United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit July 8, 2003
Charles R. Fulbruge III
Clerk
No. 02-30395
In the Matter of: ARGO FINANCIAL, INC.,
Debtor.
ADVANTA AUTO FINANCE CORPORATION,
Appellant,
VERSUS
SUGARLAND MOTOR COMPANY, INC., doing business as Harvest Ford-
Lincoln-Mercury, doing business as Harvest-Sugarland,
Appellee.
Appeal from the United States District Court
For the Eastern District of Louisiana
Before HIGGINBOTHAM, EMILIO M. GARZA, and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
Louisiana law gives a vendor the right to demand dissolution
of a sale for nonpayment of the purchase price. In this case, an
unpaid vendor sought to dissolve sales of movable property after
-1-
the original purchaser had resold the movables to a third party in
good faith. We hold, under these circumstances, that the vendor’s
exercising its right of dissolution could not impair the third
party’s rights in the movables. Accordingly, we reverse the
district court’s judgment and remand this case for further
proceedings.
I. BACKGROUND
Sugarland Motor Company (“Sugarland”) owns and operates motor
vehicle dealerships in Plaquemine, Louisiana. Those dealerships
originate retail installment contracts (“RICs”) when they sell
vehicles on credit. By executing an RIC, the buyer grants a
security interest in his new vehicle to secure his obligation to
pay the financed portion of the vehicle’s purchase price. Thus,
each contract includes the buyer’s promise to pay the amount
financed plus daily accruing finance charges and a security
agreement creating a security interest in the vehicle in favor of
Sugarland and its assignees. Immediately after a credit sale is
complete, Sugarland assigns the RIC to a consumer finance company.1
By this point the finance company has already verified the buyer’s
creditworthiness and agreed to pay Sugarland the financed portion
of the price. The buyer then makes monthly payments to the finance
1
An assignment is a “species of sale” under Louisiana law. See
Sanson Four Rentals, L.L.C. v. Faulk, 803 So. 2d 1048, 1052 (La.
App. 2d Cir. 2001) (citing Scott v. Corkern, 91 So. 2d 569, 571
(La. 1956)). To facilitate application of Louisiana law, we
generally refer to the transactions at issue in this case as sales
rather than assignments.
-2-
company or its assignee.
Argo Financial, Inc. (“Argo”), was a finance company that
Sugarland dealt with on a regular basis. When it sold an RIC to
Argo, Sugarland would send the original contract to Argo by
overnight delivery. Argo usually mailed a check to Sugarland for
the full amount financed five to ten days after receiving the RIC.
After receiving the payment from Argo, Sugarland would submit a
copy of the RIC and a title application for the vehicle described
in the RIC to the Louisiana Department of Public Safety and
Corrections, Office of Motor Vehicles (“OMV” or “Louisiana OMV”).
Under Louisiana law, a security interest in the vehicle would be
perfected upon the OMV’s receipt of the RIC.2 The OMV would then
issue a certificate of title showing Argo as the vehicle’s “first
2
See La. R.S. 10:9-501(a)(1); see also La. R.S. 32:710(A) (“A
security interest covering a titled motor vehicle . . . shall be
perfected as of the time the financing statement is received by the
Department of Public Safety and Corrections, so long as such
receipt subsequently is validated by the secretary of the
Department of Public Safety and Corrections.”). Because the RICs
that Sugarland originates provide the name of the buyer (the
debtor), the name of the seller (the secured party), and a
description of the motor vehicle purchased (an indication of the
collateral covered by the security agreement), the contracts
satisfy the formal requirements for a financing statement. See La.
R.S. 10:9-502(a), :9-504(3); see also David Willenzik, Louisiana
Secured Transactions § 6:14, at 6-16 to 6-17 (West 2002) (“Certain
lenders choose to file a copy of the borrower’s UCC security
agreement (rather than a UCC-1 financing statement) in connection
with indirect dealer credit sales transactions (particularly those
involving motor vehicles). . . . Generally, it is viewed to be
easier and less cumbersome for a dealer to require its customers to
sign combination retail installment sales contract forms, which
include UCC security agreement covenants, and then to file such
contract forms with the appropriate filing officer.”).
-3-
lienholder,” and Sugarland would send the certificate to Argo.
Argo, in turn, would resell the RIC to another finance company—in
this case, Advanta Auto Finance Corporation (“Advanta”). When Argo
received a title certificate for a vehicle associated with an RIC
that it had sold to Advanta, Argo would forward the certificate to
Advanta along with the documents necessary for Advanta to have a
new certificate issued noting its security interest in the vehicle.
