November 16, 2015
What does a purchaser do when he or she is about to close on the perfect house, but the seller files for bankruptcy? The options for the purchaser are limited, largely because of 11 USC 365. 11 USC 365 provides that a debtor-in-possession or a trustee may assume or reject any executory contract. “Rejection denies the right of the contracting creditor to require the bankrupt estate to specifically perform the . . . executory portions of the contract. Rejection also limits the creditor’s claim to damages for breach of contract.” Leasing Serv Corp v First Tenn Bank Nat'l Ass'n, 826 F2d 434, 436 (6th Cir., 1987). In other words, a purchaser may have a claim for damages – costs of finding another perfect house. However, a purchaser cannot request specific performance of the contract.