Ryalls v. Doyle

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
ROBERT RYALLS, No. 05-14445
Debtor(s).
______________________________________/
ROBERT RYALLS,
Plaintiff(s),
v. A.P. No. 06-1144
DEBORAH DOYLE.
Defendant(s).
_______________________________________/
Memorandum After Trial
_________________
Debtor and plaintiff Robert Ryalls filed his Chapter 7 petition on October 5, 2005, duly scheduling
defendant Deborah Doyle as a creditor. Ryalls was discharged on February 16, 2006.
On June 22, 2006, Doyle sent Ryalls a “Notice of Default” alleging that Ryalls was in default in
payments to her under a prepetition obligation and that as a result she was entitled to compel the sale of his
mobile home in order to enforce her claim. She thereafter sued Ryalls in state court, seeking to have the
property sold in order to satisfy her alleged lien. Ryalls then commenced this adversary proceeding seeking
Entered on Docket
April 23, 2007
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 06-01144 Doc# 17 Filed: 04/23/07 Entered: 04/23/07 13:34:19 Page 1 of 3

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1“Borrowers” is plural because Ryalls’ domestic partner was also a borrower. “Current mortgage”
clearly does not refer to Doyle’s alleged security interest, as paragraph 10 refers to a “first position mortgage
holder.”
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injunctive relief and damages for violation of his discharge.
The sole real issue is whether Doyle has a security interest in the mobile home. If she did, her state
court lawsuit was perfectly proper. If she did not, then she violated § 524(a)(2) of the Bankruptcy Code by
seeking to collect a prepetition personal obligation.
There is no security agreement between Ryalls and Doyle. There is a document entitled “Loan
Agreement,” which Doyle argues created a security interest in the mobile home notwithstanding no effort
whatsoever to perfect a security interest.
Before bankruptcy, Ryalls had been a care-giver for Doyle’s elderly parents. He needed a place to
live in order to continue on in what appears from limited testimony to have been a difficult role. Doyle agreed
to loan Ryalls $18,000.00 for the purpose of purchasing a mobile home at 119 Verde Circle, Rohnert Park,
California. The Loan Agreement, drafted by Doyle, nowhere grants her a security interest in the mobile
home. The word “secure” is used only once, in Paragraph 5: “This acknowledges that Lender is entering into
this agreement largely to secure Borrower Robert Ryalls ongoing efforts on Lender’s family’s behalf.”
Arguing correctly that no special words are necessary to create a security interest, Doyle points to
paragraph 7 which provides, in pertinent part:
Borrowers agree to repay Lender the entire principal of $18,000 on or
before April 1st, 2005. If Borrower cannot refinance their current mortgage to cover
this amount, or, if another source of funds is unavailable, Borrowers agree to sell their
mobile home in order to repay Lender.1
In determining if a writing creates a security interest, the court must first determine objectively if the
parties may have intended to create a security interest. If the writing barely meets this test and no more, the
court may consider parol evidence as to the parties’ actual intent. 4 White & Summers, Uniform Commercial
Code (4th Ed.), § 31-3, pp.101-02.
The court finds that the Loan Agreement does not objectively indicate the intent to create a security
Case: 06-01144 Doc# 17 Filed: 04/23/07 Entered: 04/23/07 13:34:19 Page 2 of 3

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interest. Specifying when a loan is to be repaid and promising to sell an asset if necessary is not the same thing
as granting a security interest in the asset.
However, even if the Loan Agreement might objectively support a claim to a security interest it does
so only just barely, making parol evidence admissible. Ryalls testified credibly that he never had such an intent
and would never have given Doyle a security interest in his home. Doyle did not appear at trial, so this
testimony is un-rebutted. The court accordingly finds that Doyle has no security interest in the mobile home.
While the court’s conclusion also would justify damages for violation of the discharge injunction, no
evidence of damages was introduced by Ryalls so the court will not award any. The court will enter a
judgment declaring that Doyle has no right, title or interest in the mobile home and permanently enjoining her
from prosecuting the state court lawsuit. Ryalls shall recover his costs of suit.
This memorandum constitutes the court’s findings and conclusions pursuant to FRCP 52(a) and FRBP
7052. Counsel for Ryalls shall submit an appropriate form of judgment forthwith.
Dated: April 23, 2007
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 06-01144 Doc# 17 Filed: 04/23/07 Entered: 04/23/07 13:34:19 Page 3 of 3