Two RICs originated by Sugarland are at issue here. Maudria
Fox executed the first one on September 29, 1998; Susan and Stephen
Kennard (collectively “Kennard”) executed the second on October 2,
1998. In each instance, Sugarland sold and delivered the RIC to
Argo. But Sugarland did not receive payment from Argo within the
customary time frame. After giving several assurances that payment
was forthcoming, Argo finally advised Sugarland that it had filed
for bankruptcy, that it was therefore unable to fund the RICs, and
that Sugarland needed either to get the vehicles back from Fox and
Kennard or to finance the sales with another lender.3 In the
meantime, however, Argo had sold and delivered the RICs to
Advanta.4 Unaware that Sugarland had not received payment, Advanta
promptly paid Argo the agreed-upon purchase price for each RIC.
After learning that Argo was in bankruptcy, Sugarland informed
3
Argo filed a Chapter 7 petition on November 3, 1998, in the
United States Bankruptcy Court for the Eastern District of
Louisiana.
4
The sales preceded Argo’s bankruptcy filing by less than one
month.
-4-
Fox and Kennard that they needed to switch lenders and convinced
them to execute new RICs. Although Fox and Kennard had each made
one payment to Advanta when they executed the new RICs, Sugarland
claims it was unaware that Advanta had purchased the original
contracts from Argo. Sugarland immediately sold the new contracts
to Americredit Financial Services, Inc. (“Americredit”), and filed
the appropriate documents with the Louisiana OMV. In due course,
the OMV issued title certificates showing Americredit as the first
lienholder of the Fox and Kennard vehicles. Fox and Kennard then
quit making payments to Advanta under the terms of the original
RICs and began paying Americredit instead.
Because it never received payment from Argo, Sugarland never
filed with the OMV copies of the original RICs or title
applications requesting that Argo’s security interest be noted on
each vehicle’s title certificate. It follows that neither Argo nor
Advanta ever received title certificates for the Fox and Kennard
vehicles. Because Sugarland forwarded the title certificates it
actually applied for and received to Americredit, Advanta was never
able to obtain new certificates noting its security interests in
the vehicles.5 Thus, although Advanta is still in possession of
the original RICs, its security interests in the Fox and Kennard
vehicles are unperfected.
In this adversary proceeding related to Argo’s bankruptcy,
5
See La. R.S. 32:710(E).
-5-
Advanta brought a conversion claim against Sugarland, alleging that
Sugarland interfered with or destroyed its right to payment under
the original RICs by enticing Fox and Kennard to execute new
contracts. Relying on Louisiana Civil Code articles 2561, 2013,
and 2016, Sugarland answered that it was not liable to Advanta in
tort or otherwise because Argo’s failure to pay the purchase prices
entitled it to regard the sales of the RICs to Argo as dissolved.
The general effect of dissolution is to restore the seller and the
buyer to the situation that existed before the sale; thus,
Sugarland maintained that the rights in the RICs that Advanta
acquired from Argo did not survive the dissolution of the initial
sales. Advanta responded that its rights as the owner of the
original RICs were governed by Chapter 9 of the Louisiana
Commercial Laws (“Chapter 9”), Louisiana’s version of U.C.C.
Article 9,6 and were superior to any rights and remedies that
Sugarland may have had under the Louisiana Civil Code as a result
of Argo’s nonpayment of the purchase prices.
This matter went to trial in the bankruptcy court on the
stipulated facts appearing in the parties’ pretrial order.7 In its
“Proposed Findings of Fact and Conclusions of Law in a Non-Core
6
See La. R.S. 10:9-101 to :9-710.
7
Sugarland did not consent to the entry of final judgment by
the bankruptcy court in this non-core “related to” proceeding.
Thus, the bankruptcy judge was required to submit proposed findings
of fact and conclusions of law to the district court. See 28
U.S.C. § 157(c).
-6-
Proceeding,” the bankruptcy court recommended that the district
court enter judgment in favor of Advanta. The bankruptcy court
rejected Sugarland’s argument that it was entitled to regard the
sales of the RICs to Argo as dissolved, reasoning that “Advanta, as
the holder of a security interest governed by [Chapter 9], has an
interest in the RICs that is superior to any right Sugarland may
have under the Civil Code.” Despite this rejection of Sugarland’s
defense to Advanta’s conversion claim, the bankruptcy court did not
consider the merits of that claim. The court based its
recommendation instead on a breach of warranty theory that it
raised sua sponte. In the “Assignment by Seller” section of the
RICs, Sugarland warranted that it would “perfect a security
interest in the Property in favor of [Argo].” The court found that
Sugarland breached this warranty by not submitting to the Louisiana
OMV copies of the original RICs along with title applications
requesting that Argo’s security interests in the Fox and Kennard
vehicles be noted on the respective title certificates. Further
finding that Argo’s rights vested in Advanta by subrogation, the
court concluded that Sugarland was liable to Advanta for breach of
warranty.
