In a recent Chapter 11 bankruptcy here in Texas, a debtor company’s agreement with a creditor that “price was no issue” ended with the debtor being liable for a very large bill.
- 1. In November of 2006, Double C was hired by Westside Energy (“Westside”), the Debtor’s predecessor, to construct a platform or foundation for a drilling rig at a job site in Hill County, Texas.
- Westside signed a work order for the job that was blank as to the cost of the job.
- At the time the work order was signed, Westside was less concerned about the cost of the job and was more concerned about the job getting done properly and quickly. This was so because the original drilling rig at the job site had broken down, a new rig had been leased and transported to the job site, but the weight of the new rig was too much for the existing infrastructure. In short, a rig costing Westside $25,000 a day was sitting idle at the job site until a platform or foundation could be constructed that would support the weight of the new rig. Until that platform or foundation was constructed, the new rig would remain idle and the Primula 1-H well (the “Well”) could not be completed.
On numerous occasions the debtor company agreed that they were not concerned with the price of the job; but when they filed for Chapter 11 bankruptcy and the creditor submitted a claim, it was challenged.
The bankruptcy court came to the conclusion that they would allow the claim since:
- the debtor company said that price was no issue
- the price was justified because of the difficulty of the job and the fact that few people could do it
- the bankruptcy court is required to honor contracts. Business debtors engaged with vendors must be clear that they do not write “blank checks” because if they need to file bankruptcy, it won’t be so easy to not pay the ultimate price of that “blank check.” Bankruptcy courts are obligated to honor contracts so be careful what you agree to.