IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

________________________________

No. 96-30116

________________________________

In the Matter of GIOVANNI ZEDDA AND 

JANET GAUDET ZEDDA,

Debtors,

FERDIE JOSEPH GAUDET,

Appellant/Cross-Appellee,

versus

WILBUR J. BABIN, JR., 

Trustee-Appellee/Cross-Appellant.

__________________________________________________

Appeal from the United States District Court

for the Eastern District of Louisiana 

___________________________________________________

January 7, 1996

Before WISDOM, JONES, and WIENER, Circuit Judges.

WIENER, Circuit Judge:

In this bankruptcy case, Appellant/Cross-Appellee Ferdie J.

Gaudet (Gaudet) appeals the judgment of the district court that

affirmed the bankruptcy court’s decision holding that (1) a counter

letter and an act of sale and addendum by Gaudet’s daughter, codebtor Janet Gaudet Zedda (Janet), to Gaudet were fraudulent

transfers, avoidable by the bankruptcy trustee Wilbur J. Babin
1We note, for example, that the Trustee has asserted a claim

against Gaudet for $6,012.17, purportedly representing payments

made by Janet to or for the benefit of Gaudet within one year of

the filing of the petition in bankruptcy in violation of 11 U.S.C.

§548.

2

(Trustee) under 11 U.S.C. §548(a)(2), and (2) the fraudulently

transferred property belongs to the bankrupt estate and is thus

subject to administration by the Trustee. The Trustee crossappealed from the judgment of the bankruptcy court (on remand from

the district court) that $9,000 was a reasonably fair value for an

undivided one-fourth naked ownership interest in the property in

question and that Gaudet was entitled to reimbursement for that

amount from the subject bankrupt estate. Concluding that the

bankruptcy and district courts erred in excluding evidence of the

true nature of the counter letter and the act of sale and thus

erred in disregarding the true nature of the overall transaction,

of which the excluded documents were integral parts, we reverse and

hold that (1) the property in question is not included in the

bankrupt estate and thus not subject to administration by the

Trustee, (2) that property belongs entirely to Gaudet, and

(3) Janet received a reasonably equivalent value for her undivided

one-fourth naked ownership interest when she transferred it to

Gaudet for $9,000, mooting the issue cross-appealed by the Trustee.

In addition, we remand to the bankruptcy court so that it may

dispose of any related matters in a manner not inconsistent with

our holding.1
2Leaumont indicated that the loan could not be obtained by

Gaudet simply by having Janet co-sign or guarantee the loan for

Gaudet, as Gaudet himself would first have to qualify for the loan,

which he almost certainly would not be able to do.

3

I

FACTS AND PROCEEDINGS

The controversy in this case concerns the immovable property

located at 238 Kenilworth Street in New Orleans, Louisiana (the

Property). It had been acquired by Gaudet and his wife, Emeldia

Friloux (Friloux), in October 1964 as their principal residence.

Gaudet and Friloux had two children, Ferdie J. Gaudet, II (Ferdie)

and Janet. Friloux died in 1980. Later that year, Janet and her

husband, Giovanni Zedda, moved into the house with Gaudet and began

paying the monthly expenses. By 1985, the home was in need of

extensive repairs and renovation, estimated to cost almost $30,000.

Gaudet and Janet discussed with Andrew J. Leaumont, then a Vice

President at Security Homestead, the possibility of Gaudet’s

obtaining a home mortgage loan to finance the work. Leaumont

advised that Gaudet probably would not qualify for a loan, as he

had been retired since 1981, had only a small fixed income of $450

per month from Social Security, and had an unfavorable debt ratio.

Knowing that such home mortgage loans are made only to qualified

individuals who own the immovable property that will be mortgaged,

Leaumont suggested that record title to the Property be placed in

Janet’s name so that she could obtain the loan.2 

In August 1986, a judgment of possession was rendered in
4

Friloux’s succession proceedings. It recognized that Gaudet, as

the surviving spouse in community, was entitled to (1) the

ownership and possession of an undivided one-half of all community

property, including the Property, and (2) the Usufruct of the

Surviving Spouse of the other one-half of the community property.

