Louis Bulasky, Appellant, v. Federal Deposit Insurance Corporation As Receiver of San Francisco National Bank, Appellee, 442 F.2d 341 (9th Cir. 1971)

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U.S. Court of Appeals for the Ninth Circuit - 442 F.2d 341 (9th Cir. 1971) May 11, 1971

Charles O. Morgan (argued), of Morgan & Moscone, San Francisco, Cal., for appellant.

Frederick Fields (argued), Charles A. Legge, of Bronson, Bronson & McKinnon, San Francisco, Cal., S. Rex Lewis and Leslie H. Fisher, Washington, D. C., for appellee.

Before ELY, WRIGHT and TRASK, Circuit Judges.

ELY, Circuit Judge:

The appellant Bulasky is one of three owners of a partnership which operated under two fictitious names and which maintained two bank accounts under the two fictitious names with the San Francisco National Bank. The bank was declared insolvent, and the Federal Deposit Insurance Corporation (FDIC) was appointed the bank's Receiver. As insurer of the bank's deposits, FDIC paid the three owners $10,000, leaving the partnership as a general creditor of the bank's receivership for $21,724.68 in deposits.1  Before the closing of the bank, Bulasky had borrowed a large sum of money from the bank and had executed a personal promissory note for the loan. He sought to offset the amount he now owes the bank, $30,000, against the $21,724.68 owed to the partnership, but the District Court denied the offset and granted summary judgment in favor of the Receiver. Bulasky appeals.

In order to work an offset, there generally must be a mutuality of obligations, that is, the debts must be due and owing to and from the same persons in the same capacities. Since partnership assets belong to all partners, offsets have been denied to individual debtors of a bank who are also members of a partnership creditor of the same bank. This is because of lack of mutuality, and the rule has operated even when a partnership has consented to the offset. Hulse v. Knapp, 20 F. Supp. 137 (W.D.N.Y. 1937); Wolcott v. Pierre, 100 Ind.App. 16, 188 N.E. 596 (1934). The principle is designed to secure an equitable disposition of a creditor's assets. The allowance of the claimed offset in this case might grant to the partnership a greater proportionate recovery to the prejudice of other general creditors of the bank. While Bulasky admits the general rule, he invokes an exception, the doctrine of "equitable offset." Courts of equity have occasionally, although rarely, applied such an exception to prevent irremedial injustice. See, e. g., Morey v. State, 129 Okl. 136, 263 P. 1098 (1928). In Morey, however, the partner claiming the offset owned the entire assets of the partnership, and in granting the offset, the court found as a fact that Morey himself constituted the partnership. Here, Bulasky attempted to show that he, individually, constituted the partnership because he operated its businesses and could withdraw funds for his personal use. In advancing this contention, however, he glosses over the facts that any partner could withdraw the funds and that there were three owners.

Although the right of offset may be a reciprocal right, Bulasky has incorrectly assumed that the bank, in a suit by the partnership for its deposit, could have offset Bulasky's debt against the partnership claim. Hulse v. Knapp, supra; Farmers State Bank v. Jones, 34 Tenn. App. 57, 232 S.W.2d 658, 665 (1950). Bulasky failed to demonstrate such irremediable injustice as might have required the District Court to apply an abstract, and exceptional, principle of equity.



In previous litigation, the partnership's claims for additional FDIC insurance was denied. Bulasky v. FDIC, 383 F.2d 382 (9th Cir. 1967)