Jolly, In re
| Decision Date | 06 June 1978 |
| Docket Number | No. 76-1794,76-1794 |
| Citation | 574 F.2d 349 |
| Parties | In re Lawrence N. JOLLY, Debtor. CHATTANOOGA MEMORIAL PARK, Plaintiff-Appellant, v. C. Kenneth STILL, Chapter XIII Trustee, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Allison G. Ulin, Paty, Lawrence & Rymer, Chattanooga, Tenn., for plaintiff-appellant.
Kyle R. Weems, Weill, Ellis, Weems & Copeland, Lawrence R. Ahern, III, Miller, Martin, Hitching, Tipton, Lenihan & Waterhouse, Chattanooga, Tenn., for defendant-appellee.
Before WEICK, PECK and ENGEL, Circuit Judges.
In 1972, Lawrence Jolly purchased the right to four burial spaces in the Chattanooga Memorial Park and perpetual care and maintenance of the spaces by the Park. Jolly made a downpayment of $40.00, and financed the balance of $688.80 (including interest), by executing a negotiable instrument promising to pay 48 installments of $14.35 each. The contract included an acceleration clause, providing that in the event of default by the purchaser, the Memorial Park had the option of cancelling the contract and retaining any sums paid as liquidated damages, or declaring the balance under the contract immediately due and payable. While the impact of such clauses is undeniably harsh at times, they are clearly legal and enforceable under Tennessee law, so long as the power to accelerate is exercised under a good faith belief that the prospect of payment has been impaired. Tenn. Code Ann. § 47-1-208.
Jolly was unable to perform the contract, and paid only two installments over the next two years. In 1974, the Memorial Park exercised its option to accelerate, and brought suit on the note seeking the balance due plus attorney's fees (also provided for in the contract). Jolly failed to appear, and a default judgment was entered against him for $880.13 plus costs. Some payments were made toward satisfaction of the judgment, but a few months later, when Jolly filed a Chapter XIII Wage Earner's petition, $761.61 was still owed to the Park.
The Memorial Park filed a claim for $761.61, but the Chapter XIII trustee filed a Trustee's Statement of Executory Contract rejecting the contract, and disputing the amount of the claim. The Bankruptcy Court permitted rejection of the contract, and disallowed Memorial Park's claim. It concluded that there were no damages due Memorial Park, because any damages caused by the rejection were more than covered by the amount already paid. This decision was upheld by the district court.
Chapter XIII Wage Earner's Plans provide debtors with an alternative to straight bankruptcy. Rather than liquidation and discharge, the debtor keeps his assets, and pays his debts entirely through future earnings. While debt repayment is extended, the expectation is that most creditors eventually will be paid off in full. In the meantime, the debtor avoids the stigma of bankruptcy as well as harassment from worried creditors.
As in Chapter XI Reorganization Plans, a Wage Earner's Plan may include provisions rejecting executory contracts. 11 U.S.C. § 1046(6), Bankruptcy Act § 646(6). Such rejections serve a dual purpose; they relieve the debtor of burdensome future obligations during the period that he is trying to recover financially, and they constitute a breach of the contract, making the other party to the contract a creditor with a claim which may be incorporated into the Plan and ultimately discharged. 11 U.S.C. § 1042, Bankruptcy Act § 642.
The issue to be resolved on appeal is whether the executory contract provisions of Chapter XIII have any application to a contract, like this one, which has already been breached by the debtor and reduced to final judgment. We conclude that they are inapplicable, and that the bankruptcy court was in error in refusing to accept the claim of the Memorial Park.
Congress did not provide the courts with a definition of "executory contracts," except to the extent that a lease is an example. 11 U.S.C. § 1006(5), Bankruptcy Act § 606(5). As many courts and commentators have pointed out, the phrase is meaningless; once a contract ceases being executory, for all practical purposes, it ceases to exist. An example of the difficulty faced by the courts in deciding what Congress intended is the case of In re National Tile and Terrazzo Co., 537 F.2d 329 (9th Cir. 1976). In that case the debtor had purchased some stock, paid for in part with a promissory note. Payments on the note were regularly made until the debtor filed bankruptcy. The majority held that the question as to whether the note was an executory contract within the meaning of the Bankruptcy Act was irrelevant because the note was unenforceable as a matter of law. A concurring opinion insisted that the note was a "classic executed contract," while the dissent argued vigorously that it was executory. A definition frequently used by the courts is "a contract under which the obligations of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other." Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn.L.Rev. 439, 460 (1973).
Such definitions are helpful, but do not resolve this problem. The key, it seems, to deciphering the meaning of the executory contract rejection provisions, is to work backward, proceeding from an examination of the purposes rejection is expected to accomplish. If those objectives have already been accomplished, or if they can't be accomplished through rejection, then the contract is not executory within the...
To continue reading
Request your trial
- Marsh v. Richardson, 84-1777
-
Energy Conversion Devices Liquidation Trust v. Ovonyx, Inc. (In re Energy Conversion Devices, Inc.)
...is executory. These are often referred to as the "Countryman approach" and the "functional approach." In Chattanooga Mem'l Park v. Still (In re Jolly ), 574 F.2d 349 (6th Cir. 1978), the Sixth Circuit Court of Appeals discussed these two approaches:Congress did not provide the courts with a......
-
Ky. Emps. Ret. Sys. v. Seven Counties Servs., Inc. (In re Seven Counties Servs., Inc.)
...do not create executory obligations. (Pl.s Findings of Fact and Conclusion of Law, at 111 (citing Chattanooga Memorial Park v. Still (In re Jolly), 574 F.2d 349, 351–52 (6th Cir.1978); Roxse Homes v. Roxse Homes Ltd. P'ship, 83 B.R. 185, 187–88 (D.Mass.1988), aff'd w/o opinion,860 F.2d 1072......
-
In re ASPC Corp.
...why the Distributor Agreement also is executory under the functional test.2. The Functional Test In Chattanooga Memorial Park v. Still (In re Jolly) , 574 F.2d 349 (6th Cir. 1978), a case decided under the Bankruptcy Act, the Sixth Circuit was faced with the question of "whether the executo......
-
Far from the Madding Crowd: Crowdfunding a Small Business Reorganization
...Expanding Universe of Non-Assumable/non-Assignable Contracts in Bankruptcy, 13 Am. Bankr. Inst. L. Rev. 187, 191 (2005); see In re Jolly, 574 F.2d 349, 351 (6th Cir. 1978) ("Generally, they are agreements which include an obligation for the debtor to do something in the future)"; In re Drex......
-
Contracts and Leases in Bankruptcy
...7 B.C.D. 671, 4 C.B.C.2d 691 (Bankr.Ct. D.Colo. 1981). 7. 630 F.2d 1370 (10th Cir. 1980). 8. E.g., Chattanooga Memorial Park v. Still, 574 F.2d 349 (6th Cir. 1978), cert. denied, 439 U.S. 429 (1978); Allen v. Archer-Daniels-Midland Co., 538 F.2d 1260 (7th Cir. 1976). 9. 5 B.R. 623, 2 C.B.C.......
-
Health Care Bankruptcy Issues: Provider Agreements as Executory Contracts
...1st Sess. (1977) at 347. 2. Countryman, "Executory Contracts in Bankruptcy," 57 Minn. L. Rev. 439 (1970). 3. Id. at 460. 4. In re Jolly, 574 F.2d 349 (6th Cir. 1978). 5. See Lee v. Schweiker, 739 F.2d 870, 876 (3d Cir. 1984) (noting that statutory entitlement programs are not executory cont......