In re Austin
| Citation | 102 BR 897 |
| Decision Date | 30 June 1989 |
| Docket Number | Bankruptcy No. 85-40639,85-40555. |
| Parties | In re Donald E. AUSTIN, Debtor in Possession, Diamond Manufacturing Company, Inc., Debtor. BETHESDA-UNION SOCIETY OF SAVANNAH, INC., Movant, v. Donald E. AUSTIN, Diamond Manufacturing Company, Inc., W. Jan Jankowski, Trustee for Diamond Manufacturing Company, Inc. and Signet Commercial Corporation, Respondents. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Georgia |
Kathleen Horne, Ashley M. Hodges, Adams, Gardner, Ellis, Inglesby & Falligant, P.C., Savannah, Ga., for movant.
Mr. M. Tyus Butler, Jr., Bouhan, Williams & Levy, Savannah, Ga., for Donald Austin.
George Pahno, Savannah, Ga., for Diamond Manufacturing.
W. Jan Jankowski, Savannah, Ga., for W. Jan Jankowski.
Mr. John M. Tatum, and William F. Hinesley, III, Miller, Simpson & Tatum, Savannah, Ga., for Signet Commercial Credit Corp.
In accordance with the stipulation of facts entered into by the parties to this action and testimony from the hearing on the motion for relief from stay by Bethesda Union Society of Savannah, Inc. (Bethesda) and the trustee's motion to assume an executory contract, the court makes the following findings of facts and conclusions of law:
FINDINGS OF FACT
1. Bethesda, a non-profit Georgia corporation which operates a home for boys, owns certain real property identified as 645 Indian Street, Savannah, Georgia.
2. Bethesda obtained an undivided two-third interest in and to the property under an assent to devise to Bethesda under Item VII of the will of Bernard F. Diamond dated September 12, 1975, and recorded in Record Book 105-P, Folio 649 Chatham County records. Additionally, on September 12, 1975 Delores Diamond, the owner of the remaining one third interest, conveyed the remaining interest in the property to Bethesda by warranty deed which deed was recorded on April 19, 1976 in Record Book 106-P, Folio 829, Chatham County records.
3. Bethesda's ownership of the property was subject to a lease agreement originally entered into between Bernard F. Diamond as landlord and B.F. Diamond Construction Co., Inc. (Diamond Construction) as tenant.
4. Paragraph 14 of the lease provided that Diamond Construction possessed the right to assign or sublet the lease at any time without the written consent of the landlord.
5. Pursuant to paragraph 14 of the lease, on February 28, 1977, Diamond Construction entered into an agreement with Diamond Manufacturing Company, Inc. (Diamond Manufacturing), with respect to the lease of the property. The parties cannot agree whether this arrangement is an assignment or a sublease.
6. On May 12, 1983, Diamond Manufacturing assigned its interest in the lease to Signet Commercial Credit Corporation (Signet) as security for debt owed to Signet.
7. On August 29, 1985, Diamond Manufacturing filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code and operated as debtor in possession until the case was converted to a case under Chapter 7 on August 26, 1988. W. Jan Jankowski was appointed trustee in the Chapter 7 proceeding.
8. Diamond Manufacturing as debtor in possession never filed a motion to assume or reject the lease. The trustee filed his motion to assume an executory contract within sixty (60) days of the conversion of the case to a Chapter 7 proceeding.
9. Through mergers and acquisitions, the corporate entity Diamond Construction became the Hardaway Company (Hardaway).
10. Under the terms of the lease, rental payments are Fifteen Thousand and No/100 ($15,000.00) Dollars per year with Seven Thousand Five Hundred and No/100 ($7,500.00) Dollars due on April 1, and Seven Thousand Five Hundred and No/100 ($7,500.00) Dollars due October 1 of each year. Since debtor's bankruptcy filing, Bethesda has received all rental payments of Seven Thousand Five Hundred and No/100 ($7,500.00) Dollars through March 31, 1988. Bethesda has not received a rental payment for the six-month period beginning April 1, 1988, nor the six-month period beginning October 1, 1988. Trustee has attempted to make a tender of Seven Thousand Five Hundred and No/100 ($7,500.00) Dollars and Bethesda has instructed First Union National Bank, its agent, not to accept the rent payment. Hardaway is also holding Seven Thousand Five Hundred and No/100 ($7,500.00) Dollars in rental payment from Diamond Manufacturing which Bethesda has refused to accept.
11. Both Bethesda and Hardaway were generally aware in 1986 or 1987 that Diamond Manufacturing had filed a voluntary petition for relief under the United States Bankruptcy Code.