The judgment of possession also recognized that Ferdie and Janet,

as Friloux’s children and sole heirs, were each entitled to the

naked ownership of an undivided one-fourth of the community

property, subject to Gaudet’s usufruct. That same day Gaudet,

Ferdie, and Janet executed and recorded in the Conveyance Records

for Orleans Parish an Act of Cash Sale (1986 Deed) in which Gaudet

and Ferdie transferred record title of their interests in the

subject property to Janet. That Deed recited a total cash

consideration of $85,028.86, but in truth Janet never actually paid

anything to Gaudet or Ferdie, and Gaudet remained in possession of

the property. The following February, Janet executed an Act of

Real Estate Mortgage which encumbered the Property to secure a

$30,000 home mortgage loan from Fidelity Homestead Association.

That mortgage was recorded in the Mortgage Office for Orleans

Parish on February 4, 1987. 

As time passed, Ferdie became concerned about letting record

title to the Property continue to stand in Janet’s name, and his

concerns created tension within the family. Wishing to resolve the

family discord, Gaudet told Janet to do whatever was necessary to

transfer record title to the Property back into his name. On June
5

6, 1990, Janet executed a counter letter (Counter Letter), which

recited that (1) by virtue of the 1986 Deed she had acquired record

title to the Property from Gaudet and Ferdie, (2) record title had

been placed in her name for convenience only, (3) the Property

actually belonged entirely to Gaudet, (4) she had paid no cash

consideration for the Property, and (5) Gaudet had made all of the

monthly payments on the mortgage. The Counter Letter obligated

Janet, when called upon by Gaudet, to execute an act of sale

conveying to Gaudet all right, title, and interest that she has or

may have in and to the Property. The Counter Letter was recorded

in the Conveyance Records for Orleans Parish on June 8, 1990. 

On October 5, 1990, Janet and Gaudet executed an Act of Sale

and Assumption (1990 Deed) in which Janet transferred record title

to the Property to Gaudet. The “consideration” recited in the 1990

Deed was the payment of $54,000 in cash plus Gaudet’s assumption of

the $26,000 mortgage balance. That same day Janet and Gaudet

executed an addendum to the 1990 Deed (Addendum) in which they

recited that (1) in the 1990 Deed Janet was, in actuality,

transferring to Gaudet only her inherited undivided one-fourth

naked ownership, subject to Gaudet’s usufruct, being the only

ownership interest she had ever had in the Property, (2) record

title to the other three-fourths interest had been transferred to

her by Gaudet and Ferdie on August 22, 1986 [in the 1986 Deed] for

convenience only and for no “consideration,” all as recited in the

Counter Letter, and (3) the actual consideration paid to Janet by
6

Gaudet in the 1990 transaction was $9,000, representing the

estimated fair market value of the undivided one-fourth naked

ownership interest in the Property which she had inherited from

Friloux. The 1990 Deed was recorded in the Conveyance Records for

Orleans Parish on October 9, 1990, but the Addendum was never filed

for record.

On March 4, 1991, Janet and her husband (collectively, the

Zeddas) filed a petition for relief under Chapter 7 of the

Bankruptcy Code. Four months later, the Property was sold, by

agreement of all parties, to a third party for $86,000. The net

proceeds of the sale, $54,383.57, are being held in suspense by the

Trustee pending the outcome of this litigation. 

The Trustee filed a complaint in which he sought to avoid the

transfer of the Property as fraudulent pursuant to 11 U.S.C. §548,

or alternatively as preferential pursuant to 11 U.S.C. §547. This

complaint also sought a declaratory judgment against Gaudet. The

Trustee alleged that the transfers accomplished by execution of the

Counter Letter and the 1990 Deed were fraudulent or preferential,

in either alternative, subject to the Trustee’s powers to set them

aside and administer the Property as an asset of the bankrupt

estate. 

The bankruptcy court found that the transfers effected by the

Counter Letter and the 1990 Sale constituted fraudulent transfers

under 11 U.S.C. §548(a)(2), decreed the bankrupt estate to be the

owner of the Property as of the date the Zeddas filed their
7

bankruptcy petition, and declared the entire net proceeds from the

sale to be property of the estate and subject to the administration

of the Trustee. In so doing the bankruptcy court on its own raised

the specter of §544 for the first time, in an apparent effort to

bolster the Trustee’s powers under the third party rubric by

linking that status under §544 with the power to avoid fraudulent

transfers under §548. 

