Thrift Funds Canal, Inc. v. Foy

242 So. 2d 253 | La. Ct. App. | 1970

Lead Opinion

LeSUEUR, Judge.

Three notes are at bar:

(a) A $10,000.00 note in favor of inter-venor, First National Life Insurance Company, secured by a first mortgage dated February 14, 1963 upon an improved lot in Jefferson Parish;

(b) A $3,000.00 note dated December 20, 1966 also in favor of First National Life Insurance Company, which recites that it is secured by the 1963 mortgage; and

(c) A note and second mortgage dated December 19, 1968 in favor of plaintiff, Thrift Funds Canal, Inc.

The sole issue raised lies in the ranking of the 1966 and 1968 notes. The trial court gave priority to the 1966 $3,000.00 note and Thrift Funds has appealed.

Several facts are both clear and relevant. The original 1963 mortgage was not extinguished by payment in full of the principal obligation prior to the issuance of the 1966 note. On the other hand, while there is some language referring to other indebtedness (“ * * * and all other indebtedness secured hereby * * * ” in a confession of judgment on the last page of the mortgage, the mortgage is drawn in the standard form (printed) for a conventional mortgage, refers solely to the single $10,000.00 note which it secures, contains no clause whatsoever reciting that it is made to secure future advances and recites no obligations in favor of future holders, etc.

There is moreover no doubt that our law can and does provide for a mortgage to secure future advances. The question at hand is more specific and calls only for a determination of whether the 1963 “conventional” mortgage qualifies as such an instrument notwithstanding the lack of express provision for future use.

There is early authority supporting both sides of the issue. In Pickersgill & Co. v. Brown, 7 La.Ann. 297 (1852), the Supreme Court ruled:

“Such being the circumstances of the case, the legal propositions, presented by the parties, stand thus: Your mortgages, say the plaintiffs, purport to be for loans and advances already made. They must be confined, therefore, to these existing loans and advances. Your advances posterior to 12th May, 1842, are unprotected by mortgage. On the other hand, the defendant argues, that as the mortgages and judgment were, in fact, taken not only as securities for existing advances, but such advances as might thereafter be made, so that the defendant should be covered in account current up to the amount and interest therein expressed, his right to avail himself of them, as such securities, is not impaired by the language in which the securities were expressed, and extends as well to the subsequent as to the antecedent advances.

“These propositions involve two questions of law: can a mortgage, under our hypothecary system, be given to secure debts having no legal existence at the date of the mortgage? If so, is it essential, as regards third persons, that the applicability of the mortgages to future debts, should be expressed on its face, or may it be created, in the form of a security, for an obligation described as actually existing?

“Upon both these points, our opinion is clearly with the defendant. * * *

“If, therefore, these mortgages had been made in express terms to secure such balance of account as was then due, and such advances as might thereafter be made in account current, up to a fixed amount, it seems to us clear, that the defendant would be protected by them. But the plaintiffs insist upon the strict words of those contracts; denounce them as false and fraudulent simulations, in declaring that they are given for loans already made; and contend, that as such, the mortgages are inoperative against them.

“That any fraud was intended by taking the mortgages in this form, is unsupported by the evidence, and cannot be justly inferred from the surrounding circumstances. We consider the case, upon this point, as presenting a naked question of law, upon which the authorities are clearly in favor of the defendant. * * ”

Some sixty (60) years later, however, the Supreme Court took a different look at the question, holding in Walmsley v. Resweber, 105 La. 522, 30 So. 5 (1899-1901), on rehearing:

“ * * * Moreover, as to the consideration, the Walmsley mortgage contains the declaration that it was executed to secure the payment of the amount due at the time the mortgage was executed; that • is, the 25th of March, 1892. A mortgage containing such a declaration, plaintiffs contend, secures, as against a third person, advances to be made. We do not find it possible to sustain that view. A mortgage may be executed for any debt pour autrui conditional, and even for future debt, but it must be so stipulated. * * *

