First Nat. Bank of Shreveport v. Williams

• Court: Court of Appeal of Louisiana
• Writing for the Court: FORET; Immediately after the suit filed by the First National Bank; WATSON; WATSON
• Citation: First Nat. Bank of Shreveport v. Williams, 346 So.2d 257 (La. App. 1977)
• Decision Date: 13 May 1977
• Docket Number: No. 5939,5939
• Parties: FIRST NATIONAL BANK OF SHREVEPORT, Plaintiff-Appellee, v. James Henry WILLIAMS, Defendant-Appellant.

Page 257

346 So.2d 257

FIRST NATIONAL BANK OF SHREVEPORT, Plaintiff-Appellee, v. James Henry WILLIAMS, Defendant-Appellant.

No. 5939.

Court of Appeal of Louisiana, Third Circuit.

May 13, 1977.

Watson, Murchison, Crews & Arthur, by Daniel T. Murchison, John G. Williams, Natchitoches, for defendant-appellant.

Gahagan & Gahagan by H. C. Gahagan, Jr., Natchitoches, for defendant-appellee, Harry Friedman, Jr.

Blanchard, Walker, O'Quin & Roberts by Neilson S. Jacobs, Shreveport, for plaintiff-appellee.

Before WATSON, FORET and HEARD, JJ.

FORET, Judge.

This appeal arises from the consolidation of two cases, ¹ the first of which judgment was rendered in favor of plaintiff, First National Bank of Shreveport (hereinafter referred to as First National) against James Henry Williams upon a promissory note dated January 8, 1975, and the second of which judgment was rendered against the plaintiff, James Henry Williams, and in favor of defendant, Harry Friedman, Jr. In the first suit, appellant Williams asserted the affirmative defenses of lack of consent due to error in fact, lack of agreement on the subject matter of the sale, invalidity of the note on grounds of lack of capacity to contract due to a temporary derangement of intellect as a result of disease, lack of a negative (contravention of prohibitory law) brucellosis test regarding a herd of cattle, and lack of a plaintiff holder in due course. In the second suit, these affirmative defenses were the causes of action brought by Williams in an attempt to seek a declaration that the sale and promissory note dated January 8, 1975, were null and void.

On or about December 14, 1974, James Henry Williams, a/k/a J. H. Williams, and Harry Friedman, Jr., began negotiations for Mr. Williams to purchase the cattle of Mr. Friedman as well as certain agricultural implements and to lease lands upon which Mr. Friedman was grazing his herd of cattle. These negotiations continued with the two parties meeting each other on occasions and with certain agents and employees of Mr. Williams, particularly his son-in-law, Ralph Ingram, Jr., consulting with Harry Friedman, Jr. On or about January 4, 1975, Bruce Champion and four other employees or agents of Mr. Williams began counting, inventorying, and appraising the cattle and equipment belonging to Friedman. This series of negotiations and appraisals culminated in a sale of the cattle and equipment and the execution of a promissory note in the law office of Sam Friedman, a first cousin of Harry Friedman, Jr., in Natchitoches, Louisiana, on January 8, 1975. On January 16, 1975, J. H. Williams was forcibly committed to Brentwood Hospital in Shreveport, Louisiana, to be treated for a mental condition subsequently diagnosed as "manic-depression". J. H. Williams remained hospitalized until February 22, 1975.

On or about January 10, 1975, employees of J. H. Williams took possession of the cattle and equipment formerly belonging to Harry Friedman, Jr. Possession was maintained until on or about March 12, 1975, when Williams advised Friedman that the cattle were going to be returned.

The consideration of the sale from Friedman to Williams was a promissory note dated January 8, 1975, and due on February 15, 1975. Approximately two days prior to the commitment of J. H. Williams to Brentwood Hospital, Harry Friedman, Jr. physically delivered and pledged the note to the First National Bank of Shreveport. On January 27, 1975, Ralph C. Ingram, Jr., son-in-law of J. H. Williams and manager of his extensive farming and agricultural operations, executed a letter purporting to confirm, ratify and recognize the validity of the sale of the cattle and equipment in return for an extension of the due date of the promissory note which was the consideration for the sale on January 8, 1975. Mr. Ingram was the duly appointed agent and attorney-in-fact for J. H. Williams by virtue of an Act of Procuration of record in the Clerk's Office in Natchitoches Parish.

Approximately two and one-half weeks after his return from the Brentwood Hospital, J. H. Williams denied liability to a representative of the First National Bank of Shreveport on the January 8, 1975 promissory note in the sum of Two Hundred Forty-Three Thousand, Seven Hundred Fifty and No/100 ($243,750.00) Dollars. The First National Bank then sued J. H. Williams. Mr. Williams answered contending that the note was null and void on the basis of temporary insanity at the time the note was executed; that the sale of cattle and other items for which the note was given was null and void because it was made without a valid thirty-day negative brucellosis test certificate; and, that the plaintiff, First National Bank of Shreveport, was not a holder in due course of the note.