Sugarland filed objections to the bankruptcy court’s proposed
conclusions of law. The district court maintained those
objections, reasoning that although Sugarland warranted that it
would perfect security interests in the Fox and Kennard vehicles in
favor of Argo, “[i]t did not . . . warrant that it would do so
-7-
prior to being paid.” Contrary to the bankruptcy court’s proposed
conclusion, the district court determined that “[n]othing in
Chapter 9 displaces the general principle of Louisiana law . . .
that a seller may deem a contract dissolved if the buyer fails to
pay the agreed-upon purchase price.” The court then found that
Argo’s nonpayment of the purchase prices entitled Sugarland to
regard the sales of the RICs to Argo as dissolved and concluded
that, as a consequence of dissolution, “any purported assignment of
Argo’s rights to Advanta was ineffectual.” In accordance with this
conclusion, the district court entered a final judgment dismissing
Advanta’s claim against Sugarland. This appeal followed.
II. ANALYSIS
Because the facts of this case are undisputed and the district
court’s decision rests solely on a conclusion of law, our review is
de novo.8
In Louisiana, an unpaid vendor has the right to demand
dissolution of a sale made on credit.9 Louisiana Civil Code
article 2561 provides, in part, that “[i]f the buyer fails to pay
8
See Matter of Taylor, 132 F.3d 256, 259 (5th Cir. 1998).
9
See La. Civ. Code art. 2561; A.N. Yiannopoulos, Property §
121, at 280, in 2 Louisiana Civil Law Treatise (4th ed. 2001).
Because Sugarland agreed that payment was due sometime after it
delivered the RICs to Argo, the sales at issue here were made on
credit. See Parnell v. Baham, 228 So. 2d 53, 57 (La. App. 4th Cir.
1969) (“When delivery is made and ownership transferred by the
seller to the purchaser upon an agreement that the purchaser will
pay later—whether it be hours, days, or longer—it is a credit
sale.”), writ refused, 230 So. 2d 92 (La. 1970).
-8-
the price, the seller may sue for dissolution of the sale.”10 This
substantive right of dissolution is clearly distinguishable from
the privilege that the vendor has on the thing sold for the payment
of the purchase price: “Exercise of the vendor’s privilege involves
an assertion of the sale; in contrast, exercise of the vendor’s
right of dissolution involves a repudiation of the sale and its
consequences.”11
Although Article 2561 speaks only of judicial dissolution, the
Civil Code specifies other means of dissolution that may be
available to an unpaid vendor.12 In certain cases in which an
obligor has failed to perform, Article 2013 of the Civil Code
permits the obligee to regard the contract as dissolved instead of
filing suit.13 Article 2016 describes the general circumstances
10
La. Civ. Code art. 2561.
11
Yiannopoulos, supra note 9, § 121, at 280. For a discussion
of the Louisiana vendor’s privilege, see id. § 232.
12
See La. Civ. Code. art. 2561 cmt. (i) (“While the thrust of
this Article is on judicial dissolution, it does not negate the
possibility that dissolution might be effected through some other
means provided by law.”).
13
See La. Civ. Code art. 2013. Articles 2013 through 2024, the
Civil Code’s general articles on contract dissolution, compose
Chapter 9 of the Code’s title on Conventional Obligations or
Contracts. Although Article 2561 appears in the title on Sale, the
first article of that title provides that “[i]n all matters for
which no special provision is made in this title, the contract of
sale is governed by the rules of the titles on Obligations in
General and Conventional Obligations or Contracts.” La. Civ. Code
art. 2438. Thus, the general articles on contract dissolution
govern the vendor’s right of dissolution in the absence of a
special provision applicable to sales. See La. Civ. Code. art.
2561 cmt. (i) (citing La. Civ. Code arts. 2013–2024); see also La.
-9-
under which the obligee can take such unilateral action without
first serving the obligor with a notice to perform: “When a delayed
performance would no longer be of value to the obligee or when it
is evident that the obligor will not perform, the obligee may
regard the contract as dissolved without any notice to the
obligor.”14 Applying these principles to the contract of sale, it
becomes clear that extrajudicial dissolution is available in cases
in which the buyer has advised the seller that he cannot or will
not perform his obligation to pay the purchase price.