The district court affirmed the ruling but noted that reading

§544 into §548 would vitiate the powers of trustees under the

latter section because debtors’ transfers almost always occur

before the petition is filed. That court remanded the case to the

bankruptcy court, however, to determine whether Gaudet was entitled

to reimbursement of the $9,000 he had paid to Janet in connection

with the 1990 Deed and its unrecorded Addendum. On remand, the

bankruptcy court found that Gaudet was a good faith transferee for

value under 11 U.S.C. §548(c), so that he was entitled to a lien on

the debtors’ estate in the amount of $9,000, also finding that sum

to be a fair value for the subject interest. The district court

affirmed these findings of the bankruptcy court on remand, as well

as that court’s original rulings. 

The case comes to us in the following posture: Gaudet timely

appealed the portion of the district court’s order affirming the

bankruptcy court’s decision that the Counter Letter and the 1990

Deed constituted fraudulent transfers avoidable by the Trustee

under 11 U.S.C. §548(a)(2). The Trustee timely cross-appealed the
3See In re McDaniel, 70 F.3d 841, 843 (5th Cir. 1995); In re

Young, 995 F.2d 547, 548 (5th Cir. 1993)(bankruptcy court). See

also Bridges v. City of Bossier, 92 F.3d 329, 332 (5th Cir.

1996)(district court). 

4In re McDaniel, 70 F.3d at 842-43.

5Id at 843.

8

portion of the district court’s order affirming the bankruptcy

court’s decision that Gaudet was a good faith transferee for value

and was entitled to a lien on the bankrupt estate for reimbursement

of the $9,000 that he had paid Janet. At bottom, we must decide

whether the Property properly belongs to Gaudet or to the Zeddas’

bankrupt estate.

II.

ANALYSIS

A. STANDARD OF REVIEW

The orders of the bankruptcy court and the district court

permitting the Trustee to avoid the Counter Letter and the 1990

Deed as fraudulent transfers under 11 U.S.C. §548(a)(2) and

decreeing Gaudet a good faith transferee for value are conclusions

of law subject to our de novo review.

3 Any underlying factual

determinations of the bankruptcy court are reviewed for clear

error.4 Under this standard, we must defer to the bankruptcy

court’s factual findings unless, after reviewing all of the

evidence, we are left with a firm and definite conviction that the

bankruptcy court erred.5

B. APPLICABLE LAW
611 U.S.C. §541(a)(1) (1994).

74 COLLIER ON BANKRUPTCY ¶544.01 (15th ed. 1996).

811 U.S.C. §544(a)(1) (1994)(emphasis added).

911 U.S.C. §544(a)(2) (1994)(emphasis added).

1011 U.S.C. §544(a)(3) (1994)(emphasis added).

9

1. Bankruptcy Law

The bankrupt estate comprises all of the debtor’s legal and

equitable interests in property as of the commencement of the

case.6 The Bankruptcy Code vests the trustee with the power to set

aside or avoid various types of pre-petition transfers of property

of the debtor so that the trustee may marshal or increase the

potential assets of the bankrupt estate.7 

In particular, Section 544, the so-called strong arm

provision, vests the trustee with the rights of (1) a creditor on

a simple contract with a judicial lien on the property as of the

commencement of the case,

8 (2) a creditor with a writ of execution

against the property of the debtor that is unsatisfied as of the

commencement of the case,

9 and (3) a bona fide purchaser of the

real property of the debtor as of the commencement of the case.

10

In essence, §544 allows the trustee to step into the shoes of a

creditor for the purpose of asserting causes of action under state

fraudulent conveyance laws and confers on the trustee the status of

a hypothetical creditor or bona fide purchaser as of the

commencement of the case. “The commencement of the case” is
1111 U.S.C. §301 (1994).

12The trustee’s specific avoidance powers include the avoidance

of statutory liens (11 U.S.C. §545), the avoidance of preferential

transfers of the debtor’s property to third persons (11 U.S.C.

§547), the avoidance of fraudulent conveyances (11 U.S.C. §548),

and the avoidance of certain transactions after bankruptcy (11

U.S.C. §549). 

1311 U.S.C. §548 (1994).

1411 U.S.C. §548(a)(1) (1994).

1511 U.S.C. §548(a)(2)(A) and (B)(i)(1994). A transfer for

less than reasonably equivalent value may also be fraudulent under

§548(a)(2) if, instead of the transfer causing or increasing the

debtor’s insolvency, the debtor (1) was engaged in or was about to

engage in business or a transaction for which any property

remaining with the debtor was an unreasonably small capital or (2)

intended to incur, or believed that he would incur, debts that

would be beyond his ability to pay as such debts matured. 11

U.S.C. §548(a)(2)(B)(ii) and (iii)(1994). 

