UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 95-60612
HIBERNIA NATIONAL BANK,
Plaintiff-Appellee,
versus
LEONARD K. SONES, ET AL.,
Defendants,
LEONARD K. SONES, JR.; MYRTLE M. SONES,
Defendants-Appellants.
Appeal from the United States District Court
For the Southern District of Mississippi
(1:92-CV-77)
December 12, 1996
Before DAVIS, DENNIS, Circuit Judges and FALLON, District Judge.1
PER CURIAM:**
BACKGROUND
On May 13, 1986, the appellants, Leonard K. Sones and Myrtle
M. Sones, executed a promissory note in favor of First National
1
District Judge of the Eastern District of Louisiana, sitting by
designation.
**
Pursuant to Local Rule 47.5, the court has determined that this opinion should not be published
and is not precedent except under the limited circumstances set forth in Local Rule 47.5.4.
Bank of Covington [in Covington Louisiana] [”Bank”]. The
promissory note provided for a line of credit not to exceed
$150,000. The purpose of this transaction was to provide the
Soneses’ neighbors, Johnny M. Penton and Mike E. Penton, Jr.,
capital to finance a construction framing business venture. This
note and the identical renewal note signed by the Soneses on June
10, 1986 contained a “MASTER NOTE” provision which provided:
“First National Bank may make periodic advances ... from time to
time, one or more times, aggregating up to the principal amount of
this promissory note as shown on the face side hereof.” On May 14,
1986 a deed of trust on the Soneses’ property in Pearl River
County, Mississippi, securing “all existing and future
indebtedness,” to include “all future and additional advances,” was
properly filed and recorded. Over the following months, several
advances were made to the Pentons by the Bank and over $500,000 was
paid back to the Bank.
By June 10, 1987, according to the testimony of Jerry Wiggins,
the bank officer whom the Soneses transacted with, the line of
credit was fully loaned out. On that date, the Sones renewed the
May 13, 1986 promissory note. No payments were received by the
bank after the renewal. First National Bank of Covington
subsequently became insolvent and was taken over by the FDIC.
First National’s assets, including the note and the deed of trust
signed by the Soneses, were subsequently sold to appellee, Hibernia
National Bank, which filed a foreclosure suit to collect the
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outstanding balance on the June 10, 1987 renewal note owed them by
the Soneses. The district court for the Southern District of
Mississippi, found that there was an outstanding debt of
$149,666.70 and entered a judgment in favor of Hibernia against the
Soneses for this amount plus interest and attorney’s fees totaling
$340,959.45, and ordering judicial foreclosure on the Soneses’
property.
DISCUSSION
The Soneses raise four issues on appeal:
I. Sufficiency of the Evidence
First, the Soneses argue that pursuant to the promissory note
of May 13, 1986 and its renewal of June 10, 1987, in order to
collect the debt, Hibernia must present bank records evidencing a
debt. The source of this argument is the following language found
in the two promissory notes:
[T]he records of Bank shall serve as prima facie evidence as
to the unpaid and funded principal balance of this promissory
note from time to time in the event that it should become
necessary for Bank to commence an appropriate action seeking
to collect the unpaid principal funded balance of this
promissory note and interests, costs and attorney’s fees in
any court of competent jurisdiction.
A common sense reading of the above language does not mandate that
in order to prove a debt, the bank is limited to using its records.
Rather, it means that bank records will always be prima facie proof
of a debt, but it does not preclude the use of other forms of
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evidence to prove a debt. The evidence adduced was adequate to
prove the existence of the Soneses’ debt, although a detailed
written documentation of payments and advances was not introduced.
Wiggins testified at trial from his recollection the line of credit
secured by the Sones’ property was “maxed out” at “full capacity,
$150,000.” After his memory was refreshed by reference to a bank
computer printout, he testified that the exact amount of the
balance of the debt was $149,666.70. However, the printout was
never introduced. Nevertheless, Wiggins’ refreshed recollection
suffices to prove existence and amount of the debt at the time the
loan was renewed on June 10, 1987. The existence of this debt was,
in substance acknowledged by the fact that the Soneses signed a
renewal note on June 10, 1987. The Soneses have not introduced
any evidence that any payments were made on the debt after they
signed the renewal note.
II. Does Louisiana or Mississippi Law Apply?
Next, the Soneses allege that Louisiana law applies to the
deed of trust. At the time the deed of trust was signed, under
Louisiana law the only form of mortgage that secured a line of
credit was a collateral mortgage. Clearly, the requirements to
properly effect a collateral mortgage were not complied with by the
bank, thereby creating no security should Louisiana collateral
mortgage law apply. However, we conclude that Mississippi law and
not Louisiana law applies with respect to the enforcement of the
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deed of trust.
