Memorandum of Decision Re: Secured Claim

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re ALLEN and CHERYL BARKER,                                       No. 1-84-00961      Debtors. ________________________/
Memorandum of Decision
     During 1982 and 1983, debtors Allen and Cheryl Barker were in severe financial difficulties with general creditors and the Internal Revenue Service. During this time, Allen's brother Glen Barker helped the debtors by making them a series of loans, paying some of their debts, and allowing them to use one of his checking accounts.      Since the debtors filed their bankruptcy petition on August 21, 1984, they have split up. Prior to their marriage, Cheryl had placed her assets in a trust for her own benefit. When the Trustee moved to recover the trust assets for creditors, Cheryl sought dismissal of the bankruptcy as to her on condition that she pay all allowed claims in full. The Court conditionally granted the motion; Cheryl now objects to the claim of Glen Barker.      The undisputed evidence presented to the Court was that at all relevant times Cheryl and Allen Barker were living together and that Allen had Cheryl's power of attorney, which was known to Glen. The loans were made with Cheryl's knowledge and active participation. Glen made the loans in reliance upon Cheryl's income from her trust. The debts created by the loans were therefore debts of the debtors' community and of each debtor separately.      The main problem in this case is the lack of any sort of accounting. While Glen claims that he periodically gave Allen written statements of what was owed, none of them have been produced. There is much confusion and conflicting testimony concerning what, if anything, is now due. The Court must do the best it can to sort out the evidence and reach a conclusion.      It must be noted that there was a prior loan made by Glen to Allen in 1977, before his marriage to Cheryl, and evidenced by a written note. This note is not the subject of this decision. It is only mentioned because Glen has argued that some of the payments discussed below should be allocated to this earlier note and not to the loans made to both Cheryl and Allen. The evidence, including Allen's testimony that the entire balance of the 1977 note was still due when the petition was filed, and the timing, source, and other circumstances surrounding the payments, compels the Court to disregard this argument.      The Court also notes that after the bar date Glen attempted to amend his claim to include rents and other charges in no way mentioned in the timely filed claim. These matters are barred and were not considered by the Court (In re Westgate-California Corp. (9th Cir.1980) 621 F.2d 983) except insofar as a postpetition administrative claim was made out. The evidence supported no allowance of an administrative claim.      On May 20, 1982, Glen loaned the debtors $30,000.00 to clear a judgment lien on their boat. This loan was paid in full on July 29, 1982.      On June 1, 1982, Glen loaned the debtors $3,500.00 to pay for a perk test on their property in Fort Bragg. On August 10, 1982, Glen loaned the debtors $6,200.00 to pay an engineer's bill associated with the same property. On January 26, 1983, Glen as a loan paid a $3,695.23 balance due by the debtors to Bank of America on their credit cards.      In January, 1983, and for a few months thereafter, Glen allowed the debtors to use one of his personal checking accounts so that the IRS and other creditors could not seize the funds. The debtors deposited $48,000.00 of their funds into this account. Glen signed a number of blank checks, which Cheryl filled out and used to pay her and Allen's expenses. Glen withdrew $15,200.00 from this account for himself during this time. At first he could not remember what these withdrawals were for; after a weekend recess, he returned to testify that these payments were for previously undisclosed cash advances he made to the debtors. This conflicted with earlier testimony that he had listed all loans and payments.      The evidence regarding the $15,200.00 is very weak. However, the Court heard no rebuttal testimony from Cheryl, who was available to testify. In addition, the application of those payments to the loans described above would have created a credit balance in favor of the debtors which would be contrary to the evidence that they were in severe financial trouble and that Glen was trying to help them. Accordingly, the Court finds that those two payments were not meant to be credited against the loans described above or below.      On April 12, 1983, Glen loaned the debtors $50,000.00 to pay off their tax debts. Three days later, the debtors repaid $25,000.00, leaving an unpaid balance of $25,000.00.      Some time in 1983, Glen gave the debtors a 1977 Cadillac in return for their promise to pay him $4,000.00. From June through September, 1983, Glen loaned the debtors $3,100.00, of which $2,000.00 was repaid on October 5, 1983.      Pursuant to California Civil Code sections 1914 and 1916-1 as they existed at the relevant times, there is a presumption that interest would accrue at seven percent. This presumption has not been rebutted. Therefore, the Court computes Glen's claim as follows:
       Date                 Amount           Balance
       6/1/82               $3,500.00       $3,500.00        8/10/82               6,200.00         9,700.00        1982 interest          309.00        10,009.00        1/26/83               3,695.00        13,704.00        4/12/83              25,000.00       38,704.00        6/14/83                   200.00       38,904.00        7/29/83                   900.00       39,804.00        9/8/83                  2,000.00       41,804.00        10/5/83               (2,000.00)      39,804.00        Cadillac                4,000.00       43,804.00        1983 interest         1,524.00       45,328.00        interest to 8/21/84 1,928.00       47,256.00
     For the foregoing reasons, Glen Barker is found to have an allowed unsecured claim against both debtors in the amount of $47,256.00. The claim will bear postpetition interest, along with all other claims, to the extent that the Court finds, upon motion of the Trustee or any other party, that such interest would be recovered by creditors if this case were a case under Chapter 7. The parties shall bear their own costs.      Counsel for the claimant shall submit a form of order consistent with this decision.
Dated: February 2, 1988                                                                              _____________________                                                                                                                      ALAN JAROSLOVSKY                                                                                                                      U.S. BANKRUPTCY