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Keywords

contracthearingmotionwillbankruptcychapter 11 bankruptcyrehabilitation

contracttrustleasebankruptcyrehabilitation

Related Cases

In re Howe, 78 B.R. 226, 17 Collier Bankr.Cas.2d 614, 16 Bankr.Ct.Dec. 535

Facts

The debtor filed for Chapter 11 bankruptcy on May 27, 1986, owning a restaurant and motel business known as the Powder House Lodge in Keystone, South Dakota. He had purchased the property on a contract for deed from Powder House Lodge, Ltd. The contract required the debtor to pay a four percent assumption fee for assignment, which the debtor argued was unenforceable under bankruptcy law. The court held a hearing where it was established that the debtor had a willing assignee and that Powder House Lodge, Ltd. did not contest the financial viability of the assignees.

The debtor filed for relief under Chapter 11 of the Bankruptcy Code on May 27, 1986. He owns a restaurant and motel business known as the Powder House Lodge, in Keystone, South Dakota. The real estate and certain personal property of this business were purchased in 1984 on a contract for deed from Powder House Lodge, Ltd.

Issue

Whether 11 U.S.C. § 365(f)(1) precludes enforcement of the four percent assumption fee provision in the contract for deed, when adequate assurance of future performance is not at issue.

Rule

Under 11 U.S.C. § 365(f)(1), a debtor may assign an executory contract notwithstanding any provision that prohibits, restricts, or conditions the assignment of such contract.

Except as provided in subsection (c) of this section, notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law, that prohibits, restricts, or conditions the assignment of such contract or lease, the trustee may assign such contract or lease under paragraph (2) of this subsection.

Analysis

The court determined that the four percent assumption fee was a direct condition on the assignment of the contract, which violated the provisions of 11 U.S.C. § 365(f)(1). The court emphasized that the Bankruptcy Code favors the assumption and assignment of contracts to assist debtors in their rehabilitation efforts. Since adequate assurance of future performance was provided by the assignee, the fee was deemed unnecessary and unenforceable.

This Court holds that the debtor is not required to pay the four percent assumption fee when this provision of the contract directly conditions the assignment of the contract by the debtor in violation of 11 U.S.C. § 365(f)(1). This holding reflects the clear Congressional policy favoring the assumption and assignment of contracts as a means of assisting the debtor in its rehabilitation or liquidation effort.

Conclusion

The court granted the debtor's motion to assign the contract for deed without the requirement to pay the four percent assumption fee.

The Court approved the assignment, reserving the following issue.

Who won?

The debtor prevailed in the case because the court found that the assumption fee was unenforceable under bankruptcy law, allowing him to assign the contract without additional financial burden.

The debtor is not required to pay the four percent assumption fee, as this fee directly conditions the assignment of the contract for deed, in contravention of Section 365(f)(1).

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Keywords

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