Contracts

In re J. M. Structures, Inc. — Study Notes

In re J. M. Structures, Inc., 999 F.3d 123 (9th Cir. 2023)

Study notes for In re J. M. Structures, Inc.: professor notes, cold call prep, exam angles, and memory aids.

Contracts can be assumed in bankruptcy even with material breaches if ongoing obligations remain substantial.
Professor Notes

This case underscores the complexities involved when a debtor seeks to assume executory contracts during bankruptcy proceedings. The Ninth Circuit affirmed that material breaches do not necessarily negate the executory nature of contracts, emphasizing that the ongoing obligations on both sides are key to determining executory status under Section 365. Professors may highlight how this decision relates to the broader framework of bankruptcy law, specifically the importance of allowing debtors to reorganize and utilize contracts to maximize the value of their estates for creditors.

Additionally, the ruling reflects a judicial inclination towards flexibility in interpretation, balancing the interests of the debtor against the legitimacy of claims from counter-parties. In a teaching environment, focusing on the practical implications for construction and state contracts can illuminate how various factors, including public policy and economic vitality, influence judicial decisions in bankruptcy cases.

Cold Call Prep
  1. 1What is the significance of an executory contract in bankruptcy?
  2. 2How did the court determine that the contracts in this case were executory?
  3. 3What implications does material breach have for the assumption of a contract?
  4. 4How does Section 365 of the Bankruptcy Code apply here?
  5. 5What factors contribute to the determination of ongoing obligations in a contract?
  6. 6Can you explain the court's rationale for allowing assumption despite alleged breaches?
  7. 7What might be the consequences of this ruling for future bankruptcy cases?
Mnemonic Device

E.B.O.C. - Executory Breaches Overlooked for Contracts

Distinguish From
CaseDistinction
In re Verity Health System of California, Inc.In that case, the court held that significant ongoing performance required for assumption was absent, unlike in In re J. M. Structures.
In re Pacific Gas & Electric Co.The PG&E case analyzed the impact of public utilities on contractual obligations more rigidly, resulting in a tighter restriction on assumptions compared to J. M. Structures.
In re Xtreme Power, Inc.Xtreme Power focused on the lack of mutual obligations which led to a different conclusion regarding executory contracts than in J. M. Structures.
Policy Arguments

For the Rule

Allowing debtors to assume contracts promotes economic recovery and value preservation for creditors, recognizing the importance of ongoing relationships.

Against the Rule

This could incentivize non-performance or poor compliance with contractual obligations, undermining trust in contractual dealings.

Class Discussion Points
  • How does this case illustrate the balance between creditor rights and Debtor's reorganization efforts in bankruptcy?
  • What role does the interpretation of executory contracts play in the overall efficacy of the Bankruptcy Code?
  • In what ways might this ruling affect the behavior of parties entering contracts with entities that may file for bankruptcy?
Exam Angle

This case might appear on an exam as a hypothetical involving the assumption of contracts in bankruptcy, asking students to analyze the relationships between material breach and executory status under Section 365.

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