Abstract
Contract law rests on a simple but powerful premise: when a party breaches, the law protects the injured party’s expectation interest, placing them, as nearly as possible, in the position they would have occupied had the contract been performed. This principle underlies the theory of efficient breach, which tolerates economically rational breaches so long as the non-breaching party is fully compensated. But in bankruptcy, this foundation often collapses. Under section 365 of the Bankruptcy Code, a debtor may reject an executory contract, with the law treating that rejection as a prepetition breach and relegating the counterparty’s claim to general unsecured status, typically worth just pennies on the dollar.
This Article introduces the term super-efficient breach to describe this unique dynamic: a system in which debtors can escape contractual liability with only minimal economic consequence, even when the breach is strategic and opportunistic. The result is a doctrinal and distributive distortion that undermines reliance, weakens contractual stability, and rewards opportunistic behavior. To restore balance, the Article proposes a modest but novel reform: the creation of a capped priority claim under section 507(a) for counterparties who suffer reliance-based losses from contract rejection. Grounded in existing bankruptcy priorities and equitable principles, this targeted remedy would preserve debtor flexibility while reinforcing the integrity of contractual commitments.
Recommended Citation
Ishaq Kundawala,
Super-Efficient Breach in Bankruptcy: Recalibrating Remedies for Contract Rejection Damages,
42
Emory Bankr. Dev. J.
199
(2026).
Available at:
https://scholarlycommons.law.emory.edu/ebdj/vol42/iss2/2