Matter of Joyner
| Decision Date | 11 June 1987 |
| Docket Number | Bankruptcy No. 84-50362,84-50398 and 84-50399. |
| Parties | In the Matter of George R. JOYNER and Sarah M. Joyner, Debtors. In the Matter of JOYNER OIL COMPANY, INC., Debtor. In the Matter of J-MART SUPER FOODS, INC., Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Georgia |
G. McGregor Jordan, Jr., Macon, Ga., for Fulton Federal Savings & Loan Association.
William M. Flatau, Macon, Ga., for trustee, J. Coleman Tidwell.
Robert E. Bergman, Warner Robins, Ga., for debtors.
Joanne B. Cooper, Warner Robins, Ga., for Homer J. Walker.
Danny L. Akin, Macon, Ga., for Miriam D. Walker.
J. Coleman Tidwell, Macon, Ga., trustee.
Before the Court is the "Motion of Trustee to Assume Unexpired Lease of Debtors" filed on October 2, 1986, by J. Coleman Tidwell, Movant, the appointed Chapter 7 trustee in the consolidated bankruptcy cases of George R. Joyner and Sarah M. Joyner, Joyner Oil Company, Inc., and J-Mart Super Foods, Inc., Debtors.1 On October 23, 1986, Homer J. Walker, Jr., filed an "Opposition to Motion of Trustee to Assume Unexpired Lease of Debtors." The motion came on for hearing on November 10, 1986, and February 13, 1987. After carefully considering the evidence presented at the hearing, the Court enters this memorandum opinion and order.
On April 4, 1972, Homer J. Walker, Jr. and C.A. Hickman, d/b/a Hickman Oil Company, entered into a lease agreement in which Mr. Walker leased certain property located in Houston County, Georgia, to Mr. Hickman.2 The lease agreement was provided by Mr. Hickman. The leased property is described as follows:
All that real estate situate, lying and being in the Fifth Land District of Houston County, Georgia, and in Land Lot 174 therein, being a tract of land situated in the intersection of Green Street and North Houston Road fronting 125 feet on the south line of Green Street and 140 feet on the east line of North Houston Road as shown on a plat of survey of Property of Homer J. Walker, Jr. prepared by Theodore W. Waddle, Registered Surveyer sic on 7 October, 1969 of record in Map Book 15, Page 145, Clerk\'s Office, Houston Superior Court. Said plat and recorded copy thereof are hereby made a part of this description by reference thereto.
Under the terms of the lease agreement, the rent is $400 a month. The lease agreement requires the lessor to pay all taxes and assessments, and it requires the lessee to reimburse the lessor for all taxes and assessments levied against the improvements and equipment owned by the lessee. The terms of the lease agreement expressly provide that the lease can be assigned without the consent of the lessor, but the lessee remains responsible for the performance of the terms of the lease.
The lease is for a ten-year period, ending on July 3, 1982. Paragraph 2 of the lease agreement provides that the lessee has an option to extend the lease for three successive periods of five years each and that the rent will remain at $400 a month throughout the lease period if the extensions are exercised. Paragraph 2 of the lease agreement further provides that:
In order to exercise any of said extension options, Lessee shall give to Lessor a written notice at least thirty (30) days prior to the expiration of the then current period, and the sending of such notice shall constitute the renewal and extension of this lease in accordance with the terms of such renewal option so exercised, without the necessity of the execution of a separate renewal lease.
Paragraphs 13 and 14 of the lease agreement provide that:
On May 16, 1972, Mr. Walker and Mr. Hickman, d/b/a Hickman Oil Company, entered into a written agreement allowing Mr. Hickman to build a service station on the property leased under the April 4, 1972, lease agreement.
Pamela M. Richards, an attorney formerly associated with the law firm of Cowart, Varner, Harrington & Richards, in Warner Robins, Georgia, represented Mr. Hickman. She testified that she mailed a letter dated March 19, 1982, to Mr. Walker on behalf of Mr. Hickman. In the letter, Mr. Walker was informed of Mr. Hickman's intent to exercise his option to extend the April 4, 1972, lease agreement for five years.3 Ms. Richards testified that this letter was mailed by regular mail pursuant to the routine business practices exercised by her firm. The testimony establishes that the address to which the letter was mailed was Mr. Walker's correct address. Ms. Richards testified that the letter was never returned. Mr. Walker and his wife both testified that they never received the letter. Mr. Walker further testified that he never received notice from Mr. Hickman by any other method informing him of Mr. Hickman's intent to exercise the option to extend the lease as provided for under the April 4, 1972, lease agreement.
On May 6, 1982, Mr. Hickman, d/b/a Hickman Oil Company, entered into a lease assignment with George R. Joyner and Sarah Metalis Joyner, d/b/a Joyner Oil Company.4 In the lease assignment, Mr. Hickman assigned his rights, title, and interest under the April 4, 1972, lease agreement between himself and Mr. Walker to George R. Joyner and Sarah Metalis Joyner, d/b/a Joyner Oil Company. This lease assignment was amended by an "Addendum to Lease Assignment" on November 17, 1986. The property covered by the lease assignment is described as follows:
On November 1, 1983, George R. Joyner and Sarah Metalis Joyner, d/b/a Joyner Oil Company, executed a promissory note in favor of Fulton Federal Savings and Loan Association of Atlanta (Fulton Federal), evidencing an indebtedness of $612,000 for a loan backed by the Small Business Administration. As security for this promissory note, George R. Joyner and Sarah Metalis Joyner, d/b/a Joyner Oil Company, executed a "Collateral Assignment of Lease" in favor of Fulton Federal on November 1, 1983.5 The terms of the collateral assignment provide that:
In the event the Joyners default under the terms of the lease agreement aforesaid, Fulton Federal may enter into the premises under the terms of this agreement and fully enjoy all rights, title, and interest in and to said property to include the option to renew, the same as could the Assignors under the terms of the agreement from C.A. Hickman, d/b/a Hickman Oil Company.
Mr. Walker testified that C & S Bank directly receives the monthly lease payments on the property because C & S Bank holds a mortgage on the property. C & S Bank notified Mr. Walker sometime in April or May of 1986 that the lease payments for the property were not being made. The parties stipulate that as of May 1986 there have been no lease payments made for the use of the property.
Ken Bassett, a loan officer with Fulton Federal, testified that Fulton Federal is willing to cure the arrearage on the lease and to make the monthly lease payments of $400 until Movant assigns Debtors' rights under the lease. The testimony establishes that due to the location of this property, this property could be leased for $1000 per month.
In his motion, Movant seeks to assume this unexpired lease pursuant to section 365 of the Bankruptcy Code.6 Notwithstanding certain exceptions, a trustee, subject to court approval, may assume or reject an unexpired lease of the debtor. 11 U.S.C.A. § 365(a) (West 1979). Section 365(d)(1) provides that in a case under Chapter 7 of the Bankruptcy Code, the trustee must assume or reject an unexpired lease of the debtor "within 60 days after the order for relief, or within such additional time as the court, for cause, . . . fixes" or the unexpired lease is deemed rejected. 11 U.S.C.A. § 365(d)(1) (West 1979). In a bankruptcy case that has been converted from Chapter 11 to Chapter 7, the conversion order is treated as if it were the order for relief for the purposes of section 365(d). Thus, upon the conversion of Debtors' bankruptcy case from Chapter 11 to Chapter 7, a new sixty-day period commenced during which Movant could assume or reject the unexpired lease. 11 U.S.C.A. § 348(a), (c) (West 1979). Thus, Movant's motion to assume the unexpired lease between Debtors and Mr. Walker is properly and timely brought before the Court.
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