In re Hodgson
| Decision Date | 01 October 1985 |
| Docket Number | Bankruptcy No. WF7-85-00285. |
| Parties | In re John C. HODGSON d/b/a Hodgson Insurance Agency, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Wisconsin |
Robert D. Reid, Stevens Point, Wis., Thomas W. Batterman, Wausau, Wis., for debtor.
Edward F. Zappen, Marshfield, Wis., Trustee.
Cathy J. Gorst, Marshfield, Wis., for trustee.
Debtor John C. Hodgson, d/b/a Hodgson Insurance Agency, has moved this court for an order: 1) directing trustee to abandon agency contracts between the debtor and various insurance companies; 2) restraining trustee from transferring those agency contracts; and 3) determining that any renewal commissions earned after the filing of debtor's Chapter 7 Bankruptcy Petition are not assets of the bankruptcy estate. Hearings on this matter were held on June 19 and September 18, 1985. The debtor was represented at the first hearing by Attorney Robert D. Reid and at the second hearing by Attorney Thomas W. Batterman. The trustee, Edward F. Zappen, appeared personally and was represented by Attorney Cathy J. Gorst. Both parties have filed briefs on this matter.
In response to debtor's motion the trustee maintains that the agency contracts between debtor and various insurance companies are executory contracts which trustee has assumed. He also contends that renewal commissions were earned before the filing of the bankruptcy and are therefore property of the estate.
11 U.S.C. § 365(d)(1) provides that in a case under Chapter 7 of the Bankruptcy Code if the trustee does not assume or reject an executory contract within 60 days after the order for relief, then such contract is deemed rejected. Since the court has not granted an extension within the 60-day period, as allowed by sec. 365(d)(1), the issue before the court is whether trustee has assumed the contract within 60 days of the February 19, 1985 order for relief. The trustee argues that he assumed the executory contracts by conduct rather than by any formal notice, motion and court approval. He refers to an April 5, 1985 letter from his counsel to debtor's attorney which states that there is a party interested in purchasing the insurance agency from the trustee. It further notes that consequently the trustee requires complete information concerning insurance company contracts with the debtor.
The legislative history of the Bankruptcy Reform Act of 1978 which enacted Sec. 365 makes it clear that the purpose of the time limitations imposed on assumption or rejection was to reduce uncertainty concerning executory contracts or leases involving the debtor. See H.R.Rep. No. 95-595, 95 Cong., 1st Sess. 348 (1977), 1978 U.S.Code Cong. & Admin.News, pp. 5787, 6304. This purpose of reducing uncertainty must be considered in determining whether an action is sufficient to constitute assumption.
In In re Kelly Lyn Franchise Co., Inc., 26 B.R. 441, 444 (Bankr.M.D.TN 1983) the court rejected debtor's contention that the assumption of an unexpired lease can be accomplished by implication. The court there noted that assumption or rejection by implication or by action leads inevitably to the kind of confusion and uncertainty exemplified by that case. Id. It also pointed out that the requirement for court approval contained in sec. 365(a) prohibits assumption or rejection of a lease by surprise, confusion or the inartful drafting of an agreed order setting a deadline under sec. 365(d)(2). Id. at 447.
The court in In re Ro-An Food Enterprises, LTD., 41 B.R. 416 (D.C.ED.N.Y. 1984) reached a result contrary to that reached in Kelly Lyn, supra. It concluded that the trustee can assume an unexpired lease by something less than a formal act of assumption. Id. at 418. The court stated that although less than formal acts of assumption do not remove the need for court approval, they do constitute notice and preclude deeming the lease rejected by inaction under sec. 365(d)(1).
The most recent case on this subject which the court has located is In re By-Rite Distributing, Inc., 47 B.R. 660 (Bankr.D.Utah 1985). The court in that case cited the reasoning of Kelly Lyn, supra, with approval. Id. at 667. It concluded that there must be a conscious and deliberate decision to assume, whether that decision is manifested by words, conduct or a paper filed with the court. Id. at 669.
Upon consideration of the legislative history of sec. 365, its purpose and the case law interpreting it, the court concludes that the trustee has not assumed the executory insurance agency contracts within the 60-day time limit imposed by sec. 365(d)(1). If the purpose of reducing confusion or uncertainty over a debtor's executory contracts is to be effectuated, a court must be exceedingly reluctant to allow assumptions by implication. An action will often be interpreted differently by individuals. What one person may view as an actual assumption of an executory contract may be viewed by another as a mere suggestion that an assumption may occur at a future date. For this reason, the court finds the rationale contained in the Kelly Lyn, supra, opinion to be persuasive.
In order for a sec. 365 assumption of an executory contract to occur within the 60-day time limit there must be either an express declaration of assumption or a specific, unequivocal action leading to no possible conclusion other than that an assumption has taken place.1 According to the express terms of sec. 365(a) any assumption is subject to court approval. Therefore, a motion for court approval pursuant to Bankruptcy Rule 6006 and the...
To continue reading
Request your trial