A private equity buyer offered $1.00 for 90 percent of a South Dakota snack food company, plus promises to pay its vendors and recapitalize it. The deal never closed. The buyer sued for specific performance, and the owner filed Subchapter V. On August 10, 2026, the Eighth Circuit Bankruptcy Appellate Panel affirmed the order letting him reject the agreement in Kanyon Holdings, LLC v. Dandurand (In re Dandurand), No. 25-6010.
For New Mexico owners, the power to reject a contract in bankruptcy is real. It is also narrower than many assume, and here it runs on Tenth Circuit law and the deadlines in 11 U.S.C. § 365.
What did the Dandurand courts decide, and is the case still on appeal?
Chief Judge Laura L. Kulm Ask (No. 24-40401, Bankr. D.S.D. May 23, 2025) found the agreement executory and approved rejection; the panel affirmed. The court found the buyer owed more than the $1.00: it had promised to pay vendors and produce a financing plan before closing, both material and unperformed at filing. The document never defined that plan, and its closing clause cited a cross-reference that printed as a software error message, opening the door to outside evidence under South Dakota law.
Rejection passed business judgment because it kept the owner employed and funding his confirmed plan, income a two-year noncompete starting at closing would have threatened. The buyer later withdrew its proof of claim, and no rejection-claim deadline was ever set. No further appeal was located on review.
How does the Tenth Circuit decide whether a contract is executory?
In In re Baird, 567 F.3d 1207 (10th Cir. 2009), the Tenth Circuit formally adopted the Countryman definition: both sides’ obligations must be so far unperformed that either side’s failure to finish would be a material breach excusing the other. There, a doctor’s leftover duties under a paid, expired malpractice policy were ministerial, so it was not executory.
In In re SPOverlook, LLC, No. 15-13018 (Bankr. D.N.M. June 14, 2016), Judge Thuma held an East Mountains developer’s settlement with its homeowners association executory because, on the petition date, the developer still owed a deed and the association a release. Materiality comes from the state law governing the contract, and under Mark V, Inc. v. Mellekas, 1993-NMSC-001, 114 N.M. 778, New Mexico courts may weigh surrounding circumstances even in deciding whether contract language is ambiguous.
A Santa Fe restaurant’s premises lease needs no Countryman analysis, because § 365 reaches unexpired leases directly. A Las Cruces distributor’s exclusive supply agreement with minimum purchases is usually executory. If a buyer has paid in full and the seller owes only a stock power, the buyer holds a claim instead.
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When can a New Mexico debtor reject a contract in bankruptcy, and which clocks run?
Courts defer to the debtor’s business judgment, the standard used for “the ordinary executory contract,” NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984). In Chapter 7, § 365(d)(1) deems an executory contract or a residential or personal property lease rejected if the trustee does not act within 60 days after the order for relief. In In re McCune, No. 20-12326 (Bankr. D.N.M. Apr. 5, 2024), Judge Jacobvitz held that deemed rejection of a home purchase contract was a breach, not a termination.
In Chapters 11, 12, and 13, § 365(d)(2) allows a decision any time before confirmation unless the court sets a shorter period. Subchapter V is no different, since § 1181(a) does not switch off § 365 or § 1123(b)(2). Chapter 13 debtors use § 1322(b)(7).
Section 365(d)(3) requires timely postpetition performance of a nonresidential real property lease, with extensions only within the first 60 days. Under § 365(d)(4), the lease is deemed rejected and the premises surrendered unless the debtor acts by the earlier of 120 days after the order for relief or confirmation, plus one 90-day extension for cause; more requires the landlord’s prior written consent “in each instance.” In Chapter 11, § 365(d)(5) keeps personal property lease payments current after day 60.
What can rejection and assumption not accomplish?
Assuming a contract in default requires a cure and adequate assurance of future performance under § 365(b)(1), and § 365(c) blocks assuming loan commitments or contracts that applicable law makes personal to the debtor. Section 365(e)(1) disables bankruptcy termination clauses and § 365(f) overrides anti-assignment clauses.
Rejection does not rewrite history. Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. 370 (2019), holds that rejection “has the same effect as a breach of that contract outside bankruptcy” and cannot rescind rights already granted. Applying it in In re S-Tek 1, LLC, No. 20-12241 (Bankr. D.N.M. July 12, 2021), Judge Jacobvitz ruled that a debtor paid $30,000 hours before filing could not reject the settlement to revive released claims.
Where does rejection leave the other side of the contract?
After rejection, § 365(g) dates the breach to just before the petition, and § 502(g)(1) makes the damages a prepetition claim. A buyer wanting the business itself fares no better, because § 101(5)(B) defines “claim” to include an equitable remedy for breach that gives rise to a right to payment.
