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Torres v. Eastlick (In re North American Coin & Currency, Ltd.)

767 F.2d 1573 (1985)

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Torres v. Eastlick (In re North American Coin & Currency, Ltd.)

United States Court of Appeals for the Ninth Circuit

767 F.2d 1573 (1985)

Facts

When North American Coin & Currency, Ltd. (NAC) (debtor) was nearing insolvency, its principals decided to operate the company for one more week until the director and shareholder meeting. To keep the company operating and protect new customers, the principals put all the money from transactions during that week into a new bank account labeled “Special Trust Account.” The principals intended to use the funds to fill customer orders if the directors voted to keep operating and shareholders pledged new capital, or to refund customers if the company went bankrupt. The company filed for bankruptcy reorganization with the funds intact in the account. Customers who placed the orders (plaintiffs) brought a class action against the bankruptcy trustee (the trustee) (defendant) to recover the funds, arguing the trustee held the funds in constructive trust for them because NAC obtained the money through fraud or misrepresentation. The bankruptcy court granted summary judgment for the trustee, reasoning the funds belonged to the bankruptcy estate. The customers appealed, but the district court affirmed. The customers appealed to the Ninth Circuit.

Rule of Law

Issue

Holding and Reasoning (Canby, J.)

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