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The Bankruptcy StrategistLJN NewslettersNewsSections

Post-Petition Enforcement

By ALM Staff | Law Journal Newsletters |
May 30, 2006

Generally speaking, after a bankruptcy filing, executory contracts are not enforceable against a debtor that has not yet assumed the contract. N.L.R.B. v. Bildisco and Bildisco, 465 U.S. 513, 531 (1984). However, the reverse is not true. During the pre-assumption period, the non-debtor party to the contract is presumed to be obligated to perform in accordance with a contract. Howard C. Buschman III, Benefits and Burdens: Post-Petition Performance of Unassumed Executory Contracts, 5 Bankr. Dev. J., 341, 346, 359 (1988); Univ. Med. Ctr. v. Sullivan (In re Univ. Med. Ctr.), 973 F.2d 1065, 1075 (3d Cir. 1992); McLean Indus., Inc. v. Med. Lab. Automation, Inc. (In re McLean Indus., Inc.), 96 B.R. 440, 449 (Bankr. S.D.N.Y. 1989). Of course, a debtor who elects to receive the benefits of a contract while deciding whether to assume or reject the contract is expected to pay for the value of the goods and services received in accordance with the contract. As the Supreme Court noted in Bildisco, 465 U.S. at 531, 'If the debtor-in-possession elects to continue to receive benefits from the other party to an executory contract pending a decision to reject or assume the contract, the debtor-in-possession is obligated to pay for the reasonable value of those services ' '  See also Schokbeton Indus., Inc. v. Schokbeton Prods. Corp. (In re Schokbeton Indus., Inc.), 466 F.2d 171, 175 (5th Cir. 1972).

There are some limitations, however, on the ability of the debtor in possession to obtain the benefit of a contract after bankruptcy but prior to assumption. Section 365(b)(4) of the Bankruptcy Code, for example, excuses a landlord from providing services and supplies incidental to the lease when there has been a nonmonetary default under the lease, unless the landlord is compensated for the services or supplies. 11 U.S.C. ' 365(b)(4). With respect to nonresidential realty leases, the debtor in possession must pay the full rent as it accrues post-petition, prior to assumption, even if the premises are not used or occupied. 11 U.S.C. ' 365(d)(3); Cukierman v. Uecker (In re Cukierman), 265 F.3d 846, 850 (9th Cir. 2001) ('We have held that claims arising under ' 365(d)(3) are entitled to administrative priority even when they may exceed the reasonable value of the debtor's actual use of the property'); In re Curry Printers, Inc., 135 B.R. 564 (Bankr. N.D. Ind. 1991) (requiring lease payments regardless of actual usage).

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