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Parties Agreement Not Executory and Thus Not Subject to Rejection

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By FindLaw Staff on June 01, 2010 3:26 PM

In In re: Exide Technologies, No. 081872, the Third Circuit faced a challenge to the district court's affirmance of the Bankruptcy Court's grant of the debtor's motion to reject an agreement to sell substantially all of its industrial battery business, on the ground that the agreement was an executory contract, subject to rejection under 11 U.S.C. section 365(a), and that rejection terminated the debtor's obligations under it. 

As stated in the decision: "The Bankruptcy Court here failed to properly measure whether either party had substantially performed.  Our inspection of the record, however, reveals that the inferences are clear that EnerSys has substantially performed.  Applying Hadden's balancing test, EnerSys's performance rendered outweighs its performance remaining and the extent to which the parties have benefitted is substantial.  Specifically, EnerSys has substantially performed by paying the full $135 million purchase price and operating under the Agreement for over ten years."

Thus, in vacating the judgment and remanding the matter, the court held that the agreement is not an executory contract because it does not contain at least one ongoing material obligation for the other party, and because the agreement is not an executory contract, the debtor cannot reject it.   

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