Opinion ID: 781254
Heading Depth: 2
Heading Rank: 1

Heading: Validity of the Unrecorded Deed of Trust

Text: 39 All parties agree that Mr. Lindblade's attempt to record the deed of trust violated the automatic stay provisions of § 362. The May 1998 recordation was therefore void. Schwartz, 954 F.2d at 571. 40 Normally, the Trustee of a bankruptcy estate is entitled to avoid such unrecorded (and therefore unperfected) security interests. See, e.g., § 544(a)(3). On the basis of facts peculiar to this case, however, the bankruptcy court determined that § 544(a)(3) does not apply, a holding we do not revisit here as it has not been appealed. 41 The bankruptcy court determined, however, that Mr. Lindblade's deed of trust was unenforceable for a different reason: Mr. Lindblade's $143,000 payment, held the bankruptcy court, was a gift, rather than a loan, and so was unenforceable. See Trowbridge v. Love, 58 Cal.App.2d 746, 137 P.2d 890, 893 (1943) (when a debt is extinguished, the underlying deed of trust is unenforceable); Cal. Civil Code § 2909. That finding was clearly erroneous. 42 The parties agree that, under California law, six factors determine whether a transaction is a gift: (1) competency of the donor to contract; (2) a voluntary intent on the part of the donor to make a gift; (3) delivery, either actual or symbolic; (4) acceptance, either actual or imputed; (5) complete divestment of all control by the donor; and (6) lack of consideration for the gift. United States v. Alcaraz-Garcia, 79 F.3d 769, 775 (9th Cir.1996); Yamaha Corp. v. State Bd. of Equalization, 73 Cal.App.4th 338, 86 Cal.Rptr.2d 362, 375 (1999). Among these factors the donor's intent is key. Ceguerra v. Secretary of HHS, 933 F.2d 735, 740 (9th Cir.1991). Whether a transaction is a gift is a question of fact to be determined from all the evidence. Yamaha, 86 Cal.Rptr.2d at 376. We review that factual finding for clear error. In re Allen, 300 F.3d at 1058. 43 Mr. Lindblade argues that the Trustee has failed to establish two of the requisite elements, namely a voluntary intent on the part of the donor to make a gift and complete divestment of all control by the donor. These two factors largely overlap: The deed of trust, it is true, did not divest Mr. Lindblade of all control of the $143,000, because Mr. Lindblade could demand repayment in certain circumstances. But this contingent interest does not necessarily defeat the finding that the transaction was a gift: The mere retention by the donor of some indicia of control over a gift, standing alone and without any evidence concerning the intent behind such retention of control, is a neutral factor... Yamaha, 86 Cal. Rptr. 2d at 376 See also Gordon v. Barr, 13 Cal.2d 596, 91 P.2d 101, 104 (1939) (collecting cases in which contingent interest, including the right of revocation, did not invalidate gifts). 44 The answer to the gift/loan question thus hinges on whether the Trustee unequivocally established Mr. Lindblade's intent to donate despite his retention of a contingent interest. See Yamaha, 86 Cal. Rptr.2d 362. The Trustee has not. 45 The existence of a signed and notarized loan document and deed of trust, both insisted upon by Mr. Lindblade and created only after considerable effort on his part, is powerful evidence that Mr. Lindblade intended the transaction to be a loan. See Ceguerra, 933 F.2d at 738-39. The absence of certain common loan features, such as a repayment schedule or provision for interest, does not, without more, transform an otherwise valid loan into a gift. Id. 46 Moreover, none of the other circumstantial evidence relied upon by the bankruptcy court establishes that Mr. Lindblade relinquished his rights under the deed of trust. In particular, the Dyers' representations to third-party lenders that the transaction was not a loan were uniformly self-serving. The existence of a loan could have defeated their efforts to obtain additional financing. 47 We conclude that the circumstantial evidence was not sufficient to overcome the strong presumption created by the existence of a facially-valid loan agreement and deed of trust. We hold, therefore, that the deed of trust is enforceable against the Dyer bankruptcy estate. 48 We do not reach the question whether the $97,782.33 payment of the First Interstate Mortgage was also a gift. Mr. Lindblade originally requested that the bankruptcy court find that he also had an equitable mortgage based on that payment. We do not understand Mr. Lindblade to press the equitable mortgage argument before this court and therefore do not consider it. 11 49