A New Approach to Executory Contracts

37 Pages Posted: 6 Aug 2018 Last revised: 29 Aug 2018

Abstract

Few bankruptcy topics have bedeviled courts—and busied commentators—as much as executory contracts. Perhaps the most nettlesome challenge is the problem of defining “executoriness,” which serves as the statutory gatekeeper to Section 365 of the Bankruptcy Code and its extraordinary powers. Elite lawyers, who are the closest approximation to chapter 11 repeat players, have no ex ante incentive to fix a definition; in part succumbing to a vividness bias, they want to exploit executoriness’s inherent ambiguity to select the definition perceived to be most advantageous in any given case ad hoc. From Westbrook to Countryman before, authors have struggled to find a coherent and normatively defensible definition of executoriness (including Westbrook’s call for its abolition) that would stop this gamesmanship, and even the American Bankruptcy Institute’s Review Commission has now entered the debate.

This article takes a new approach. It suggests abandoning the bootless task of finding the right test and concedes that executoriness is here to stay. This new approach focuses on the residuum of the “non-executory contract.” Using the policies, structure, and text of the Code, it argues that many of Section 365’s provisions can be synthetically replicated elsewhere. Doing so will blunt the strategic incentive to invest resources fighting the absence or presence of executoriness ab initio by scuttling the payoff. Concomitant gains will accrue to all.

Keywords: bankruptcy, insolvency, executory contracts

JEL Classification: K12, K22, K29, K35

Suggested Citation

Pottow, John A. E., A New Approach to Executory Contracts. Texas Law Review, Vol. 96, No. 7 (2018); U of Michigan Law & Econ Research Paper No. 18-017; U of Michigan Public Law Research Paper No. 614. Available at SSRN: https://ssrn.com/abstract=3225802

John A. E. Pottow (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-3736 (Phone)

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