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Executory Contracts and Unexpired LeasesThe next important concept to understand is the treatment of ―executory‖ contracts andunexpired leases of the debtor. To fully grasp this area of bankruptcy law, it is important torecall that a fundamental tenant of bankruptcy law is the maximization of value for the debtor’sestate.For most business debtors, considerable value is tied up in contractual relationships with otherparties. For instance, a debtor may be party to a contract under which the non-debtorcounterparty is obliged to pay the debtor in exchange for the debtor’s services or products.Conversely, a debtor may be obliged to pay a vendor for its services rendered or productsdelivered to the debtor. Indeed, these simple examples form the building blocks for nearly alleconomic activity in the United States. Of course, things change when a debtor entersbankruptcy.Before delving into the specific changes to contractual relationships after a bankruptcy filing byone of the parties, it is important to understand the term ―executory contract.‖ The term is notdefined in the Bankruptcy Code—and yet the term is used extensively in the Bankruptcy Code.Accordingly, bankruptcy courts have developed their own understanding of the term. By andlarge, most bankruptcy courts follow the ―Countryman test,‖ which is derived from a lawarticle written by Professor Vern Countryman.Under the Countryman test, a contract is ―executory‖ if the parties to the contract still oweobligations under the contract that, if not performed, would give rise to a claim for materialbreach of the contract.Here is an explanation by way of examples:John agrees to mow Sam’s entire lawn, and Sam agrees to pay John $20 in exchange—$10 before John mows the lawn and the remaining $10 once he has finished. Assumethat Sam pays John the initial $10 and John begins to mow Sam’s lawn. Half-waythrough, however, John decides that he can no longer tolerate the smell of fresh-cutgrass, and he walks off the job. At that moment, Sam could sue John for material breachof their agreement.Same facts as above, except Sam pays John the entire $20 before John starts the job.Here, the Sam has fully performed his end of the contract—all that remains is for John toperform his end. Of course, Sam could sue John for material breach. But John could notsue Sam, because Sam has fully performed.Now, keeping in mind the principals of bankruptcy law, assume in the first example thatSam files bankruptcy immediately after paying the first $10 installment and before Johnbegins the job. At that point, the contract would be ―executory‖ because both partiesstill owe each other obligations under the agreement. To preserve value for Sam’sestate, bankruptcy law imposes changes on the parties’ contractual relationship.23