In re Eadie Properties, Inc.
| Decision Date | 14 July 1983 |
| Docket Number | Bankruptcy No. 81 B 20453,Adv. No. 82 ADV 6304. |
| Citation | 31 BR 812 |
| Parties | In re EADIE PROPERTIES, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Constantine B. Filardi, Armonk, N.Y., trustee and attorney for trustee.
Andrew J. Fiore, Pleasantville, N.Y., for Westfield Realty Corp.
Buonomo & Thaler, Mount Kisco, N.Y., for Aguzzi Properties, Inc.
DECISION ON TRUSTEE'S OBJECTIONS TO CLAIM ASSERTED AGAINST PROCEEDS OF SALE BY WESTFIELD REALTY CORP.
Having sold certain real estate free and clear of all liens with the liens to attach to the proceeds, the trustee in bankruptcy now objects to the claim asserted against the proceeds of sale by Westfield Realty Corp., a fifty percent shareholder of the debtor corporation, Eadie Properties, Inc.
1. The debtor, Eadie Properties, Inc. ("Eadie") is a New York Corporation located in Mt. Kisco, New York. On July 28, 1981 an involuntary petition for relief under Chapter 7 of the Bankruptcy Code was filed against the debtor. On September 24, 1981 an order for relief was entered.
2. The debtor was formed as a result of a joint venture agreement dated May 25, 1978 between Westfield Realty Corp. ("Westfield"), a New York corporation located in New York City and Tribune Projects, Ltd. ("Tribune"), a New York corporation located in Mt. Kisco, New York. Westfield and Tribune each owned fifty percent of the stock of the debtor. At the time of the joint venture agreement, Westfield was the owner of approximately 86 acres of unimproved real estate located in the Town of North Castle in Westchester County, New York, consisting of nine building lots.
3. Pursuant to the joint venture agreement, Westfield agreed to permit Tribune to enter upon the property owned by Westfield for the purpose of constructing and selling nine single family houses on each of the nine building lots owned by Westfield. Tribune agreed to pay Westfield $2,000 from the proceeds of the building loan obtained for each of the nine lots and an additional $6,000 upon the title closing of each house, for a total of $8,000 per lot.
4. The joint venture agreement further provided that if it were necessary to obtain a development loan for the purpose of installing the improvements then Westfield would convey all of the lots to the debtor, Eadie, at the time of the closing of the development loan. In such case, the debtor would pay to Westfield upon closing of the development loan, $2,000 for each lot conveyed to the debtor, with Westfield retaining a second mortgage "or such other lien consistent with the development loan as shall be reasonably designated by counsel for Westfield." Although the agreement provides for the retention of a second mortgage on the part of Westfield, no mortgage agreement was ever formally entered into between Eadie and Westfield.
5. The joint venture agreement provided that all decisions with respect to the debtor corporation would be made by the unanimous decision of its board of directors. Westfield nominated its principal, George Crohn, Jr., as a director, whereas Tribune nominated its principal, Nicholas Della Greca, as a director of the debtor.
6. Paragraph 10 of the joint venture agreement provided:
"If the Corporation decides, by the unanimous vote of its Board of Directors, to sell unimproved land to a third party, the first $8,000 per building lot from the proceeds thereof will be allocated to Westfield, expenses directly connected with the transaction will be paid, and the balance of the proceeds will be net profit to the Corporation."
7. Paragraph 15 of the joint venture agreement provided for a termination of the agreement 20 months after the filing of a subdivision plot map, which was filed on June 5, 1979. Thus, the joint venture agreement terminated by its own terms on February 5, 1981.
8. Pursuant to the joint venture agreement, Westfield conveyed the nine building lots in question to the debtor corporation by deed dated August 13, 1979.
9. During the term of the agreement, two single family houses were constructed on building lots number one and two, which were thereafter conveyed to third party purchasers. No homes were built on the remaining seven vacant building lots.
10. Internal differences developed between the principals, namely George Crohn, Jr. and Nicholas Della Greca, with the result that towards the end of 1980 a meeting was held at the home of Robert Fisher, the attorney for Westfield, at which time Crohn and Della Greca discussed a termination of the joint venture. One of the proposals suggested was that Della Greca would relinquish his interest in some property in Bedford, New York in exchange for his taking over the remaining seven building lots. However, the differences between the parties were not resolved.
