UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
FRED BAKER, No. 97-13872
Memorandum of Decision
When debtor Fred Baker filed his Chapter 7 petition, he scheduled a one-sixth interest in a hotel in
the town of Sheep Ranch, California, as having a value of $7,000.00. He claimed this interest as
exempt. There were no objections to the claim of exemption, nor did the trustee attempt to administer
Baker's interest in the hotel. The case was closed on January 27, 1998. Pursuant to § 554(c) of the
Bankruptcy Code , Baker's interest in the hotel was deemed abandoned .
On April 27, 1998, the court granted Baker's application to reopen the case for the purpose of
allowing him to seek avoidance of a judgment lien against the hotel held by creditor Charles Solak.
Baker's motion to avoid Solak's lien pursuant to §522(f)(1)(A) is now before the court.
The key fact in this dispute is that Baker's interest in the hotel is the subject of an ancient and duly
recorded option agreement with this co-tenants. Recorded in 1970, it gives them the option to
purchase Baker's interest for a fairly nominal sum in 1998 dollars if Baker ever desires to sell his
interest or other conditions arise. If this agreement is disregarded, Baker's interest in the hotel is
worth considerably more than $7,000.00, such that Solak's lien does not impair the exemption.
Also of key importance is the fact that just prior to Baker's bankruptcy his co-owners had
attempted to enforce their option. This seemingly means that the contract was executory and subject
to rejection. In re Robert L. Helms Const. & Dev. Co., Inc.
, 139 F.3d 702, 706 (9th
The court has no idea why the Chapter 7 trustee did not pursue the matter. However, it is too
late for the trustee to act now, as the property has been abandoned by operation of law and cannot be
"un-abandoned." In re Devore
, - B.R. -, 98 C.D.O.S. 6405 (9th
Cir.BAP 1998). The only issue for
the court to decide here is whether the 1970 agreement should be considered in valuing Baker's
interest in the hotel.
Section 365(d)(1) of the Bankruptcy Code provides that in a Chapter 7 case an executory
contract is deemed rejected if the trustee does not assume it. Since the trustee in this case did not
assume the contract, it was rejected . Baker argues that the agreement is now unenforceable. There
is a fatal flaw in his logic. "Rejected" does not mean "void."
The effect of a discharge in bankruptcy is set forth in § 524 of the Code. Nowhere is a there a
provision which purports to relieve a debtor of nonmonetary obligations under prepetition contracts,
executory or not. Rejection does not
terminate a contract. In re Lavigne
, 114 F.3d 379, 387 (2nd
Cir.1997); In re Continental Airlines
, 981 F.2d 1450, 1459-61 (5th
Cir. 1993). "Rejection merely frees
the estate from the obligation to perform; it does not make the contract disappear." Lavigne
citing In re The Drexel Burnham Lambert Group
, 138 B.R. 687, 703 (Bkrtcy.S.D.N.Y. 1992). The
court in Lavigne
went on to note:
Rejection is not the power to release, revoke, repudiate, void, avoid,
cancel or terminate, or even to breach, contract obligations. Rather,
rejection is a bankruptcy estate's election to decline a contract or
, citing Andrew, Executory Contracts in Bankruptcy: Understanding "Rejection,"
U.Colo.L.Rev. 845, 931 (1988). Even if a contract is deemed rejected pursuant to § 365(d)(1), it is
nonetheless still enforceable after a Chapter 7 discharge. In re Sims
, 213 B.R. 641, 643
The nondebtor party to a rejected contract may still seek specific
performance of the contract after discharge. In re Brown
, 211 B.R. 183, 191 (Bkrtcy.E.D.Pa.1997).
Even though the 1970 agreement was "deemed rejected," it is nonetheless still in effect and
enforceable against Baker. The court must therefore consider it in determining the value of Baker's
interest in the hotel. Because Baker's interest is subject to sale to his co-tenants for the amount he has
claimed exempt, Solak's lien impairs the exemption and is avoidable. His motion will accordingly be
granted. Counsel for Baker shall submit an appropriate form of order.
Dated: September 8, 1998 ____________________________
United States Bankruptcy Jud