10

synonymous with the filing of the bankruptcy petition.11 

In addition to the strong arm provision of § 544, the Trustee

possesses a number of other specific avoidance powers,12 one of

which is the power to avoid transfers that are made by the debtor

in fraud of his creditors.13 Under §548, a transfer is fraudulent

if it (1) transfers an “interest of the debtor in property” and (2)

is made either (a) with an intent to hinder, delay, or defraud

creditors14 or (b) for less than a reasonably equivalent value and

causes or increases the debtor’s insolvency.15 Although both §544

and §548 empower the trustee to increase the assets of the bankrupt

estate by avoidance of transfers, these powers are wholly separate
16In re Mortgageamerica Corp., 714 F.2d 1266, 1275 (5th Cir.

1983)(distinguishing §544's incorporation of state fraudulent

conveyance law from §548, a federal fraudulent conveyance

provision). 

17La. R.S. 9:2721 (Supp. 1996)(emphasis added).

18La. R.S. 9:2722 (1991).

11

from and independent of one another.16 

2. Louisiana Law - The Public Records Doctrine and its

intersection with §544

Louisiana law requires that specified types of instruments be

filed in the public records if they are to affect the rights of

third persons. This concept is known as the Public Records

Doctrine and is stated in the Civil Code Ancillaries as follows:

No sale, contract, counter letter, lien, mortgage,

judgment, surface lease, oil, gas or mineral lease, or

other instrument of writing relating to or affecting

immovable property shall be binding on or affect third

persons or third parties unless and until filed for

registry in the office of the parish recorder of the

parish where the land or immovable is situated. Neither

secret claims or equities nor other matters outside the

public records shall be binding on or affect such third

parties.17

A third person is defined to include the following:

[A]ny third person or third party dealing with any such

immovable or immovable property or acquiring a real or

personal right therein as purchaser, mortgagee, grantee

or vendee of servitude or royalty rights, or as lessee in

any surface lease or leases or as lessee in any oil, gas

or mineral lease and all other third persons or third

parties acquiring any real or personal right, privilege

or permit relating to or affecting immovable property.18

For purposes of §544 of the Bankruptcy Code, the Trustee

stands in the shoes of a hypothetical creditor or bona fide
12

purchaser as of the commencement of the case. For purposes of

Louisiana’s Public Records Doctrine, a creditor or a purchaser is

a third person. Applying that doctrine to § 544, it is clear that

the Trustee is a third person for purposes of the public records

when he assumes the status of a hypothetical creditor or a bona

fide purchaser as of the commencement of the case. This conclusion

is supported by the Trustee’s correct assertion that he occupies

the position of a third party who is entitled to rely on the public

records. 

The Trustee is wrong as a matter of law, however, when he

assumes that his third party status under §544 entitles him to rely

on the public records for purposes of §548. For §544 makes the

Trustee a third party only for purposes of exercising the specific

powers granted to him under that one section, not all powers

granted to trustees elsewhere in the Bankruptcy Code. There is

absolutely nothing in §548 that makes the Trustee a third party for

purposes of that section; neither is there anything, there or

elsewhere, that provides the linkage between §544 and §548 needed

to justify the Trustee’s assertion that his status as a third party

under §544 can be read to apply in conjunction with §548. Any

effort to make that leap of linkage is a classic “step”

transaction, an unwarranted attempt to bootstrap a nexus where none

exists. On this point we are in apparent agreement with the

district court.

Nevertheless, the Trustee as a third person is entitled to the
19In re Granada, Inc., 92 B.R. 501, 509 (Bankr. D. Utah

1988)(quoting In re Great Plains Western Ranch Co., Inc., 38 B.R.

899 (Bankr. C.D. Cal. 1984)).

13

protection of the public records for purposes of marshaling assets

under §544. Consequently, the Trustee may include in the bankrupt

estate any property the record title to which stands in the

debtor’s name as of the commencement of the case, irrespective of

whether the debtor is entitled to ownership of the property, i.e.,

legal or equitable title, as distinct from record title. Section

544 may be read as relying on the principle of ostensible

ownership, which stands for the proposition that, other things

being equal, what the creditor sees ought to be what the creditor

gets.19 

C. NO RECORD OWNERSHIP AS OF THE COMMENCEMENT OF THE CASE —— §544

A “snapshot” of the public records on the day that the Zeddas

filed their petition reflects a familiar Louisiana chain of title,

with record title to the Property standing in the name of Gaudet,

not Janet. As such, no third party could have taken a deed from

Janet and obtained record title, or filed a judgment against Janet

and obtained a judicial or legal mortgage, so neither could the

Trustee “take” the Property from Janet and include it in the

bankrupt estate in reliance on §544. She had no record title to

the Property on that day, nor had she for the previous five or six

months. 

