Quantum Diversified Holdings, Inc. v. Wienheimer (In the Matter of: Escarent Entities, L.P.)

Summarized by Aaron Kaufman , Gray Reed LLP
14 years 10 months ago

Citation:

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

Tag(s):

5th Circuit

Ruling:

The bankruptcy court erred by allowing the Debtor to assume an executory contract after an incurable, non-monetary default by the Debtor had occurred. Because the Debtor failed to close as required under the purchase agreement, it could not assume the contract and bind the Purchaser to the sale. Further, the bankruptcy court erred by allowing the Debtor to make a conditional assumption of the contract—allowing the Debtor to bind the Purchaser only if the Debtor could not find a better offer—because the contract could only be assumed in toto. To allow an assumption with a later closing date, but without the Purchaser’s consent, required the bankruptcy court to rewrite the terms and conditions of the contract, which is not permissible under applicable state law.

Procedural context:

District court affirmed the bankruptcy court's orders allowing the debtor to conditionally assume a pre-petition land sale agreement, subject to higher offers. The Fifth Circuit reversed.

Facts:

Before commencing this chapter 11 case, the Debtor entered into a land sale agreement to sell certain real property to the Purchaser. The agreement gave the Purchaser a 90 day feasibility period with an unrestricted right to terminate. After the feasibility period expired without the Purchaser exercising its right to terminate, the Purchaser became bound to close on January 12, 2009, the date specified in the agreement. One week before the scheduled closing, however, the Debtor voluntarily commenced its bankruptcy case. Nearly one month later (i.e., after the scheduled closing date), the Debtor asked the bankruptcy court to authorize a “conditional assumption” of the agreement, whereby the Debtor would market the property for a higher and better offer, but still bind the Purchaser if no such offer could be found. The Purchaser objected to the “conditional assumption” and argued that the Debtor’s failure to close as scheduled was a material and incurable breach that rendered assumption impossible. The Purchaser further argued that the proposed “conditional assumption” would allow the Debtor to assume only part of the contract. Over the Purchaser’s objection, the bankruptcy court approved the motion, but allowed the Purchaser to extend the closing date for a period to obtain new financing. The Purchaser appealed.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!