Thursday, November 29, 2012

Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 27

Problem Set 27, p.533
  • Filing a bankruptcy petition can stay the landlord’s collection act. After the filing, the TIB should assume the K.
  • The landlord may make two arguments.
  • The lease is already terminated under (c)(3); counter: there is no such law or provisions in the K.
  • The debtor does not cure the defaults or provide adequate assurance; counter: buy the insurance back; a feasible repayment plan.
  • Can we keep the lease? If we go into bankruptcy and the trustee assumes the contract by offering to cure (that is giving adequate assurance that cure will be made) then it appears we can keep the lease. §365(b)(1).
  • (1)(A) note: excused from impossible cures to nonresidential property leases.
  • A different problem about the diagnostic machine? What problem? Is it impossible to cure? No? So no special problem, right?
  • (h)(1)(A)(ii) FB can keep the K going even though it is rejected by the lessor.
  • What is the remedy if the K is just rejected without regard to (h)? FB then has only unsecured claims for breach of lease; under (h) FB can retain its rights under such lease
  • §502(g)(1) the claim arising from the rejection under §365 should be allowed as the claim that had arisen before the filing.
  • Under (h)(1)(B) FB can offset his damages against the rent but nothing more. In this case, he can use the farm free for next five years, but he cannot get $10K more ever year.
  • If the landlord rejected the lease and assigned the land, the lease right under (h) cannot be eliminated.
  • Why do we have the special rules for the lease under §365(h)?
  • The property is unique? Not fungible?
  • Special transaction costs?
  • Property rights under the lease?
  • §365(n) if the debtor is a licensor of a right to intellectual property, the licensee may
  • terminate the K
  • retain its rights, the real remedy to keep the license; no similar cap to the lease.

  • File today; the lease won’t terminate today; stay
  • Assign the lease, §365(e)(1) invalidate clause 1;
  • How about the clause 2? Assignment approval clause; the clause 1 is vacated by 365(e); and the class 2 is vacated by §365(f). §365(e) invalidates some clauses conditioned on the bankruptcy filing or insolvency; §365(f) invalidates other provisions that restrict the assignments of the executory K.
  • (f)(3): the requirement for the increase is not reasonable.
  • Under (d)(1), the attorney should not call the TIB and wait for the lapse of 60 days; then the K is regarded as rejected; so Paul may sell it for a higher price?

Summary of §365
  • §541(c) says these contracts get into the estate
  • §365(a) you can make a motion to assume or reject these contracts under BJR
  • §365(b) you have to do some things to assume the contract, adequate protection, cure defaults
  • §365(c) some things you just can't assume no matter what, e.g. something that federal patent law says is unassignable, or personal service contracts
  • (d) 60 days
  • (e) invalidate some termination or modified provisions that are conditioned at insolvency
  • (f ) deals with the restrictions on the assignment
  • (h) more special rules: regarding to a lease
Problem Sets: Table of Contents

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