Perhaps the obverse fact situation best proves this point. If
2011 U.S.C. §544 (1994)(taking a snapshot of the public records

as of the commencement of the case).

14

this case had been one in which record title to the Property stood

in Janet’s name under a simulated cash sale deed on the day the

bankruptcy petition was filed, there is no question that the

Trustee would have claimed it as property of the estate under

authority of §544; neither is there any question but that the

bankruptcy court would have ordered the Property included in the

bankrupt estate under authority of §544. The Public Records

Doctrine would have protected a third party purchaser or judgment

creditor on that date, so under §544 it would have protected the

Trustee as well. But that is not the instant case: When, as here,

the debtor is not the holder of record title to the property at the

commencement of the case, the Public Records Doctrine, which would

not protect a third party who took a deed or a mortgage from the

debtor on that date, cannot and does not protect the Trustee, whose

rights under §544 can be no greater than those of a hypothetical

creditor or purchaser. 

Clearly, then, unless we were to create a fiction that would

permit the Trustee to rely retroactively on the public records,

this case as decided by the bankruptcy court cannot stand, at least

not on authority of §544. When the Trustee is in the shoes of a

third party creditor subject to the public records by virtue of

§544, the situation can only be measured on the basis of a snapshot

of those records taken on the day of the filing of the petition.20
21In re Wilson, 4 B.R. 605, 607 (Bankr. E.D. Wash. 1980)(citing

H.W. Glessner v. Massey-Ferguson, Inc., 353 F.2d 986 (9th Cir.

1965), cert. denied, 384 U.S. 970, 86 S. Ct. 1859 (1966)).

15

Thus only by fictionally moving the transaction date back in time

to the day before the recordation of the Counter Letter (and thus

before the recordation of the 1990 Deed) and treating the Trustee’s

§544 right to avoid the transfer as though it had occurred on that

date, can the Trustee’s position, as approbated by the bankruptcy

court, be sustained. 

We discern no authority whatsoever in §544, or elsewhere for

that matter, for making such a stretch; certainly none can be

gleaned from §548. Frankly, we are unwilling to engage in the kind

of judicial legislation that would be necessary to give the Trustee

this fictional and unauthorized power to link §§544 and 548. In

short, the Trustee is not allowed to reach back to some arbitrary,

anterior time and invoke the public records rights of a creditor or

purchaser as of that date, particularly when it is recognized that

no actual creditor or purchaser could do so. Section 544 does

nothing more than put the Trustee in the exact same shoes as those

of such a third party; it does not give the Trustee either stilts

or Seven League boots to augment the ordinary footwear of the

hypothetical creditor or purchaser.21
22In re Great Plains Western Ranch Co. Inc., 38 B.R. at 903

(quoting 4B COLLIER ON BANKRUPTCY ¶70.45 (14th ed. 1978)).

23In re Wilson, 4 B.R. at 607.

2411 U.S.C. §548(a) (1994). 

16

D. FRAUDULENT TRANSFER — §548

1. Actual Fraud — §548(a)(1)

As §544 is not here available to the Trustee, he must rely on

some other avoidance authority if he is to include the Property in

the Zeddas’ bankrupt estate. In this instance, he must prove that

Janet made a transfer either in actual fraud of creditors under the

intendment of §548(a)(1), or for less than a reasonably equivalent

value within the intendment of §548(a)(2). It is significant that

there was no allegation by the Trustee and no finding by either the

bankruptcy or district court that the Property was transferred in

bad faith or with actual fraudulent intent as is required if

§548(a)(1) is to appertain; that leaves only §548(a)(2). 

2. Less than a Reasonably Equivalent Value — §548(a)(2)

The paramount purpose of the Bankruptcy Act is to provide

equality of distribution among creditors.22 A trustee’s avoidance

powers are intended to benefit the debtor’s creditors, as such

powers facilitate a trustee’s recovery of as much property as

possible for distribution to the creditors.23 We noted earlier that

a transfer may be avoidable under §548(a)(2) if it was a transfer

(1) of “an interest of the debtor in property,”24 (2) made on or

within one year before the date of the filing of the petition, (3)
2511 U.S.C. §548(a) (1994).

