On Appeal from the United States District Court for the District of New Jersey. (D.C. Civil Nos. 94-02857 and 94-06359).
Before: Greenberg, Roth and Aldisert, Circuit Judges.
These consolidated appeals arise out of the bankruptcy of Jason Realty, L.P., a single-asset, New Jersey limited partnership that owns and operates a two-story retail and office building. On this property, First Fidelity Bank, N.A., holds a note, a mortgage, and an assignment of rents. At issue here is the assignment agreement, which assigned the rents, income and profits from the property to the bank, but granted Jason Realty the privilege to collect the rents until the event of default. Jason Realty defaulted prior to filing its Chapter 11 petition. The parties now dispute title to the rents.
The major question for decision is whether the assignment was an absolute assignment, as interpreted by the district court, or a collateral pledge, as construed by the bankruptcy court. We agree with the district court that the assignment vested First Fidelity with title to the rents and granted Jason Realty a license to collect the rents until default. Upon default, Jason Realty had no interest in the rents. Accordingly, the rents are not property of the estate and are not available as cash collateral nor as a funding source for the debtor's reorganization plan. Therefore, we will affirm the orders of the district court.
The orders of the bankruptcy Judge and the district court are final and appealable. Commerce Bank v. Mountain View Village, Inc., 5 F.3d 34, 36-37 (3d Cir. 1993). We have jurisdiction under 28 U.S.C. § 158(d). Because there is no dispute as to the facts presented below, the interpretation and application of the assignment contract and the Bankruptcy Code raise only questions of law subject to plenary review. See In re Deseno, 17 F.3d 642, 643 (3d Cir. 1994); FRG, Inc. v. Manley, 919 F.2d 850, 854 (3d Cir. 1990).
The contest here is between Jason Realty, L.P., the debtor, and First Fidelity Bank, N.A., a creditor. Jason Realty is the owner of commercial real estate in Aberdeen, New Jersey. On September 14, 1989, Jason Realty executed a promissory note in favor of Howard Savings Bank for the repayment of approximately $750,000.00. On this date, it also executed two additional agreements: a mortgage and an assignment of leases. The assignment provided:
THAT the Assignor for good and valuable consideration, receipt whereof is hereby acknowledged, hereby grants, transfers and assigns to the Assignee the entire lessor's interest in and to those certain leases . . . TOGETHER with all rents, income and profits arising from said leases.
App. at 78. The assignment included the following "terms, covenants and conditions":
So long as there shall exist no default by the Assignor in the payment of the principal sum, interest and indebtedness secured hereby and by said Note and Mortgage, . . . the Assignor shall have the privilege to collect . . . all rents, income and profits arising under said leases or from the premises described therein and to retain, use and enjoy the same. * * *
Upon payment in full of the principal sum, interest and indebtedness secured hereby and by said Note and Mortgage, this Assignment shall become and be void and of no effect.
App. at 80 and 82. On October 2, 1992, First Fidelity purchased the note, mortgage and assignment from Howard Savings Bank.
Jason Realty defaulted on the note by failing to make the principal and interest payments due on November 1, 1993, and each month thereafter. On January 28, 1994, First Fidelity sent notices to the tenants of the mortgaged property demanding that they pay their rent directly to First Fidelity. On March 3, 1994, First Fidelity instituted a foreclosure action in a New Jersey state court, and on March 18 filed an application for appointment of a receiver. One week thereafter, Jason Realty filed a voluntary Chapter 11 petition. Accordingly, the foreclosure action was stayed.
On April 4, 1994, the bankruptcy court authorized Jason Realty's preliminary use of the rents to pay expenses in accordance with the budget submitted to the court and set a final hearing date for April 25, 1994. At the final hearing, the bankruptcy court held that the rents, amounting to approximately $12,500 per month, constituted cash collateral and granted Jason Realty's motion for continued use of cash collateral. The court also directed Jason Realty to pay First Federal $6,041.00 per month as adequate protection. The court entered a final order authorizing the debtor's continued use of cash collateral. First Fidelity filed an appeal to the district court which reversed ...