In Re Four Seas Center, Ltd., a Limited Partnership, Debtor. Four Seas Center, Ltd., Debtor-Appellee v. Davres, Inc., Secured Creditor-Appellant

Four Seas Center, Ltd. (the debtor) filed a Chapter 11 petition in bankruptcy on November 17, 1982. The debtor’s only significant asset was a five-story commercial building in Burlingame, California. At the time of filing bankruptcy, the building was subject to several deeds of trust, including a first deed of trust in favor of New York Life Insurance Company for approximately $2.4 million, and a second deed of trust in favor of Union Bank for $247,000. The third deed of trust was in favor of Davre’s, Inc., appellant herein.

Davre’s had entered into a lease/management agreement with Four Seas Center, Inc. (FSC, Inc.), an entity related to the debtor, in December, 1980, which provided that Davre’s would lease and operate a restaurant on the fifth floor of the Burlin-game commercial building to be furnished and equipped by FSC, Inc. The debtor guaranteed all obligations of FSC, Inc. under the agreement; the third deed of trust secured that guarantee as well as the repayment of a $200,000 promissory note to Davre’s.

In October, 1981, the debtor and FSC, Inc. filed suit against Davre’s in the District Court for the Northern District of California for fraud and breach of contract.…