In re Talley

• Decision Date: 16 December 1986
• Docket Number: Bankruptcy No. 386-02338.
• Parties: In re Melanie Lynn TALLEY, Debtor. GALLATIN HOUSING AUTHORITY, Movant, v. Melanie Lynn TALLEY, Respondent.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Middle District of Tennessee

69 B.R. 219 (1986)

In re Melanie Lynn TALLEY, Debtor.

GALLATIN HOUSING AUTHORITY, Movant, v. Melanie Lynn TALLEY, Respondent.

Bankruptcy No. 386-02338.

United States Bankruptcy Court, M.D. Tennessee.

December 16, 1986.

Jimmie Lynn Ramsaur, Shipley & Behm, Nashville, Tenn., for debtor.

Kurt O.E. Tschaepe, Gallatin, Tenn., for Gallatin Housing Authority.

MEMORANDUM

KEITH M. LUNDIN, Bankruptcy Judge.

The question presented is whether a Chapter 13 debtor may cure the default and assume a residential lease where judgment for unlawful detainer has been entered prior to the petition but no writ for possession has been served upon the debtor.¹ I find that execution of a writ of possession marks the point after which a debtor may not rehabilitate a residential lease.

The following constitute findings of fact and conclusions of law. Bankr.R. 7052. This is a core proceeding. 28 U.S.C. §§ 157(b)(2)(A), (G), (L), (M) (Supp. II 1984).

I.

The debtor rents an apartment from the Gallatin Housing Authority ("GHA"). The proof of claim filed by GHA indicates the monthly rental of $19.00 was based upon the debtor's income.²

On April 1, 1986, GHA requested a warrant from the General Sessions Court of Sumner County, Tennessee, alleging unlawful detainer of the apartment by the debtor. The warrant was served on the debtor by the Sumner County Sheriff's Department. The debtor failed to appear at the hearing on April 24, 1986 and a pre-printed default judgment was entered that GHA "be restored to the possession" of the apartment.

On May 16, 1986, GHA returned to General Sessions Court for a Writ of Ejectment directing the sheriff of Sumner County to remove the debtor from the apartment and restore GHA to possession.³ A deputy sheriff attempted but failed to serve the Writ of Ejectment. On June 4, 1986, the deputy returned the Writ to the General Sessions Court with the notation "unable to execute ejectment before the defendant filing sic bankruptcy."

After issuance of the Writ of Ejectment and before return of the writ unexecuted, GHA, without participation of the sheriff, terminated gas and water service at debtor's apartment. The debtor and her children were forced to move from the apartment. The debtor moved some of her personal belongings out of the apartment, but the bulk of her household goods remained.

On June 3, 1986, the debtor filed a Chapter 13 petition. Also on June 3, and again without assistance from the sheriff, employees of GHA removed items of personal property from debtor's apartment without her permission. After notice of the debtor's bankruptcy, GHA returned the debtor's personal property and restored utility service.

The debtor's Chapter 13 plan proposes to cure all defaults under the lease with 10% interest on the arrearage and to maintain the continuing rent on a monthly basis. GHA objects to confirmation and seeks relief from the stay to evict the debtor.

II.

Section 365 provides in relevant part:

(a) . . . The trustee, subject to the court\'s approval, may assume or reject any executory contract or unexpired lease of the debtor.

(b)(1) If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee —

(A) cures, or provides adequate assurance that the trustee will promptly cure, such default;

(B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and

(C) provides adequate assurance of future performance under such contract or lease.

11 U.S.C. § 365 (1982 ed. & Supp. II 1984).

Section 365 embodies long-established policy that a trustee in bankruptcy be empowered to make beneficial decisions to retain or discard a debtor's executory contracts and unexpired leases. This policy was articulated by the Supreme Court almost a century ago:

The assignees in an "assignment in bankruptcy" were not bound . . . to accept property of an onerous and unprofitable nature, which would burden instead of benefit the estate, and they could elect whether they would accept or not, after due consideration and within a reasonable time. . . .

Sparhawk v. Yerkes, 142 U.S. 1, 13, 12 S.Ct. 104, 106, 35 L.Ed. 915, 918 (1891). See Dickson v. Irving Trust Co. (In re McCrory Stores Corp.), 69 F.2d 517, 518 (2d Cir.1934) (The trustee's right in a lease-hold is "an option to acquire title if acquisition should seem to the trustee best for the estate."), quoted in Fletcher v. Surprise (In re Northern Indiana Oil Co., Inc.), 180 F.2d 669, 676 (7th Cir.1950), cert. denied, 340 U.S. 824, 71 S.Ct. 58, 95 L.Ed. 605 (1950); In re Westview 74th Street Drug Corp., 59 B.R. 747, 754 (Bankr.S.D.N.Y. 1986) ("The aim of the statutory authority to assume a lease is to assist in the debtor's reorganization effort.").

