## Facts

- Whitcomb & Keller Mortgage Co., Inc., a mortgage banker, used Data-Link Systems, Inc. for computer services necessary to update and maintain mortgage servicing accounts under an executory contract.
- The contract required Data-Link, on termination, to return master files and related data upon payment of any outstanding balance.
- Whitcomb & Keller filed for Chapter 11 on October 27, 1980, as debtor-in-possession, owing Data-Link $12,954.63 for prepetition services, scheduled as a general unsecured claim.
- After the filing, Data-Link continued to provide services and was paid for all postpetition services during the case.
- During the Chapter 11 case, Whitcomb & Keller pursued a sale of mortgage servicing contract assets; the bankruptcy court approved bids from Milliken Mortgage Company and Unity Savings Association.
- On March 4, 1981, Data-Link stopped providing services, impairing Whitcomb & Keller’s operations; the bankruptcy court issued injunctive relief requiring Data-Link to continue performance, and Data-Link resumed.
- Data-Link counterclaimed, seeking a declaration that the debtor had assumed the contract by conduct or, alternatively, an order requiring assumption or rejection within a set period under 11 U.S.C. § 365(d)(2).
- During the sale process, Data-Link withheld information needed to complete the transaction; the bankruptcy court ordered cooperation, and the parties stipulated that any interest Data-Link might have would attach to the sale proceeds.
- On April 8, 1981, the bankruptcy court ruled the contract had not been assumed and declined to compel immediate assumption or rejection, finding Data-Link paid for postpetition work and otherwise adequately protected.
- Whitcomb & Keller moved to reject the contract; after trial, the bankruptcy court allowed rejection and classified Data-Link’s $12,954.63 prepetition claim as a general unsecured claim without priority; the district court affirmed.

## Issues

1. Whether the debtor assumed an executory contract by obtaining injunctive relief to compel continued performance and by continuing to receive and pay for postpetition services.
2. Whether the bankruptcy court abused its discretion under 11 U.S.C. § 365(d)(2) by declining to order the debtor to assume or reject the contract within a specified period before plan confirmation.
3. Whether the service provider held a lien, property interest, or other basis for priority treatment of its prepetition claim beyond general unsecured status.

## Decision

- The Seventh Circuit affirmed the district court’s judgment upholding the bankruptcy court.
- The debtor did not assume the executory contract through its conduct; assumption required court-approved action under § 365.
- The bankruptcy court did not abuse its discretion in refusing to compel immediate assumption or rejection where the nondebtor was paid for postpetition performance and adequately protected.
- Data-Link’s $12,954.63 prepetition claim was properly treated as a general unsecured claim because it lacked a valid lien or other priority-conferring interest in the servicing assets or proceeds.

## Legal Principles

- Assumption of an executory contract in Chapter 11 requires compliance with § 365, including court approval; continued use of services and enforcement efforts to preserve operations do not, by themselves, constitute assumption.
- Payment for postpetition performance at contract rates may be required as a cost of administration without converting the underlying prepetition executory contract into an assumed obligation.
- Under 11 U.S.C. § 365(d)(2), the timing of an order requiring assumption or rejection is discretionary; deferral is permissible when the nondebtor party is not bearing uncompensated loss and is adequately protected.
- A creditor’s control over operational data and contractual rights to payment does not create a security interest or lien absent a recognized and enforceable basis under applicable law and bankruptcy priorities.

## Conclusion

The court upheld rejection of a computer-services executory contract and confirmed that maintaining postpetition performance through payment and injunctive relief does not amount to assumption; it also approved deferring an assumption/rejection decision under § 365(d)(2) where the provider was adequately protected, leaving the provider’s prepetition claim as general unsecured.


Matter of Whitcomb & Keller Mortg. Co., 715 F.2d 375 (7th Cir. 1983)