Opinion ID: 1550675
Heading Depth: 1
Heading Rank: 9

Heading: Does Decree Unlawfully Take Trust Funds and Vested Rights Belonging to Appellants?

Text: The contention of appellants under their Sixth Proposition is that the money belonging to the bond funds are trust funds in which the appellants had a vested right and that certain other assets of the District are trust properties. In treating this phase of the case, it is necessary to treat of various points of fact and law. In so far as appellants' conclusion is based upon the theory that the decree destroys liens or preferences, our holding upon the subject of the classification of claims sufficiently indicates our divergent view. Appellants also object to the plan because the bondholders are to be paid cash for their bonds, leaving the properties of the District intact. This, they argue, is a taking property belonging to the creditor and giving it to the debtor. This argument is two fold; first, it relates to the bond fund and second, it relates to the other so called trust properties of the District. For a full understanding of appellants' position we turn to the text of the proposed plan. We there find: That outstanding bonds of said district in the total principal sum of Sixteen Million, One Hundred Ninety Thousand Dollars ($16,190,000.00), with all interest coupons appurtenant thereto and right to interest due on said bonds as of July 1, 1933, and subsequently thereto, be retired by the payment in cash for each bond of a sum equal to 51.501 cents for each dollar of principal amount thereof.    That such payment be made out of a loan of Eight Million Three Hundred Thirty-eight Thousand Eleven and 90/100 Dollars ($8,338,011.90) heretofore authorized and allocated for that purpose by the Reconstruction Finance Corporation, an agency of the United States of America to or for the benefit of the Merced Irrigation District. That to evidence said loan Merced Irrigation District issue and deliver its refunding bonds in the principal sum of Eight Million Three Hundred Thirty-eight Thousand Eleven and 90/100ths Dollars ($8,338,011.90) to said Reconstruction Finance Corporation and accept in exchange for all or any part thereof, on the basis aforesaid, such bonds of petitioner held or purchased by said Reconstruction Finance Corporation, to the end that the district will reduce its outstanding bond indebtedness from the principal sum of Sixteen Million One Hundred Ninety Thousand Dollars ($16,190,000.00) to the principal sum of Eight Million Three Hundred Thirty-eight Thousand Eleven and 90/100ths Dollars ($8,338,011.90), bearing interest at the rate of four percent (4%) per annum. It is not argued that it would be improper for the court of bankruptcy to distribute the bond fund ratably among the bondholders, but appellants complain that instead of being paid out of this fund, they are to be paid with the moneys loaned by the R.F.C. to the District. In our discussion under the heading Good Faith of the District we held that the greatest sum that could possibly be claimed as being transferred to the general fund out of the bond fund is $320,272.93. Under the plan the bondholders are to receive $.51501 on the dollar, or the sum of $8,338,011.90, in the aggregate. Appellants' entire argument as it applies to the bond fund would fall if the mechanics of the plan contemplated that $320,272.93 of the $8,338,011.90 to be paid to the bondholders would be paid from the bond fund and the balance from moneys furnished by R.F.C. In this situation, then, the balance of the amount of the R.F.C. loan could be retained by the District for purposes of operation, etc. There is nothing in the plan that stands in the way of this being done. It is contemplated by the resolution that the bondholders should be paid from a fund of $8,338,011.90 furnished by R.F.C., but this does not mean that the District would not disburse the bond fund moneys first and make up the balance out of R.F.C. moneys. Appellants' reasoning does not seem sound to us. We now come to the assertion that certain other properties of the District are trust properties and cannot be taken from the bondholders by the bankruptcy court. Such properties include Tax deeded lands; rentals, including water tolls per year; tax sale certificates; and in addition, all assets not needed for the operation and maintenance of the district. Reliance is had upon Section 29 of the California Irrigation District Act, which reads in part: The legal title to all property acquired under the provisions of this act shall immediately and by operation of law vest in such irrigation district and shall be held by such district in trust for and is hereby dedicated and set apart to the uses and purposes set forth in this act. Following the citation of this Section of the California Irrigation District Act, appellants set out in their opening brief an excerpt from the opinion in Clough v. Compton-Delevan Irrigation District, 12 Cal.2d 385, 85 P.2d 126, 128, wherein the Court referring to Section 29 said: The property is by this language impressed with the public use, and the trust is for all the purposes of the act. Payment of the bondholders is such a purpose   . As is often the case, the true meaning of such a general statement in the opinion is revealed only through a consideration of the whole opinion. It is well to consider the following additional text of the opinion from which appellants quote: His [plaintiff's] theory seems to be that the original loan of money to the district created both an equitable lien and a resulting trust under section 853 of the Civil Code, reinforced by section 29 of the Irrigation District Act, Gen.Laws 1931, Act 3854; that this trust is in favor of the bondholders as beneficiaries; that the beneficiary of a trust has an estate of inheritance   . There is no authority supporting the main proposition for which plaintiff contends, and the entire argument runs counter to the terms of the statute and the holdings of our cases. There is, first, no lien nor resulting trust arising from the purchase of the bonds. The statute fully defines the relationship of bondholders, district and landowners. Nowhere does it declare that the bondholder has a lien on the land itself, and it certainly does not recognize any trust for his sole benefit. Section 29 provides that the title to land acquired by the district shall vest in the district, `and shall be held by such district, in trust for, and is hereby dedicated and set apart to the uses and purposes set forth in this act.' The property is by this language impressed with the public use, and the trust is for all the purposes of the act. Payment of the bondholders is such a purpose, as we have held in the Provident Land Corporation Case, supra; but there are other purposes as well, and the bondholders cannot be considered exclusive beneficiaries, even if the doubtful assumption be made that they, as individuals, are beneficiaries at all. Indeed, it is futile to attempt to discover the `beneficiaries' of the statutory trust created by section 29. It seems apparent that appellants are wrong on both the first and second branches of this Sixth Proposition.