Matter of J. Woodson Hays, Inc.
| Decision Date | 09 January 1987 |
| Docket Number | Bankruptcy No. 86-2241. |
| Citation | 69 BR 303 |
| Parties | In the Matter of J. WOODSON HAYS, INC., d/b/a Olde World Cheese Shop, Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
Harley E. Riedel, Tampa, Fla., for debtor.
Thomas G. Long, Tampa, Fla., for Village East Partners, Ltd.
ORDER ON MOTION TO ASSUME AND MOTION FOR RELIEF FROM AUTOMATIC STAY
IN THIS Chapter 11 case J. Woodson Hays, Inc., d/b/a Olde World Cheese Shop (Debtor) seeks authority to assume an unexpired non-residential lease. The flip side of the same coin is a motion filed by Village East Partners, Ltd. (Village East) who seeks relief from the automatic stay in order to evict the Debtor from the business premises occupied by the Debtor under the lease sought to be assumed. The issues raised by the Motions, unlike some others which ordinarily involve only the question whether or not the Debtor tenant is able to comply with the requirements of § 365(b)(1)(A)(B)(C) of the Bankruptcy Code present a different but basically a narrow issue. The issue presented brings into play the interpretation and application of § 365(d)(1)(2)(3)(4), the Section which sets forth facially rigid, inflexible, precise and definitive rules governing assumption of non-residential leases which at the time of the commencement of the case were still in force and not yet expired or terminated. To put the issues in its simplest terms, the question is whether or not the Debtor who occupies a non-residential property under a lease forfeited its right to assume the lease because it failed to file a motion seeking authority to assume the lease within 60 days from the date of the commencement of the case as required by § 365(d)(4). The underlying facts which developed at the final evidentiary hearing and which are germane and relevant to the issue outlined above may be summarized as follows:
The Debtor is a Florida corporation and is the owner and operator of a sandwich, wine, and cheese shop located on premises owned by Village East under a written lease. (Debtor's Exh. No. 4) Village East is a limited partnership and Eiger Corporation is the general partner of the same. Eiger Management Company (Management) is a wholly owned subsidiary of the general partner, Eiger Corporation, and was at the time pertinent and still is the leasing agent for the shopping center involved. The original lease executed by the Debtor in 1981 was to expire in early 1986, but it was renewed pursuant to its terms and will expire in 1991. (Debtor's Exh. No. 6) Prior to the commencement of this Chapter 11 case and after the renewal of the lease, Mr. Hays (Hays) the principal of the Debtor, approached the agent of the landlord, Mr. Fernandez, and later Ms. Miller, the regional director for Management and discussed the possibility of expanding the leased premises. On April 7, 1986, Ms. Miller wrote to Mr. Hays confirming their recent discussions concerning the expansion of the premises occupied by the Debtor. (Debtor's Exh. No. 9; Exh. No. 2 attached to Miller deposition) Ms. Miller indicated in her letter the landlord's willingness to enter into an agreement with the Debtor for the construction of an additional 1,491 square feet of improvements. Ms. Miller also stated that before the agreement could be finalized several contingencies would have to be met by the Debtor. She also indicated the landlord's willingness to grant free rent to the Debtor in order to allow the Debtor to recapture the construction expense which was to be borne by the Debtor. In conclusion Ms. Miller stated in her letter "I trust this letter will serve as our intent to work with the Debtor".