Both the original note dated May 13, 1986 and the note renewal
dated June 10, 1987 provide that Louisiana law governs the loan
transaction and “all things, matters and transactions related
thereto....” However, conflict of law rules dictate that the law
of the situs of the secured property govern foreclosure procedures
applicable to the real estate within the state regardless of any
choice of law provision in the contract evidencing the underlying
debt. See, e.g., Restatement (Second) of Conflicts of Law § 229
(1971); David B. Young, Mortgages and Party Autonomy in Choice of
Law, 45 Ark.L.Rev. 345, 347-49 (1992). See also Jones v. Jones,
523 So.2d 874 (La. App. 4th Cir. 1988); Clinton Capital Corp. v.
Straeb, 589 A.2d 1363 (Sup. Ct. N.J. 1990). This is a foreclosure
suit. We have found no Mississippi cases directly on point, but we
conclude that Mississippi courts would follow the same rule. The
Soneses have not cited any convincing authority to the contrary.
III. Is the Dragnet Clause in the Deed of Trust Effective?
The deed of trust signed by the Soneses contained the
following provision:
This Deed of Trust shall also secure any and all other
indebtedness of Debtors due to Secured Party with interest
thereon as specified, or of any one of the debtors should
there be more than one, whether direct or contingent,
primary or secondary, sole, joint or several, now existing or
hereafter arising at any time before cancellation of this Deed
of Trust. Such indebtedness may be evidenced by note, open
account, overdraft, endorsement, guaranty or otherwise.
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The provision is known as a “dragnet clause.” It is well settled
in Mississippi that a dragnet clause may secure future debts of a
borrower. Cochran v. Deposit Guaranty Nat’s Bank, 509 So.2d 1045
(Miss. 1987). Dragnet clauses are, however, narrowly construed
against the drafter when there is uncertainty or ambiguity as to
the parties’ intent. Merchants Nat’l Bank v. Stewart, 608 So.2d
1120, 1125-26 (Miss. 1992). But, if the dragnet clause clearly and
unambiguously indicates that the collateral secures other debts,
then the court will not inquire further into the parties’ intent
and will enforce the clause. Id. at 1126.
The language “any and all other indebtedness” contained in the
above dragnet clause has been interpreted to include only debts
similar to the primary debt secured by the Deed of Trust. Id. In
Stewart, the Mississippi Supreme Court held that a subsequent
advance was not secured by a dragnet clause very similar to the one
in this case because the first obligation and subsequent obligation
allegedly secured by the dragnet clause were dissimilar. The first
obligation was a line of credit to be used for crop production and
irrigation while the subsequent obligation was a loan used to
purchase land. The subsequent obligation was also fully secured by
the land, FmHA guarantees, and second liens which the court
reasoned “further indicat[ed] that they were not intended to be
included under the [dragnet clauses].” Id. In the present case,
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however, the renewal note was executed for the same reason that the
first note was issued and thus represented a debt inherently
similar to that underlying the first note.
IV. The Sones Cannot Establish a Fraud in the Factum Defense
Finally, the Soneses allege that they were victims of a fraud
in the factum that caused them to sign the June 10, 1987 renewal
note. We find that the Soneses cannot establish fraud in the
factum.1 Fraud in the factum occurs when a party signs a document
“without full knowledge of the character or essential terms of the
instrument.” Templin v. Weisgram, 867 F.2d 240, 242 (5th Cir.
1989). The Soneses allege that they were not aware of the character
or essential terms of the renewal note when it was signed on June
10, 1987. However, Mr. Sones testimony showed that he was aware
that credit was being extended in a piecemeal fashion; that is that
funds were not released all at once. The Soneses were also aware
that the June 10, 1987 note was a renewal of the prior note. Thus,
because it is undisputed that they had knowledge of the terms and
conditions of the first note, it follows that they understood the
1
Because we find that the Soneses cannot establish a fraud in the
factum defense, we do not need to decide whether or not a fraud in
the factum defense is excepted to the application the D’oench Duhme
doctrine, codified as 12 U.S.C. § 1823(e). The Supreme Court in
Langly v. FDIC, 484 U.S. 86, 93-94 (1987), stated in dictum that
fraud in the factum may constitute an exception from the
application of the D’oench Duhme doctrine. Nor do we need to
inquire into the intricacies of the D’oench Duhme doctrine. In a
nutshell, the D’oench Duhme doctrine as codified in 12 U.S.C. §
1823(e), provides that agreements not contained in the failed
bank’s records are invalid against the FDIC and its assignees.
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terms and conditions of the identical renewal note.
CONCLUSION
For the foregoing reasons the judgment of the district court
is AFFIRMED.
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