In re Dulan
| Decision Date | 05 September 1985 |
| Docket Number | Bankruptcy No. LAX 85-50307-JD. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California |
| Parties | In re Adolf DULAN and Mary Dulan, dba Hamburger City — Marina, Debtor. |
Lowther & Bowen, Tarzana, CA, for debtors.
Joseph D. Massengale, Jr., Los Angeles, CA, for debtors.
Gurewitz & Lieb, Los Angeles, CA, for creditor, Villa Marina Partners.
Nancy Curry, Los Angeles, CA, trustee.
This case presents the following questions:
1. Did the debtors assume a lease of nonresidential real property within the time prescribed by 11 U.S.C. § 365(d)(4)?
2. Did the landlord or his predecessor in interest waive the requirement that the lease be assumed within the time prescribed by 11 U.S.C. § 365(d)(4)?
3. Did the debtors timely exercise an option contained in the lease to extend the lease?
4. Are the debtors entitled to equitable relief from their failure to timely exercise the option?
This court concludes that questions 1 and 3 should be answered in the negative; but that questions 2 and 4 cannot be answered without an evidentiary hearing.
On or about August 16, 1982 Adolf Dulan and Mary Dulan, dba Hamburger City (hereinafter "debtors") leased certain commercial real property located in Los Angeles County, California from Villa Marina Center, a California limited partnership. The lease was for a term of three years commencing on August 16, 1982, with one option to extend for a period of three years. The lease provided, inter alia, as follows (Article 3C, page 2-A):
On January 16, 1985 debtors filed a petition under Chapter 13 of the Bankruptcy Code; and on February 11, 1985 debtors filed a Chapter 13 Plan and a Chapter 13 Statement. In their Chapter 13 Statement debtors stated, inter alia, that they were fast food stand owners and that they had been operating a business, Hamburger City — Marina, since 1982. The Chapter 13 Plan did not expressly provide for either the assumption or the rejection of the lease with Villa Marina Center1; nor did the plan expressly provide for the debtors to exercise the option to extend the lease as provided for in the language quoted above.
On or about March 28, 1985 Villa Marina Center assigned all of its rights, title, and interest in the lease and the leased premises to Villa Marina Partners, an Illinois general partnership; and the latter entity will be hereinafter referred to as "landlord".
On May 30, 1985 the debtors filed herein a Petition For Leave To Assume Unexpired Lease And Exercise Option Therein. Thereafter, on June 4, 1985 the landlord filed a Notice Of Motion And Motion For: (1) Order Of Rejection Of Lease Agreement; (2) Order For Issuance Of Writ Of Possession, Or, In The Alternative, Order For Relief From Automatic Stay; (3) Order For Payment Of Administrative Rent; (4) Order For Payment Of Administrative Rent Held In Trust.
Section 365(d)(4) of the Bankruptcy Code, as modified by the 1984 amendments2, provides, inter alia, that ". . . if the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is the lessee within 60 days after the date of the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such lease is deemed rejected, and the trustee shall immediately surrender such nonresidential real property to the lessor."
The court in In Re By-Rite Distributing, Inc., 47 B.R. 660 (Bkrtcy.Utah 1985), exhaustively analyzed the 1984 amendments to Section 365 of the Bankruptcy Code and their legislative history and concluded that the lease in that case had terminated by operation of law even though the Chapter 11 debtor-in-possession had filed his motion to assume the lease on the sixtieth day; that not only must the debtor file his motion to assume within the sixty day period but that the court must approve the assumption within the sixty day period unless extended.
In the present case, debtors Chapter 13 petition was filed on January 16, 1985; therefore, the last day to assume the nonresidential lease here involved was March 17, 1985. Under By-Rite, supra., there was no assumption of the lease in this case within the prescribed time.
In By-Rite, supra., the court in a footnote observed (47 B.R. at page 670, footnote 16):
Unlike By-Rite, the record in the present case does indicate that the landlord may have waived timely assumption of the lease. Although the time to assume the lease under Section 365(d)(4) of the Bankruptcy Code had expired on March 17, 1985, the landlord's counsel in a letter dated April 30, 1985 to debtors' counsel stated, inter alia, as follows:
The above-quoted letter in effect invites debtors' counsel to revise their Chapter 13 plan to assume the lease and to provide adequate assurance of payment of all pre-petition rent. Since the time to assume the lease under Section 365(d)(4) had expired on March 17, 1985, this letter together with all the facts and circumstances of the case may be construed as a waiver of timely assumption.
In bankruptcy cases the rights of parties in real estate leases are governed by state laws unless there are contrary provisions in the Bankruptcy Code. Matter of Norwood Aviation, Inc., 47 B.R. 155, 157 (Bkrtcy.Mass.1985); Matter of Dolese, 28 B.R. 992, 995 (D.C.E.D.La.1982); Matter of Zienel Furniture, Inc., 13 B.R. 264, 265 (Bkrtcy.E.D.Wis.1981); In re Burke, 76 F.Supp. 5, 8 (S.D.Calif.1948); Cf. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979); Johnson v. First National Bank, 719 F.2d 270 (8th Cir.1983), cert. denied, ___ U.S. ___, 104 S.Ct. 1015, 79 L.Ed.2d 245 (1984).
Under California law, where an option is given for a specified period, it generally must be exercised within that period. Simons v. Young (1979), 93 Cal.App.3d 170, 155 Cal.Rptr. 460; Rosenour v. Pacelli (1959), 174 Cal.App.2d 673, 345 P.2d 102; Drewry v. Welch (1965), 236 Cal.App.2d 159, 46 Cal.Rptr. 65. However, 11 U.S.C. § 108(b) provides as follows:
In the view of this court, Section 108(b) quoted above extended the time to exercise the option to extend the lease in this case. Cf. In re Santa Fe Development, Etc., 16 B.R. 165 (Bkrtcy.App. 9th Cir.1981). However, the extension was only for 60 days after the order for relief; therefore the time to exercise the option as extended by Section 108(b) ended on March 17, 1985.
Debtors contend that the time to exercise the option was extended by 11 U.S.C. § 362. Although the authorities on this issue in analagous situations are in conflict, this court is of the view that while Section 108(b) extends the time to exercise the option, Section 362 does not. See discussion in Johnson v. First National Bank, supra., 719 F.2d at pages 274-278, and authorities referred to therein; In re Crabb, 48 B.R. 165, 167 (Bkrtcy.Mass. 1985).
Since the time to exercise the option expired on March 17, 1985 and debtors' petition in this court to exercise the option was not filed until May 30, 1985, the debtors failed to timely exercise the option.
Although under California law an option must generally be exercised within the period for which it was given,...
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