In re Atlantic Times, Inc.

• Decision Date: 12 October 1966
• Docket Number: No. 53301.,53301.
• Citation: 259 F. Supp. 820
• Parties: In the Matter of the ATLANTA TIMES, INC., Bankrupt.
• Court: U.S. District Court — Northern District of Georgia

259 F. Supp. 820

In the Matter of the ATLANTA TIMES, INC., Bankrupt.

No. 53301.

United States District Court N. D. Georgia, Atlanta Division.

October 12, 1966.

COPYRIGHT MATERIAL OMITTED

Hansell, Post, Brandon & Dorsey, Atlanta, Ga., for bankrupt.

Powell, Goldstein, Frazer & Murphy, Atlanta, Ga., for Walter Sanders, trustee and receiver.

Harmon & Thackston, Atlanta, Ga., for National Acceptance Company of America.

Edenfield, Heyman & Sizemore, Atlanta, Ga., for Commercial Credit Corporation.

MORGAN, Chief Judge.

Two petitions for review of the orders of the Referee dated May 23, 1966 and September 2, 1966, have been filed with this Court by the trustee. The Court has heard oral argument and has studied the very comprehensive briefs which have been submitted by both parties.

The Findings of Fact and Conclusions of Law contained in the Referee's orders of May 24, 1966 and September 2, 1966, fully set forth the issues raised by the petitions for review and are incorporated herein by reference.

The Court concludes that the orders of the Referee are correct, and the petitions for review should be and hereby are denied.

It is so ordered.

FINDINGS AND CONCLUSIONS OF W. HOMER DRAKE, REFEREE.

The Court has before it several matters in the above-styled bankruptcy arising out of transactions between the bankrupt (hereafter called the "Times"), and Commercial Credit Corporation (hereafter called "CCC"). The controversy arises out of an Equipment Lease dated February 7, 1964 (hereafter called the "Lease").

FINDINGS OF FACT

A. Pleading.

1. On September 1, 1965, the Times filed a petition for Arrangement under Chapter XI of the Bankruptcy Act.

2. On September 7, 1965, CCC filed its petition for reclamation of property leased to the Times alleging default by the Times under the terms of the lease in discontinuing business and filing its bankruptcy petition. The trustee filed an answer alleging the lease was a security agreement as defined by the Uniform Commercial Code adopted in Georgia; that at the time of its execution the Times was given an option to acquire the leased property at the end of the term of the lease for a nominal consideration of "not more than $5.00"; and that no financing statement had been filed by CCC evidencing its security interest in the leased property.

3. While the matter was pending, the property of the Times, including the property claimed by CCC, was sold at public auction, which sale was subsequently confirmed by the Court. The property claimed by CCC brought a net price, after auctioneer's commission and expenses of sale of $318,573.76, which amount now stands in lieu of the property from which the proceeds were derived.

4. Following the sale, the trustee filed a Petition for Turnover against CCC alleging that a security deposit in the amount of $145,000.00 was held by CCC under the lease, and that CCC had not perfected its security interest in said deposit. CCC filed an answer denying its failure to perfect a security interest and praying for a set-off of the security deposit against the damages it allegedly suffered by the default of the Times under the lease.

B. The Lease and the Leased Property.

1. The lease between the Times and CCC was executed on February 7, 1964. Following its execution CCC purchased $570,116.10 of equipment which had been designated by the Times, (Trans. 2-9-66, p. 17), and the equipment purchased was invoiced to CCC and shipped to the Times. (See invoice attached to lease).

2. The Times executed the lease knowing its contents and the lease in evidence is the lease the Times intended to execute (Trans. 2-9-66, p. 19; letter from Glick dated Feb. 7, 1964).

3. Upon execution of the lease the Times paid CCC $145,000 as a deposit to secure its payment and performance of any obligations under the lease. (Letter from Glick dated Feb. 7, 1964).

4. The lease is for a term of ten years and calls for a monthly rental of $5,940.61 per month. The first rental payment was made June 29, 1964, and the Times continued to make payments thereafter, the last payment being made for the rent due July 29, 1965.

5. Under the terms of the lease the Times assumed all responsibility for maintenance and repair of the leased property, was obligated to keep the property insured and assumed all risks of loss. All taxes and expenses in connection with the leased property were to be paid by the Times. The lease also provides that:

"(I)t is and is intended to be a lease, and Lessee does not hereby acquire any right, title or interest in and to the chattels, except the right to use the same under the terms hereof."

