Jacobs v. Georgiou

Decision Date12 March 1996
Docket Number67845,Nos. 67629,s. 67629
Citation922 S.W.2d 765
PartiesRichard E. JACOBS, et al., Plaintiffs/Appellants/Cross-Respondents, v. George GEORGIOU, Defendant/Respondent, and Judy Alexander, Defendant/Respondent/Cross-Appellant.
CourtMissouri Court of Appeals

Cockriel, Horas & Radice, L.L.C., Steven M. Cockriel, St. Louis, for Appellant.

Michael A. Gross, St. Louis, for Respondent.


This appeal concerns liability for breach of a commercial lease. Richard Jacobs et al. (appellants) sued respondent George Georgiou (henceforth, Georgiou) and cross-appellant Judy Alexander (Alexander), alleging that they are jointly and severally liable on a lease, which indisputably has been breached. The trial court ruled that Alexander alone was liable for breach of the lease, and that appellants had taken reasonable measures to mitigate their damages from the breach. Appellants challenge the trial court's finding that Georgiou was not personally liable on the lease, and Alexander contests the trial court's ruling with respect to mitigation of damages. 1 The former ruling is reversed and the latter finding is affirmed.


Appellants, organized as a general partnership, own the Chesterfield Mall in west St. Louis County. One of appellants' tenants, Petite Concepts (Petite), found itself in financial straits in late 1988, and on November 30 of that year, filed for protection under Chapter 11 of the U.S. Bankruptcy Code in New Jersey. Soon thereafter, negotiations commenced between Petite and Georgiou for assignment and assumption of 18 of Petite's nationwide commercial leases, including its lease with appellants at Chesterfield Mall. The Sale and Purchase Agreement (the Agreement) that was executed by Petite and Georgiou on December 9, 1988 allowed Georgiou to substitute a corporate nominee for himself as the assuming lessee. Substitution under the agreement was to occur in two stages: first Georgiou was to designate his corporate nominee, and then the nominee was to execute a "counterpart agreement" substantially identical to the original one. On December 12, 1988, Georgiou incorporated Alexander for the express purpose of substituting it as his corporate nominee under the Agreement. The undisputed evidence indicates that Georgiou capitalized Alexander to the tune of $3,000,000. Although Georgiou stated in deposition testimony that he had "assigned his rights" under the Petite Purchase Agreement to Alexander, there is no evidence that Alexander ever executed the "counterpart agreement."

In a letter dated January 12, 1989, appellants acceded to Petite's assignment of the Chesterfield Mall lease "to Georgiou" subject to certain conditions, the only relevant one of which is that "the premises will be operated by Georgiou, and consistent with the quality of the majority of other Georgiou stores." On January 13, Petite moved the bankruptcy court for approval of the "assumption and assignment of unexpired shopping center leases to George Georgiou." On January 27, Petite filed a motion supplementing its January 13 motion which sought an order authorizing Petite's "assignment to Judy Alexander, the nominee corporation of George Georgiou (Georgiou), of leases relating to eighteen (18) Karen Austin Petite Store locations."

On February 10, 1989, the Bankruptcy Court issued the muddled order which is the progenitor of the instant hotly-contested appeal. The order is a paradigm of confusion and internal inconsistency. The prefatory paragraph mentions Petite's January 13 and January 27 motions "for an order approving Petite's assumption and assignment to Judy Alexander." Footnote number 1 to that paragraph provides that:

the term Leases as used in paragraphs 1 through 7 shall not apply to the following store locations: (a list of eight stores, one of which is inserted in handwriting, follows.) Each of the foregoing store locations are provided for under separate orders of this court.

The footnote then continues, in handwriting, "A letter outling (sic) the terms of the agreement with the Chesterfield Mall is attached hereto and incorporated herein." The letter attached to the order is the January 12 letter from appellants to Petite, described above. In handwriting at the bottom of that letter is written:

The undersigned consent to the inclusion of the above conditions as included with the provisions of the order authorizing and approving assets to George Georgiou, dated February 10, 1989.

Immediately below this language appear the signatures of an attorney for Petite, an attorney for appellants, and Ben Becker, "attorney for George Georgiou." This handwritten addendum is not dated.

