Martin v. Bank of America National Trust & Savings Ass'n

SCOTT, J.,

pro tem.

Plaintiff recovered judgment against defendant bank for the value of certain bonds, and from such judgment the latter appeals.

It appears that plaintiff owned thirty-six bonds of a par value of $1,000 each, secured by a trust indenture on real property near Los Angeles. She joined certain others in executing, as trustors, a declaration of trust naming defendant bank as trustee and some third persons as beneficiaries.

[433]

The trustors deposited with the bank as trustee bonds of par value of $150,000, including plaintiff’s thirty-six together with certain other property, all of which said property was to be held in trust in subordination to bonds of the beneficiaries, thereby in effect making the bonds of the latter persons preferred bonds. This trust was started in July of 1927. Within less than a year, the bonds being in default, a bondholders’ protective committee was formed in June of 1928 under an agreement entered into by certain bondholders not including plaintiff. After various postponements the property securing the bonds was sold under foreclosure on December 17, 1928, and was bought in by this committee.- At the time of the sale the entire issue of bonds outstanding was $1,749,000, and there had been entrusted to the bondholders’ protective committee, under an agreement with it, all but $80,000 of these bonds. The property was bid in by the committee at $711,000. On this basis, bondholders who had not placed their bonds in the hands of the committee were entitled to about 39 per cent of the par value of their bonds in cash—thereby sustaining approximately a 61 per cent loss. The bondholders who had come in under the agreement were entitled to an undivided interest in the property in the proportion that their number of shares bore to the total number that were embraced in the protective agreement. When the property was thus bought in at foreclosure sale by the bondholders’ protective committee it was at once encumbered to secure money to pay the bondholders who had not come in, and to use for other purposes. This encumbrance was later foreclosed, the property was lost and the shares of the bondholders in the enterprise became valueless.

Two days before the property was sold under the first foreclosure, to wit, December 15, 1928, defendant bank deposited the bonds of plaintiff with the bondholders’ protective committee and signed the agreement required by said committee, and the loss of the bonds was thereby incurred as above related. The trial court gave judgment for plaintiff for $14,400 plus interest at seven per cent from date of sale of the property, based upon a finding that said principal sum was the reasonable market value of the bonds on that date.