Matter of Easthampton Sand & Gravel Co., Inc.
| Decision Date | 02 December 1982 |
| Docket Number | 882-0589-17.,Bankruptcy No. 882-82102-17 |
| Citation | 25 BR 193 |
| Parties | In the Matter of EASTHAMPTON SAND & GRAVEL CO., INC., Debtor. Peter BISTRIAN, Plaintiff, v. EASTHAMPTON SAND & GRAVEL CO., INC., Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
COPYRIGHT MATERIAL OMITTED
Esseks, Hefter, Cuddy & Angel, Riverhead, N.Y. by William Esseks, Riverhead, N.Y., for plaintiff.
Pinks, Feldman & Brooks, Melville, N.Y. by Bernard S. Feldman, and Steven G. Pinks, for debtor.
DECISION
By complaint filed September 2, 1982 the plaintiff creditor, Peter Bistrian, seeks to vacate the Bankruptcy Code's automatic stay to allow him to proceed, in State Court, to recover possession of certain premises leased to the debtor/defendant, East Hampton Sand and Gravel Company, Inc. In its answer filed September 20, 1982 the defendant denies the complaint's material allegations, and asserts as affirmative defenses its statutory right to cure and assume the involved lease, and the necessity of the premises to its reorganization. See 11 U.S.C. § 365(a) and § 362(d)(2) respectively. In addition to its request for dismissal pursuant to Fed.R.Civ.P. ¶ 12(b)(6), the defendant counterclaims in the sum of $14,520 for an alleged preferential transfer of property of the debtor, effectuated by the plaintiff. In its reply filed September 30, 1982 the plaintiff denies the counterclaim's material allegations and asserts, as an affirmative defense, the position that a counterclaim may not be maintained in an adversary proceeding brought under Section 362(d) of the Bankruptcy Reform Act. A trial was held on September 30, and October 5, 1982 at which time both sides submitted their proofs. Based upon the record of said hearing this Court makes the following:
FINDINGS OF FACT
1. On October 5, 1979 the plaintiff, Peter Bistrian (hereinafter "the creditor" or "lessor") acting as an individual and as president of Bistrian Gravel Corp., and his son, Patrick Bistrian, acting as president of Bistrian Cement Corp., executed an agreement with Harvey L. Katz, acting as president of East Hampton Sand and Gravel Co. (hereinafter "the debtor"), whereby the creditor leased the premises located on Springs Fireplace Road, East Hampton, New York, and sold the concrete manufacturing business operating thereon, to the debtor.
2. The purchase price for the sale of the concrete manufacturing business was $2,100,000, payable $500,000 down, with the $1,600,000 balance evidenced by a promissory note (hereinafter "the note") which was to be paid in 72 monthly payments (exclusive of the months of February, March, and April) of $32,847.47. Plaintiff's Exhibit 1 (Subsection L). Tr. of September 30, 1982 at page 32-33. (Hereinafter Tr. at " ").
3. The term of the lease is recited to be for ten years until October 4, 1989. Plaintiff's Exhibit 1 (Subsection N).
4. The consideration for said lease was agreed to be $250,000, payable $2,083.33 monthly throughout the term of the lease. Plaintiff's Exhibit 1 (Subsection N).
5. Paragraph 59 of the lease provides:
10. The debtor made the monthly lease payments of $2,083.33 through September of 1982. Tr. of October 5, 1982 at 11-12.
11. The debtor failed to make payments on the note after June of 1982. Tr. at 33-34. Tr. of October 5, 1982 at 21.
12. On August 13, 1982 the creditor, as prescribed in the lease, served a notice of default on the debtor for its failure to make the July and August payments on the note. See unmarked exhibit in Plaintiff's Complaint. Tr. at 33, 34. Tr. of October 5, 1982 at 21-22.
13. On August 19, 1982 the debtor filed its petition for reorganization under Chapter 11 of the Bankruptcy Code, and is currently operating as a debtor-in-possession.
14. The debtor has failed to introduce any evidence in support of his counterclaim.
1. Within the context of a Chapter 11 proceeding, the lessor of a non-terminated lease is preempted from seeking to dispossess the debtor/lessee until such time as the debtor/lessee is required to assume or reject the lease.
2. A debtor/lessee in a Chapter 11 proceeding is to be afforded a reasonable time period extending no later than the date of confirmation, to either assume or reject a lease.
3. In allowing a debtor to assume a lease the Bankruptcy Court has the equitable power to modify the lease and to sever nonrent related conditional limitations which frustrate federal bankruptcy policy.
4. In allowing a debtor to assume a lease, the Bankruptcy Court should not sever non-insolvency related conditional limitations which are clearly vested by the contracting parties as an essential part of their bargain.
5. The equities of this case necessitate the debtor's assumption or rejection of this case within two weeks after entry of this judgment.
6. The debtor's counterclaim is not supported by the record.
MEMORANDUMIn resolving this litigation, the threshold issue to be addressed is whether the subject lease is assumable pursuant to 11 U.S.C. § 365.1 This determination depends on whether the lease, according to its provisions and pursuant to New York law, had terminated prior to the debtor's bankruptcy filing.2 See In re National Shoes Inc., 20 B.R. 51, 8 B.C.D. 1380 (Bkrtcy.S.D. N.Y.1982); In re La Paglia, 8 B.R. 937, 7 B.C.D. 333 (Bkrtcy.E.D.N.Y.1981). The record established that the debtor has kept current on the payments specifically classified as rent. It is admitted that the debtor has defaulted on the note. Paragraphs 59 and 66 of the lease makes payment on the note an express condition of the lease. Accordingly, the lease was in default when the debtor failed to make the July payment on the note.
Paragraphs 6 and 64 afford the debtor a 10 day opportunity to cure the aforementioned default after a notice of default is served upon the debtor. Failure to cure within this period results in termination of the lease. It is undisputed that said notice of default was dated August 13, 1982. The debtor filed his petition with this Court on August 19, 1982. Accordingly, the ten day period had yet to run, the lease had not terminated, and the debtor still had sufficient interest in the lease to reinstate it pursuant to § 365(a). Generally see; In re Triangle Laboratories Inc., 663 F.2d 463 (3rd Cir.1981); In re La Paglia, cite supra; In re Acorn Investments, 8 B.R. 506, 7 B.C.D. 135 (Bkrtcy.S.D.Cal.1981); In re Hospitality Assoc., Inc., 6 B.R. 778, 6 B.C.D. 1142 (Bkrtcy.D.Or.1980).
Having established the assumability of the lease this Court notes that the creditor is proceeding pursuant to 11 U.S.C. § 362(d)(2).3 Procedurally, this is an improper statutory vehicle for determining the rights of parties involved in a non-terminated leasing arrangement. See In re Acorn Investments, cite supra. Section 365(a) of the Bankruptcy Code as applied through § 1107,4 affords the debtor the discretionary right to assume the lease. The decision on whether to assume is based upon business considerations and is only reviewable by this Court to verify its benefit to the estate and to see whether the debtor is capable of curing the default and providing assurance of future performance. Within a ...
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