Merchants' & Farmers' Bank & Trust Co. v. Hammond Motors Co. , 164 La. 57 ( 1927 )

This proceeding was commenced by rule, instituted by the receiver of the Hammond Motors Company, Inc., in the suit in which the receiver was appointed, to require the Citizens' National Bank of Hammond to pay to the receiver a balance of $7,858, deposited in that bank in the name of the Hammond Motors Company, Inc., "in escrow."

The proceeding grows out of the following facts: The Hammond Motors Company executed three notes in favor of the Citizens' National Bank, one for the sum of $1,756.15, and two for the sum of $3,000 each. These notes provide for 8 per cent. per annum interest from maturity, and contain the usual clause of 10 per cent. attorney's fees, if placed in the hands of an attorney for collection. The notes also contain a provision to the effect that, should their maker be adjudged bankrupt, or should proceedings in involuntary bankruptcy or for the appointment of a receiver be filed against it, the notes shall immediately become due. They also contain a further provision, which reads as follows:

"Unless this note be paid at its maturity or when otherwise due as herein provided, any money, securities, or property on deposit with, in possession or under control of, or held by said bank for any purpose whatsoever or in transit to or from said bank by mail or carrier, to the credit or for account of the undersigned makers, indorsers, or any of them, shall at once be and stand applied to the payment of this note, or any other debt, liability, or obligation, direct or contingent, due or to become due, by the undersigned or any of them to said bank."

The notes fell due and were not paid. After their maturity, the Hammond Motors Company, Inc., sold all of its physical assets to Cassidy and Fagan for $15,166.07 cash, and pursuant to the Bulk Sales Law (Act No. 114 of 1912) furnished the firm with a sworn list of its creditors and the amount due each. It was agreed between Cassidy and Fagan and the Hammond Motors Company that the consideration paid for these assets should be used to pay the creditors named in the list furnished. In accordance with the agreement, J.J. Jackson, the attorney and notary, who passed the sale, deposited the consideration that was paid in the Citizens' National Bank of Hammond in the name of the Hammond Motors Company, in escrow, and the deposit was carried on the books of the bank in the name of that company as a deposit in escrow. At the time the deposit was made, Jackson notified the bank that no check drawn against the account should be paid unless signed by the Hammond Motors Company and by him.

Shortly after the foregoing sale was made, the Merchants' Farmers' Bank Trust Company instituted proceedings to force the Hammond Motors Company into the hands of a receiver. A receiver was appointed, who is the plaintiff in this rule. After the appointment of the receiver, the Citizens' National Bank of Hammond applied $7,858 of the foregoing deposit to the payment of the principal, the interest, and the attorney's fees due on the three notes executed by the Hammond Motors Company, and paid the balance of the deposit to the receiver. It is the amount applied by the bank to the payment of these notes that the receiver now demands of the bank, the demand being based upon the theory that the bank had no right to apply any part of the deposit involved herein to the payment of the notes, first, because the deposit formed no part of the general checking account of the Hammond Motors Company, but partook of the nature of a trust fund, and, secondly, because the application of the deposit to the payment of the notes was not made until after a receiver had been appointed for the Hammond Motors Company.

This court has held that a bank may apply money deposited with it to the payment of a debt due it by the depositor, when it holds from him a special mandate to that effect. Succession of Gragard, Edward Pierson, Administrator, v. Metropolitan Bank,106 La. 298, 30 So. 885. But this court has never held that a trust fund, though deposited in the name of the debtor, could be applied by the bank, under a special mandate authorizing it to apply any funds on deposit with it, in the name of its debtor, to the payment of a debt due by him. In our opinion the bank may not do so. 7 C.J. § 358 1/2, p. 660; 3 R.C.L. § 222, p. 593. We think that the fund constituted a trust fund, deposited in escrow, at the instance of the vendor and vendees of the assets of the Vendor for the purpose of paying debts of the vendor, and thereby safeguarding the interests of the vendees. While it does not appear that the bank knew all of the circumstances of the transaction, yet it did know that the money was deposited in escrow, and that it was not to be withdrawn except upon the signature of the vendor, the Hammond Motors Company, and of J.J. Jackson. These facts were sufficient to place the bank on its guard and charge it with knowledge. Our conclusion, therefore, is that the bank should pay the receiver the amount applied by it to the payment of the notes. This conclusion renders it unnecessary for us to consider the second ground urged as to why the bank should pay the amount, so applied, to the receiver.

The trial court rendered judgment in favor of the receiver for the $7,858, which was applied to the payment of the notes, together with 5 per cent. per annum interest thereon from judicial demand until paid. The judgment is correct, except as to interest. Interest cannot be allowed unless it is claimed in the petition. Code of Practice, arts. 157 and 553; Town of Vinton v. Lyons, 131 La. 673, 60 So. 54; Alcolea v. Smith, 150 La. 482, 90 So. 769, 24 A.L.R. 815. In this instance there is no prayer for interest, and, for that matter, not even an allegation claiming it.

For these reasons the judgment appealed from is amended by disallowing the interest awarded, and, as thus amended, the judgment is affirmed, appellee to pay the costs of this appeal.