Question

Executory Contract

The Record Company, Inc. (The Record Company), entered into a purchase agreement to buy certain retail record stores from Bummbusiness, Inc. (Bummbusiness). All assets and inventory were included in the deal. The Record Company agreed to pay Bummbusiness $20,000 and to pay the $380,000 of trade debt owed by the stores. In exchange, Bummbusiness agreed not to compete with the new buyer for two years within a 15-mile radius of the stores and to use its best efforts to obtain an extension of the due dates for the trade debt. The Record Company began operating the stores but shortly thereafter filed a petition for Chapter 11 bankruptcy. At the time of the bankruptcy filing, (1) The Record Company owed Bummbusiness $10,000 and owed the trade debt of $380,000, and (2) Bummbusiness was obligated not to compete with The Record Company. Can The Record Company reject the purchase agreement?

Answer 1

No.

Step-by-step explanation:

Executory contracts are ones in which contract has not been fully executed and the performance is remaining according to agreement. Both parties are liable to complete their obligations as agreed in executory contract. In this case Record Company and Bummbusiness has entered into an agreement and has formed executory contract. Record company has filed Bankruptcy just after the store opening. The company cannot reject the purchase agreement as there are important obligations which need to be performed according to the contract.