A Contract Divided…

By: Chris Bolz

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The United States Bankruptcy Court for the Southern District of New York held in In Re Hawker Beechcraft that the debtors were permitted under section 365 of the Bankruptcy Code to assume master agreements and some purchase orders while rejecting other purchase orders because such orders were divisible contracts.[1]  The debtors were aircrafts manufactures that purchased some of their parts from a supplier.[2] In connection with these purchases, the debtors and the supplier also entered into two master agreements.[3]  Under the master agreements, while the supplier agreed to manufacture parts, the debtor was not obligated to purchase any of the manufactured parts.[4]  The debtors commenced their chapter 11 bankruptcy cases and ultimately confirmed a joint plan of reorganization.[5]  Under the plan, the debtors would assume the master agreements and 395 purchase orders while rejecting 928 purchase orders.[6]  The supplier objected to this plan, arguing that the master agreements and all of the purchase orders constituted a single indivisible contract that must be assumed or rejected cum onere.[7] The bankruptcy court, however, overruled the supplier’s objection and held that the master agreements were divisible contracts and that the purchase orders were distinctly separate contracts from one another.

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