12. During a period of time in the early 1980's, Diamond Manufacturing made some rental payments directly to Bethesda through First Union. This practice terminated not later than 1985 at the insistence of Bethesda. Following that time, rental payments were made when due by Hardaway, which in turn billed Diamond Manufacturing for the rent due. Notices of rent due were mailed by First Union to Hardaway. Bethesda maintains its landlord-tenant relationship is with Hardaway and not with Diamond Manufacturing.
13. At no time prior to the filing of this motion for relief from stay did either Bethesda or Hardaway make any effort to terminate the lease in question.
14. Hardaway has filed no objections to the trustee's motion to assume this lease agreement.
15. The sole ground upon which Bethesda's motion is founded is the failure of the Chapter 11 debtor to formally accept or reject the lease agreement within the time prescribed by 11 U.S.C. § 365.
16. The fair rental value of the property substantially exceeds the rents called for under the terms of the lease.
17. Debtor, Donald E. Austin (Austin), claims an equitable interest in the lease agreement because of his services to Diamond Manufacturing. Therefore, Bethesda also filed this motion for relief from stay to terminate the lease agreement in Mr. Austin's Chapter 11 case.1
The initial question which must be resolved is whether the agreement entered into between Diamond Construction and Diamond Manufacturing is an assignment of a lease or a sublease. The written agreement entered into between the parties is titled an assignment. The terms of the agreement place Diamond Manufacturing in the position of Diamond Construction (now Hardaway) in relation to the original lease agreement. Where the language of a contract is clear and unambiguous, construction of the agreement is not required, or even permissible, when the language employed by the contract is plain, unambiguous, and capable of only one reasonable interpretation. Merrill, Lynch, Pierce, Fenner & Smith v. Stidham, 506 F.Supp. 1182 (M.D.Ga.1981). Diamond Construction assigned the lease to Diamond Manufacturing; Diamond Manufacturing assigned the lease to Signet.2 Bethesda remained at all times the owner of the property and the holder of the lease, the landlord.3 Bethesda, therefore, has standing to bring this motion for relief from stay.
The basic issue remaining is whether Bethesda has waived its right to assert that the lease has been rejected by the operation of 11 U.S.C. § 365(d)(4).4 Section 365(d)(4) imposes an affirmative duty on the trustee or debtor in possession to bring a formal motion to assume or reject an unexpired lease on non-residential real property within sixty (60) days after filing a petition for relief under the Bankruptcy Code. Approval of the court is required to assume or reject a lease. In re: Florida Airlines, Inc., 73 B.R. 64 (Bankr.M.D.Fla. 1987); In re: D'Lites of America, Inc., 86 B.R. 299 (Bankr.N.D.Ga.1988). Diamond Manufacturing failed to seek approval within the sixty (60) day time period set forth in § 365. Therefore, by operation of law the lease agreement is deemed rejected.
Some courts have held that this automatic rejection of an executory contract by the operation of law terminates all of a debtor's interest in the executory contract, and therefore, after the expiration of the sixty-day period, the debtor may not assume the contract. See In re: Giles Associates, 92 B.R. 695 (Bankr.W.D.Tex.1988); In re: Dial-A-Tire, 78 B.R. 13 (Bankr.W.D.N.Y. 1987); In re: Las Margaritas, 54 B.R. 98 (Bankr.Nev.1985). Bethesda urges the court to adopt this view, deny the trustee's motion as untimely, and require immediate surrender of the premises to Bethesda. Bethesda contends that a creditor cannot waive its rights under § 365 because of the specific rejection language of § 365(d)(4) and the anti-waiver language of § 365(d)(3),5 which language was added to § 365 by the 1984 amendments.
Section 365(d)(3), however, is not applicable to the facts now before the court. Section 365(d)(3) imposes an obligation on the trustee to timely perform the debtor's obligations under a lease prior to either rejecting or assuming the lease. The genesis of § 365(d)(3) was an understandable impatience with trustee delays in curing defaults and failure to preserve the status quo by making interim payments. 2 Collier on Bankruptcy § 365.03 (15th Ed.1989). The anti-waiver language is meant to affect only the acceptance of the trustee's performance during the period of time allowed by law for the acceptance or rejection of the executory contract. In re: T.F.P. Resources, 56 B.R. 112 (Bankr.S.D. N.Y.1985). This language was designed to protect the creditor by retaining the status quo through the trustee's performance while the trustee determined whether it would be in the best interest of the estate to accept or reject the executory contract. Acceptance of performance by a creditor during this period of decision cannot be construed as a waiver of the landlords rights' under the lease or under Title 11.
A distinction must be drawn between this sixty-day time period and the time period for which Bethesda continued to accept rental payments and treat the lease as on-going in the case now before the court. Bethesda accepted...
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