Opinion ID: 1228674
Heading Depth: 1
Heading Rank: 2

Heading: extension of credit

Text: (1) UFITEC contends credit was not extended within the meaning of section 7 because Carter had no ownership interest in the BCU account and because UFITEC was the sole owner of the securities in the account. However, looking at either the transaction's form or substance, it clearly involved an extension of credit. Regulation T includes within the definition of customer any joint venture in which a creditor participates, when the venture would be considered a customer of the creditor if the creditor were not a participant. The transaction in form comprised a joint venture between Carter and UFITEC to purchase and sell securities, UFITEC advancing money to the joint venture and receiving interest on its advancements. In the instant case, division of profits and losses differed from the contribution of funds. The board has ruled that such joint ventures constitute an extension of credit. (31 Fed.Reg. 7169 (1966); 34 Fed.Reg. 9121 (1969).) In substance, as secured lender, UFITEC clearly extended credit to Carter as reflected by UFITEC's retaining title to the shares, by its right to liquidate the account, and by its asserted right to recover money  with interest  advanced on Carter's covenant to absorb all losses. If the margin requirement of regulation T could be avoided by the simple expedient of placing the securities in the lender's name, and by giving it veto power over transactions with a right to liquidate, the regulation would be of little effect. UFITEC's position does not differ substantively from that of a pledgee who takes possession of pledged property, who limits his duty to make future advances, and who has the right to sell in satisfaction of the debt. (See 39 Cal.Jur.2d, pp. 496-497, 538-540.) UFITEC also relies upon Carter's testimony that the securities in the BCU account belonged to UFITEC at all times. (Carter took the position at trial that he did not agree to bear losses and that his share of the profits was for making investment opportunities available to UFITEC. The trial court rejected Carter's testimony.) However, placing the securities in UFITEC's name weighs little against the credit theory in view of the interest and loss provisions. In any event the trial court could properly reject Carter's testimony, finding a debtor-creditor relationship.