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In Re Advent Corp.
Citations: 24 B.R. 612; 9 Bankr. Ct. Dec. (CRR) 1103Docket: Bankruptcy 81-9035
Court: Bankruptcy Appellate Panel of the First Circuit; November 29, 1982; Us Bankruptcy; United States Bankruptcy Court
Fidelity Deposit Company of Maryland appealed a bankruptcy court order mandating the issuance of a bond to protect Advent Corporation, which had filed for Chapter 11 bankruptcy on March 17, 1981. Before the bankruptcy filing, Fidelity had issued a $100,000 general term bond for Advent's imports, but notified Customs of its cancellation effective July 25, 1981. The bankruptcy court ordered Fidelity to reinstate the bond before the cancellation took effect, although it remains unclear if Customs was notified of this hearing. Fidelity attempted compliance, but Customs refused due to procedural issues. Subsequently, Advent and Fidelity agreed on five single entry bonds totaling $88,600. In September 1981, when Advent sought a bond for a $220,000 shipment, Fidelity declined. Following an emergency hearing, the bankruptcy court ordered Fidelity to issue a single entry bond for $241,600, contingent on Advent's payment of $20,306.90. Fidelity moved for a stay pending appeal, which the bankruptcy court denied, but allowed classification of any claim as an administrative expense. Ultimately, Fidelity complied and issued the bond, but on appeal, argued that the bankruptcy court exceeded its authority by requiring a bond larger than the maximum liability of the previously terminated bond. A bankruptcy court cannot extend a contract beyond its original terms, nor does the Bankruptcy Code enhance a debtor's contractual rights or prevent contract termination as specified within the contract itself. Under 11 U.S.C. § 362, filing a bankruptcy petition automatically stays any proceedings against the debtor, including attempts to cancel bonds. Actions taken in violation of this stay are void, regardless of whether the party acted with knowledge of the bankruptcy filing. Consequently, the efforts by F.D. and Customs to invalidate a $100,000 general term bond were ineffective, allowing it to remain in effect until its scheduled expiration on October 9, 1981, thereby entitling the debtor to its full benefits until that date. Customs argued against rescinding a $241,600 bond based on reliance on its existence for a shipment release, but this argument was dismissed as 'self-inflicted,' and Customs was estopped from making equitable claims due to its prior acknowledgment of the original bond's validity. Additionally, Customs improperly attempted to terminate the $100,000 bond without adhering to its own regulations, which required a 60-day approval period for termination requests. Therefore, the bankruptcy court's September 29, 1981 Order is vacated, and the matter is remanded for appropriate actions to rescind the $241,600 bond, confirming that any attempted terminations of the $100,000 bond before October 9, 1981, are declared ineffective, limiting liability to the original bond terms.