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assumed or rejected. Most courts say that a contract is not enforceable against the debtor, but may be enforced by the debtor, before the assumption or rejection decision. However, where a debtor obtains performance in a post-petition transaction with a debtor under an executory contract, the non-debtor may be entitled to an expense of administration for the reasonable value of the services provided. Conversely, where the non-debtor continues to render post-petition services under a prepetition agreement, without being induced to do so by the debtor, and the contract is not assumed, the non-debtor may not have an expense of administration. The non-debtor party to an executory contract holds a claim, which may be contingent depending upon assumption or rejection of the contract. Rejection of an executory contract results in an unsecured claim in the non-debtor party as of the date of the bankruptcy filing.
In a Texas case, the debtor sought to collect the benefit of its post-petition performance (natural gas shipments) from a non-debtor party under contracts that were rejected. The non-debtor sought to offset its post-petition payment obligation against the debtor's pre-petition obligations arising from rejection of the contract. This implicated the equitable doctrine of recoupment. In the bankruptcy court's view, as applied in the Fifth Circuit, recoupment required equity in the nature of an overpayment or a benefit which would be unjust for the debtor to retain. In the case before the court, requiring the non-debtor party to pay for the post-petition gas shipments it received was not inequitable, and consistent with the proposition that rejection of an executory contract results in an unsecured claim.
In an unusual case, the debtor was obligated under an executory contract to supply steel. Postpetition, arguably in violation of the contract, the debtor increased the contract price. The contract
