Memorandum of Decision Re: Oral Loan Commitment

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re JUDITH FAYE MIRANDA,                                       No. 1-90-01184      Debtor. ___________________________/
Memorandum of Decision
     Plaintiff Pacific Commercial Morgtage Corporation is a mortgage loan broker. The dispute now before the court involves its claim for $111,300.00 alleged to be due for arranging a loan for debtor Judith Miranda and her former spouse, Frank Miranda, who is not a debtor in this Chapter 11 proceeding.      In February, 1989, Judith and Frank sought the help of PCMC in obtaining a loan for their condominium development project. In May of 1989, before anything other than the loan applications were signed, the Judith and Frank separated.      On November 9, 1989, Frank alone signed a "Loan Proposal" agreement which provided that an "origination fee" would be due from the Mirandas "upon delivery of a loan commitment by PCMC to the Applicant under the terms of this proposal." The intended lender orally agreed to fund a loan, but nothing was put in writing. The loan was never made, due to the change in the Mirandas' circumstances and the fact that the terms agreed to by Frank were impossible, as they stipulated no rental units and the building permit issued by the county required that there be rental units.      The issues are whether an oral loan commitment is sufficient to give PCMC a right to its fee under the contract, and whether Judith is liable to pay the fee even though she did not sign the contract.      Addressing the latter issue first, it is clear that Judith is not personally liable for any debt created by Frank when he signed the Loan Proposal, even if they were not separated at the time. Pursuant to California Civil Code section 5120.140(a), debts incurred during a marriage by a person's spouse are only personal liabilities if they are for the necessities of life. However, since the property to be financed is property of this bankruptcy estate, PCMC has an allowable claim if the property is liable for the debt. Fitzsimmons v. Jackson, 51 B.R. 600, 613 (9th Cir. BAP 1985).      California Civil Code section 5120.110(a) provides that community property is liable for a debt incurred by either spouse during marriage. Section 5120.110(c) provides that the term "during marriage" does not include the period during which the spouses are separate and living apart prior to dissolution. While this latter section was not effective until January 1, 1990, it is to be given retroactive application. In re McCoy, 111 B.R. 276, 281 (9th Cir.BAP 1990). Since Judith and Frank were separated when he signed the Loan Proposal, section 5120.110(c) prevents their community from being liable for any debt thereby created.      The court finds no merit in the argument that the debt should be deemed to have been created during the marriage because Judith and Frank briefly reconciled over Thanksgiving a few weeks after Frank signed the Loan Proposal. They had clearly been separated for some time prior to the brief reconciliation; the applicable statutes clearly refer to the time when the debt was incurred as determining its nature with no provision or exception for later events. Moreover, any rule which allowed a subsequent reconciliation to change the nature of debts from separate to community would strongly discourage reconciliation, and therefore would be bad policy.      Since the claim of PCMC is based on a debt which is not a personal liability of Judith, and the former community property, now property of the estate, is not liable for the debt, PCMC does not have an allowable claim in these proceedings. It is therefore unnecessary for the court to determine if any valid debt arose from Frank's signing of the Loan Proposal, as any such debt is his alone.      Accordingly, the debtor's objection to the claim of PCMC will be sustained. Counsel for Judith shall submit an appropriate form of order.
Dated: March 7, 1991                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy