Opinion ID: 1938746
Heading Depth: 3
Heading Rank: 2

Heading: Rejection of Unexpired Lease

Text: WMC next contends that it had no duty to remit rent to MHEC because it rejected the lease in the chapter 11 proceeding. As noted earlier, a discharge in bankruptcy, in addition to absolving the debtor of liability for debts arising prior to the time the petition is filed, can also relieve him of continuing obligations under executory contracts and unexpired leases. In order to ease the burdens of continuing performance under onerous contracts and leases that may deplete the resources of the estate, see In re Lovitt, 757 F.2d 1035, 1041 (9th Cir.), cert. denied, 474 U.S. 849, 106 S.Ct. 145, 88 L.Ed.2d 120 (1985), the Bankruptcy Act authorizes a debtor-in-possession in a chapter 11 case, under the supervision of the court, to decide whether to assume or reject such leases. 11 U.S.C. § 713(1) (rejection with permission of the court); id. § 757(2) (rejection in plan of arrangement); Texas Importing Co. v. Banco Popular de Puerto Rico, 360 F.2d 582, 583-84 (5th Cir.1966). An election to reject a lease is treated as an anticipatory breach, and obligations thereunder, although continuing in nature, are treated as debts arising before the petition in bankruptcy. 11 U.S.C. § 103(c); In re Miracle Mart, 278 F.Supp. 861, 863 (S.D.N. Y.), aff'd, 396 F.2d 62 (2d Cir.1968). If a contract or unexpired lease is rejected, the lessor assumes the status of a pre-petition creditor. Id.; 11 U.S.C. § 753. During the period between the filing of the petition and the debtor's decision to reject or affirm, however, the lessor occupies an equivocal position. Until his contract is rejected, he is not a creditor with a provable claim.... In re Greenpoint Metallic Bed Co., 113 F.2d 881, 884 (2d Cir.1940). In a reorganization case, as opposed to a liquidation case, there is no fixed time within which the debtor/trustee must make the election. [35] A lessor wishing to bring an end to this potentially prolonged period of uncertainty has a right to petition the court to act, either by requiring assumption or rejection of the lease in the plan of arrangement, 11 U.S.C. § 757(2), or by ordering it rejected, id. § 713(1). See Federal's, Inc. v. Edmonton Inv., 555 F.2d 577, 582 (6th Cir.1977) (citation omitted); In re Greenpoint Metallic Bed, supra, 113 F.2d at 884. Yet this right would mean little if the lessor was unaware of his status in the bankruptcy proceeding. Thus, the Bankruptcy Rules oblige the debtor to list, in addition to schedules of all his debts, all executory contracts including unexpired leases. Bankr.R. 11-11 (1976). See also 11 U.S.C. § 724 (debtor must list all executory contracts at time petition is filed). Both methods of rejection  by permission of the court or by inclusion in the plan of arrangement  naturally depend on the debtor's disclosure of the lease's existence and the identity of the lessor. The Act provides that the court in a chapter 11 proceeding may permit the debtor to reject executory contracts only upon notice to the other parties to such contracts. 11 U.S.C. § 713(1); Bankr.R. 11-53 (notice and hearing required). Notice of rejection is also required to parties whose contracts are rejected in the plan of arrangement. In re Alfar Dairy, 458 F.2d 1258, 1261 (5th Cir.), cert. denied, 409 U.S. 1048, 93 S.Ct. 517, 34 L.Ed.2d 501 (1972); Bankr.R. 11-24(a)(5) (10 day notice to all parties in interest required prior to confirmation of the plan). [36] Here, it is beyond dispute that WMC did not list the lease assignment under which it acted as lessee of the New Hampshire Avenue property since 1972 in its statement of executory contracts and unexpired leases. [37] Consequently, its confirmed Plan of Arrangement did not include that lease among its list of rejected contracts. Nor did the court ever permit WMC, after notice and hearing to MHEC, to reject the lease prior to confirmation of the plan. The effect of WMC's failure to affirmatively reject the lease in either of the two ways provided under the Act was that it continued in force. In re Innkeepers, supra note 36, 671 F.2d at 226; Federal's, Inc., supra, 555 F.2d at 579; In re Alfar, supra, 458 F.2d at 1261-62. A discharge in bankruptcy does not affect an unrejected lease. Federal's, Inc., supra, 555 F.2d at 579-80.