## Facts

- A.J. Lane & Co., Inc., a real estate developer, was a Chapter 11 debtor in possession in the District of Massachusetts.
- The debtor held title to real property in Ontario, California.
- The deed conveying the Ontario property included a repurchase option benefiting the original grantor, later held by a successor in interest.
- The debtor sought to sell the property and asserted the option impaired marketability and reduced sale value.
- The debtor moved under 11 U.S.C. § 365 to reject the repurchase option as an executory contract; the option holder objected.
- The court entered an order granting rejection to facilitate a pending sale and later issued a written opinion explaining the ruling.

## Issues

1. Whether a repurchase option contained in a deed constitutes an executory contract subject to rejection under 11 U.S.C. § 365.
2. If the option is executory, whether the debtor’s proposed rejection should be approved under the business-judgment standard and what legal consequences follow from rejection.

## Decision

- The court held the repurchase option was an executory contract under § 365 because material performance remained due on both sides.
- The court granted the debtor’s motion to reject the option, finding rejection a reasonable exercise of business judgment that would benefit the estate by enabling a pending sale.
- The court treated rejection as a statutory breach, leaving the option holder to a damages claim rather than specific enforcement that would interfere with the sale.

## Legal Principles

- An agreement is executory for § 365 purposes when, at the relevant time, both parties have material unperformed obligations such that failure by either would excuse the other (often applied through the Countryman formulation).
- A real-property repurchase option can qualify as executory where the holder must still tender the option price upon exercise and the debtor must still reconvey title upon proper exercise.
- Court approval of rejection generally follows the business-judgment standard; rejection is permitted when it is a rational, good-faith decision expected to benefit the estate.
- Rejection under § 365 constitutes a breach (typically treated as occurring as of the petition date under § 365(g)) and ordinarily converts the nondebtor’s remedy to a claim for damages, rather than preserving contractual enforcement rights that would impede estate administration.

## Conclusion

The bankruptcy court approved rejection of an unexercised deed repurchase option as an executory contract because both parties still had material obligations, and it concluded that rejection was a proper business decision to facilitate a higher-value sale for the Chapter 11 estate, with the option holder’s remedy limited to a damages claim arising from the statutory breach.


In re A.J. Lane & Co., Inc., 107 B.R. 435 (Bankr. D. Mass. 1989)