Because Argo had advised Sugarland that it was in bankruptcy
and was therefore unable to pay the purchase prices for the Fox and
Kennard RICs, the district court found that Sugarland was entitled
to regard the sales of the RICs to Argo as dissolved. Although
Advanta disputes this finding, its principal argument is that
Chapter 9 of the Louisiana Commercial Laws, and not the Civil Code
articles on dissolution, controls the outcome of this case.15 The
Civ. Code. art. 2564 cmt. (explaining that changes were made to the
article as part of the 1993 revision of the Louisiana law of sale
to achieve consistency with the general articles on dissolution).
14
La. Civ. Code art. 2016.
15
In brief, Advanta contends that both RICs are chattel paper,
such that the perfection and priority rules of Chapter 9 apply.
See La. R.S. 10:9-102(a)(11) (“‘Chattel paper’ means a record or
records that evidence both a monetary obligation and a security
interest in specific goods . . . .”); La. R.S. 10:9-109(a)(3)
(providing that Chapter 9 applies to sales of chattel paper); id.
U.C.C. cmt. 5 (stating that the principal effect of subjecting
sales of chattel paper to U.C.C. Article 9 is to apply the
Article’s perfection and priority rules to those transactions).
-10-
ultimate merit of this argument hinges on whether Sugarland’s right
of dissolution conflicts with Advanta’s rights under Chapter 9.16
Fortunately, we need not decide today whether such a conflict
exists, for we agree with Advanta’s alternative argument—grounded
in the Louisiana Civil Code—that even if Sugarland was entitled to
regard the sales of the RICs to Argo as dissolved, dissolution
could not impair the rights that Advanta acquired from Argo in good
faith.17
Because dissolution restores the parties to the situation that
existed before they entered the contract of sale,18 problems arise
when the property sold is no longer in the hands of the original
purchaser. In such cases, the availability of dissolution and its
effect on the rights that a third party has acquired has long
depended on whether the sale involves movable or immovable
16
See La. R.S. 9:3192 (“In case of conflict between the
provisions of Title VII of Book III of the Civil Code, governing
sales[,] and any provisions of any special legislation, such as
those contained in Titles 9 and 10 of the Louisiana Revised
Statutes of 1950 and the Louisiana Lease of Movables Act, the
latter shall prevail with regard to transactions subject
thereto.”); cf. La. R.S. 10:1-103 (“Unless displaced by the
particular provisions of this Title, the other laws of Louisiana
shall apply.”).
17
We note, however, that the district court’s conclusion that
the vendor’s right of dissolution does not conflict with any
specific provision of Chapter 9 finds support in the writings of
Louisiana’s leading property law scholar. See Yiannopoulos, supra
note 9, § 233, at 468 n.10 (4th ed. 2001 & Supp. 2002) (“The
vendor’s right of dissolution is not affected by Chapter 9, and it
would seem that this right primes a later security interest.”).
18
See La. Civ. Code art. 2018.
-11-
property.19 In Robertson v. Buoni, the Louisiana Supreme Court
reviewed over a century of jurisprudence and observed that the
“right to dissolution of a sale of an immovable for nonpayment is
not contingent on the absence of a third party purchaser. A vendor
seeking dissolution of the sale may do so even after the property
has left the hands of the original purchaser.”20 On the other hand,
courts have held that the unpaid vendor of a movable can exercise
19
In Louisiana, movables are a residual category of things.
Yiannopoulos, supra note 9, § 148, at 342. Article 475 of the
Civil Code provides that “[a]ll things, corporeal or incorporeal,
that the law does not consider as immovables, are movables.” La.
Civ. Code art. 475. As this provision suggests, the law recognizes
two kinds of immovables: corporeal immovables and incorporeal
immovables. “Corporeal immovables are tracts of land with their
component parts, such as buildings, other constructions permanently
attached to the ground, standing timber, and unharvested crops or
ungathered fruits of trees.” Yiannopoulos, supra note 9, § 113, at
264 (citing La. Civ. Code arts. 462, 463). Incorporeal immovables
are rights and actions that have an immovable object; this category
includes personal servitudes, predial servitudes, mineral rights,
and petitory or possessory actions. Id. (citing La. Civ. Code art.
470). Because the RICs at issue in this case do not fall within
either category of immovables, they are movables as a matter of
law.
