Cheek v. Farmers & Merchants National Bank

WOOD, J. The defendant bank appeals from a judgment ordering it to deliver the assets of a revoked trust to plaintiff as trustee in bankruptcy of the estate of James W. Heilman, contending that it has a lien upon the assets created to secure loans made to Mr. Heilman.

James W. Heilman and Agnes K. Heilman, his wife, by instrument dated July 1, 1931, conveyed certain real and personal property to The Farmers and Merchants National Bank of Los Angeles and the bank thereupon executed a declaration of trust by which it was provided that payment of the entire net income thereof should be made to James W. Heilman during his life, and that thereafter a part of such income should be paid to Agnes K. Heilman during her life, the balance of the net income after the death of James W. Heilman being payable to the children of the trustors in equal shares. Among the provisions of the declaration of trust the following appears: “The Trustor, James W. Heilman, while he shall live, may, without the consent of the other Trustor, Agnes K. Heilman, by written instrument filed with the Trustee, and upon paying any sums due the Trustee and releasing it from and assuming all obligations affecting the Trustee to its satisfaction against any liabilities incurred by it in administering this trust, revoke it in whole or in part and/or may withdraw any or all of the trust estate, and the Trustee shall transfer and deliver the property affected thereby to said Trustor ...”

Contemporaneously with the execution of the declaration of trust Mr. and Mrs. Heilman signed and delivered an instrument dated July 1, 1931, addressed to the bank, as follows : “For value received, we, jointly and severally, assign [178]to The Farmers and Merchants National Bank of Los Angeles, as collateral security to any and all loans which we may now owe or may hereafter secure from The Farmers and Merchants National Bank of Los Angeles, all of our right, title and interest in and to a certain Declaration of Trust dated July 1, 1931, wherein The Farmers and Merchants National Bank of Los Angeles is designated as Trustee, and the undersigned are designated as Trustor, and is identified as trust No. P—1067, together with the assets held thereunder, and we further direct and authorize the Farmers and Merchants National Bank of Los Angeles, in the event that it becomes necessary to do so, to sell any part of the trust assets for the purpose of paying said loans.”

Mr. and Mrs. Heilman were indebted to the bank at the time the above-mentioned instruments were executed. Thereafter further loans were made to them by the bank and they have been indebted to the bank at all times since July 1, 1931. James W. Heilman was adjudicated a bankrupt on August 1, 1932, and on September 30, 1932, the trustee in bankruptcy filed with the bank a written revocation of the trust and demand for the delivery of the assets thereof. On July 13, 1933, James W. Heilman, pursuant to an order by the referee in bankruptcy, executed a written revocation of the trust pursuant to the power of revocation therein reserved. No claim is made that either Mr. or Mrs. Heilman was insolvent at the time the property was conveyed to the bank to establish the trust.