## Facts

- Pioneer Ford Sales, Inc., a Rhode Island Ford franchisee, entered bankruptcy; the Ford dealership franchise was treated as an executory contract.
- Fleet National Bank, Pioneer's principal secured creditor, sought approval for a two-step transfer: Pioneer to Fleet, then Fleet to Toyota Village, Inc., a nearby Toyota dealer.
- Toyota Village agreed to pay $10,000 for the franchise and to buy Pioneer’s parts and accessories at fair market value (about $75,000).
- Without assignment, Ford would buy only some parts for roughly $45,000–$55,000, reducing the estate’s recovery.
- The bankruptcy court found Toyota Village provided adequate assurance of future performance, citing its established dealership operations, proximity to Pioneer’s site, agreement to pay Pioneer’s $15,000 debt to Ford, and testimony that it would comply with franchise terms.
- Ford objected, arguing that § 365(c)(1)(A) barred assignment without Ford’s consent because applicable nonbankruptcy law excused it from accepting performance from an assignee.

## Issues

1. Whether 11 U.S.C. § 365(c)(1)(A) barred assignment of a Ford dealership franchise over Ford’s objection because “applicable law” excused Ford from accepting performance from an assignee.
2. How “applicable law” in § 365(c)(1)(A) should be read in relation to § 365(f)(1)’s general rule favoring assignment notwithstanding anti-assignment clauses.
3. Whether the bankruptcy court clearly erred in finding adequate assurance of future performance by Toyota Village.

## Decision

- The First Circuit affirmed the district court’s judgment, which had affirmed the bankruptcy court’s order authorizing the assignment.
- Section 365(c)(1)(A) did not bar the assignment because Ford failed to show applicable nonbankruptcy law that categorically excused Ford from dealing with an assignee in these circumstances.
- The bankruptcy court’s adequate-assurance finding was not clearly erroneous despite evidence of Toyota Village’s lower-than-customary working capital and relatively weak sales.

## Legal Principles

- Section 365(f)(1) generally permits assignment of executory contracts in bankruptcy notwithstanding contractual restrictions on assignment.
- Section 365(c)(1)(A) creates a limited exception where applicable nonbankruptcy law would excuse the nondebtor party from accepting performance from, or rendering performance to, an assignee even if the contract were silent on assignment.
- “Applicable law” in § 365(c)(1)(A) refers to nonbankruptcy rules that make a contract inherently nonassignable (commonly where the identity of the contracting party is legally material), not merely the nondebtor’s business preferences or contractual drafting.
- Adequate assurance of future performance is a factual determination reviewed deferentially; an appellate court will not overturn it absent clear error.

## Conclusion

The First Circuit held that Ford could not block assignment of the dealership franchise in bankruptcy under § 365(c)(1)(A) without showing nonbankruptcy law that truly excused it from accepting an assignee’s performance, and it upheld the bankruptcy court’s finding that Toyota Village offered adequate assurance and increased the estate’s value.


In re Pioneer Ford Sales, Inc., 729 F.2d 27 (1st Cir. 1984)