Respondent lessors filed a breach of lease action against appellants, a lessee, a guarantor’s estate, and the guarantor’s trust. The Superior Court of Los Angeles County (California) granted the lessors’ motion for summary adjudication regarding appellants’ affirmative defense based on 11 U.S.C.S. § 365(d)(4). After a trial on the complaint, judgment was granted to the lessors. Appellants sought review

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Overview

The lessees executed two commercial leases with the lessor for a theater project. When appellants failed to pay rent or rent arrearages, the lessors’ resulting suit was resolved by a stipulated judgment. The lessee and the guarantor then filed bankruptcy actions, which were ultimately dismissed, after which the guarantor died. When the lessors filed the instant suit for unpaid rent, the trial court granted summary adjudication to the lessors on appellants’ affirmative defense that the failure of appellants’ bankruptcy trustee to elect whether to assume or reject the leases within 60 days was deemed a termination of the leases under 11 U.S.C.S. § 365(d)(4). On appeal, the court affirmed. The bankruptcy trustee’s failure to elect whether to assume or reject the leases resulted in a rejection of them, which the court held amounted to a breach of the leases but did not terminate them pursuant to 11 U.S.C.S. § 365(g). The court also noted that terminating a lease in such cases would allow unscrupulous lessees to evade their contractual obligations by the simple expediency of filing for bankruptcy then dismissing the petition after the lease was rejected.

Outcome

The court affirmed the judgment and directed that the lessors were to recover their costs on appeal.