“ * * * neither the agreement between the plaintiffs and their transferrors nor the act of mortgage contain any reference to any future obligation of the mortgagor growing out of the advances with which he was to be favored. There may have been verbal stipulations in that connection between the original mortgagees and the mortgagor, but nothing is in writing on the subject. If there were verbal stipulations, they cannot be of any effect, for they were not made in compliance with the articles of the Code requiring written evidence of a mortgage. Civ.Code, art. 3305. The stipulations of the act of mortgage in question do not refer to any advances to be made to any one. It is absolutely silent on that point. In Flower v. O’Bannon, 43 La.Ann. [1041,] 1047, 10 South. 376, this court said: ‘The mortgage was not given to secure advances generally, or to secure any resulting balance of account without limitation as to time. Its terms explicitly declare that it is given to secure the sum of $2,500 for money advanced and acceptances made and to be made during the present year. Plaintiffs seem to consider that the present year means the year running from the date of the mortgage, but such is not a natural construction of the words in their ordinary use, which obviously suggest the year 1887; and this is confirmed by the fact that the notes given to represent the debt matured respectively on December 1, 1887, and January 1, 1888. We cannot see our way clear to holding that this mortgage was intended to secure, or did secure, any advances or acceptances not made during the year 1887, or any balance of account beyond that existing on the last day of the year.’ We must look for the obligations of the mortgage in the act itself. To extend them beyond the plain terms of the act on evidence such as that here suggested would be to create a mortgage by parol or by implication, in violation of the articles of the Code which are cited supra. True it is that between mortgagor and mortgagee a mortgage may be executed for advances to be made, and it may be that, as between them, although the mortgage does not contain the stipulation that it should regarding future advances, it may yet be construed to embrace them as a consideration; but, as between a transferee of a mortgage and a third person, the former cannot establish by parol a consideration not even hinted at in the act of mortgage, or in any writing. * * * ”

Each of these decisions has been distinguished by the party favoring the other. In our view, while there are certain distinctions in either case, both apply to the present question.

As between them, this court is constrained to adopt the thinking of Walmsley v. Resweber, supra. In the first place, it is the later of the two decisions. In the second, we note that in similar circumstances the Third Circuit in Scallan v. Simmesport State Bank, La.App., 129 So.2d 49 (3rd Cir. 1961) while holding that a mortgage was sufficient for future advances, was careful to point out that it was drawn in an appropriate form.

More importantly, we must accept the premise that mortgages are legislatively created and governed. In LSA-R.S. 6:767 and 767.1, the Legislature, in 1954 and 1964, respectively, passed statutes providing that, assuming certain requisites were met, a “conventional” first mortgage in favor of a homestead and building and loan association would secure future advances. Surely, if the Legislature had it in its view of mortgage that conventional mortgages enjoyed that effect at large, there is no sense behind these statutes. LSA-R.S. 9:5301, et seq. may also be construed as evidence of similar intent.

Finally, the Walmsley v. Resweber, supra, rule makes better sense. Mortgages are strictissimi juris. They are not to be extended or modified by analogy or a fine turn of language. Nothing less will satisfy the security of the public records, ownership of property, and the process of finance.

For these reasons, the judgment appealed is affirmed in part and reversed in part. Judgment is hereby reversed so as to recognize the privilege of the plaintiff in priority to any sums due on the 1966 note. Insofar as the judgment recognizes the first privilege of First National as to all sums due on the 1963 note, it is affirmed. The amounts due on the 1963 and 1966 notes are fixed, pursuant to First National’s accounts, at $6,736.92 and $2,368.83. Intervenor-appellee is to bear all costs.

Affirmed in part; reversed in part; and rendered.

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Dissenting Opinion

REGAN, Judge

(dissenting).

I respectfully dissent from that part of the majority opinion and decree that reverses the judgment of the lower court so as to recognize the privilege of the plaintiff in priority to any sums due on the 1966 note.

Every dissenting opinion is necessarily a declaration that it is the belief of the author thereof that the law has been erroneously applied to the facts by the majority opinion. However, it is not every time that a slight or insignificant difference of opinion exists that a judge who disagrees with the majority is justified in dissenting. The matter should either be of sufficient judicial or legal importance to justify the placing of his dissent in the record, so as to facilitate the review thereof by a higher court, or the matter be of such a nature that the dissenting judge deems it in the interest of the public welfare.¹

The foregoing rationale has provoked this dissent because of the judicial and legal importance of the, issue before the court.

The Louisiana Civil Code defines mortgage as an accessorial obligation depending upon the existence of an underlying principal obligation.² A strict construction of the requirement of a principal obligation would undesirably restrict normal commercial practices, and, therefore, the Louisiana Legislature established an exception permitting conventional mortgages to secure future obligations.

