Bernheimer v. First Nat. Bank of Beverly Hills

• Decision Date: 20 May 1935
• Docket Number: No. 7592.,7592.
• Citation: 78 F.2d 139
• Parties: BERNHEIMER v. FIRST NAT. BANK OF BEVERLY HILLS et al.
• Court: U.S. Court of Appeals — Ninth Circuit

78 F.2d 139 (1935)

BERNHEIMER v. FIRST NAT. BANK OF BEVERLY HILLS et al.^*

No. 7592.

Circuit Court of Appeals, Ninth Circuit.

May 20, 1935.

Joseph P. Loeb, Irving M. Walker, Edwin J. Loeb, and Herman F. Selvin, all of Los Angeles, Cal., for appellant.

Rollin L. McNitt, of Los Angeles, Cal., for appellee First Nat. Bank.

R. M. Fulton and John M. Fulton, both of Los Angeles, Cal., for appellee Taylor and others.

Edythe Jacobs, of Los Angeles, Cal., for other appellees.

Before WILBUR and GARRECHT, Circuit Judges, and CAVANAH, District Judge.

GARRECHT, Circuit Judge.

The First National Bank of Beverly Hills, appellee, has been and is now a national banking association organized under the laws of the United States and authorized to do a trust business under the laws of the United States and of the state of California. Said bank, up to and including June 3, 1932, operated and conducted a general banking business in the city of Beverly Hills, Cal. Said bank was authorized to act as trustee, executor, administrator, and in other fiduciary capacities agreeable to the laws of the state of California, pursuant to which it conducted a departmental bank, consisting of a Commercial department and a Trust department, said departments being operated separately from each other. On and prior to February 6, 1931, and thereafter to and including June 3, 1932, the said bank was the duly appointed and acting trustee of divers and sundry trusts, including Participation Trust No. 1005, series 1 to 31, herein referred to as "Participation Trust," and including the Private Trusts Nos. 1059 and 1060, hereinafter referred to as "Taylor Trusts," and said bank held and administered all of said trusts.

Nellie Euretta Taylor, appellee and intervener, on March 16, 1932, became and now is the beneficiary of said trust No. 1059 and on said date became entitled to trust estate No. 1060, as the owner thereof.

In certain proceedings had in the superior court of the state of California the First National Bank of Beverly Hills was discharged as trustee under said trusts Nos. 1059 and 1060 and appellee-intervener, Security National Bank, was empowered and directed to further execute said trust No. 1059 and appellee-intervener, Bank of America National Trust & Savings Association, was empowered and directed to further execute trust No. 1060.

On December 31, 1931, appellant, Bernheimer, executed his negotiable promissory note in the sum of $30,000, payable on or before three years from date to the said First National Bank of Beverly Hills. The note was secured by deed of trust on real property in Los Angeles county, Cal. On or about February 8, 1932, the proceeds of the said note in the net amount of $29,887.85 were deposited in the Beverly Hills Bank. Upon said deposit being made, there was a total credit balance in appellant's account at said bank in the sum of $41,762.05, which amount was subject to appellant's right of withdrawal in whole or in part upon demand. No subsequent deposits were made, but appellant from time to time checked against and withdrew from said account various sums, reducing the balance to appellant's credit at the time the bank suspended on June 3, 1932, to $31,528.93.

Appellant, in the amended complaint, after alleging the execution of the promissory note and deed of trust and matters relating to the deposit, alleged that "On or about, but prior to, the date of delivery of the above mentioned note and trust deed and the making of said deposit, an oral agreement was entered into by and between plaintiff and defendant banking association, whereby it was agreed that defendant banking association would hold said note until paid and would not transfer or assign or negotiate it to any person or persons; that the money which plaintiff would receive as a loan from said banking association upon the execution of said note and trust deed would be deposited in said banking association by plaintiff and would at all times, and as long as such money remained on deposit with said banking association, be and be deemed to be a set-off against the principal and interest provided for in said promissory note."

