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Matter of Whitcomb & Keller Mortgage Co.

United States Court of Appeals for the Seventh Circuit
715 F.2d 375 (1983)


Facts

Whitcomb & Keller Mortgage Co. (W&K) (plaintiff) had a contract with Data-Link Systems, Inc. (Data-Link) (defendant) under which Data-Link provided essential computer services to W&K. When W&K filed a Chapter 11 bankruptcy petition on October 27, 1980, it owed Data-Link $12,954.63 for services rendered. Data-Link continued to provide services to W&K, which paid for them. W&K decided to sell certain assets that related to Data-Link’s work, and on February 26, 1981, the bankruptcy court approved the purchase bid of Unity Savings Association (Unity). On March 4, Data-Link stopped servicing W&K. W&K filed an action for a temporary restraining order and preliminary injunction, and the court ordered Data-Link to continue performing. On March 5, Data-Link counterclaimed, requesting either (1) a declaration that W&K had assumed its contract by receiving the contract’s benefits and seeking to enforce the contract or (2) an order requiring W&K to assume or reject the contract within a specified time period. The court took the matter under advisement. In the meantime, in early March, Data-Link refused to provide either W&K or Unity with certain information necessary for those parties to complete the sale. The court required Data-Link to cooperate. The parties stipulated that any interest Data-Link might have would attach to the sale proceeds. On April 8, the court ruled that W&K had not assumed the contract and that there was no reason to require assumption or rejection within a specified time period because Data-Link was being paid for all of its postpetition work and was otherwise adequately protected. That same day, W&K sought to reject the contract. The issue was set for trial. On April 24, the court confirmed W&K’s reorganization plan. Data-Link filed a proof of claim in which it asserted priority for its prepetition debt. After a trial in July, the court concluded that W&K was entitled to reject the contract and that Data-Link’s prepetition claim was not entitled to priority. The district court affirmed. Data-Link appealed.

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Holding and Reasoning (Jameson, J.)

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