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IN RE UNISHOPS

July 25, 1975

In the Matter of UNISHOPS, INC., et al., Debtors

Frankel, District Judge.


The opinion of the court was delivered by: FRANKEL

MEMORANDUM

FRANKEL, District Judge.

 The undisputed facts and the legal issues are amply stated in the opinion of Bankruptcy Judge Babitt.* It is feasible and appropriate, therefore, to record with relative brevity, and in the order of Judge Babitt's treatment, the grounds of affirmance on the major claim, reversal on the second, and a remand on the third.

 1. Claim No. 2304. -- The court agrees with Judge Babitt that, despite differences in nonessential detail, the explicit principles of In the Matter of Grayson-Robinson Stores, Inc., 321 F.2d 500 (2d Cir. 1963), control here. The resolution of this claim is directed by Grayson-Robinson's essential, and unhedged, holdings; first, that a contract of guaranty is not executory because it holds no future benefit for the guarantor, and, second, that special facts arising out of the guarantor's relationship to the lessee were of no moment. With deference in every direction, I am not prepared to share the Bankruptcy Judge's reservations about that decision. It is by no means self-evident that a lease of a nonbankrupt lessee, which is not able to disaffirm, is an asset of that lessee itself, let alone an asset of a guaranteeing parent corporation. It is not more evident that the claimant-lessor allowed the subsidiary to remain in possession, though in default, upon the strength of the disputed contract of guaranty -- surely a strange course of forbearance in light of the guarantor's presence in the bankruptcy court under the seemingly ample shadow of the Grayson-Robinson precedent. Despite the references to "equitable principles" and contrary views of a respected academic commentator, it is not clear at all that the decision in Grayson-Robinson fails to assess accurately and justly the claims of competing creditors.

 In any event, along with Judge Babitt, and upon his sound analysis of what the case must be deemed to have held, I conclude that Grayson-Robinson commands rejection of Claim No. 2304.

 2. Claim No. 3. -- In determining this claim, the Bankruptcy Judge did not have the benefit of two pertinent decisions, one dated a day before, the other a month or so after, Judge Babitt's opinion. Under older precedents it was arguable that a debtor-in-possession should not be deemed an occupant of premises because they are held by subtenants under a sublease made before the Chapter XI proceeding. See Central Manhattan Properties v. D.A. Schulte, Inc., 91 F.2d 728 (2d Cir. 1937); In re McCrory Stores Corp., 69 F.2d 517 (2d Cir. 1934); In re United Cigar Stores Co., 69 F.2d 513 (2d Cir. 1934); Irving Trust Co. v. Densmore, 66 F.2d 21 (9th Cir. 1933); Meehan v. King, 54 F.2d 761 (1st Cir. 1932). For, even before last year, it appeared that a decisive separation was affected by entry into Chapter XI, whereupon the debtor-in-possession is to "have all the title and exercise all the powers of a trustee . . . ." Bankruptcy Act § 342, 11 U.S.C. § 742 (1970); see American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene, S.A., 280 F.2d 119, 124-25 (2d Cir. 1960); Central Manhattan Properties v. D. A. Schulte, Inc., 91 F.2d 728, 729 (2d Cir. 1937). But if there was a missing link in the chain of reasoning to that conclusion, it was supplied when, in circumstances more perplexing for this point than are the facts of this case, the Second Circuit affirmed that "[a] debtor-in-possession under Chapter XI . . . is not the same entity as the pre-bankruptcy company." Shopmen's Local Union No. 455, etc. v. Kevin Steel Prod., Inc., 519 F.2d 698, 704 (2d Cir. 1975). Consequently, contracts of the pre-bankruptcy entity are not contracts of the debtor-in-possession, until or unless assumed. Id. at 704. Within weeks, another panel, in an analogous case, reaffirmed the character of a "debtor-in-possession . . . as a new judicial entity." Brotherhood of Railway, etc. v. REA Express, Inc., 523 F.2d 164, 170 (2d Cir. 1975), cert. denied, 423 U.S. 1017, 96 S. Ct. 451, 46 L. Ed. 2d 388 (1975).

 In sum, as the precedents now stand, it seems plain that Claim No. 3 should be disallowed, as occupation by a sublessee of a debtor is not to be construed as occupation by the debtor-in-possession.

 3. Claim No. 2305. -- The decision below on Claim No. 3 made it unnecessary to reach this remaining subject. In the changed posture, it may require another look, though this is probably of no consequence. It is apparently conceded that Unishops collected no rents from sublessees in the period from September 3 to September 23, 1974. Moreover, the claimant's entitlement to rents thereafter from the sublessees is proclaimed in Judge Babitt's order of the latter date allowing Middletown to disaffirm. Nevertheless, insofar as there may be open questions on this topic not now disclosed in the record, these are left for handling by Judge Babitt on the remand.

 In sum, the decision below is affirmed as to Claim No. 2304, reversed as to Claim No. 3, and remanded on Claim No. 2305 for further proceedings if any should be required.

 It is so ordered.

 APPENDIX

 ROY BABITT, Bankruptcy Judge.

 The controlling facts have been agreed upon in this dispute between this Chapter XI debtor and one of its creditors on the proper legal basis to be accorded the three claims formally proved by that creditor. Those facts may be summarized as follows:

 Whites at Middletown, Inc., owner-developer of property known as the Middletown Shopping Center located near Route 211, East Middletown, New York, executed a long-term lease with Middletown Center, Inc., as lessee on July 1, 1970. Between that date and September 24, 1970, Middletown Center, Inc. became a wholly-owned subsidiary of Unishops, Inc. On September 24, 1970, claimant, 143 Estates, Inc., became fee owner of the Middletown Shopping Center. As a condition of its acquisition of the fee interest, 143 Estates, Inc. secured from ...


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