## Facts

- Ernie Haire Ford, Inc., a Ford dealership, sold vehicles using retail installment contracts commonly financed by third-party auto-finance companies.
- The dealership transmitted customer loan packages to multiple finance companies under preexisting Contract Purchase Agreements.
- When a finance company chose to purchase a retail installment contract, it paid the dealership the amount needed to cover the vehicle balance plus a commission for originating the loan.
- After purchase, customers paid the finance companies directly; the finance companies had no recourse against the dealership if a customer defaulted.
- The Contract Purchase Agreements were terminable at will by either party upon notice and included ongoing obligations on both sides related to contract submission, review, and purchase procedures.
- After the dealership filed for Chapter 11, the finance companies “deactivated” the dealership’s accounts and refused to purchase additional retail installment contracts, citing internal policies to terminate upon a dealer’s bankruptcy filing.
- The finance companies did not obtain stay relief before deactivation and asserted the agreements were nonassumable “financial accommodations” under 11 U.S.C. § 365(c)(2).
- The debtor moved to compel the finance companies to comply with the agreements and to treat them as assumable executory contracts.

## Issues

1. Whether the Contract Purchase Agreements were executory contracts within the meaning of 11 U.S.C. § 365.
2. If executory, whether the agreements were nonassumable as contracts to make a loan or extend debt financing or financial accommodations “to or for the benefit of the debtor” under 11 U.S.C. § 365(c)(2).
3. Whether the finance companies could refuse performance and terminate/deactivate the agreements solely because of the Chapter 11 filing without appropriate bankruptcy relief.

## Decision

- The court held the Contract Purchase Agreements were executory contracts governed by 11 U.S.C. § 365.
- The court held the agreements were not contracts to extend financial accommodations to or for the benefit of the debtor under 11 U.S.C. § 365(c)(2).
- The court granted relief in substance to the debtor, rejecting unilateral termination/deactivation based solely on the bankruptcy filing and internal policy.

## Legal Principles

- A contract is executory if both sides have unperformed obligations such that failure by either would constitute a material breach excusing the other’s performance.
- The 11 U.S.C. § 365(c)(2) “financial accommodations” exception is construed narrowly; not every contract involving credit is nonassumable.
- Section 365(c)(2) applies where the agreement requires the nondebtor to extend new cash, credit, or financial risk directly to the debtor (or for the debtor’s benefit in the sense targeted by the statute).
- Agreements structured to facilitate third-party consumer financing—where credit risk runs to the consumer and the lender has no recourse against the dealer for consumer default—are not treated as nonassumable financial accommodations to the dealer merely because money changes hands.

## Conclusion

The bankruptcy court ruled that the dealer’s contract purchase agreements with auto-finance companies were executory and could be assumed in Chapter 11 because they were designed to finance consumers, not to extend credit to the debtor; the lenders therefore could not justify postpetition refusal to perform solely by invoking § 365(c)(2) or internal bankruptcy-termination policies.


In re Ernie Haire Ford, Inc., 403 B.R. 750 (Bankr. M.D. Fla. 2009)