Matter of Cheshire Molding Co.
| Decision Date | 25 February 1981 |
| Docket Number | Bankruptcy No. 2-80-00145,Adv. No. 2-80-0396. |
| Citation | 9 BR 309 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | In the Matter of CHESHIRE MOLDING COMPANY, Debtor. CHESHIRE ASSOCIATES, Plaintiff, v. CHESHIRE MOLDING COMPANY, Debtor, Defendant. |
William B. Fitzgerald, Jr., and William P. Yelenak of Carmody & Torrance, Waterbury, Conn., for plaintiff.
John B. Nolan and James J. Tancredi of Day, Berry & Howard, Hartford, Conn., for defendant.
This adversary proceeding is before the court upon a request by a lessor to terminate the automatic stay of 11 U.S.C. § 362 in order to permit it to obtain possession of the leased premises. The defendant debtor-in-possession, Cheshire Molding Company (Molding) filed a Chapter 11 petition on February 15, 1980. On September 11, 1980, the plaintiff-lessor, Cheshire Associates (Associates) filed its "Complaint to Terminate Stay".
Associates owns the fee of a 15-acre parcel located at 601 West Johnson Avenue, Cheshire, Connecticut (premises) upon which is located an industrial building with 66,557 square feet of shop and office space, and a paved parking lot. Molding has occupied the premises since May 24, 1979, under an assigned lease, dated August 11, 1966, which provided for an initial term of twenty years, and options to extend for two additional five-year terms. Annual rent under the lease is approximately $1.00 per square foot of building space. When Molding filed its petition for relief there were seven remaining years of the initial term.
Molding was engaged in the business of manufacturing molded plastic products at the premises from May, 1979 until financial difficulties caused it to shut down in February, 1980. Substantially all of Molding's equipment and inventory have since been removed from the premises and sold, and the proceeds applied to a secured lender's debt. The premises have been empty since July, 1980. Molding does not intend to engage in further manufacturing operations at the premises or elsewhere. Molding's petition showed an indebtedness of $715,000.00 to The Connecticut Bank and Trust Company (CBT) secured by all of Molding's inventory, accounts receivable, equipment and proceeds, and unsecured debts of $540,384.00. Among Molding's listed assets, $250,000.00 was attributed to Molding's leasehold interest in the premises. Charles E. Heilig, Jr., Molding's president and sole stockholder, was listed as a creditor in the amount of $160,000.00. Heilig has personally guaranteed Molding's performance under the lease.
After Molding ceased its manufacturing operations, it sought to market its leasehold interest through brokers specializing in the sale or leasing of industrial property. It current broker, H. Pearce Company (Pearce), began its marketing efforts in March, 1980. Pearce has advertised the availability of the premises at a rental of $2.50 per square foot in real estate trade journals throughout New England. In September, Pearce mailed brochures describing the property to approximately 1,600 companies, including other brokers, who might be interested in the premises. The only serious prospect at the time of trial was General Electric Corporation (GE). GE, however, professes to be interested in acquiring the leasehold only if it can also buy the fee of the premises. Pearce contacted Associates in an unsuccessful attempt to arrange a joint sale of the freehold and leasehold. Associates sent notice in September, 1980, to Molding, purporting to terminate the lease because of alleged post-petition defaults, and filed the instant complaint to terminate the automatic stay to allow it to gain possession of the premises.
In its complaint, Associates alleges that Molding has violated certain lease covenants by vacating the premises and by failing to pay town real estate taxes. As a result, Associates avers, it is entitled by the terms of the lease to immediate possession of the premises. Associates claims that the alleged vacation of the premises cannot be cured by Molding, that Molding has no equity in the premises, that the premises are not necessary to an effective reorganization of Molding's business, and that if not permitted to obtain possession, Associates will suffer irreparable injury, loss and damage.
Associates claims to have shown at the trial that Molding further violated lease covenants by its failure to repair cracked windows, by failure to keep the parking area in good condition, and by not maintaining proper insurance. Molding produced evidence however, sufficient to establish that all town taxes are paid, that there is full insurance coverage, and that the building is heated and otherwise adequately maintained and that the parking lot disrepair is not significant enough to form the basis of a default. As of the time of trial, Molding owed about $1,100,000.00 to its creditors — $300,000.00 to CBT, $600,000.00 to various unsecured creditors, and $200,000.00 to Heilig. Heilig is advancing funds to Molding for the costs of maintaining and marketing the lease, including the rent payments, insurance premiums, taxes and expenses for safeguarding the building. Molding's assets, aside from the disputed lease, currently consist of two pieces of unsold machinery, claimed to be worth $28,000.00, $10,000.00 in cash, and an aged account receivable of $50,000.00. Heilig, in addition to being a personal guarantor of the lease, is also personal guarantor of Molding's $300,000.00 indebtedness to CBT. CBT holds stock owned by Heilig with a value of $900,000.00 as additional security for Molding's loan. The issues, therefore, to be resolved as presented by the pleadings and the testimony, are: (1) whether or not Molding's actions in ceasing operations and removing its machinery and inventory are sufficient to trigger the default provision in the lease with respect to vacation of the premises, and (2) if Molding is in default under the lease, can Associates prevail under § 362d with respect to terminating the automatic stay?
Paragraph 15(a)(v) of the lease reads:
Subsection (c) of paragraph 15 provides for termination of the lease and re-entry and repossession upon default. Associates claims that Molding vacated the premises after the commencement of the Chapter 11 case, thus extinguishing its leasehold rights. Associates also points to Paragraph 8 of the lease, entitled USE, subparagraph (a), to support its claim that by not using the premises as called for by the lease, Molding has vacated.1 Neither party has offered any Connecticut decisional law directly in point on the issue of what constitutes vacation of premises. Associates claims that the term "vacate" in the lease should be defined as:
To move out; to make vacant or empty; to leave; especially to surrender possession by removal; to cease from occupancy. Black\'s Law Dictionary, 4th ed. (1968).
Molding also claims that a definition from Black's Law Dictionary should be considered and offers "vacant";
Empty; unoccupied; as "vacant" office . . . Deprived of contents, without inanimate objects. It implies entire abandonment, nonoccupancy for any purpose. (Emphasis supplied by Molding).
Molding proceeds to argue that it has never intended to surrender possession or abandon the premises, and that it continues to occupy them for the purpose of assigning the lease.
The rule of law followed in Connecticut with regard to lease provisions, the enforcement of which would lead to a forfeiture, is that such provisions "will always be construed strictly as against the lessor and in such a way as to prevent, rather than aid, the forfeiture." Camp v. Scott, 47 Conn. 366, 375 (1879). See also Newfield Building Co. v. Mohican Co., 105 Conn. 488, 494, 136 A. 78 (1927).2 Under the circumstances presented by the proceeding at bar, the court holds that Molding has not vacated the premises so as to constitute an event of default under the lease. Molding has continuously paid the rent and is current on its...
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