FOR THE NORTHERN DISTRICT OF CALIFORNIA
MONTICELLO FEED & SUPPLY, No. 1-87-01600
Memorandum of Decision
These proceedings were commenced by an involuntary petition filed against the debtor on September
16, 1987. An order for relief under Chapter 11 was entered on December 3, 1987. On February 1, 1988,
the case was converted to Chapter 7; the Trustee accepted her appointment three days later.
On February 18, 1988, the Trustee filed noticed her intent to sell certain assets of the estate, including
a valuable nonresidential real property lease. Lessors William and Mary Bishop object, arguing that the
lease has been deemed rejected pursuant to section 365(d)(4) of the Bankruptcy Code and the Trustee
may therefore neither assume nor sell it. The Bishops admit that they accepted two postpetition rent
checks from the debtor, one of which they cashed and the other they still hold.
In involuntary cases, the debtor is usually neither familiar with bankruptcy law nor prepared to assume
the many responsibilities of a debtor in possession. It goes against every principle of equity upon which
this court is based to penalize the innocent creditors of the estate for the failure of the debtor to assume
the lease during the brief time it was debtor in possession, and the court rightly abhors the forfeiture and
windfall to the Bishops which results from literal application of section 365(d)(4).In re Victoria Station
(9th Cir.1988) -- F.2d --; In re Musikahn Corp
(Bkrtcy.E.D.N.Y.1986) 57 B.R. 938, 939. However, the
court may not use its equitable powers to ignore or circumvent the express provisions of the Bankruptcy
Code. In re Shoreline Concrete
(9th Cir.1987) -- F.2d --. The court must therefore find the debtor's
failure to seek assumption of the lease during the 60-day period fatal to the estate's rights.
Just as the court cannot ignore a statute, it cannot ignore the holding of a higher court of binding
precedent. The Bankruptcy Appellate Panel in In re Treat Fitness Center, Inc.
(9th Cir.BAP 1986) 60
B.R. 878, held that notwithstanding the payment of rent nothing less than formal assumption during the
60-day period will keep the lease from being deemed rejected. This court disagrees with the BAP decision
and believes that the better view is found in such cases as In re Ro-An Food Enterprises Ltd.
E.D.N.Y.1984) 41 B.R. 416. However, this court is bound to follow 9th Circuit BAP decisions. In re
Windmill Farms, Inc.
(9th Cir.BAP 1987) 70 B.R. 618, 622. It therefore is not free to treat the
acceptance of rent as a waiver of rights under 365(d)(4).
The court disagrees with the Bishops' position that a dismissal of the case and subsequent refiling could
not cure the problem. If the case were dismissed, the Bishops would have to proceed to evict the debtor
under state law. Pursuant to California Code of Civil Procedure section 1179, the state court has the
equitable power to relieve the debtor from forfeiture, and equitable grounds certainly exist. If the state
court did relieve the debtor from forfeiture, the revived lease could be assumed in subsequent bankruptcy
proceedings. It may be also that the mere possibility
of relief under CCP 1179 is enough to permit the
bankruptcy court to allow assumption in a subsequent proceeding. See In re Eureka Southern Railroad,
(Bkrtcy.N.D.Cal.1987) 78 B.R. 813, 817-18.
Under the law and circumstances as they presently exist, the Trustee may not assume the lease.
Counsel for the Bishops shall submit an appropriate form of order which counsel for the Trustee shall
Dated: March 22, 1988 __________________________