20
504 So. 2d 860, 863 (La. 1987) (citing Stevenson v. Brown, 32
La. Ann. 461 (1880)). But see id. at 863 & n.1 (Lemmon, J.,
concurring) (“When a sale of immovable property has been recorded,
the seller’s right to dissolution, as against a subsequent
purchaser, may depend on whether the recorded original sale
indicates that the price has or has not been paid. A subsequent
purchaser should be protected against a claim for dissolution of a
recorded sale unless the records indicate that the price was not
paid.” (citing A.N. Yiannopoulos, Property § 165, in 2 Louisiana
Civil Law Treatise (2d ed. 1980))); Yiannopoulos, supra note 9, §
233; LeBlanc v. Bernard, 554 So. 2d 1378, 1381 (La. App. 1st Cir.
1989) (holding that a third party is protected against an unpaid
vendor’s claim for dissolution when the public records reflect that
the purchase price has been paid), writ denied, 559 So. 2d 1357
(La. 1990).
-12-
the right of dissolution “only so long as the movable remains in
the possession of the original vendee.”21
According to Professor Yiannopoulos, the application of
different rules to movables and immovables reflects that
transactions involving the former are generally not protected by a
system of public records:22 “Immovable property has been protected
by the law much more effectively than movable property; and,
whereas security of acquisition of immovables is achieved by the
system of public records, security of transaction and acquisition
of movables is enhanced by the bona fide purchaser doctrine.”23
Thus, it is in the interest of security of transactions that the
vendor’s right of dissolution “becomes inoperative against third
possessors of movables.”24
The Louisiana Legislature had this interest in mind when it
enacted Civil Code article 2021 as part of the 1984 revision of the
law of obligations. That article provides: “Dissolution of a
21
W.M. Bailey & Sons v. Western Geophysical Co., 66 So. 2d 424,
428 (La. App. 2d Cir. 1953) (citing Lalance Grosjean Mfg. Co. v.
George G. Wolff & Levi, 28 La. Ann. 942 (1876)).
22
An obvious and notable exception is the title registration
system for motor vehicles. See La. R.S. 32:701–738.
23
Yiannopoulos, supra note 9, § 233, at 469.
24
Id. See Lalance Grosjean, 28 La. Ann. at 942 (“The rights to
and upon movable property are subject to rules different from those
relating to immovables . . . . The interests of commerce make some
such difference necessary, and the business community would feel
much alarm at the doctrine that any vendor could dissolve the sale
of merchandise found in the hands of a second or third vendee.”).
-13-
contract does not impair the rights acquired through an onerous
contract by a third party in good faith. If the contract involves
immovable property, the principles of recordation apply.”25 Where
credit sales of movables are concerned, Article 2021 is consistent
with the earlier jurisprudential rule that the unpaid vendor cannot
exercise his right of dissolution if the movables sold are no
longer in the possession of the original purchaser.26 Although the
courts’ focus was on whether the vendor could “exercise” his right
of dissolution, and Article 2021 assumes the dissolution and
addresses its consequences, the end result is the same: the third
party retains the rights he has acquired. We therefore find it
clearly established under Louisiana law that the exercise of the
25
La. Civ. Code art. 2021. See generally Shael Herman,
Detrimental Reliance in Louisiana Law—Past, Present, and Future
(?): The Code Drafter’s Perspective, 58 Tul. L. Rev. 707, 752
(1984) (explaining that Article 2021 reflects an effort to “broadly
articulate the principle of protection of the bona fide purchaser
of both movables and immovables who acquires rights by onerous
contract in reliance upon either the public records (in the case of
immovables) or the transferor’s apparent authority to transfer (in
the case of movables)”).
26
According to the revision comment, Article 2021 expresses a
principle implied in Article 3229 of the Civil Code. See La. Civ.
Code art. 2021 cmt. Article 3229, which applies only to cash sales
of movables, provides that an unpaid seller can “claim back the
things in kind, which were thus sold, as long as they are in
possession of the purchaser, and prevent the resale of them;
provided the claim for restitution be made within eight days of the
delivery at farthest, and that the identity of the objects be
established.” La. Civ. Code art. 3229 (emphasis added). Before
the enactment of Article 2021, courts that held that the right of
dissolution could be exercised only so long as the movable sold on
credit remained in the possession of the original purchaser did so
by analogy to Article 3229. See Yiannopoulos, supra note 9, § 233,
at 468.
-14-
vendor’s right of dissolution does not impair the rights in movable
property that a third party has acquired through an onerous
contract in good faith.
