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In re Ames Department Stores

127 B.R. 744 (1991)

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In re Ames Department Stores

United States Bankruptcy Court, Southern District of New York

127 B.R. 744 (1991)

Facts

A subsidiary of Zayre Corporation (Zayre) leased department-store premises from Pioneer Trust and Savings Bank (Pioneer) (plaintiff). Under the lease’s nonassignment clause, Pioneer needed to approve any assignment of the lease or else the lease would terminate. The clause made an exception for transfers between corporate affiliates. In 1986, the subsidiary assigned the lease to Zayre. In September 1988, Zayre agreed to sell all its stock to Ames Department Stores, Inc. (Ames). In October 1988, Zayre assigned the lease to another subsidiary, Zayre Illinois (defendant). The sale closed two days later, as a result of which Ames acquired control of Zayre Illinois. However, Zayre Illinois retained its corporate identity, and therefore under well-settled Illinois law, Zayre Illinois also retained the lease. Zayre Illinois planned to assign the lease to a furniture retailer. Pioneer objected, claiming that Zayre knew that control of Zayre Illinois would soon pass to an unaffiliated company, that therefore Zayre should have obtained Pioneer’s approval before assigning the lease to Zayre Illinois, and that Zayre’s failure to do so terminated the lease. The United States Bankruptcy Court had to rule on Pioneer’s claim as part of the proceedings following Ames’s 1990 bankruptcy.

Rule of Law

Issue

Holding and Reasoning (Buschman, J.)

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