In re Belize Airways, Ltd., Bankruptcy No. 80-00199-BKC-SMW

• Decision Date: 26 June 1980
• Docket Number: Adv. Proceeding No. 80-0078-BKC-SMW-A,80-0094-BKC-SMW-A.,Bankruptcy No. 80-00199-BKC-SMW
• Citation: 5 BR 152
• Parties: In re BELIZE AIRWAYS LIMITED, Debtor. William D. SEIDLE, Trustee, Plaintiff, v. PAN AMERICAN WORLD AIRWAYS, INC., Defendant. PAN AMERICAN WORLD AIRWAYS, INC., Plaintiff, v. BELIZE AIRWAYS LIMITED, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

5 B.R. 152 (1980)

In re BELIZE AIRWAYS LIMITED, Debtor.

William D. SEIDLE, Trustee, Plaintiff, v. PAN AMERICAN WORLD AIRWAYS, INC., Defendant.

PAN AMERICAN WORLD AIRWAYS, INC., Plaintiff, v. BELIZE AIRWAYS LIMITED, Defendant.

Bankruptcy No. 80-00199-BKC-SMW, Adv. Proceeding Nos. 80-0078-BKC-SMW-A, 80-0094-BKC-SMW-A.

United States Bankruptcy Court, S.D. Florida.

June 26, 1980.

Timothy J. Norris, Miami, Fla.,

J. Micheal Nifong, Miami, Fla., for the defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

SIDNEY M. WEAVER, Bankruptcy Judge.

THESE MATTERS were tried by the Court on April 27, 1980. Pursuant to the stipulation of counsel, the Court has considered the evidence presented before it on March 21, 1980, at a hearing involving many of the same factual and legal issues presented herein. The Court having heard the testimony and examined the evidence presented, having observed the candor and demeanor of the witnesses, having considered the arguments of counsel, and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law.

On April 16, 1980, William D. Seidle, the Trustee for the estate of Belize Airways Limited, Debtor (hereinafter "BAL"), filed an adversary proceeding to determine the extent of Pan American World Airways, Inc.'s (hereinafter "Pan Am") interest in property and for declaratory relief. On April 22, 1980, Pan Am filed an adversary proceeding against the Trustee and BAL seeking relief from the automatic stay provided by § 362 of the Bankruptcy Code in order to proceed with a pending eviction action in state court to recover possession of premises subleased by Pan Am to BAL or, in the alternative, for a declaration that the sublease had terminated. In addition, on May 2, 1980, the Trustee served its decision to assume the sublease, subject to the approval of this Court. Because the legal and factual issues are basically the same for each adversary proceeding and for the approval of the assumption, this Court, like the parties, is considering them together.

This Court has jurisdiction of this case under 28 U.S.C. § 1471(a) and has jurisdiction of the adversary proceedings under 28 U.S.C. § 1471(b).

BAL is a corporation organized under the laws of Belize, a British colony, with substantial assets located in the United States, primarily at Miami International Airport. BAL conducted scheduled passenger and cargo air service between Miami and points in Central America until its last remaining aircraft were seized by court process at the instance of creditors. A creditor's petition was filed against BAL on February 25, 1980, and BAL consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code. Thereafter, on April 4, 1980, William D. Seidle was appointed as Trustee for the estate of BAL. Since the institution of these proceedings, Pan Am has attempted to obtain the determination of this Court that the sublease could not be assumed by BAL or by the Trustee. For the reasons set forth below, this Court has concluded that the sublease has not been terminated, that relief from the automatic stay should not be granted, and that the Trustee's assumption of the sublease should be approved.

Pan Am is the lessee of property at Miami International Airport pursuant to a Lease Agreement dated April 1, 1962, between Pan Am and the Dade County Port Authority. On November 1, 1977, Pan Am entered into an Agreement of Sublease with BAL which subleased to BAL a hangar facility commonly called Hangar 8 and adjacent spaces for the parking of aircraft. By the end of 1979, BAL was behind in its rental payments to Pan Am, and on January 22, 1980, Pan Am delivered to BAL a letter stating that the Agreement of Sublease was terminated as of February 12, 1980; this letter did not give BAL any grace period within which to cure any existing defaults but demanded the payment of $60,933.30 in arrears. On February 4, 1980, BAL tendered payment of $60,933.30 on condition that the sublease not be terminated, but Pan Am refused the tender. However, according to the testimony of a Pan Am employee, Pan Am thereafter did accept the payment of the rent for February. On March 4, 1980, a tender of $200,000.00 was made on behalf of BAL to pay the balance due and prepay several months of rent; however, this tender was refused by Pan Am.

During this period of time, and to some extent even through the time of trial, BAL was permitting certain third parties to use a portion of the subleased premises pursuant to business arrangements. Although the Agreement of Sublease provides that BAL can sub-sublease only with the prior consent of Pan Am, the Agreement of Sublease is silent about these business arrangements. However, the evidence clearly shows that Pan Am considered the business arrangements between its sublessors such as BAL and third parties to be different in some way from a sub-sublease and consistently acquiesced in BAL's business arrangements with third parties.

The evidence presented at the trial demonstrated that some airlines are capable of operating without having their own hangars, but in those instances they go elsewhere for certain of the maintenance work required for the aircraft. One of the airlines without hangar facilities did acknowledge that it very much wanted to acquire a hangar so that it could perform full maintenance on its aircraft. And the evidence was undisputed that the current market rental value of Hangar 8 is far in excess of the rate specified in the Agreement of Sublease between Pan Am and BAL.

EQUITABLE CONSIDERATIONS PROMPT RELIEF IN FAVOR OF BAL

Not surprisingly, the Bankruptcy Reform Act of 1978 recognized what has long been acknowledged — that courts of bankruptcy are courts of equity. Public Law 95-598, Sec. 241(a), codified as 28 U.S.C. § 1481. And just as nature abhors a vacuum, equity abhors a forfeiture. The provisions of the Agreement of Sublease invoked by Pan Am in its letter of January 22, 1980, clearly constitute a forfeiture provision, since they provide for the termination of a valuable property interest upon any default, however minor, without the opportunity to cure the default. Here, the provisions were invoked to terminate a leasehold interest worth substantially more than the amount of the rental payments.

The law of Florida, like many other states, disfavors forfeiture clauses in leases. The Florida Supreme Court, in a case acknowledged and followed often since, has stated the general rule to apply in situations like the one presented here:

Equity will relieve against the forfeiture of a lease for the non-payment of rent whenever it is just and equitable to do so; the only condition precedent to such relief being the tender of payment of the arrears of rent with accrued interest. Rader v. Prather, 100 Fla. 591, 130 So. 15, 17 (1930).

See also Nevins Drug Co. v. Bunch, 63 So.2d 329 (Fla.1953); Brownlee v. Sussman, 238 So.2d 317 (Fla. 3d DCA 1970); Fort Walton Square, Inc. v. Purvis, 177 So.2d 857 (Fla. 1st DCA 1965). The decisions of bankruptcy courts cited by Pan Am are consistent with these principles. See In re Greco, 3 B.R. 18, 1 C.B.C.2d 619, 6 B.C.D. 98 (Bkrtcy. M.D.Haw.1980); In re...