26See In re Mortgageamerica Corp., 714 F.2d 1266, 1275 (5th

Cir. 1983)(noting that §544 and §548 are distinct powers that come

from separate sources).

2711 U.S.C. §548(a) (1994).

28In re Oxford Management, 4 F.3d 1329, 1334 (5th Cir. 1993);

In re Haber Oil Co., Inc., 12 F.3d 426, 435 (5th Cir. 1994); In re

Maple Mortgage, Inc., 81 F.3d 592, 596 (5th Cir. 1996).

17

for less than a reasonably equivalent value, (4) which caused or

increased the debtor’s insolvency.25 To achieve the equitable

purpose of bankruptcy law, particularly the purpose of §548(a)(2),

a trustee must look at the realities of the situation and examine

the true nature of all transactions made on or within one year of

the filing of the petition. Substance trumps form. As such,

record title, albeit crucial to the trustee’s powers under §544, is

wholly irrelevant to his powers under §548.26

3. Did Janet have an interest in the Property under state law?

To satisfy the first element of §548(a)(2), the debtor must

transfer “an interest of the debtor in the property.”27 The

bankruptcy court and the district court assumed that Janet had a

100% interest in the Property by virtue of the 1986 Deed in which

Gaudet and Ferdie transferred their interests in the Property to

Janet. That assumption is the Achilles’ heel of the holdings of

those courts, however, for whether the debtor has an interest in

the property is always a question of state law.28 

Under Louisiana law, an instrument is a simulation when, by
29La. Civ. Code art. 2025.

30La. Civ. Code art. 2026.

31Crawford v. Fitzgerald, 532 So.2d 382, 384 (La. App. 3d Cir.

1988).

32An obligation cannot exist without a lawful cause. La. Civ.

Code art. 1966.

33La. Civ. Code art. 1967.

34Simulations are not uncommon in Louisiana; neither does their

use imply anything negative or untoward. It is a typical practice

18

mutual agreement, it does not express the true intent of the

parties.29 Regardless of possible effects it might have on third

parties, a simulation is absolute when the parties to it intend for

the contract to produce no effects between them.30 A simulated sale

does not actually transfer ownership of the property: A sale is a

simulation when the parties have no good faith intent to transfer

ownership, i.e., when it is nothing more than a sham.31 

Even though by definition a simulated sale does not effect a

transfer of ownership between the parties, it is nonetheless an

“acte juridique” or juridical act and must be supported by the

Civil Law notion of “cause” or “causa.”32 Cause, as distinguished

from the common law concept of consideration, i.e., an exchange of

equivalent values, is akin to motive, or the reason why a party

obligates himself.33 Even if there is not “something of value” akin

to common law consideration or a quid pro quo given in exchange for

the execution of the simulation, the transaction may still be valid

under Louisiana law if there is cause for its execution.34 As a
in Louisiana, for example, for children who have inherited the

naked ownership of a deceased parent’s share of the former

community property, subject to a usufruct in favor of the surviving

parent, to reconvey their naked ownership interests —— especially

in the case of the parents’ home —— to the surviving parent so that

he or she may enjoy full ownership of the property for the

remainder of his life, in anticipation that such property

ultimately devolves upon the children at the surviving parent’s

death. Such a transfer may be accomplished by a simulated sale in

which the children convey their interests to the surviving parent

for a recited cash consideration that in fact is never paid. In

addition, historically, because the recordation of a donation

created a cloud on the record title, a party who made a donation

often executed and recorded a simulated sale.

19

general proposition, the binding reconveyance obligation of the

party who receives record title to property in a simulated sale is

sufficient cause to support such a transaction. 

Under Louisiana law, the transaction memorialized in the 1986

Deed was obviously an absolute simulated sale. The parties had no

good faith intent for legal or equitable ownership to pass to Janet

when they used the 1986 Deed to place record title of their

interests in Janet’s name. The true purpose —— indeed, the sole

purpose —— of the 1986 Deed was to enable Janet, as Gaudet’s

undisclosed agent, to qualify for and obtain a loan that in truth

would benefit Gaudet and the Property; and the cause for the record

title transferring transaction was supplied not only by Janet’s

agreement to take out the loan in her name for the benefit that

Gaudet would realize but also by Janet’s obligation to reconvey the

Property to Gaudet. When the Counter Letter, the 1990 Sale, and

the Addendum are viewed in pari materiae, they reveal the true

nature of the transaction: The Property had been transferred for
20

convenience only, and no cash or other assets of value were paid or

given for the transfer. 

