Memorandum of Decision Re: Delivery of Note

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re MT. KAILASA FOUNDATION, INC.,                                         No. 1-87-00007      Debtor. ____________________________/ MT. KAILASA FOUNDATION, INC.,      Plaintiff,    v.                                                                                                  A.P. No. 1-87-0033 PETER KAUFMAN, KABULI BALKHEIMER, et al.,      Defendants. ___________________________/
Memorandum of Decision
     Plaintiff Mt. Kailasa Foundation, Inc., is a non-profit religious organization associated with the International Society for Krishna Consciousness. It has brought this action to declare null and void a note and deed of trust encumbering its real property in Lake County, California.      The action was originally brought against the named payees and beneficiaries, Peter Kaufman and Kabuli Balkheimer. Those two individuals were prepared to stipulate that the note be cancelled and the deed of trust set aside, and did not contest the matter at trial. However, a third party, Gauranga Private Limited, a Singapore corporation, has come forward asserting that Kaufman and Balkheimer were made payees and beneficiaries in their capacity as its agents. Gauranga asserts that it is the true party in interest, and that that the deed of trust should not be set aside. Gauranga was permitted to intervene as a defendant.      The note and deed of trust were created in July, 1983. At that time, both Mt. Kailasa and another religious corporation, The International Society for Krishna Consciousness of the Bay Area, Inc., were in fact controlled by the same spiritual leader, known as Hansadutta Swami, Jack London, and Hans Kary.      Witnesses called by Mt. Kailasa testified that the reason for creation of the note and deed of trust was Kary's fear that the International Society would attempt to take over Mt. Kailasa's assets. They say he believed that a sham encumbrance would make such a takeover more difficult or less attractive. There is some support for this in that Kary was in fact excommunicated by the International Society shortly after the documents were created, although no attempt was made to take over the assets of Mt. Kailasa.      Witnesses called by Gauranga, including Kary himself, testified that the primary purpose of the note and deed of trust was to give security to a printing company in Singapore for the printing of a large quantity of books. Gauranga was then essentially wholly-owned by Kaufman; it is now essentially wholly-owned by Raul Goff, who in July of 1983 was president of both Mt. Kailasa and ISKCON of the Bay Area, Inc. The defense witnesses conceded that a secondary purpose for the note and deed of trust was to protect Mt. Kailasa's assets from attachment by a creditor of the International Society who had obtained a large judgment in Southern California. However, they denied that fear of a takeover by the International Society had anything to do with it.      There is no doubt that the books were in fact printed, and that at least a portion of them were stored on Mt. Kailasa's premises. The dispute is over whether the note and deed of trust were created in order to secure payment for them.      Gauranga's argument is somewhat strained. It alleges that Balkheimer and Kaufman were made beneficiaries as its agents, but presented no proof of this. It argues that the purpose of the note and deed of trust was to secure a yet-to-be-negotiated contract, but produced no evidence of such a contract other than the invoices for the books. It argues that the note and deed of trust were for the assurance and benefit of the printer with whom Gauranga contracted to print the books, but it does not satisfactorily explain how a deed of trust in its favor was supposed to benefit the printer, who had no relationship with the other parties except that the owner's son was married to a former devotee. The above factors, together with the facts that Gauranga is owned by one of the persons who authorized the note and deed of trust, and the questionable character of some of Gauranga's witnesses, make it more likely than not that the version of the facts put forth by Mt. Kailasa's witnesses is the more accurate.      Although the court resolves the factual disputes in favor of Mt. Kailasa, it is not necessary to do so in order to resolve the case. The original note and deed of trust are still in Mt. Kailasa's possession, never having been delivered to Kaufman or Baulkheimer. In fact, Kaufman at least did not even know that he had been named as a beneficiary or payee until months after the documents were created. The deed of trust reflects that after recording it was returned to Huber Robertson, then treasurer of ISKCON of the Bay Area, Inc., and primary witness for Mt. Kailasa in this case.      It is elementary real property law that delivery to the beneficiary is requisite to the validity and operation of a deed of trust. 27 Cal.Jur.3d, Deeds of Trust, sec. 32. Possession by a grantor raises the presumption of nondelivery. Condencia v. Nelson (1960) 187 Cal.App.2d 300, 303. In this case there is no evidence of any delivery to either Gauranga or its alleged agents. The only factors before the court relating to the issue were the admission that Mt. Kailasa has possession of the deed of trust and the evidence that at least one of the named beneficiaries did not even know about the deed of trust's existence until long after the fact. The case is very similar to Richardson v. Suiter (1946) 74 Cal.App.2d 682, 685, in which recordation by the trustor's agent was held not to constitute delivery where the deed of trust was returned to the agent after recordation and the named beneficiary had no knowledge of it.      Likewise, the enforceability of a note depends on its delivery and acceptance; a note has no legal inception or valid interest until then. 10 Cal.Jur.3d, Bills and Notes, sec. 103; Rogers v. Harris (1956) 138 Cal.App.2d 1, 6. In this case, neither the named payees nor Gauranga has the note; it is still in the possession of Mt. Kailasa and there is no evidence of it ever being in anyone else's possession. It is therefore invalid and unenforceable.      For the above reasons, Mt. Kailasa is entitled to a judgment declaring that the note and deed of trust are void, discharged, and of no effect, and that none of the defendants has a valid security interest in Mt. Kailasa's real property. Mt. Kailasa shall recover its costs of suit from Gauranga only.      Counsel for Mt. Kailasa shall submit a form of judgment in accordance with this decision, which constitutes findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052.
Dated: November 24, 1987                                                                                  _______________________                                                                                                                            ALAN JAROSLOVSKY                                                                                                                            U.S. BANKRUPTCY