Ulmann v. Rapides Bank & Trust Co. in Alexandria

Citation210 So.2d 352
Decision Date03 May 1968
Docket NumberNo. 2324,2324
CourtCourt of Appeal of Louisiana (US)
PartiesLouis Maurice ULMANN, Jr., Plaintiff-Appellant, v. RAPIDES BANK & TRUST COMPANY IN ALEXANDRIA, Defendant-Appellee.

Garrett & Ryland, by B. Dexter Ryland, Alexandria, for plaintiff-appellant.

Gold, Hall & Skye, by F. A. Little, Jr., Alexandria, for defendant-appellee.


SAVOY, Judge.

Plaintiff, Louis M. Ulmann, Jr., brought this action praying for a declaratory judgment wherein he sought to be decreed the owner of and entitled to the possession of two life insurance policies held by the defendant bank under two instruments entitled 'Assignment of Life Insurance Policy as Collateral', and he further wishes to have determined the rights, status and legal relationships existing between himself and the defendant. An exception of non-joinder of an indispensable party was filed by the defendant in the trial court on the grounds that plaintiff's three minor daughters who are the named beneficiaries under the two insurance policies should be joined in the litigation. The trial court overruled this exception, and the defendant did not appeal from the ruling. After the bank filed an answer, both parties stipulated that the case would be tried on the undisputed facts as set forth in the petition, answer and exhibits.

During the year 1966, plaintiff obtained three loans from the defendant, signing three promissory notes totalling $11,200.00 to evidence the indebtedness. Plaintiff had previously transferred to the defendant two life insurance policies issued by the Occidental Life Insurance Company of California, which transfer was styled 'Assignment of Life Insurance Policy as Collateral.' The assignments of the two policies were executed on September 12, 1960, and on March 11, 1961, and were given to secure any indebtedness up to the amount of $200,000.00 either existing then or that may thereafter arise in the ordinary course of business. On October 19, 1966, a bankruptcy petition was filed by the plaintiff in the U.S. District Court, Western District of Louisiana, resulting in plaintiff's discharge in bankruptcy on December 28, 1966. Prior to the discharge, defendant had filed its proof of claim and the Trustee in bankruptcy disclaimed the policies in question after finding them to possess no cash value. Subsequent to the discharge in bankruptcy, plaintiff demanded that the two insurance policies be released by the defendant and returned to him. When the defendant refused to comply with plaintiff's request, the present action for a declaratory judgment was instituted by plaintiff.

After the matter had been submitted to the district court for adjudication, it rejected plaintiff's demand and dismissed his suit.

In the written opinion of the district court, it held:

(1) Plaintiff to be the owner of the two policies described in his petition, copies of which were filed in evidence;

(2) Defendant to be entitled to retain the insurance policies as a valid pledge and collateral security of plaintiff's indebtedness now existing including interest until paid, together with the amount of premiums paid or to be paid by the defendant to keep the policies in force;

(3) The indebtedness of plaintiff discharged in bankruptcy to be affected by and to be subject to a lien and privilege on the proceeds of the insurance policies by virtue of the pledge as collateral security of the insurance policies; declaring defendant bank to have the sole right to collect from the insurer the proceeds of the policy when it becomes a claim by death or maturity, and that out of said proceeds all indebtedness due and owing at that time by plaintiff to defendant be deducted from the proceeds and the balance paid to the beneficiaries under the policy, if the plaintiff is deceased or to the plaintiff if the proceeds are payable before his death;

(4) The instruments labeled 'Assignment of Life Insurance Policy as Collateral', as to each of the policies involved herein, to be in full force and effect and entitled to recognition thereof in every particular;

(5) That the defendant bank has the prime right to the proceeds of each policy as set forth in the instrument labeled 'Assignment of Life Insurance Policy as Collateral';

(6) That the relationship of the plaintiff-debtor and the defendant-creditor has not been changed by the bankruptcy proceedings in any way, save the limit on the personal liability of the plaintiff.

From the district court judgment plaintiff has appealed.

On appeal, plaintiff contends that the trial court erred (1) in concluding that the pledge by the appellant of the insurance policies operated as a pledge of the proceeds of the insurance policies, and (2) in concluding that an unenforcible or natural obligation will support an obligation of pledge. The defendant argues that the judgment appealed is correct and should be affirmed.

In substance, plaintiff's theory is that the assignment of the life insurance policies constituted a pledge, and that since plaintiff received a discharge in bankruptcy, this, in effect, extinguished the principal obligation of the promissory notes executed in favor of the defendant; that as the principal obligation had fallen, the accessory obligation of pledge thus also had to fall, citing LSA-C.C. Articles 3136 et seq. With this theory we are constrained to disagree.

The assignments of the two policies were acknowledged by the insurance company, and the contract between the plaintiff and the insurance company provides that a sum of money will be paid to designated beneficiaries subject to the rights of any assignee, and further that any balance of sums received hereunder from the insurer remaining after payment of the then existing liabilities matured or unmatured shall be paid by the assignee to the persons entitled thereto under the terms of the policy had the assignment not been executed. Thus, it is readily seen that plaintiff had the right to so limit the beneficiaries' interest by executing the assignment.

Vance, On Insurance, at page 764, was quoted by the trial court as relating to the assignment of life insurance policies to secure debts.

'Perhaps the greater number of assignments of life policies are made by persons who transfer existing valid policies by way of pledge to assignees for the purpose of...

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