In this case, Advanta undoubtedly acquired its rights in the
RICs through an onerous contract with Argo.27 Furthermore,
Sugarland does not dispute that Advanta acquired those rights in
good faith. Because the record indicates that Advanta paid
reasonable prices for the RICs and was not aware of Argo’s
nonpayment, we find that Advanta stands in the position of a good
faith purchaser.28 We therefore conclude that even if Sugarland was
entitled to regard the sales of the RICs to Argo as dissolved,
dissolution of the sales could not impair the rights that Advanta
acquired from Argo, which include the right to receive payments
under the terms of the RICs.
Accordingly, we hold that the district court’s dismissal of
Advanta’s conversion claim on the basis of the vendor’s right of
dissolution was erroneous. Because the district court did not
consider the merits of that claim, we find it appropriate to remand
this case so that it may do so in the first instance.29
27
See La. Civ. Code art. 1909 (“A contract is onerous when each
of the parties obtains an advantage in exchange for his
obligation.”).
28
See generally Saúl Litvinoff, The Law of Obligations § 1.8, in
5 Louisiana Civil Law Treatise (2d ed. 2001) (discussing the
concept of good faith).
29
Advanta has made no argument to this court in support of the
bankruptcy court’s recommendation that judgment be entered in its
-15-
III. CONCLUSION
For the foregoing reasons, we reverse the district court’s
judgment and remand this case for further proceedings consistent
with this opinion.
REVERSED AND REMANDED.
favor on breach of warranty grounds. In fact, Advanta maintains in
its briefs that its only cause of action against Sugarland is for
tortious conversion under Louisiana law. Thus, the district court
should not reconsider the bankruptcy court’s recommendation on
remand.
-16-
EMILIO M. GARZA, Circuit Judge, specially concurring:
I agree with the majority opinion that the district court’s dismissal of Advanta’s conversion
claim on the basis of the vendor’s right of dissolution was erroneous. However, I cannot agree with
the majority opinion that, to resolve this matter, we need only look to the Louisiana Civil Code (the
“Civil Code”). On the contrary, Chapter 9 o f the Louisiana Commercial Laws (“Chapter 9”),
Louisiana’s version of UCC Article 9, controls the outcome of this case. Accordingly, I concur in
the judgment only.
The majority opinion attempts to avoid the question at hand))whether Sugarland’s rights
under Articles 2013, 2016, and 2549 of the Civil Code, providing that a seller may, on its own
initiative and without judicial authorization, deem a contract dissolved if the buyer fails to pay the
agreed-upon purchase price,30 conflict with Advanta’s rights as a good faith purchaser of chattel
paper under the particular provisions of Chapter 9 dealing with sales of chattel paper and the priority
of a chattel paper purchaser. To avoid answering this question, the majority opinion reasons that,
under Article 2021 of the Civil Code, Advanta retains the rights in the RICs it acquired from Argo
even if Sugarland was entitled to regard the assignment agreement between Sugarland and Argo as
dissolved. The problem with this reasoning is that Article 2021 simply cannot apply where, as here,
30
See La. Civ. Code Art. 2013 (“When the obligor fails to
perform, the obligee has a right to the judicial dissolution of the
contract or, according to the circumstances, to regard the contract
as dissolved. In either case, the obligee may recover damages. In
an action involving judicial dissolution, the obligor who failed to
perform may be granted, according to the circumstances, an
additional time to perform.”); La. Civ. Code Art. 2016 (“When a
delayed performance would no longer be of value to the obligee or
when it is evident that the obligor will not perform, the obligee
may regard the contract as dissolved without any notice to the
obligor.”); La. Civ. Code Art. 2549 (“The buyer is bound to pay the
price and to take delivery of the thing.”).
the contract at issue was never dissolved. Article 2021 provides that “[ d]issolution of a contract
does not impair the rights acquired through an onerous contract by a third party in good faith.” La.
Civ. Code Art. 2021 (emphasis added). From its plain text it is clear that, for Article 2021 to apply,
there must first be a dissolved contract.31 However, contrary to Sugarland’s contention, the
assignment agreement at issue in this case))a credit sale between Sugarland and Argo))was never
dissolved. Even though Articles 2013, 2016, and 2549 of the Civil Code generally permit a seller
(such as Sugarland), on its own initiative and without judicial authorization, to deem a contract
dissolved if a buyer (such as Argo) fails to pay the agreed-upon purchase price, the specific provisions
of Chapter 9 dealing with sales of chattel paper and the priority of a chattel paper purchaser
(discussed below) precluded Sugarland from unilaterally and extrajudicially dissolving the assignment
agreement between it and Argo once Advanta had already purchased the RICs from Argo in good
faith.