The claim deadline is where counterparties get hurt. Rule 3002(c)(4) allows a rejection claim “within the time set by the court,” and Rule 3003(c)(3) keeps that path open in Chapter 11 after the general bar date. In In re Amerivision Communications, Inc., BAP No. WO-05-106 (B.A.P. 10th Cir. Aug. 23, 2006), a plan rejected every contract not specifically assumed, and the vendor missed the plan’s 30-day claim window. Rejection frees only the debtor; under § 524(e), even a discharge leaves guarantors liable.
What should a New Mexico owner take from Dandurand before signing?
The firm’s view is that a signed document is not fate: an owner can reject a contract in bankruptcy while both sides still owe material performance. Escape is costly, though. The Dandurand owner won an evidentiary hearing that turned on whose memory of telephone calls the judge believed, then defended it on appeal for over a year. A Hobbs or Farmington owner signing under creditor pressure is better protected when the price and every closing condition are written down before signature.
How would the § 365 deadlines run for a Roswell oilfield services company?
A Roswell company files Subchapter V on Tuesday, January 12, 2027, which under § 301(b) is the order for relief. It has a shop lease at $9,000 a month with 84 months left, three equipment leases, a service agreement with a Permian Basin operator, and an unclosed sale of a subsidiary.
Shop rent from January 12 forward must be paid on time, with deferral possible only through Saturday, March 13, 2027. Day 120 is Wednesday, May 12, 2027, or Tuesday, August 10, 2027 with the extension. The plan is due Monday, April 12, 2027 under § 1189(b), and confirmation can close the lease window early.
Under NMSA 1978, § 55-1-203, a noncancelable equipment lease with a nominal purchase option is a security interest, not a § 365 lease. The service agreement is likely executory, and a clause ending it because of the filing fails under § 365(e)(1). The subsidiary sale resembles Dandurand.
If the shop lease is rejected with $18,000 of unpaid rent, § 502(b)(6) caps the claim at rent for the greater of one year or 15 percent of the remaining term (not over three years), plus unpaid rent. Fifteen percent of 84 months is 12.6 months, so the cap is $113,400 plus $18,000, or $131,400, against $756,000 of remaining rent. The firm’s post on commercial tenant bankruptcies goes deeper.
| Contract | How § 365 treats it | Controlling rule | Key date |
|---|---|---|---|
| Shop lease | Nonresidential real property lease | § 365(d)(3), (d)(4) | May 12, 2027, or Aug. 10 if extended |
| Equipment leases | True leases only; financed sales are collateral | § 365(d)(2), (d)(5) | Payments current from March 13, 2027 |
| Operator service agreement | Likely executory | § 365(d)(2), (e)(1) | Before confirmation unless compelled |
| Subsidiary sale | Probably executory | § 365(a), (g) | Before confirmation |
| Subchapter V plan | Sets the outer limit | § 1189(b) | April 12, 2027 |
Frequently Asked Questions
Can a business reject a contract it already signed in a New Mexico bankruptcy?
Yes, if the contract is executory or an unexpired lease and the court approves. Under In re Baird, the Tenth Circuit asks whether both sides still owe performance significant enough that failing to finish would be a material breach. If the other side has fully performed, the debtor simply owes a claim.
How long does a debtor have to decide on a commercial lease?
Under 11 U.S.C. § 365(d)(4), until the earlier of 120 days after the order for relief or plan confirmation. The court may grant one 90-day extension for cause before the first period ends, and more time requires the landlord’s prior written consent. Otherwise the lease is deemed rejected and the premises must be surrendered.
Does rejecting a contract cancel it?
No. The Supreme Court held in Mission Product Holdings v. Tempnology that rejection operates as a breach, not a rescission. The debtor stops performing and the other side holds a prepetition damages claim, but rights already granted survive. New Mexico bankruptcy judges apply the same rule.
Can the other party force the debtor to decide sooner?
Yes. In Chapters 11, 12, and 13 the debtor may ordinarily wait until confirmation, but under § 365(d)(2) any party to the contract may ask the court to order a decision within a specified time. Landlords of nonresidential property also receive timely postpetition rent under § 365(d)(3).
What happens to my personal guaranty if my company rejects the lease?
Rejection does not release it. Rejection is the company’s breach and shapes only the landlord’s claim against the company. The guarantor’s liability is governed by the guaranty itself, and § 524(e) provides that a debtor’s discharge does not affect the liability of any other entity on the debt.
How North Star Law Firm Can Help
North Star Law Firm’s bankruptcy practice represents New Mexico business owners deciding which leases and contracts to keep in Subchapter V and Chapter 11 cases, and counterparties protecting their claims when the other side files.
Phillip Zagotti, JD/CPA, is admitted to the U.S. District Court and the U.S. Bankruptcy Court for the District of New Mexico. Owners choosing a chapter can start with the firm’s field guide to business bankruptcy chapters or its post on Subchapter V eligibility. The firm works alongside New Mexico-licensed counsel on state-law questions. To review a contract or lease, contact North Star Law Firm.