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Chase Manhattan Bank, N. A. v. Gems-By-Gordon, Inc. - 649 F.2d 710 (9th Cir. 1981)

Rule:

Determinations of Guam law by the United States District Court for the District of Guam, Appellate Division, will be affirmed on appeal if they are based upon a tenable theory and are not manifestly erroneous. 

Facts:

Gems-by-Gordon, Inc. (“Gems”) held property that leased to a related entity. The lease agreement contained a negative pledge, prohibiting the parties from further conveyance of the property. Using the pledge as security, Chase Manhattan Bank, N. A (“Chase”) provided a line of credit to Gems, who ultimately defaulted. Chase sought to enforce the negative pledge as an equitable mortgage against the sublease. The district court declined to grant this relief to Chase, ruling as a matter of law that the negative pledge was unenforceable as an equitable mortgage because the property subject to such a mortgage could not be definitely determined. Chase sought review. 

Issue:

Where a lease agreement contained a negative pledge that prohibited the parties from further conveyance of the property, was the negative pledge enforceable as an equitable mortgage?

Answer:

No

Conclusion:

The court affirmed the order of the district court, holding that, under the deference afforded the district court in circumstances of determinations of local law, there was no error in the ruling. Further, the ruling comported with American law, as there was no language in the lease indicating the parties' intentions that the pledge would operate as an equitable mortgage.

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