In the context of this case, the specific provisions of Chapter 9 not only protect Advanta’s
ownership interest in the RICs against the competing claims of Argo’s creditors, including Sugarland,
but also displace the more general Civil Code provisions, found at Articles 2013, 2016, and 2549,
addressing a seller’s ability to unilaterally and extrajudicially deem a contract dissolved if the buyer
fails to pay the agreed-upon purchase price. Under Chapter 9, the assignment agreement between
Sugarland and Argo was a “true sale” of chattel paper, passing title in the RICs to Argo. See La. R.S.
10:9-109(e) (providing that the parties’ characterization of a transaction as a sale of chattel paper is
conclusive that the transaction is a “true sale” and that title has passed to the party characterized as
31
As the majority opinion correctly acknowledges, Article 2021
“assumes the dissolution and addresses its consequences.”
-18-
the purchaser, regardless of any other term of the parties’ agreement); La. R.S. 10:9-318(a)
(providing that a seller of chattel paper retains no legal or equitable interest in the chattel paper
sold).32 And, by paying for and taking possession of the RICs from Argo, Advanta perfected a
Chapter 9 security interest in the RICs, thereby protecting its rights in the chattel paper from the
competing rights of Argo’s credit ors, including Sugarland.33 Even assuming, arguendo, that
Sugarland acquired a security interest in the RICs,34 Sugarland failed to perfect its security interest
32
Both parties agree that the RICs in question are “chattel
paper” under Chapter 9 of the Louisiana UCC. See La. R.S. 10:9-
102(a)(11) (defining “chattel paper” as “a record or records that
evidence both a monetary obligation and a security interest in
specific goods . . . .”).
33
Sugarland became Argo’s creditor by virtue of its agreement
to assign the RICs to Argo on a deferred payment basis, a
transaction that is treated as a completed credit sale under
Louisiana law. See Succession of Dunham, 408 So.2d 888, 896-97
(La. 1981) (explaining that, under Louisiana law, a conditional
sale is treated as a completed credit sale, “in which ownership of
the object of the sale passes at the time the contract is entered
into”); see also In re Wallace Lincoln-Mercury, 469 F.2d 396, 402
(5th Cir. 1972) (“‘[Under Lousiana law, a conditional sale whereby
title is retained in the vendor is legally impossible, so the
courts respect the contract but ignore the provision retaining
title in the vendor.’” (quoting Morelock v. Morgan & Byrd Gravel
Co., 141 So. 368, 374 (1932)). As a result of this credit sale,
Argo acquired rights in the RICs that are enforceable under
Chapter 9 of the Louisiana UCC. See La. R.S. 10:9-109(e); La.
R.S. 10:9-318(a). Likewise, when Advanta purchased the RICs from
Argo, Advanta acquired rights in the RICs that are enforceable
under Chapter 9. See La. R.S. 10:9-109(e); La. R.S. 10:9-318(a).
As a good faith purchaser of the RICs, Advanta perfected its
security interest in the RICs by taking possession of the signed
originals, which were delivered to Advanta by Argo. See La. R.S.
9-313(a) (providing for “possession” perfection of a security
interest in chattel paper).
34
Arguably, the understanding between Sugarland and Argo, which
made the initial sale of the RICs contingent upon Argo’s payment of
the purchase price, amounts to Argo’s grant to Sugarland of a UCC
security interest in the purchased RICs. Under La. R.S. 10:1-
-19-
by retaining possession of the RICs pending Argo’s payment or by filing a UCC-1 financing
statement. See La. R.S. 9-313(a) (“possession” perfection of a security interest in chattel paper); La.
R.S. 10:9-312(a) (“filing” perfection of a security interest in chattel paper). Thus, Advanta’s
perfected security interest in the RICs trumps any unperfected security interest Sugarland might have
acquired. See La. R.S. 10:9-322(a)(2) (perfected security interest has priority over an unperfected
security interest of a competing creditor).35 Because these particular provisions of Chapter 9
specifically address the sale of chattel paper and the priority of a good faith purchaser’s rights in the
purchased chattel paper over the competing claims of the seller’s creditors, they displace))in this
context))the more general provisions of the Civil Code, found at Articles 2013, 2016, and 2549,
201(37), a seller’s reservation of title to, or rights in, the
purchased personal (movable) property, conditioned on the buyer’s
payment of the purchase price, may amount to the grant of an
Chapter 9 security interest. However, as explained above, the
transaction at issue was a “true sale” of chattel paper
transferring title in the RICs to Argo under La. R.S. 9:109(e).
