Fifth Circuit Rules Surety Bonds Are Not Executory Contracts

Faegre Drinker co-chair Andrew Kassner and counsel Joseph Argentina coauthored an article for The Legal Intelligencer, titled “Fifth Circuit Rules Surety Bonds Are Not Executory Contracts,” that addresses the treatment of surety performance bonds and related agreements in an era when the unprecedented real estate sector boom may be finally coming to an end.

The authors explain how Section 365 of the Bankruptcy Code addresses the disposition of executory contracts between the debtor and non-debtors in bankruptcy proceedings; however, they note that the courts have wrestled with the question, “Is the agreement at issue an executory contract that is subject to assumption or rejection in bankruptcy cases?”

In an opinion issued by the U.S. Court of Appeals for the Fifth Circuit in the case In re Falcon V, the court held a surety bond is not an executory contract, and the debtor’s obligations under the bonds could not be enforced. The article summarizes the case and highlights why the court should ultimately look to what results provide benefits to the estate.