It is without dispute that prior to June 2, 1986, the date the Debtor filed its Petition for Relief under Chapter 11, the Debtor was already delinquent in rent payments, having failed to make the rent payments for the months of May and June. However, it is equally without dispute that the Debtor did pay the rent for July and August, the first two full months after it filed its Petition for Relief under Chapter 11. It appears that Mr. Hays had frequent discussions initially with Mr. Fernandez, the renting agent of the landlord, but most importantly, also with Ms. Miller, who was without dispute empowered to negotiate leases with tenants of the shopping center. During all these negotiations, it was no secret that the Debtor intended to assume the lease and Ms. Miller clearly stated the landlord's position that the Debtor could continue under the lease provided that the rent was paid currently and if all arrearages in the rent would be paid. The discussions between Mr. Hays and Ms. Miller culminated in the transmittal of a letter from Mr. Hays addressed to Mr. Fernandez and Ms. Miller. In this letter Mr. Hays included the written proposal regarding the continuation of the lease. (Debtor's Exh. No. 3) On August 13, 1986, Ms. Miller specified the conditions for assumption of the lease on the undated letter of Mr. Hays. Although it is not clear whether or not Ms. Miller actually transmitted a copy of this letter to Mr. Hays, it is fair to assume it was, in fact, received by Mr. Hays. This conclusion is supported by the fact that on September 9, 1986, counsel for the landlord wrote to counsel for the Debtor confirming their telephone conversation of September 5 in which the Debtor agreed to pay the rent arrearages and pursuant to their agreement it agreed to assume the lease (Exh. No. 2) notwithstanding the pendency of the Chapter 11 case. Counsel for the Debtor also indicated that in addition to assumption of the lease the Debtor agreed to sign a promissory note, the original of which was enclosed in the transmittal pursuant to which the Debtor agreed to pay $1,000.00 per month in addition to the regular monthly rent called for by the lease in order to cure the total arrearages of $6,652.34. The promissory note was, in fact, executed by Mr. Hays as president and also individually on behalf of the Debtor as requested. (Debtor's Composite Exh. No. 1) It is without dispute that the Debtor did not file a Motion to Assume this non-residential lease until October 14 after the landlord, Village East, filed its motion and sought relief from the automatic stay.
The landlord's motion seeking relief from the stay is based on the proposition which is without dispute that the Debtor did not file a motion within 60 days from the date of the Order for Relief, that is, from June 2, and therefore, by virtue of § 365(d)(4) the lease is deemed to be rejected and therefore, the Debtor must immediately surrender the non-residential real property to the landlord.
The Debtor concedes, as it must, that he did not file a Motion for Assumption of the lease prior to August 2, 1986, that is prior to the expiration of the time period provided for assumption of unexpired non-residential leases by § 365(d)(4). It contends, however, that notwithstanding that undisputed fact it should be permitted to seek an assumption based on the following premises urged by the Debtor in the alternative:
First, it is the Debtor's contention that there is no requirement to actually file a Motion to Assume within the 60-day time period and the Debtor may assume an unexpired non-residential lease without actually filing a formal written motion. Based on this proposition, the Debtor urges that it did, in fact, assume this lease prior to the expiration of the 60-day period by communicating its intention to assume the lease to the landlord.
Second, if the actions of the Debtor did not constitute an effective assumption, Village East has either waived its right to a forfeiture or in any event, it is estopped to assert a forfeiture of the lease by its conduct.
Third, it is the contention of the Debtor that based on § 105 of the Bankruptcy Code, this Court should use its equitable powers and permit the Debtor to seek an assumption of the lease.
Fourth, in any event, so contends the Debtor, that the Debtor and Village East entered into a valid and enforceable contract after the expiration of the 60-day period whereby it was agreed by the parties to allow the Debtor to assume the lease or in any event, even if the lease was terminated, to renew the terminated lease for an additional term.
Under the Bankruptcy Act, the overwhelming weight of authority was that the act of assumption by a trustee could be other than the filing of a formal written motion. In re Huntington Limited, 654 F.2d 578, 587 (9th Cir.1981); In re Steelship Corp., 576 F.2d 128, 132-33 (8th Cir. 1978); Brown v. Presbyterian Ministers Fund, 484 F.2d 998 (3rd Cir.1973); Nostromo, Inc. v. Fahrenkrog, 388 F.2d 82 (8th Cir.1968); In re Forgee Metal Products, Inc., 229 F.2d 799, 801 (3rd Cir.1956). One commentator dealing with this subject stated:
Assumption of a contract is an act requiring notification of the party concerned. The trustee cannot assume merely in his own mind. He must notify the other party. . . . No particular form of notification is provided. A written or even an oral notice should be deemed sufficient. 4B Collier on Bankruptcy, ¶ 70.426, at 533 (14th ed. 1976).
The subject of executory contracts and unexpired leases is dealt with by § 365 of the Bankruptcy Code enacted by the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549. While this Section adopted almost verbatim the language of § 70(b) of the Bankruptcy Act of 1898 and provided a 60-day period for the trustee to assume an executory contract or an unexpired lease and provided for the automatic rejection in the event the trustee failed to act within the time fixed, it contained no corresponding provision applicable to cases filed under Chapter 11 of the Bankruptcy Code. Thus, prior to the amendment of § 365 of the Bankruptcy Code by the Bankruptcy Amendment and Federal Judgeship Act of 1984 (BAFJA), in a Chapter 11 case the trustee was authorized to assume or reject an executory...
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