In a Chapter 13 case, an unexpired lease can be assumed or rejected in the debtor's plan. 11 U.S.C. § 1322(b)(7) (1982 ed. & Supp. II 1984). If the Chapter 13 debtor proposes to assume an unexpired lease, the debtor must comply with the provisions of 11 U.S.C. § 365.⁴ An "unexpired" lease that is in default cannot be assumed unless the debtor cures all defaults or provides adequate assurance that the defaults will be cured and future rentals will be paid. 11 U.S.C. § 365(b)(1) (1982 ed. & Supp. II 1984). Section 365(b)(1) liberally permits curing of defaults notwithstanding contrary provisions in the lease:

Generally, under the old law, although a trustee could assume a contract or lease, he took such contract or lease as he found them and thus was required to cure any default according to the precise terms or provisions in the contract or lease rather than upon any other basis. In many instances, however, the trustee was unable to effect any cure in accordance with the terms of the lease or contract because either (1) the contractually provided grace period for the cure of a default had already expired thus rendering the lease incapable of being cured, or (2) he was unable to presently cure from a monetary standpoint due to the lack of immediate funds. In these situations, even though termination of the lease had not yet been completed under state law, the lease was nevertheless the subject of noncurable defaults even in the hands of the trustee and thus was unassumable. . . .

. . . Under § 365(b), so long as the lease has not yet been terminated, a trustee may assume irrespective of whether or not any contractual grace period for the curing of defaults has expired and irrespective of whether he has the immediate present ability to fully cure any rent arrearage.

Executive Square Office Bldg. v. O'Connor and Associates, Inc., 19 B.R. 143, 145-46, 9 B.C.D. (CRR) 35, 36 (Bankr.N.D.Fla. 1981).

The right to cure is dependent on the existence of a lease: only an "unexpired" lease may be assumed. 11 U.S.C. § 365 (1982 ed. & Supp. II 1984). See Hazen v. Hospitality Associates, Inc. (In re Hospitality Associates, Inc.), 6 B.R. 778, 780, 6 B.C.D. (CRR) 1142, 1142 (Bankr.D.Or.1980). Neither the Code nor its legislative history define when a lease is "expired." The courts have struggled to determine when a lease is expired, often by analyzing state law and the terms of the contract. See In re Escondido West Travelodge, 52 B.R. 376 (S.D.Cal.1985) (lease terminated when landlord filed unlawful detainer action because that is when lessee's right to possession is terminated under Florida law); Chart House, Inc. v. Maxwell (In re Maxwell), 40 B.R. 231 (N.D.Ill.1984) (sublease terminated under Illinois law by sending notice and filing suit); Harbour Bay Plaza Associates v. Foxfire Inn (In re Foxfire Inn), 30 B.R. 30 (Bankr.S.D.Fla.1983) (lease that terminated pursuant to its terms and applicable state law had expired); Bistrian v. Easthampton Sand & Gravel Co., Inc. (In re Easthampton Sand & Gravel Co., Inc.), 25 B.R. 193, 7 C.B.C.2d 903 (Bankr.E.D.N. Y.1982) (lease that had not yet been terminated under its terms was unexpired); Executive Square Office Bldg. v. O'Connor and Associates, Inc., 19 B.R. 143, 9 B.C.D. (CRR) 35 (Bankr.N.D.Fla.1981) (no right to assume and cure a lease that has expired according to its terms or terminated under state law); Kearny Mesa Crossroads v. Acorn Investments (In re Acorn Investments), 8 B.R. 506, 7 B.C.D. (CRR) 135 (Bankr.S.D.Cal.1981) (state court declared lease forfeited by its terms); Hazen v. Hospitality Associates, Inc. (In re Hospitality Associates, Inc.), 6 B.R. 778, 6 B.C.D. (CRR) 1142 (Bankr.D.Or.1980) (an unexpired lease is one that has not already expired according to its terms or which terminated pre-bankruptcy under state law); Omni International, Ltd. v. Mimi's of Atlanta, Inc. (In re Mimi's of Atlanta, Inc.), 5 B.R. 623, 6 B.C.D. (CRR) 807 (Bankr.N.D.Ga.1980) (lease terminated under its terms); In re GSVC Restaurant Corp., 3 B.R. 491, 6 B.C.D. (CRR) 134 (Bankr.S.D.N.Y.1980) (lease terminated under state law); Phoenix Associates, Inc. v. Pagoda International, Inc. (In re Pagoda International, Inc.), 26 B.R. 18, 20 n. 1 (Bankr.D.Md.1982) (lease terminated by state court judgment for possession against debtor who filed a Chapter 11 petition as "another delaying tactic").

GHA argues that "expired" equates to "default" or "terminated" where "default" is defined by the contract and "terminated" is defined by the contract and state law. The debtor responds that "expired" means the term of the lease and all possible contractual extensions thereof have passed.

GHA's argument is inconsistent with the Bankruptcy Code. Section 365(b)(1) deals specifically with the situation where there has been a "default" in an "unexpired" lease, thus demonstrating that Congress considered "default" and "unexpired" to have distinct meanings. If every contractual default rendered the lease "expired" for...