Opinion Number ( 1997 )

Dear Rep. Welch:

You requested the opinion of this office concerning the appropriateness of making a payment to an entity in bankruptcy. You advised that the State appropriated funds to Urban Development, who in turn funded Serenity 67, a non-profit organization. Serenity 67 entered into a contract with The Eden Park Community Health Center ("Eden Park"), another non-profit organization, whereby Eden Park was to provide community health care services, dental, medical and ancillary services to residents of District 67. Under the contract Serenity 67 agreed to pay Eden Park $20,000 in two increments of $10,000, one on December 11, 1996 and one on March 11, 1997. Serenity 67 paid Eden Park in December but before the March payment was due, Eden Park filed bankruptcy. Your question is whether Serenity 67 should pay the $10,000 balance to Eden Park.

You included with your opinion request a copy of a letter from the attorney representing Eden Park advising that Eden Park is a debtor-in-possession in a Chapter 11 bankruptcy proceeding. He further advised that Eden Park is continuing operations and is providing services as it did prior to the filing. He stated that Eden Park is preparing a plan to pay its creditors while continuing its role as a health care provider. He further advised that Eden Park intends to fulfill all of its executory contracts, particularly its contract with Serenity 67.

Please be advised that even though Eden Park has filed for bankruptcy, Serenity 67 is still obligated to fulfill its contractual obligations with Eden Park unless Serenity 67 has a valid reason for not paying, for instance, if Eden Park failed to perform its obligations under the contract. You have not presented this office with any facts indicating that Eden Park has breached the contract, and thus Serenity 67 appears to be obligated to pay the remaining amount due under the contract.

Trusting this adequately responds to your request, I remain

Yours very truly,

RICHARD P. IEYOUB Attorney General

BY: ____________________________ MARTHA S. HESS Assistant Attorney General RPI/MSH/