Coleman Oil Co v. Circle K Corp. (In re Circle K Corp.)

concurring in part and dissenting in part:

The path to deciding whether 11 U.S.C. § 365 allows a lessee debtor in bankruptcy to exercise an option to renew despite being in default, contrary to an express condition precedent in the lease, is uncharted. While the majority’s view is plausible, I see nothing in § 365 that allows debtors to disregard then-leases and renew while in default. •

Because exercising the option to renew was conditioned on not being in default on the leases, and the leases were in default at the time the debtors tried to exercise the option, the right to renew was lost. Section 365 does not extend the time to exercise the option or to meet conditions precedent. Nor does § 365 give the debtor the right to opt to renew a contract that is in default when the contract by its terms requires that a default first be cured.

To hold otherwise rewrites the lease and, as I read it, § 365. Therefore, for the reasons given by Bankruptcy Judge Russell in his BAP dissent, Coleman Oil Co., Inc. v. The Circle K Corp. (In re The Circle K Corp.), 190 B.R. 370, 378-82 (1995) (Russell, B.J., dissenting), I would reverse.

Although I agree that Coleman’s arguments about the…

Opinion by Judge CANBY; Partial Concurrence and Partial Dissent by Judge RYMER.

This ease presents the question whether a lessee debtor in bankruptcy, prior to deciding whether to accept or reject nonresidential leases, may exercise an option to renew the leases even though the lessee debtor is in default and the leases specify that they may not be renewed if in default.

The Coleman Oil Company, as lessor, leased six gasoline stations in New Hampshire and Maine for ten years, with options to the lessee to renew for two additional five-year terms. Each lease permitted renewal only if none of the leases was in default.

Two subsidiaries of the Circle K Corporation claimed to have acquired the lessees’ interests under the leases by a series of acquisitions and mergers. After one renewal of the leases, disputed here, Circle K and its subsidiaries filed a Chapter 11 petition in bankruptcy. The lessee subsidiaries (“the Debtors”) then sought and received an extension of time within which to assume or reject the leases. See 11 U.S.C. § 365 (d)(4)(l994). The first five-year extension of the leases was due to expire, however, prior to the time when the Debtors were required to accept or…