Indeed, the truth of the recitation of facts in the Addendum

was accepted by the bankruptcy court and went uncontradicted by the

evidence. Even though counter letters are customarily executed

contemporaneously with the initial transfer, the instant Counter

Letter served the same purpose by stating the realities of the

situation even at its delayed date of execution. Again, neither

the evidence nor the determinations of the bankruptcy court so much

as hint at anything collusive or post hoc about the subsequent

execution and recordation of the Counter Letter. 

Notably, the lower courts did not find that the 1986 Deed is

not a simulation. But neither could they have found that the

instrument is a simulation given their refusal to consider the

Counter Letter, the 1990 Deed, and the Addendum. 

Whether the 1986 Deed is a simulation is a question of

contract interpretation. By definition, the issue of simulation

involves a determination of whether the instrument under scrutiny

is something other than what meets the eye. It follows necessarily

that a proper and complete analysis of whether the 1986 Deed is a

simulation turns of necessity on consideration of extrinsic

evidence — specifically the Counter Letter, the 1990 Deed, and the

Addendum, as well as testimony credited by the court. 

The lower courts’ refusal to consider these documents was

erroneous. When we consider the excluded documents and the
35Janet’s transfer of her undivided one-fourth naked ownership

interest is discussed in part 5 infra.

21

supporting testimony that is in the record, we find that the

transaction, which was cast as a sale in the 1986 Deed, is not a

sale at all, and thus is a simulation in fact and in law. Once the

Counter Letter, the 1990 Deed, and the Addendum are considered, as

they should have been, the evidence offered by the Trustee to

disprove a simulation (i.e., that Janet lived in the house, made

mortgage payments, and directed what improvements would be made) is

seen to be immaterial. This conclusion follows as a matter of law

from the undisputed documents and testimony, rendering remand for

further finding unnecessary.

As the 1986 Deed is a simulation and thus vested no true

ownership in Janet, she had no “interest in the property” (beyond

her undivided one-fourth naked ownership interest which she had

inherited from her mother35) in 1990 that she could have transferred

to Gaudet. Under §548(a)(2), that is the end of the inquiry. 

4. The effect of the simulation on the Trustee

The bankruptcy and district courts ruled that evidence and

testimony about the Counter Letter and 1990 Deed would be parol

evidence and therefore inadmissible against the Trustee as a third

person entitled to the protection of the Public Records Doctrine.

But the bankruptcy and district courts erred, even to the point of

abuse of discretion, in treating the inquiry under §548(a)(2) ——
22

the classic search for truth and the realities of transactions ——

as an evidentiary question and in disallowing evidence of the

Counter Letter and the 1990 Sale. This evidence clearly cannot be

ignored under §548(a)(2), even though it might have been properly

excluded had a §544 public records avoidance been available to the

Trustee. 

The district court stated that Louisiana’s recordation law

compelled the harsh result of divesting Gaudet of property which he

never really conveyed to his daughter and for which she had never

paid anything. Implicit in this statement is the district court’s

recognition that the transaction was in actuality, as contended by

Gaudet, a simulated sale which transferred no ownership between the

parties. The district court, however, erroneously treated the

issue as an evidentiary one, thereby following the Trustee’s red

herring by employing the Public Records Doctrine and the parol

evidence rule to exclude evidence that proves the truth and reality

that is the simulation. When the Trustee successfully sold that

bill of goods to the bankruptcy court and district court, he

carried the day that never should have been carried. 

Although record title and the Public Records Doctrine protect

the Trustee as a third party under §544, they are wholly irrelevant

and immaterial to a fraudulent transfer inquiry under §548. The

focus of §548(a)(2) is on actual ownership — not mere record title.

Neither the Public Records Doctrine nor the parol evidence rule can

function as a false prophet to preclude consideration of evidence
364 COLLIER ON BANKRUPTCY ¶548.09 (15th ed. 1996).

23

of the true nature of the transaction in question. After all, the

very essence of a §548(a)(2) inquiry is that self-same true nature.

