i.e. breach it, and sell the debtor's economic and membership interest in the LLC (property of the estate) in violation of the right of first refusal. While we do look to state law to create the property rights that enter the bankruptcy estate, state law cannot attempt to remove those rights on the basis of insolvency.231 It is within the Bankruptcy Code where the protections for counterparties exists, not from state law, even though the Code may look to state law as it does in section 365(c). [...]it is even more important with LLC interests and LLC operating agreements that courts ask the correct question in analyzing an executory contract question-how does state law interact with federal bankruptcy law-because it is only then that the courts can identify and work through these other conflicts between state law and federal law that LLC operating agreements present. |
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Because bankruptcy necessarily accelerates all claims,22 the effect of section 365 is to divide all the debtor's contracts into partial-payment claims for breach (after rejection) or full'payment claims for performance (after assumption).23 The purpose of section 365 is to enable the trustee in bankruptcy to maximize the estate by choosing between those results for each contract, subject to the stated statutory constraints24 and to court approval.25 Because section 365 imposes burdens on counterparties, courts are constantly tempted to find a method to protect the counterparty despite the statute. [...]a court that desires to protect the trustee and the estate's lawyers from obloquy or worse for having missed the significance of the warranty can invoke the wild card and decide the contract is not executory. Because there is no settled rule about the effect of a contract' that-is-not-a-contract in bankruptcy,154 the court can say the counterparty is bound by its warranty and must pay for the post-petition damage because a "non-executory" contract cannot be rejected.155 The court can also find ample authority for the opposite conclusion about the impact of a "non-executory" contract, i.e. it cannot be assumed.156 The problem with wild cards is that chance-sometimes found under the mask of equity-can favor either player. From the trustee's desire to sell the interest to Welland, we can infer that the trustee believed the estate would benefit most from a sale to Welland rather than to the other LLC members. [...]it seems that the trustee wanted to reject the LLC operating agreement, i.e. breach it, and sell the debtor's economic and membership interest in the LLC (property of the estate) in violation of the right of first refusal. While we do look to state law to create the property rights that enter the bankruptcy estate, state law cannot attempt to remove those rights on the basis of insolvency.231 It is within the Bankruptcy Code where the protections for counterparties exists, not from state law, even though the Code may look to state law as it does in section 365(c). [...]it is even more important with LLC interests and LLC operating agreements that courts ask the correct question in analyzing an executory contract question-how does state law interact with federal bankruptcy law-because it is only then that the courts can identify and work through these other conflicts between state law and federal law that LLC operating agreements present. |
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Because bankruptcy necessarily accelerates all claims,22 the effect of section 365 is to divide all the debtor's contracts into partial-payment claims for breach (after rejection) or full'payment claims for performance (after assumption).23 The purpose of section 365 is to enable the trustee in bankruptcy to maximize the estate by choosing between those results for each contract, subject to the stated statutory constraints24 and to court approval.25 Because section 365 imposes burdens on counterparties, courts are constantly tempted to find a method to protect the counterparty despite the statute. [...]a court that desires to protect the trustee and the estate's lawyers from obloquy or worse for having missed the significance of the warranty can invoke the wild card and decide the contract is not executory. Because there is no settled rule about the effect of a contract' that-is-not-a-contract in bankruptcy,154 the court can say the counterparty is bound by its warranty and must pay for the post-petition damage because a "non-executory" contract cannot be rejected.155 The court can also find ample authority for the opposite conclusion about the impact of a "non-executory" contract, i.e. it cannot be assumed.156 The problem with wild cards is that chance-sometimes found under the mask of equity-can favor either player. From the trustee's desire to sell the interest to Welland, we can infer that the trustee believed the estate would benefit most from a sale to Welland rather than to the other LLC members. [...]it seems that the trustee wanted to reject the LLC operating agreement, i.e. breach it, and sell the debtor's economic and membership interest in the LLC (property of the estate) in violation of the right of first refusal. While we do look to state law to create the property rights that enter the bankruptcy estate, state law cannot attempt to remove those rights on the basis of insolvency.231 It is within the Bankruptcy Code where the protections for counterparties exists, not from state law, even though the Code may look to state law as it does in section 365(c). [...]it is even more important with LLC interests and LLC operating agreements that courts ask the correct question in analyzing an executory contract question-how does state law interact with federal bankruptcy law-because it is only then that the courts can identify and work through these other conflicts between state law and federal law that LLC operating agreements present. |
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