“Art. 3292. A mortgage may be given for an obligation which has not yet risen into existence; as when a man grants a mortgage by way of security for indorse-ments, which another promises to make for him.”

“Art. 3293. But the right of mortgage, in this case, shall only be realized in so far as the promise shall be carried into effect by the person making it. The fulfillment of the promise, however, shall impart to the mortgage a retrospective effect to the time of the contract.”

The Louisiana mortgage to secure future obligations is commonly referred to by the practitioner as a “collateral mortgage” and takes the form of a notarial act whereby the mortgagor acknowledges an indebtedness for the amount of the mortgage note to future holders.³ The mortgage is recorded in favor of a nominal party, who, on behalf of the future holders, accepts the mortgage note secured by the property of the mortgagor. It is not necessary that there be a debt owed the nominal mortgagee, and when the note passes to owners as evidence of a debt, the mortgage to secure payment attaches.⁴ It is not essential that the mortgage should express on its face that it was given to secure future debts; it may be described as a security for existing debts, and yet be used to protect those which, in the contemplation of the parties, were to be created at a future time.⁵ However, where advances were to be made during the present year according to the express terms of the collateral mortgage the time for making such advances could not be extended to secure advances made during the next year.⁶

Once the collateral mortgage is created it may serve as a mortgage for future use in two ways. First, the issuance of the mortgage note to subsequent creditors will secure the debt of the mortgagor without execution and recordation of new acts of mortgage each time the note is issued. Second, once in the hands of a creditor the mortgage note may be used as security for future advances up to the amount of the recorded mortgage. Because the collateral mortgage is recorded at the time of the act of mortgage, both of these functions raise the question of priority of encumbrances on the mortgaged property arising after recordation but prior to the existence of future obligations which the collateral mortgage secures.⁷

This court has posed for its consideration the question of whether the mortgage granted in 1963 was a collateral mortgage which secured the note issued in 1966. The majority opinion reasons that Walmsley v. Resweber⁸ overruled Pickersgill & Co. v. Brown ⁹ so that a collateral mortgage must expressly state that it is for future debt. The ratio decindendi of the Walmsley case is to the effect that an individual may create mortgage paper and hold it as long as he pleases, and by issuing it create a mortgage; but, as against third persons, whose rights have attached in the meantime, the mortgage takes date and rank only upon acceptance of the mortgage by the creditor and not upon recordation. The Louisiana Supreme Court further stated that a mortgage is a contract, the perfection of which requires two parties, and not until acceptance of the mortgage note by the creditor does the mortgage become effective, and any encumbrances arising while the mortgage note is in the hands of the mortgagor arise prior to the effective date and are entitled to priority over the collateral mortgage. Dicta in the Walmsley case stated:

“A mortgage may be executed for any debt pour autrui conditional, and even for future debt, but it must be so stipulated.” (Emphasis supplied.)

The majority opinion explains that it is constrained to adopt the thinking of Walmsley v. Resweber decided in 1899 since it was after the Pickersgill case. However, in Hortman-Salmen Company v. White,¹⁰ decided in 1929, the Louisiana Supreme Court cited approvingly the holding of Pickersgill & Co. v. Brown¹¹ quoting it as follows:

“[1] It is true that the full amount of the loans were not advanced in money to White by plaintiff in either case at the date of the recordation of the mortgage, although the recorded acts of mortgage state that such advances had been made in fact.

“This is unimportant, however, in our opinion, as it is well settled, as stated in the syllabus of Pickersgill v. Brown, 7 La.Ann. 297, that: ‘Mortgages, under the hypothecary system of Louisiana, may be given to sectire debts having no legal existence at the date of the mortgage. It is not essential, in such a mortgage, even with respect to third persons, that it should express on its face, that it was executed to secure future debts. It may be described as a security for existing debts, and yet used to protect those which, in contemplation of the parties, were to be created at a future time.’ (Emphasis added.)

“The mortgage in this case is conventional, and it is expressly provided in article 3292 of the Civil Code that: ‘A mortgage may be given for an obligation which has not risen into existence, as when a man grants a mortgage by way of security for indorsements, which another promises to make for him.

