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executory contracts. The debtor filed a bankruptcy petition and rejected the franchise agreement as an executory contract. The franchisor sought to enforce the non-competition agreement. The bankruptcy court held that rejection of a franchise agreement amounted to termination so that the franchisor's exclusive remedy was a claim in the bankruptcy case. The district court reversed finding that § 365(g) provides that rejection of an executory contract is a breach. The breach is treated as occurring immediately before the bankruptcy filing. Rejection does not terminate or extinguish the obligations under the contract. Breach of the contract by rejection will give the nondebtor party a defense to enforcement of the contract.
Numerous courts have wrestled with the problem of rejection as a breach as opposed to termination in the context of a franchise agreement. In Klein, the franchisee filed a chapter 13 bankruptcy petition and a franchisor sought to enforce a non-compete. To the extent that the non-compete was enforceable under applicable state law, the court held that it would be effective in bankruptcy notwithstanding rejection. Similarly, in Steaks To Go, the court enforced a non-compete despite rejection of the executory contract. In another non-competition case outside the franchise contract, the bankruptcy court enforced a noncompetition agreement against the debtor under a rejected trucking contract. The franchisor in Morse also prevailed when a district court found that the rejection of the executory contract (franchise agreement) did not terminate the non-competition agreement and that the obligations of the debtor under the non-compete were not a dischargeable "claim" so that the franchisor was free to seek injunctive relief. In another employment case, the debtor filed a chapter 7 case, which resulted in rejection of the employment agreement. Rejection did not terminate the contract. The debtor gave notice of her
