## Facts

- San Francisco Industrial Park, Inc. acquired approximately thirteen acres in San Francisco to develop an industrial park and sought roughly $4 million in financing to construct the project.
- The debtor and John Hancock Mutual Life Insurance Company structured the financing as a sale-and-leaseback: the debtor executed a grant deed conveying specified parcels to Hancock, and Hancock leased the parcels back to the debtor under a long-term ground lease with rent and tax obligations.
- The grant deed was executed April 18, 1966, delivered and recorded June 21, 1966, covering parcels identified as Parcels 2, 3, and 4.
- The debtor later commenced a Chapter XI proceeding on June 4, 1968.
- In the bankruptcy, the debtor contended the transaction, though styled as a sale-leaseback, was intended only to secure construction financing and should be treated as an equitable mortgage.
- The bankruptcy referee found Hancock held fee title to the parcels, the debtor had no ownership interest, and the sale-leaseback was not intended to operate as a security device.

## Issues

1. Whether the grant deed and related sale-leaseback arrangement should be recharacterized as an equitable mortgage rather than an absolute conveyance based on the parties’ intent.
2. Whether, if Hancock held fee title, the debtor was required to surrender possession of the parcels.
3. Whether post-petition ground rent and delinquent taxes on the parcels were allowable as administrative expenses, and what related claims Hancock could assert for pre-petition amounts.

## Decision

- The district court affirmed the referee’s order on the debtor’s petition for review.
- The court upheld the finding that Hancock was the fee owner of Parcels 2, 3, and 4 by virtue of the recorded grant deed.
- The court agreed the sale-leaseback was not intended by either party to be a mortgage or other security device and did not operate as one.
- The court affirmed the directive that the debtor had no right, title, or interest in the parcels and must surrender possession to Hancock.
- The court affirmed allowance of unpaid post-petition rent and delinquent taxes as administrative expenses, and the requirement that Hancock itemize claims for pre-petition rent, taxes, and related charges (including reasonable attorneys’ fees and interest).

## Legal Principles

- A deed absolute in form may be treated as a mortgage only upon sufficient proof that the parties intended it to serve merely as security for a debt.
- In determining whether a transaction is an equitable mortgage or an absolute conveyance, courts look primarily to objective evidence of mutual intent reflected in the written instruments and surrounding circumstances, not later unilateral characterizations.
- Where a sale-leaseback is found to be a true conveyance with a leaseback, the debtor’s estate has no ownership interest in the conveyed property and may be required to surrender possession.
- Post-petition obligations arising from the estate’s continued use or occupancy under a lease, including rent and taxes becoming delinquent after the filing, may be allowed as administrative expenses.

## Conclusion

The court treated the grant deed and sale-leaseback as an actual transfer of fee title to Hancock, rejected the debtor’s attempt to recharacterize the transaction as an equitable mortgage in bankruptcy, ordered surrender of possession, and approved post-petition rent and tax obligations as administrative expenses subject to itemized claims for other amounts.


In re San Francisco Industrial Park, Inc., 307 F. Supp. 271 (N.D. Cal. 1969)