“ ‘But the right of mortgage, in this case,’ as declared in article 3293 of the Civil Code, ‘shall only be realized in so far as the promise shall be carried into effect by the person making it. The fulfillment of the promise, however, shall impart to the mortgage a retrospective effect to the time of the contract.’ See, also, Matthews, Finley & Co. v. Rutherford, 7 La.Ann. 225, and Morris v. Executors of Cain, 39 La.Ann. 712, 1 So. 797, 2 So. 418.

“As stated in Pickersgill v. Brown, 7 La.Ann. 307: ‘The general definition of mortgage, contained in the 3257th article of our Civil Code, supposes the existence of a principal obligation, of which the mortgage is an accessory, and such is the general theory implied in article 3251. But inasmuch as such a theory, strictly construed, would be inadequate to all the practical purposes of business and the necessities of commerce, the lawgiver in article 3259, has allowed the conventional mortgage a wider range, by declaring, that it “may be given for an obligation which has not yet risen into existence; as when a man grants a mortgage, by way of security, for endorsements which another promises to make for him.” ’

“[2] It must be presumed that the Legislature of 1926, in passing Act No. 298 of that year, was acquainted with the decisions of this court, the textual provisions of the Civil Code, the wider scope of conventional mortgages, and the practical aid of such mortgages to business and commerce within the state.”

The majority opinion cites Louisiana Revised Statutes 6:767 and 767.1 to support its position. It is well settled that when a statute is clear and free from all ambiguity, the letter of it is not to be disregarded, under the pretext of pursuing its spirit.¹² Louisiana Revised Statute 6:767 merely provides that:

During the existence of any * * * mortgage any association may advance to the borrower money for the payment of taxes, insurance premiums, special assessments on, repairs, additions and improvements to and remodeling and maintenance of, the property on which the original loan was made, provided that the aggregate of such advances when added to the balance due on the amount of the original loan shall not exceed the original amount of said loan. These advances * * * shall be secured by the same * * * mortgage securing the original note. * * * ”

Louisiana Revised Statute 6:767.1 provides that if the advance is made for any purpose other than those listed in the above statute then the advance shall not prime any encumbrance recorded between the time of recordation of the original mortgage and the date of the advance. Otherwise, the advances are effective from the date of the original mortgage’s recordation. These statutes cannot be cited as charging in any manner the principle of law expressed in Pickersgill & Co. v. Brown¹³ that to affect third persons it is not essential that a collateral mortgage express on its face it was executed to secure future debts.

Admittedly, the collateral mortgage is endowed with serious functional disadvantages. Recordation of such a mortgage merely discloses the maximum possible encumbrance which the collateral can secure, but it does not indicate whether the mortgage has become effective by issuance to a creditor, or, if issued, the amount actually secured by the mortgage. Since there is no requirement that it appear on the face of the instrument that it is to secure future advances, a third party is placed at a disadvantage in not knowing whether the mortgage is in fact a collateral mortgage. Consequently, notice furnished to third parties by recordation of a collateral mortgage is inadequate.

For the foregoing reasons I am compelled to dissent in part from the majority opinion.

1 . Militello v. Bankers Life & Casualty Co., La.App„ 141 So.2d 454 (1962).

2 . La.Civil Code Art. 3285.

3 . One form, but not the exclusive or legally required form, is found in Woodward, Louisiana Notarial Manual, 151 (1953).

4 . Richardson v. Cramer, 28 La.Ann. 357 (1876).

5 . Collins v. His Creditors, 18 La.Ann. 235 (1866) ; Pickersgill & Co. v. Brown, 7 La.Ann. 297 (1852) ; Reasonover, Charles IC, Mortgages to Secure Future Advances, 34 Tulane Law Review, 807-813 (1959-1960) ; Slovenko, Ralph, Cases and Materials on Louisiana Security Rights— The Law of Debtors and Creditors Rights, pp. 172-173, Chapter 1, Volume 3, Part IV (1962).

6 . La.Civil Code Article 3305; Flower & King v. O’Bannon, 43 La.Ann. 1041, 1042 (1891).

7 . Supra, note 5.

8 . 105 La. 522, 30 So. 5 (1899).

9 . 7 La.Ann. 297 (1852).

10 . 168 La. 1057, 123 So. 711 (1929).

11 . 7 La.Ann. 297 (1852).

12 . La.C.C. Art. 13.

13 . 7 La.Ann. 297 (1852).