Harry Friedman, Jr., who had originally pledged the note to the First National Bank of Shreveport, was made a third party defendant in the action filed by the Bank. Immediately after the suit filed by the First National Bank, J. H. Williams brought suit against Harry Friedman, Jr. seeking to have the sale of the cattle and resulting note declared null and void and the lease of lands cancelled. The two suits were consolidated for trial.

From judgment rendered in favor of the First National Bank of Shreveport and Harry Friedman, Jr. rendered September 20, 1976, signed September 27, 1976, J. H. Williams perfected this appeal. Harry Friedman, Jr. answered the appeal of J. H. Williams requesting that certain items of expense for the care and maintenance of the cattle subsequent to March 12, 1975, be increased.

In his appeal, appellant, J. H. Williams, assigned as issues to be resolved in this Court, the following, to-wit:

1. Was the sale of January 8, 1975, invalid because of any or all of the following alternative reasons, to-wit:

a. Want of legal capacity on the part of Mr. Williams to enter into a contract by reason of temporary insanity;

b. Consent was lacking by reason of error in fact;

c. There was no agreement on the subject of the sale;

d. The sale was made in contravention of prohibitory law;

e. The sale was voidable on the grounds of breach of warranty;

2. Is the First National Bank of Shreveport a holder in due course, and are the defenses against Harry Friedman, Jr., enumerated above, equally applicable to the Bank in connection with its suit on the note, which note was given in consideration of the sale?

3. Was the action of the First National Bank of Shreveport in filing its suit on the note premature, and if so, should the suit on the note be dismissed because of the prematurity?

For the making of any valid contract, four (4) elements are absolutely required: ²

(1) Parties possessing the capacity to contract;

(2) Mutual consent freely given thereto;

(3) A certain object;

(4) A lawful purpose.

As to the first element, that is, capacity to contract, in the absence of a special exception, a presumption arises that all persons possess that capacity. C.C.Art. 1782.

In this case, it is contended that J. H. Williams, on the 8th day of January, 1975, because of unsound mind, did not possess the capacity to contract. This exception to the presumption of capacity to contract is specifically enumerated in the Louisiana Civil Code, which provides:

"Art. 1788 The contract, entered into by a person of insane mind, is void as to him for the want of that consent, which none but persons in possession of their mental faculties can give. It is not the judgment of interdiction, therefore, that creates the incapacity; it is evidence only of its existence, but it is conclusive evidence, and from these principles result the following rules:

" '. . . (2) As to contracts, made prior to the application for the interdiction, they can only be invalidated by proving the incapacity to have existed at the time the contracts were made.

'(3) But in order to prevent imposition, it is not enough to make the proof mentioned in the last rule; it must also, in that case, be shown that the person interdicted was known by those who generally saw and conversed with him, to be in a state of mental derangement, or that the person who contracted with him, from that or other circumstances, was acquainted with his incapacity.' "

"Art. 1789 A temporary derangement of intellect, whether arising from disease, accident, or other cause, also creates an incapacity pending its duration, provided the situation of the party and his incapacity were apparent."

The provisions of Civil Code Article 1788 do not apply to the case at bar. In this case, in which a living person directly attacks the validity of a contract to which he is a party on the ground of lack of capacity due to a mental condition, in order for Article 1788 to apply, proceedings for an interdiction of that party must have commenced, and that party must be insane. Coburn Finance Corp. v. Bennett, 241 So.2d 802 (La.App. 3 Cir. 1970); Ponder v. Pechon, 274 So.2d 386 (La.1973). In this case, no judgment of interdiction has been rendered and no proceedings for the interdiction of J. H. Williams have been filed; no allegation has been made, and no evidence has been admitted, that J. H. Williams, on January 8, 1975, did "not enjoy the exercise and use of reason . . .". C.C.Art. 31.

The provisions of Civil Code Article 1789 do, however, apply to the very factual situation of this case. No interdiction proceedings have been instituted; Williams alleges that, as a result of a temporary derangement of his intellect as a result of a disease psychosis, manic depressive, manic stage as of the date of the execution of the sales contract and the promissory note, which mental derangement was generally known or known to Harry Friedman, Jr., the other contracting party, he lacked the capacity to contract. Vance v. Ellerbe, 150 La. 388, 90 So. 735 (1922); Banks v. Johns, 289 So.2d 194 (La.App. 1 Cir. 1973); Brumfield v. Paul, 145 So.2d 46 (La.App. 4 Cir. 1962); Smith v. Blum, 143 So.2d 419 (La.App. 4 Cir. 1962).

The...