Journal Article

Common Executory Contract Questions in Search of Answers

Burke, Jason R, Fowler, Sarah L

2024

Overview

In In re National Steel Corp., the debtor was a supplier of steel to the creditor pursuant to an executory contract.6 Post-petition, the debtor refused to ship steel to the creditor without an upward adjustment in price.7 The creditor paid the increased price, then sought an administrative expense for the price increase.8 The court denied the administrative expense because the increased price for steel paid by the creditor was still below market, therefore, the estate actually did not benefit from such payments. \"12 Similarly, in In re Public Service Co. of New Hampshire, the debtor was party to an executory contract that obligated the debtor to purchase excess power from a nondebtor counterparty.13 Pre-petition, the counterparty owed the debtor nearly$5 million and had given advance notice to the debtor of the amount of excess power that it desired to sell.14 Postpetition, the counterparty admitted its debt to the debtor but refused to pay, asserting an entitlement to retain the funds as a set off against damages that it might accrue in connection with the rejection of the sell-back contract.15 The court found no right to set-off because there was no mutuality of obligations,16 and stated that \"the simple fact of this matter is that the debtor has not yet rejected - and may never reject - the sell-back contract. Because there has been no rejection of the sell-back contract, no claim or cause of action has at this point accrued thereunder. \"22 Similarly, in In re Continental Energy Associates Ltd. Partnership, the court issued an injunction requiring a fuel supplier to provide the debtor with a continuous supply of natural gas post-petition until the debtor assumed or rejected the executory contract.23 The court refused to condition the post-petition supply of natural gas on the debtor paying the full contract price.24 Instead, the debtor was to pay the contract price subject to further review for reasonableness so as to only compensate the supplier consistent with § 503(b)(1). \"28 The court then awarded the debtor more than $ 1 million in damages representing the cost for purchasing cover gas due to the supplier's breach of the executory contract.29 Although the principles were the same in In re Lucre Inc., the court found that the debtor could not affirmatively compel the nondebtor counterparty to continue to provide services prior to assumption and cure where there was a pre-petition default by the debtor that could not be cured.30 In so ruling, the court balanced protections afforded to debtors by the Bankruptcy Code while recognizing that the Code is not a \"cure-all\" for contract provisions that could not otherwise be cured.31 Adequate Protection Can a nondebtor counterparty request some sort of adequate protection?

• Publisher: American Bankruptcy Institute
• Subject: Administrative expenses / Amendments / Bankruptcy / Injunctions / Leases / Natural gas / Personal property / Petitions / Suppliers