Opinion
NOT FOR PUBLICATION
MEMORANDUM DECISION SUSTAINING OBJECTIONS TO CLAIM 6
James W. Meyers, Judge, United States Bankruptcy Court
After further review of the documents submitted by the parties, and reflection on the oral argument presented by counsel at a hearing on September 2, 2009, the Court will grant James Warner's motion for summary judgment on the objections to Claim 6.
Amended Claim 6 was filed by Mark and Susan Whillock on December 16, 2008 ("Claim 6"). Claim 6 asserts a secured claim of $883,369.86, plus post petition interest. The basis of the claim is "collateral for loan to third party", and the attachments seek an unsecured claim based on "two promissory notes issued by the Debtor" . The notes attached to Claim 6 were for loans in the amount of $250,000 and $600,000. Both notes were signed by Charles McHaffie, as manager for the Borrower, Urban Coast, LLC. There is no indication in the notes that either of the UC Lofts entities were responsible for the debt arising from the promissory notes.
Charles McHaffie offered real property owned by the Debtors as collateral for the notes, and executed trust deeds in favor of the Whillocks to encumber the real property. The original trust deeds were signed by Charles McHaffie for Urban Coast, LLC. Amended trust deeds were executed and recorded later, to correctly identify the owner of the property as granting the security interest. These amended deeds were executed on behalf of "UC Lofts on 4
After the preliminary hearing on the objections to claims, the Court issued an Order Requesting Further Motions and Briefing ("Order"). The Order admonished Mark and Susan Whillock to allege some basis for liability of these Debtors for the obligation represented by the promissory notes or Claim 6 would be disallowed. In response, the Whillocks asserted that the notes were attributable to the Debtors because they were supported by consideration or benefit to the Debtors by allowing Mr. McHaffie to finish other projects and redirect his investment to the UC Lofts project. The Whillocks contend that the notes should be reformed to correct a mistake and include the Debtors as obligors for the debt because that was the intent of the parties. They further rely on the doctrine of promissory estoppel to enforce the notes against the Debtors.
A promise which the promissor should reasonably expect to induce action or forbearance on the part of the promissee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise.
Restatement 2d Contracts, § 90(1).
However, the promise involved must be clear and unambiguous to be binding under the doctrine. Lange v. TIG Insurance Co., 68 Cal.App.4th, 1179, 1185, 81 Cal.Rptr.2d 39. (1998).
The suggestion that the parties intended the Debtors to be liable for the underlying obligation is refuted by the deposition testimony of Mark Whillock and Scott Tallman found in transcripts that were filed in connection with the Whillock claims. Mr. Whillock knew he was not loaning the money represented by the promissory notes to UC Lofts, nor was he expecting payment from the Debtors in any form but the collateral. He understood that these Debtors "gave a guarantee on that money with a deed, a guarantee on the loan just using the property for a guarantee for the money that was borrowed." There is no indication he relied on the financial position of the Debtors for repayment. He knew the funds were not used on the UC Lofts project.
Mr. Whillock was expecting repayment from Charles McHaffie, not from the Debtors. The Whillocks allegations concerning the control Mr. McHaffie asserted over both the Debtors and Urban Coast, LLC, would be relevant to an attempt to pierce the corporate veil to hold Charles McHaffie or Urban Coast, LLC liable for the obligations of the Debtors, but provides no basis to transfer the liability on the notes from Mr. McHaffie and Urban Coast, LLC, to these Debtors. The only promise made on behalf of the Debtors was that real property owned by the Debtors would be pledged as collateral for repayments of the notes. That promise was fulfilled.
Any presumption of validity afforded to a proof of claim has been overcome in this case. The statements included in Claim 6 and the documents provided in opposition to the motion for summary judgment do not establish personal liability of either Debtor for the amounts due on the promissory notes. This is not a case to avoid the trust deeds granted to the Whillocks as preferential or fraudulent transfers. The potential benefit of the loans to third parties may have supported an argument that there was sufficient consideration to permit the Debtors' property to be pledged as collateral. But that is not the issue before the Court. Any interest the Whillocks had in the Debtors' property was eliminated through foreclosure by a senior secured creditor.
The Whillocks have not provided any evidence that the parties intended these Debtors be personally obligated on the promissory notes. They have not established any genuine issue of material fact for trial, and the motion for summary judgment is granted. The Court will enter a separate order.