Stephen Crane, III v. Curtis B. Danning, Trustee, in the Matter of Western Growth Corporation, Bankrupt

In 1959, 31 persons loaned $210,000 (70 loans in units of $3,000) to James A. Bowers and Melba L. Bowers (Bowers) to purchase and develop a tract of land known as Escondido No. 3 (ESC#3). In return for the loan, the Bowers gave their note for $210,000 secured by a trust deed covering ESC#3.

On June 11, 1960, the Bowers sold ESC#3 to Western Growth Corporation (the bankrupt) subject to all encumbrances. In August, 1960, 16 of the 31 persons who participated in the $210,000 loan assigned their interest in the note and trust deed to Western Growth Cor poration in return for its unsecured notes. The Corporation was adjudicated a bankrupt on May 1, 1962.

This controversy is between the trustee and the 15 investors who did not assign their interest to the bankrupt. The non-assigning investors demand first priority to the proceeds of the sale of ESC#3. The referee ordered that the proceeds be distributed on the basis of the original investment. On this formula, the non-assigning investors (who represent $99,-000 of the original $210,000 loan) are entitled to 8%oths, and the trustee, as assignee of the other investor, is entitled to 8%oths of the proceeds. The District Court affirmed…