In re Delta Motor Hotel of Syracuse, Inc.

Decision Date06 April 1981
Docket NumberBankruptcy No. BK-78-1683.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Northern District of New York




Menter, Rudin & Trivelpiece, P.C., Syracuse, N.Y., for trustee, Ralph Blum; Gerald J. Mathews, Syracuse, N.Y., of counsel.

D'Arrigo & Granito, Liverpool, N.Y., for Lessors Antonio Emmi, Carmen Emmi and Salvatore Mangano; Mario D'Arrigo, Liverpool, N.Y., of counsel.

Boone, Wellford, Clark, Langschmidt & Pemberton, Memphis, Tenn., for debtor; William Boone, Jr., Memphis, Tenn., of counsel.


LEON J. MARKETOS, Bankruptcy Judge.

On August 24, 1978, Delta Motor Hotel of Syracuse, Inc., (hereinafter, Debtor or Lessee under a lease dated September 8, 1966 in which Antonio Emmi, Carmen Emmi and Salvatore Mangano were Lessors), petitioned for relief under Chapter X of the Bankruptcy Act of 1898. The Hon. Howard G. Munson, of the United States District Court of the Northern District of New York, thereafter appointed Ralph Blum as Trustee and the case was referred to the undersigned Bankruptcy Judge.

On November 30, 1978, as permitted by Rule 10-112(a)(2) of the Rules of Bankruptcy Procedure, the Lessors filed an answer to the petition in which they controvert its material allegations. (See § 130 of the Bankruptcy Act). The Lessors allege that the primary, if not the sole asset of the Debtor-Lessee is the leasehold interest created by the lease and that said leasehold interest has been terminated by the operation of conditional limitation clauses following breaches of covenants in the lease. Furthermore, in accordance with provisions of the lease, a Notice of Limitation of Term dated June 19, 1978, prior to the filing of the Chapter X petition, was given to the Lessee-Debtor which terminated the lease; and that irrespective of the June 19, 1978 Notice, a further Notice of Limitation of Term dated October 27, 1978, subsequent to the filing of the petition, also caused the lease term to end.

The Lessors further allege that a plan of reorganization cannot be effected, thereby challenging the requisite good faith element of this petition. (See § 146 of the Bankruptcy Act).

A lengthy trial of the issues was had before the Court during which extensive proof was taken on the issues raised by these pleadings.


The Debtor herein was the builder and operator of a Ramada Inn at the intersection of Buckley Road and Seventh North Street in the Town of Salina, Onondaga County, on land owned by the Lessors. The formal lease agreement was entered into by and between the Debtor and the Lessors on September 8, 1966 for a term of thirty (30) years, plus two additional twelve-year options.

The construction of the hotel actually began in October of 1969, when the Debtor-Lessee borrowed $1,125,000.00 from Marine Midland Trust Company (hereinafter, Marine), on an interim basis. A commitment was thereafter obtained from Guardian Life Insurance Company of America, (hereinafter Guardian), to take out the permanent mortgage. Upon assignment to Guardian monthly installments of principal and interest would be paid. In addition, Lessee was to pay an override of "10% of the gross annual room sales that exceeded $495,000.00." The usual payments of taxes, assessments, sewer and water charges, insurance, etc. were the Lessee's responsibility.

A delay in the construction of the motel caused the permanent financing commitment of Guardian to expire. A new financing agreement was made which increased the override percentage. The motel was completed on or about November 25, 1970, at which time Marine assigned the mortgage to Guardian.

In January of 1971, Delta borrowed $500,000.00 from the Westinghouse Credit Corporation (hereinafter, Westinghouse), to finance the acquisition of furniture and fixtures.

Both aforesaid mortgage documents were executed by the Lessors. The Lessors subordinated their interest in the real estate to the first mortgage held by Guardian and the second mortgage held by Westinghouse.

The lease (Exhibit 1) required that the mortgages contain a standard provision1 which read in relevant part as follows:

"Prior to declaring this mortgage to be immediately due and payable as a result of any event of default hereunder or under the note secured thereby for the building loan agreement herein referred to, the mortgagee shall notify said individual mortgagors the Lessors in writing by registered or certified mail of such default and said individual mortgagors shall have thirty (30) days from the date of delivery of such notice to any one of them in which to cure said default."

