348 S.W.2d 528 (Tex. 1961), A-8320, National Indemnity Co. v. Spring Branch State Bank

Docket Nº:A-8320.
Citation:348 S.W.2d 528
Case Date:July 26, 1961
Court:Supreme Court of Texas

Page 528

348 S.W.2d 528 (Tex. 1961)




No. A-8320.

Supreme Court of Texas.

July 26, 1961

[162 TEX 522] William A. Brown, Houston, Powell, Rauhut, McGinnis, Reavley & Lochridge, Austin, Morgan Hunter & Larry E. Temple of above firm, for petitioner.

Duncan Neblett, Houston, for respondent.


This is a suit by National Indemnity Company, herein called the insurance company, against the bank to recover funds which had belonged to the company and which were on deposit in the bank in the account of one of the agents of the insurance company. The bank had seized the funds to offset a debt owed to it by the agent. The trial court overruled the insurance company's motion for summary judgment. When the company stated that it had no further evidence to offer, judgment was entered for the bank. That judgment was affirmed by the Waco Court of Civil Appeals. 343 S.W.2d 539.

The facts as developed on motion for summary judgment, as relevant here, were these: J. N. Mullan and wife had a joint account in the Spring Branch State Bank which they used for their business and personal affairs. Mullan was general agent for Texas for the National Indemnity Company, the plaintiff below, the petitioner here. In his agency contract, it was agreed that Mullan could collect premiums and hold them as trustee for the company. He was to deduct his commission and remit the balance to the company.

In June of 1956, Mullan collected $3,091.21 in premiums. Mullan was entitled to a commission, and $2,317.14 remained which belonged to the insurance company. It was held in trust by Mullan. He deposited the entire sum in his account at the bank. We shall assume that the deposit was made with the consent of the insurance company under Mullan's agency agreement.

Mullan was indebted to the bank. The nature of the indebtedness does not clearly appear; i. e., whether it was for loans directly

Page 529

to Mullan, or was upon the endorsement by Mullan of notes of others, or both. In any event, there was a pre-existing indebtedness. There is evidence that Mullan had given the bank authority to charge his account upon delinquency in his own [162 TEX 523] indebtedness or upon failure of payment of certain notes which he had endorsed.

The controversy arose when the bank charged Mullan's account for his debt to the bank. The amount taken by the bookkeeping entry included the funds belonging to the insurance company. The question is whether the bank may thus seize funds belonging to the insurance company which were held in trust by one of its depositors, the insurance agent, to satisfy the debt owed by the agent to the bank. While there were some circumstances which, it is argued, gave rise to notice of the trust relationship, we shall assume that the bank had no knowledge that the funds belonged to the insurance company. There are no allegations, and there is no evidnece, that the bank had in any way changed its position to its detriment, that superior equities had arisen in its favor, or that it suffered any loss from the transaction except, of course, the loss it might suffer if it is required to surrender the funds to the insurance company.

(1) When the bank has knowledge that the funds in the account of one of its depositors are trust funds, or if it has knowledge of sufficient facts to charge it with notice, it is the uniform rule that it may not seize and retain the funds held in trust in order to offset a debt of the depositor. Steere v. Stockyards National Bank, 1923, 113 Tex. 387, 256 S.W. 586; Interstate National Bank v. Claxton, 1904...

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