Case Name: JOHNS v. UNITED BANK & TRUST CO. OF CALIFORNIA, and four other cases
Court: United States Court of Appeals for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1926-11-01
Citations: 15 F.2d 300
Docket Number: Nos. 4881, 4882
Parties: JOHNS v. UNITED BANK & TRUST CO. OF CALIFORNIA, and four other cases.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 15
Pages: 300–303

Head Matter:
JOHNS v. UNITED BANK & TRUST CO. OF CALIFORNIA, and four other cases.
(Circuit Court of Appeals, Ninth Circuit.
November 1, 1926.
Rehearing Denied Nov. 15, 1926.)
Nos. 4881, 4882.
See, also, In re Foley, 1 F. (2d) 568; Id., 4 F.(2d) 152,154.
Everts, Ewing, Wild & Everts and D. S. Ewing, all of Fresno, Cal., and Cushing & Cushing, Charles S. Cushing, O. K. Cushing, and Delger Trowbridge, all of San Francisco, Cal., for United Bank & Trust Co. of Cal.
Theodore M. Stuart, of Fresno, Cal., for A. G. Johns, as trustee.
Milton M. Dearing and Robert M. Thomas, both of Fresno, Cal., and Farrand & Slosson, Geo. E. Farrand, and Leonard B- Slosson, all of Los Angeles, Cal., for Pacific-Southwest Trust & Savings Bank.
Ward Chapman, of Los Angeles, Cal., for J. E. Lynes. ■
Thelen & Martin, of San Francisco, Cal., and Harris & Hayhurst, of Fresno, Cal., for Tarpey, as executor.
Harris & Hayhurst, of Fresno, Cal., for Pruner.
Before GILBERT and RUDKIN, Circuit Judges, and NETERER, District Judge.

Opinion:
GILBERT, Circuit Judge
(after stating-the facts as above).
Assuming,the fact to be, as found by the trial court, that a trust was imposed upon all of the property of E. Y. Foley or E. Y. Foley, Inc., as the result of the agreements of January, February, and March, 1923, that there was no cancellation of the original agreements under which moneys were contributed to the trust, that the circular letters sent out on May 15, May 23, and May 29, 1923, by members of the committee of trustees to creditors, notifying them that the trustees did not feel justified in proceeding with the agreements and had definitely abandoned them, did not have the effect to abrogate the trust, and that the trust subsisted until the adjudication of bankruptcy, we are unable to assent to the conclusion that the two banks here involved should be denied the right to set-off, as against the debts incurred by the trustees, funds which came into their possession from the trustees in the administration of the trust.
By the original agreement the trustees were to manage, direct, operate, and control Foley's business for the benefit of all creditors. They were given power to mortgage or sell the property, to borrow money "and give evidence of indebtedness therefor on any terms or conditions," and to carry on the business as fully and to the same extent as Foley could carry it on. From and after the creation of the trust the moneys deposited with the two banks by the trustees and the debts due the banks from the trustees were new moneys and not the proceeds of any of the trust property and the dealings between the parties constituted mutual debts and credits within the meaning of section 68a of the Bankruptcy Act (Comp. St. § 9652). It is true that the right of a bank to retain the balance of a debtor for the general balance of account may be waived or controlled by any agreement which shows a contrary intention. Furber v. Dane, 203 Mass. 108, 89 N. E. 227. But here there is nothing to show such a waiver of the right. The banks were under no obligation to advance moneys for the benefit of the creditors and they never by any act of theirs relinquished the right of set-off.
We cannot assent to the proposition that, inasmuch as the trust agreement, in empowering the trustees to borrow money, made no express provision for the repayment of the same, the banks could have no right of set-off. Nor can we agree that in dealing with the trustees these banks occupied a position different from that which would have been occupied by a bank a stranger to the trust. The power to borrow money given to the trustees necessarily implied the power to repay the same. Neither by the terms of the trust agreements nor in the law applicable to the facts was any restriction placed on the power of the trustees to open an account with a bank in the ordinary course of business and subject to the usual incidents of such banking accounts for the purpose of carrying on the business for which the trust was created. The beneficiaries of the trust cannot be permitted to claim title to all the bank deposits made by their trustees and at the same time disclaim all liability for the debts which their trustees incurred. Smallwood v. Lafayette County, 75 Mo. 450; Durkee v. National Bank, 102 F. 845, 42 C. C. A. 674; Continental Trust Co. v. Chicago Title Co., 229 U. S. 435, 33 S. Ct. 829, 57 L. Ed. 1268.
Among the funds in the Pacific Bank as to which that bank claimed the right of set-off were $57,988.41, constituting the Special A account. That sum remained of the moneys contributed by creditors to make payment of 25 per cent, on the claims of grower creditors, and to meet other claims necessary to be paid to clear the way for carrying out the trust agreements. The trial court properly, we think, disposed of this fund by ordering that it be paid pro rata to those who contributed it, subject to the deduction therefrom of $7,000 to be paid to Pruner and $1,334.99 to be paid to Tarpey on cheeks which they held against said fund drawn by the trustees to pay creditors who had agreed to accept 25 per cent, on their claims, in consideration of which they were to forbear the balance of their claims and accept therefor notes or preferred stock in the corporation.
Lynes, representing the contributing creditors intervening in the suit brought by the trustee against the Pacific Bank, brought into the case, in addition to the question of Ms right to the Special A fund, the question of the right of the contributing creditors to receive out of the estate payment of their claims on account of their contributions in preference to the claims of other creditors. Notwithstanding the manner in which the question was thus interjected, the trustee in bankruptcy, in order to avoid multiplicity of suits joined issue thereon and the matter was submitted to the determination of the trial court. The decision was against the claim of prior ity, and it was based upon tbe consideration that the trust agreements had not been filed for record, so as to create a lien enforceable under sections 67a and 47a of the Bankruptcy Act (Comp. St. § 9651, 9631). But we think there can be no question but that the money thus contributed by the creditors and creating a trust fund for designated purposes gave by the terms of the agreements a prior right to the contributors to payment out of the assets of the estate as against the banks and other creditors.
The contributors are not in the attitude of lien holders, the enforcement of whose lien depends upon recordation. Their claims are not only claims against the estate in bankruptcy, but are claims against the other creditors of the estate, created by their own act and assented to by all parties in interest, and constitute a. charge upon their demands against the estate. 4 Remington, Bkcy. (3d Ed.) § 1421; Walker v. Brown, 165 U. S. 654, 17 S. Ct. 453, 41 L. Ed. 865.
As to the disposition made by the trial court of the moneys in the Special A account, the judgment is affirmed. As to the other issues, the judgment is reversed, and the cause is remanded for further proceedings in accordance with the foregoing views.