The answer of the Beverly Hills Bank and the receiver denied any knowledge of the making of the alleged agreement and set-off. It was also alleged that the note had been transferred to the trust department of the bank, where it had been set up in a participation trust, pursuant to section 104 of the California Bank Act (Deering's Gen. Laws Cal. 1931, act 652). The bills in intervention of the other appellees set forth in detail the creation and existence of the Taylor Trusts, and the issuance to the trustees thereof of participation certificates in the participation trust set up in respect of plaintiff's note and asked the court to adjudicate that said note was not subject to set-off.

At the trial appellant offered to prove by witness Nolan, who was chairman of the board of directors of the bank, that some time in the month of December, 1931, and prior to the execution of the note and trust deed involved in this action, said bank official had a conversation with a Mr. James O. Moore, who was the properly authorized agent of appellant for the purpose, concerning a loan of $30,000 by the bank to appellant; that Mr. Moore had stated to Mr. Nolan that Mr. Bernheimer desired that the bank hold the note and not transfer or assign it so long as Mr. Bernheimer kept the amount of the loan deposited in the bank; that Bernheimer wanted the money deposited in his commercial account in the bank, and in the event he did not use the money, it could be repaid by him at any time by applying the deposit; that the chairman of the board of directors stated that the bank would be glad to make such a loan; that the note and trust deed would be held by the bank at all times and would not be transferred or assigned to any one, and that the money which was deposited in Mr. Bernheimer's account could at any time be applied to the payment of the loan before maturity thereof; that at about the same time the president of the bank was informed of the agreement and he said, "that would be satisfactory and the bank would make the loan in that way"; and that subsequently the written instruments were drawn and the loan was made. Upon objection made by appellees, this offer of proof was rejected by the court.

The evidence shows that on or about February 23, 1932, the Bernheimer note was transferred, without appellant's knowledge, from the commercial or banking department to the trust department of said bank. The transfer was effected without indorsement or written assignment and solely by manual delivery, and thereafter the note and trust deed were kept in the possession of the trust department of the bank. On the face of the note were placed the figures "1005/31," which figures represented the number of the Participation Trust in the trust department into which the Bernheimer note and trust deed were placed as assets of said trust.

On the same day that Participation Trust No. 1005/31 was created, a certificate therein in the sum of $2,000 was issued to Taylor Trust No. 1059 and a check drawn on the funds of that trust in payment. At the same time a certificate in the sum of $4,200 was issued to Taylor Trust No. 1060 and paid for by a check drawn on the funds of that trust. Similarly, there was issued to the Beverly Hills Bank a certificate for the balance of the Bernheimer note — $23,800. This last certificate and the two checks of the Taylor Trusts were delivered to the commercial department of the Beverly Hills Bank.

From time to time, after February 23, 1932, additional participation certificates were issued and sold to the Taylor Trusts Nos. 1059 and 1060. These additional certificates were issued from portions of the certificate held by the commercial department of the bank and were purchased from that department with the private trust funds.

At the time of suspension, there were outstanding the following certificates:

                  Taylor Trust No. 1059 ........ $21,000.00
                  Taylor Trust No. 1060 ........   7,900.00
                  First National Bank of Beverly
                    Hills ......................   1,100.00
                                               ____________
                      Total .................... $30,000.00
                

The certificates issued to the Taylor Trusts at all times remained in the possession of the trust department of the First National Bank of Beverly Hills until the successor trustees, interveners herein, were appointed. Thereafter said certificates were kept in possession of the respective trustees.

Appellant's demand for set-off was made after suspension of said bank and prior to the commencement of the action herein. The decree, in addition to denying relief sought by plaintiff, awarded attorneys' fees to the interveners.

The questions involved are: (a) Is a depositor in a national bank, which has become insolvent, entitled to set off his deposit against his indebtedness to the bank, notwithstanding that prior to insolvency the promissory note representing the indebtedness was transferred, without the depositor's knowledge, and without indorsement or written assignment, to the bank's trust department, where fractional participation certificates in the proceeds of the note were sold to various private trusts of which the bank was trustee? (b) In such a case, when, if at all, may the depositor prove an oral...