35
According to Sugarland, the enforceability of Advanta’s
security interest in the RICs depends on the enforceability of the
underlying principal obligation, since a security interest is
generally considered to be an “accessory” obligation under the
Louisiana Civil Code. On the contrary, the security interest of a
chattel paper purchaser is not an “accessory” obligation, since it
does not secure a debt or performance obligation. See La. Civ.
Code. art. 1913 (“A contract is accessory when it is made to
provide security for the performance of an obligation. Suretyship,
mortgage, pledge, and other types of security agreements are
examples of such a contract.”). Rather than securing a debt or
performance obligation, a sale of chattel paper transfers title and
ownership from the seller to the purchaser. See La. R.S. 10:9-
109(e). Thus, Advanta’s ownership interest in the RICs is not a
secured interest in the traditional sense. See id. To conclude
otherwise is to overlook that the Louisiana UCC draws a distinction
between a chattel paper purchaser’s security interest and a
traditional security interest in personal property securing payment
or performance of an obligation. See La. R.S. 10:1-20(37).
-20-
providing that a seller may, on its own initiative and without judicial authorization, deem a contract
dissolved if the buyer fails to pay the agreed-upon purchase price. See La. R.S. 10:1-103 (“Unless
displaced by the particular provisions of this Title, the other laws of Louisiana shall apply.”); La. R.S.
9:3192 (providing that, “[i]n the case of conflict between the provisions of Title VII of Book III of
the Civil Code, governing sales and any provisions of any special legislation, such as those contained
in Titles 9 and 10 [the Louisiana UCC] of the Louisiana Revised Statutes of 1950 . . . the latter shall
prevail with regard to transactions subject thereto.”).36 Thus, Sugarland can not now claim that, even
though Advanta purchased the RICs from Argo in good faith, Sugarland was entitled to unilaterally
and extrajudicially deem the assignment agreement between it and Argo to be dissolved simply
because Argo failed to pay it the agreed-upon purchase price.37
36
The majority opinion notes, in a footnote, that “the district
court’s conclusion that the vendor’s right of dissolution does not
conflict with any specific provision of Chapter 9 finds support in
the writings of Louisiana’s leading property law scholar.” On the
contrary, the section of the property law treatise cited by the
majority opinion addresses only an unpaid vendor’s right to demand
judicial dissolution of a contract under Article 2561. See A.N.
Yiannopoulous, Property § 233 n.5 in La. Civ. Law Treatise (4th
ed. 2001)(making clear that the “vendor’s right of dissolution”
discussed in § 233 is the right to seek judicial dissolution,
governed by La. Civ. Code. arts. 2561-2564). The majority opinion
cites to no authority or case addressing an unpaid vendor’s right
to extrajudicially and unilaterally dissolve a contract under
Articles 2013, 2016, and 2549 of the Civil Code, the articles which
were cited by the district court as its basis for its summary-
judgment dismissal of Advanta’s tort claim against Sugarland.
37
Sugarland also contends that, under § 9-404(a) of the
Louisiana UCC, Advanta’s rights in the RICs are subject to any
defense or claim arising from the transactions giving rise to the
RICs, including Sugarland’s defense that its assignments to Argo
are dissolved because of Argo’s failure to pay the purchase prices
for each. See La. R.S. 10:9-404(a). Sugarland’s reliance on § 9-
404(a) is in error. That section provides that “an assignee
generally takes an assignment subject to the defenses and claims of
-21-
For the foregoing reasons, I cannot agree with the majority opinion that, under Article 2021
of the Civil Code, Advanta retains the rights in the RICs that it acquired from Argo even if Sugarland
was entitled to regard the assignment agreement between it and Argo as dissolved. Chapter 9
governs whether the assignment of RICs between Sugarland and Argo was effectual, and its specific
provisions dealing with sales of chattel paper and the priority of a chattel paper purchaser precluded
Sugarland from extrajudicially and unilaterally dissolving the assignment agreement between it and
Argo once Advanta had already purchased the RICs from Argo in good faith.
an account debtor.” La. R.S. 10:9-404 cmt. 2. In other words, §
9-404(a) applies to claims and defenses an account debtor (the
party obligated under an account or chattel paper) can assert
against an assignee (the purchaser of accounts and chattel paper).
See id. Here, Sugarland is not an account debtor; the Payment
Obligors are the only account debtors. Therefore, § 9-404(a) of
the Louisiana UCC has no application to Sugarland’s rights vis-a-
vis Advanta, the second purchaser of the RICs.
-22-
In Re: Argo Fincl
Court: Court of Appeals for the Fifth Circuit
Date filed: 2003-07-09
Citations: 337 F.3d 516
Copy Citations