When the transfer has already taken place, regardless of the

totally irrelevant fact that it occurred during the twelve months

prior to the date of the petition, the court must examine the

realities of the transaction; and the realities of this situation

reveal beyond peradventure that the 1986 transaction was a

simulated sale which had no effect on either legal or equitable

ownership. 

Janet’s only actual interest in the property at any time

before the 1990 Deed was her inherited undivided one-fourth naked

ownership interest. Ironically, that was the only asset that was

not affected by the simulated 1986 Deed, and that is the only

interest that for the first and only time she actually conveyed to

Gaudet in the 1990 Deed. As that conveyance was a transfer of an

interest of the debtor in property within one year of the filing of

the petition in bankruptcy, the only remaining question is whether

Janet’s transfer of that fractional naked ownership was made for

less than a reasonably equivalent value under §548(a)(2). 

5. Did Janet Transfer Her Interest for Less Than Reasonably

Equivalent Value?

Whether a transfer is made for a reasonably equivalent value

is, in every case, largely a question of fact. As such,

considerable latitude must be allowed to the trier of facts,36 for
37In re Smith, 24 B.R. 19, 23 (Bankr. W.D. N.C. 1982).

38See discussion regarding the district court’s remand and the

bankruptcy court’s findings on remand, near the end of section I,

Facts and Proceedings. 

24

in each case that determination depends entirely on the peculiar

facts and circumstances.37 In evaluating the 1990 Deed, the only

aspect of the transaction that the bankruptcy and district courts

examined was the common law cash consideration of $9,000 received

by Janet from Gaudet in payment for her undivided one-fourth naked

ownership. Yet both courts excluded evidence regarding the true

nature of the transaction. By way of a proffer, however, that

evidence is nonetheless in the record for all to see. On the basis

of the proffered evidence, we affirm the bankruptcy court’s

determination on remand that $9,000 is a reasonably equivalent

value given in exchange for an undivided one-fourth naked ownership

interest in this Property. On this point, both the bankruptcy and

district courts appear to be in agreement.38

III.

CONCLUSION

Janet did not hold record title to the Property on the date

the petition was filed, so the Trustee cannot include the Property

in the bankrupt estate in reliance on §544. As observed by the

district court, it is only when the debtor holds record title to

the property as of the commencement of the case that the Trustee is

entitled to invoke §544's protection of the public records in
25

asserting his rights. 

Consequently, when, as here, the debtor does not have record

title as of the commencement of the case, the Trustee must turn to,

inter alia, §548 to assert his power to avoid fraudulent transfers

previously consummated. Still, there is nothing in §548 that puts

the Trustee in a §544 third party position, so the Trustee may not

invoke the Public Records Doctrine or the parol evidence rule to

preclude a determination of the true nature of the transaction

under state law. When we examine the realities here at play, we

are left with no doubt whatsoever but that (1) the transaction

evidenced in the 1986 Deed was a simulated sale, and (2) the true

nature of the transaction is revealed in the Counter Letter, the

1990 Deed, and the Addendum. 

To the extent that they were inextricably intertwined with a

simulation that did nothing but transfer mere record title as a

matter of convenience in obtaining a legitimate home improvement

loan, the Counter Letter and the 1990 Deed could not possibly have

produced transfers of an “interest of the debtor in property.” And

as whatever was transferred was surely not such an interest, then

by definition there were no fraudulent transfers within the

contemplation of §548(a)(2). Therefore, the entire proceeds from

the agreed sale of the Property belong to Gaudet and are neither

includible in the Zeddas’ bankrupt estate nor subject to

administration by the Trustee. The transfer of Janet’s undivided

one-fourth naked ownership interest to her father for $9,000 was
26

not a transfer for less than a reasonably equivalent value, but

inasmuch as Gaudet actually paid Janet the $9,000 in closing the

reconveyance by the 1990 Deed, no further liens, reimbursements, or

other adjustments are required between Gaudet and the Trustee in

that regard. 

In light of the foregoing, we reverse the holdings of the

bankruptcy court as affirmed by the district court and render

judgment in favor of Gaudet, ordering the Trustee to deliver to

Gaudet the entire proceeds of the sale of the Property, together

with all accrued interest. In addition, we remand to the

bankruptcy court to dispose of any pending related matters in a

manner not inconsistent with our holding today.

REVERSED, RENDERED in part, and REMANDED in part.