FOR THE NORTHERN DISTRICT OF CALIFORNIA
LENDVEST MORTGAGE, INC., No. 1-88-01058
CHARLES DUCK, Trustee,
v. A.P. No. 1-88-0153
LOUISE A. MOCK,
Memorandum of Decision
Plaintiff Charles Duck is the trustee of the estate of Lendvest Mortgage, Inc., a now-defunct
mortgage company. The issue now before the Court is whether a promissory note made payable
to the debtor, assigned to defendant Louise Mock, but remaining in the possession of the debtor,
belongs to Mock or the bankruptcy estate. Because the issue has been addressed at length in
several Ninth Circuit opinions, resolution of this case boils down to a single factual finding.
If the note was assigned to Mock as security for the debtor's obligation to her, then her
interest in the note is avoidable because she did not have possession of it. In re Staff Mortgage
& Inv. Corp.
(9th Cir.1980) 625 F.2d 281. On the other hand, if the debtor sold the note to
Mock and assigned it to her pursuant to the sale, then Mock owns the note notwithstanding her
lack of possession. In re Golden Plan of California, Inc.
(9th Cir.1986) 829 F.2d 705, 708. The
form of the documents is not controlling; it may be properly determined from all the facts and
circumstances that the bargain was a security transaction and not a sale, even if all the documents
recite that it is a sale. In reThe Woodson Company
(9th Cir.1987) 813 F.2d 266.
Mock is off base in arguing that section 541(d) of the Bankruptcy Code is relevant. If the
bargain was a sale, she wins without need to refer to section 541(d); if it was a security
transaction, she loses notwithstanding section 541(d). In re The Woodson Company
, at 270.
The dispositive test of whether the bargain was a sale or a security transaction is whether the
investor received a contractual guarantee of repayment from the debtor, so that the risk of loss
was shifted from the investor to the debtor. In re Golden Plan
, at 709; In re The Woodson
, at 271. In Golden Plan
, the trustee lost because although the debtor had advanced
funds to investors in bad loans, it was not contractually obligated to do so. In Woodson
trustee won because the debtor had issued its written guarantee to the investors.
The factual finding in this case is not as easily made as Mock makes it out to be. Her own
witness, a former officer of the debtor who arranged the Mock investment, admits that the debtor
did give guarantees to many investors and that he cannot remember if he gave a guarantee to
Mock or not. However, Mock's own testimony that she received no guarantee is believable and
unrebutted, and is the basis for the Court's finding that she did not receive a guarantee and
therefore is the lawful owner of the note and not the holder of an unperfected security interest
For the foregoing reasons, the Trustee shall take nothing by his complaint and the matter shall
be dismissed with prejudice. Mock shall recover her costs of suit.
Counsel for Mock shall submit an appropriate form of judgment. This memorandum
constitutes findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052.
Dated: March 15, 1989 _______________________