Paragraphs one through three of the bankruptcy court order are not relevant to this appeal. Paragraph four reads:

The assumption of the Leases by Petite, as debtor in possession, and assignment to Georgiou [the word 'Georgiou' being scratched out and replaced with 'Judy'], pursuant to that certain purchase agreement between Petite and Georgiou [followed by the holographic insertion "or his corporate nominee"] dated December 9, 1988 (Purchase Agreement), is authorized in accordance with section 365 of the Bankruptcy Code.

Paragraph five has no bearing on this appeal. Paragraph six reads:

Petite is hereby directed and authorized, pursuant to section 365(b) and (f) to assign the Lease to Georgiou, and upon assignment (i) the use clauses in each Lease shall be amended as necessary to permit Georgiou's [in handwriting above the word 'Georgiou's' is the word 'Judy's', though 'Georgiou's' is not crossed through] operation of a retail women's clothing store, (ii) each Lease as amended shall be deemed to be valid and binding in accordance with their respective terms by parties thereto, and (iii) pursuant to section 365(k) of the Bankruptcy Code, Petite and its estate are relieved from any liability for any breach of the Leases occurring after such assignment.

Paragraph seven then announces that "upon closing, Georgiou shall assume liability under each lease, as is set forth in Paragraph 2.6 of the Purchase Agreement." Paragraph 2.6 of the Purchase Agreement adds nothing to our inquiry, except that it refers to "Buyer," which is elsewhere defined as "George Georgiou or nominee."

Liability on the Lease

Although neither party disputes it, we think it necessary to note at the outset that the question of which party (or parties) assumed, and became liable on, the Chesterfield Mall lease (henceforth, the lease) is determined, at least initially, by the February 10, 1989 order of the New Jersey Bankruptcy Court. When an unexpired lease is transferred by a party in bankruptcy proceedings, "the bankruptcy court must approve an assumption and this is only accomplished upon entry of a written court order." In the Matter of Condominium Administrative Services, 55 B.R. 792, 799 (Bkrtcy.1985). Thus, if the bankruptcy court order is plain and unambiguous as to the lease assumption arrangement which it addresses, that order is exclusively determinative.

Appellants assert that the bankruptcy court order unambiguously assigns the lease, and liability thereon, to Georgiou. Appellants reasoning is that the handwritten portion of footnote one to the order takes the lease outside the order proper, and that the only part of the order proper which applies to the lease is paragraph seven (wherein the bankruptcy court issues its decree), which plainly refers to assumption of liability by Georgiou alone. However, unlike the printed portion of footnote one (which does expressly except eight particular leases from the terms found in the body of the order), the handwritten portion of footnote one incorporates additional terms (i.e., the January 12 letter) into the order proper. Thus, the bankruptcy court order, as it concerns the lease, is comprised of both the order proper and (via footnote one) the January 12 letter.

Once this fact is digested, it becomes clear beyond cavil that the bankruptcy court order is ambiguous and inconsistent. The January 12 letter and paragraph seven of the order speak of assignment of the lease to Georgiou, while the prefatory paragraph and paragraph four speak of assignment of the lease to Alexander, and paragraph six (on its face) contemplates assumption by both Georgiou and Alexander. The trial court attempted to reconcile these inconsistencies by proclaiming the references to Georgiou to be "scrivener's error." We find this cursory disposal of the issue unsatisfactory. Not only does it entirely ignore the January 12 letter, but it states a conclusion without providing any analysis as to the essential question raised by the order's inconsistency: whom did the bankruptcy court and the parties intend to be liable on the lease?

Construction of a court order is a question of law calling for the independent judgment of this court. Estate of Ingram v. Rollins, 864 S.W.2d 400, 402-3 (Mo.App.E.D.1993). In construing this ambiguous judgment, our task is to ascertain the intention of the bankruptcy court in entering the order. Woodfill v. Shelter Mutual Insurance Co., 878 S.W.2d 101, 103 (Mo.App.S.D.1994). It is also relevant that the bankruptcy court order was not the result of an adversarial proceeding, and as the bankruptcy judge himself noted, was in the nature of an uncontested consent decree. When interpreting a consent judgment, we endeavor to ascertain not only the intent of the court entering judgment, but the intentions of the parties. Boillot v. Conyer, 887 S.W.2d 761, 763-4 (Mo.App.E.D.1994). Construction of an ambiguous judgment is much like interpreting other ambiguous written instruments, in that we are required to search the entire record for clues in attempting to divine the intentions of the parties and the court. See International Minerals & Chemical Corp. v. Avon...

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