11. Nicholas Della Greca, the principal of Tribune, was originally introduced to George Crohn, Jr., the principal of Westfield, by Vera Aguzzi, a licensed real estate broker, who knew that Westfield owned nine vacant building lots in North Castle and believed that Della Greca and Tribune could develop the lots for Westfield under a joint venture relationship.
12. Della Greca had previous business dealings with Aguzzi and owed Aguzzi approximately $18,000 to $20,000 for unpaid real estate commissions, for which Aguzzi had obtained a judgment against Della Greca.
13. In February, 1981, Della Greca approached the Aguzzi Real Estate office and informed them that a mortgage foreclosure was imminent against the joint venture property owned by the debtor and that Aguzzi should find "a quick buyer" before the foreclosure occurred. Della Greca informed Aguzzi that Tribune and Westfield were splitting up and that he "controlled" the property in question. He instructed Aguzzi to "find me a buyer."
14. Della Greca never informed the other joint venture participant, Westfield, that he intended to sell all of the remaining vacant property that had been deeded to the joint venture debtor by Westfield. Indeed, Della Greca never obtained the unanimous consent of the debtor's board of directors to sell all of its unimproved property as required under paragraph 10 of the joint venture agreement of May 25, 1978.
15. On February 25, 1981, approximately twenty days after the joint venture agreement had terminated by its own terms, Della Greca, as president of the joint venture debtor, Eadie Properties Inc., entered into a contract for the sale of the remaining seven vacant building lots to a buyer known as Quality Homes, Inc. for $330,000. Paragraph 17 of the contract states in part: "No broker brought about this transaction."
16. In a separate letter dated February 25, 1981, Della Greca, as president of the debtor, agreed in pertinent part as follows:
"The seller, Eadie Properties Corp., agrees to pay Vera Aguzzi $40,000.00 commission relative to the purchase of 7 lots in the Town of North Castle, County of Westchester, sold by Eadie Properties Corp. to Armonk Quality Homes, Inc."
17. On March 16, 1981, Westfield filed a lis pendens in Westchester County, State of New York and a summons and complaint reciting the joint venture agreement and its termination together with its claim that the debtor was obligated to reconvey the seven vacant building lots to Westfield following the termination of the joint venture agreement.
18. Pursuant to New York CPLR § 6501, the notice of pendency of Westfield's action with respect to its claim for the seven vacant building lots was constructive notice of such claim to all subsequent parties, including the debtor's trustee in bankruptcy,1 who was appointed as a result of an involuntary petition that was filed after the lis pendens had been recorded.
19. The trustee in bankruptcy did not assume the debtor's contract, dated February 25, 1981, to sell its seven vacant building lots to Quality Homes, within sixty days after the entry of the order for relief. Accordingly, the contract is deemed rejected pursuant to 11 U.S.C. § 365(d)(1).
20. Vera Aguzzi Real Estate filed an unsecured claim for $40,000 against the debtor for the commissions that Della Greca committed the debtor to pay in connection with the rejected sale of the seven building lots in question.
21. The trustee in bankruptcy offered at auction the seven vacant lots in question and eventually sold them to Quality Homes, Inc., the successful bidder (Quality was also the purchaser of the property under the rejected executory contract dated February 25, 1981). The purchase price was $323,400 "free and clear of all liens and encumbrances, if any, with such valid liens and encumbrances to attach to the proceeds subject to final determination by the Court of the validity thereof." Thus, Quality Homes, Inc. eventually purchased the property in question at the trustee's sale for $6,600 less than it originally agreed to pay under the rejected executory contract signed by Della Greca on February 25, 1981.
All of the parties concede that the proceeds of sale now held by the trustee in bankruptcy must first be applied to the payment of any liens, administration expenses and allowed claims of unsecured creditors which have been filed against the debtor, Eadie Properties, Inc. Westfield, a fifty percent shareholder of the debtor, argues that the funds remaining after the payment of all claims should be turned over to it to the exclusion of Tribune, the other fifty percent shareholder. The Aguzzi Real Estate Office has submitted an unsecured claim for the $40,000 broker's commission that Nicholas Della Greca, as president of the debtor, agreed to pay in connection with the rejected sale of all of the debtor's vacant land. Both the trustee and Westfield object to the $40,000 Aguzzi commission claim.
Westfield agreed in writing to convey its nine vacant building lots to the debtor pursuant to a joint venture agreement that was to last for a period of twenty months, during which...
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