It contains a provision that:

"No representations, warranties, or agreements, oral or written, expressed or implied have been made by either party hereto with respect to this lease or the chattels covered hereby, except as expressly provided herein. This lease, together with the schedules from time to time attached hereto, constitute the entire agreement between the parties hereto. Any change or modification to this lease must be in writing and signed by the duly authorized representatives of the parties hereto."

At the expiration of the lease, the Times agreed to return the leased property to CCC or load it on board such carrier to be shipped to such destination as CCC should specify.

6. The lease contains a long and detailed default provision. The conditions of default include the filing of a petition under any Chapter of the Bankruptcy Act, and the suspension of business or commission of any act amounting to business failure. Upon default CCC is given the right to terminate the lease and demand a return of the property, or take possession of the property and thereafter hold it and the security deposit free and clear of the lease. CCC is authorized to re-let the property or sell it. If the property is re-leased, the total unpaid rentals less the rent from such leasing constitute liquidated damages. If the property is sold, the amount received less expenses and less the appraised value of the property at the end of the term is deducted from the total unpaid rentals and the balance is liquidated damages.

7. Most of the property leased was composing room equipment, including fourteen linotype machines. (Invoices attached to lease). The equipment does not wear out quickly and there was no possibility that it would be consumed during term of the lease. (Trans. 2-9-66; pp. 22, 41.) The property would have substantial value at the end of the lease term (Davis, p. 23).

C. Default.

1. On September 1, 1965, the Times filed its Petition for Arrangement under Chapter XI of the Bankruptcy Act. It ceased publication on that date and never resumed business thereafter. On January 17, 1966, it was adjudicated bankrupt.

D. Option.

1. The only matter of fact disputed by the parties is whether or not CCC granted the Times an option to acquire the leased property at the end of the term for a nominal consideration. The lease itself contains no option or any provision whereby title shall ever pass or be acquired by the Times. The written lease expressly negatives such option. Much evidence was tendered on this question, all of which was objected to by CCC. The Court received the evidence, subject to the objection. (See conclusion No. 1). Without adopting any of the evidence offered as part of its findings of fact, the Court herein sets out its understanding of the testimony:

a. Mr. Glick, Vice-President of CCC. He stated unequivocally that at no time did CCC ever agree, either orally or in writing to give the Times an option to acquire the leased property, for a nominal consideration, or otherwise.

b. Judge Davis, Publisher and Chairman of the Board of the Times. He stated that at a conference prior to execution of the lease with Mr. Glick and Mr. I. M. Orner, Mr. Glick told him that at the termination of the contract, CCC "for a nominal sum would transfer title" to the Times. (Trans. 2-9-66, p. 13). When asked what was a nominal sum, he testified that Mr. Glick replied, "Oh, a thousand dollars or two thousand dollars." (Ibid. at p. 14). Judge Davis stated that the question was raised that, "on a transaction of this size, with just a verbal understanding here, there might arise some disagreement and we ought to have * * * The Atlanta Times ought to have some kind of a showing that when all this has been completed that the title to this property will be transferred to The Atlanta Times." Mr. Glick is said to have replied, "Well, after the contract is signed and after this transaction goes through, some appropriate officer of Commercial Credit Corporation will write you a letter to that effect." (Ibid. at p. 15).

Judge Davis testified that Mr. Glick did not state who the person would be that would write the letter. To his knowledge the letter was never written and to his knowledge it was never received. (Ibid. at pp. 15, 16).

c. Roscoe Pickett, President of the Times. (With reference to the testimony of Messrs. Pickett and Carter and Mrs. Stephens, counsel for trustee stipulated what they would testify to if called. Counsel for CCC objected to the admissibility of the testimony stipulated both on the grounds of the parol evidence rule, the hearsay rule, and rule against self-serving declarations. Counsel agreed, however, that if the testimony were admissible, the witnesses would testify as indicated.) By stipulation, Mr. Pickett testified that he was present at the meeting with Glick, Davis and Orner, and that it was agreed that "at the end of the lease period the Times would have an option to buy the equipment which was the subject matter of the lease for a nominal consideration of $1,000 or $2,000," and that Mr. Glick stated that he "would have some appropriate official of Commercial Credit write a letter to the Times stating the option to purchase." (Stip. 4-25-66).

He also testified that "he has always been under the impression" that the letter was written and received,

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