Memorandum of Decision Re: Deed as Disguised Security
1. The $130,000.00 described in the escrow papers as water rights was the same amount as the Peddys' note, and bore no relation to the true value of the water rights.
2. The Pauls admit that they were entering into the transactions as a favor to their friends, and had absolutely no idea what the property was worth.
3. After the Pauls had taken title, the Pauls and Walter Peddy listed the property with a broker for sale together.
4. In the presence of the broker, the Pauls referred to the transaction as a loan and indicated that the Peddys still had some sort of interest in the property aside from the water rights, and that the property needed to be sold at a minimum price to "cover everyone involved."
5. Richard Paul told Walter Peddy that he had not sold the property when in fact he had sold it.
6. Richard Paul has a recent felony conviction for making a false claim.
7. Most convincingly, at his deposition Richard Paul produced a copy of a letter which he claimed to have sent to the Peddys on March 15, 1987 (the Peddys deny receiving it). While at first appearing to be self-serving to the Pauls' case, upon analysis it pokes serious holes in it. The tenor of the letter is clearly angry, as if the Pauls did not get all that they were promised. However, the undisputed testimony is that the property was worth a minimum of $180,000.00, and the Pauls in fact sold it, albeit with no cash down, for $217,500.00. All the Pauls paid was $91,383.66. If the transaction was a simple sale as the Pauls argue, there is absolutely no reason for the Pauls to be anything less than pleased with their investment. The letter only makes sense if the Pauls had agreed to sell the property for enough to allow the Peddys to recoup their $130,000.00, and no buyer could be found at that price.
Under California law, a deed absolute may be deemed a to be something else if it can be inferred from all of the facts and circumstances, including the conduct of the parties after the transaction, that something else was intended. 5 Augustine & Zarro, California Real Estate Law & Practice, section 120.61. While the court gives the Pauls the benefit of the doubt and will not find that they unconditionally promised to pay the Peddys $130,000.00 for the property, it does find that the Peddys and the Pauls intended and agreed to a partnership whereby they would market the property together with the Pauls getting the first $91,383.66 plus ten percent interest, the Peddys getting the next $130,000.00, and any balance split between them. The Pauls breached this agreement by selling the property without the Peddys' consent or knowledge and keeping all the profits. The court finds that the actual value of the property when the Pauls sold it was $200,000.00, and that they were entitled to the first $113,467.16. The court concludes that the Peddys are entitled to judgment against the Pauls in the sum of $86,532.84, together with interest at the legal rate from July 29, 1988, and costs of suit. Because this is not a core proceeding, the court makes the foregoing its proposed findings and conclusions pursuant to Local Rule 700-6(a).
Dated: February 9, 1990 _______________________ Alan Jaroslovsky U.S. Bankruptcy