thus, as non-bankrupt C, beneficial to NOT include … clauses (i.e. default you go bankrupt, then your agreement is “If AND, NO (i.e. [_], terminated”)… penalty provisions you then “If [$$]”)… you must pay BUT, beneficial to include termination clauses (i.e. [_], you … “If then your agreement is terminated”) may NOT assume OR assign any if § 365(c)(1) trustee/DIP executory contract applicable law excuses a party from accepting performance from an entity other than D Examples… performer (i.e. singer) may NOT assign Personal services contract obligation to 3rd party-assignee (i.e. different singer) (b/c non-breaching party need NOT accept 3rd party-assignee’s performance) Patents (federal law) non-exclusive patent licensee may NOT assign license is predicate to estate must assume before assigning… Assumption assignment BUT, estate MAY assume w/o assigning Assume non-bankrupt C has w/ D (now, in executory contract DIP Ch. 11) for sale of oil (which is very lucrative to if wants to stay in oil DIP) DIP business, then MAY assume (ratification of DIP executory contract ongoing relationship w/ C)… BUT, if does NOT want to stay in oil business, then MAY DIP DIP … nonetheless assume then assign to 3rd party 3rd party executory contract, will pay for right to undertake lucrative contract DIP Assume D files hoping to continue exploiting non-exclusive patent Ch. 11 license (executory w/ non-bankrupt licensor) even if D ONLY hopes contract to assume (federal patent law) states that executory contract, law” “applicable non-breaching party (non-bankrupt licensor) need NOT accept substituted performance… even if there is NO substituted performance 9th Circuit reads statute literally (“hypothetical test”/Catapult) executory may NOT be assumed, even if there will be NO contract assignment Bad public policy if license is to then critical” DIP, “mission enabling licensor to terminate will destroy executory contract DIP’s (as if assumption by is as bad as substituted performance DIP by 3rd party)…
… thus, as non-bankrupt C, beneficial to NOT include default clauses (i.e. “If you go bankrupt, then your agreement is terminated”)… AND, NO penalty provisions (i.e. “If you [_], then you must pay [$$]”)… … BUT, beneficial to include termination clauses (i.e. “If you [_], then your agreement is terminated”) § 365(c)(1) trustee/DIP may NOT assume OR assign any executory contract if applicable law excuses a party from accepting performance from an entity other than D Examples… Personal services contract performer (i.e. singer) may NOT assign obligation to 3rd party-assignee (i.e. different singer) (b/c non-breaching party need NOT accept 3rd party-assignee’s performance) Patents (federal law) non-exclusive patent licensee may NOT assign license Assumption is predicate to assignment estate must assume before assigning… BUT, estate MAY assume w/o assigning Assume non-bankrupt C has executory contract w/ D (now, DIP in Ch. 11) for sale of oil (which is very lucrative to DIP) if DIP wants to stay in oil business, then DIP MAY assume executory contract (ratification of ongoing relationship w/ C)… … BUT, if DIP does NOT want to stay in oil business, then DIP MAY nonetheless assume executory contract, then assign to 3rd party 3rd party will pay DIP for right to undertake lucrative contract Assume D files Ch. 11 hoping to continue exploiting non-exclusive patent license (executory contract w/ non-bankrupt licensor) even if D ONLY hopes to assume executory contract, “applicable law” (federal patent law) states that non-breaching party (non-bankrupt licensor) need NOT accept substituted performance… even if there is NO substituted performance 9th Circuit reads statute literally (“hypothetical test”/Catapult) executory contract may NOT be assumed, even if there will be NO assignment Bad public policy if license is “mission critical” to DIP, then enabling licensor to terminate executory contract will destroy DIP’s (as if assumption by DIP is as bad as substituted performance by 3rd party)…
Bankruptcy_Schechter-Fall-2009.docx