The lease also contained the usual provisions requiring the timely payment of rent, override percentage, mortgage payments, taxes, insurance, etc. and provided that in the event of a default the Lessor could do any of the following:

"1. Institute an action or actions to enforce the lease.
2. Take possession of the leased premises. . . . without thereby terminating the lease and on behalf of the Lessee re-let the same or any part thereof............... Lessors may at any time after taking possession as aforesaid terminate this lease by notice to Lessee and sue for and receive from Lessee damages, including but not limited to reasonable attorney\'s fees incurred by Lessors.
3. Terminate this lease by notice to Lessee, re-enter the leased premises and recover damages, including but not limited to costs of re-possession, re-letting, attorney\'s fees and brokerage commissions for services performed by Lessors or others.
4. Exercise any other remedy allowed by law or equity."

Sec. 4.4 of the lease provided in pertinent part:

"In the event Lessee fails to remedy any default in the payment of any obligation properly due from the Lessee and secured by any such loan documents within fifteen (15) days after written notice thereof from Lessors, said failure shall constitute a default under this lease, and Lessors may, in addition to other remedies available to them, make any such defaulted payments, and in such event Lessee agrees to repay Lessors, upon demand, the full amount so paid and expended by Lessors, together with interest thereon at the rate of six percent (6%)."

From the beginning, the hotel was plagued by financial difficulties of one kind or another. In the early stages, at least three mechanics liens were filed against the premises. These were satisfied. Later, numerous defaults were made in either payment of the mortgage installments, or the override payments which are due within sixty days following the close of the Lessee's fiscal year.

In connection with the Guardian mortgage, there was a series of defaults beginning in 1976, each of which was noted by Guardian by letter to the Lessors. Each was followed by communications, usually oral between the Lessors and the Lessee and subsequently the default was cured or partially cured. This continued through the early part of 1978. On January 4, 1978, Notice of Default was sent out to the Lessors, which was followed on January 24, 1978 by a letter (Exhibit V-7) from the attorney for the Lessors to the Lessees, which read as follows:

"We have recently been notified by the Guardian Life Insurance Company that you have failed to comply with your payment obligations pursuant to the mortgage dated October 9, 1965, as modified September 15, 1970 and January 20, 1977.
Section 4.4 of your lease with my clients, Mr. Antonio Emmi, Mr. Carmen Emmi and Mr. Salvatore Mangano states, `In the event Lessee fails to remedy any default in the payment of any obligations properly due from Lessee and secured by any such loan documents within fifteen days after written notice thereof from the Lessor, said failure shall constitute a default under this lease .......\'
Please consider this letter as formal notice to remedy your default in payment of the mortgage.
In the event the mortgage payments are not made within fifteen days of the date of this letter, we will consider you in default under the lease and take appropriate steps to protect our interests.

Very truly yours Grasso, Rivizzigno Warnoff & DiLauro Carmen Grasso"

Following the default of January 4, 1978, a default was noted by a Guardian letter dated February 17, 1978. Then on April 18, 1978, another default was noted by letter to the Lessors, which resulted in a Lessors' Notice of Limitation of Term being duly sent to the Lessee by registered mail.

The Notice of Limitation of Term (Exhibition XI-1) provided, in substance, that Section 4.4 of the lease had been breached by default in mortgage payments and in accordance with Section 31.1 and Article XXIX of the lease the term of the lease expired by the sending of this notice. The Notice further required the Lessee to surrender the leased premises including all permanent improvements thereon and all personal property.

It followed that on June 5, 1978, the Lessee forwarded to the Lessors a check in the sum of $2,227.74 for the June rent and due percentage of April restaurant and bar sales. This was cashed on or about June 9, 1978. The Lessee also forwarded to the Lessors on July 28, 1978 a check in the sum of $18,702.72 in payment for annual override rental under the terms of the lease which check was accepted and cashed by the Lessors.

On August 24, 1978, the Lessee filed its petition under Chapter X to effect a corporate reorganization. On October 27, 1978, the Lessors sent the Lessee a second Notice of Limitation of Term. In this instance, the Lessors were exercising an option to terminate the lease accorded to them by virtue of the Lessee's filing in bankruptcy. (Lease, Sec. 32.1). This Notice exercised a Lessors' option to terminate independent of the Notice of June 19, 1978.

One H.G. Hall (who ultimately became the sole stockholder of Delta) and several of his associates were...

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