IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________________________
No. 97-31275
_______________________________________
In the Matter of:
LLOYD C. CHARRIER; BARBARA T. CHARRIER,
Debtors
_______________________________________
LLOYD C. CHARRIER; BARBARA T. CHARRIER
Appellants,
versus
SECURITY NATIONAL OF OREGON,
Appellee.
Appeal from the United States District Court
for the Middle District of Louisiana
February 18, 1999
Before SMITH, DUHÉ and WIENER, Circuit Judges.
WIENER, Circuit Judge:
In this bankruptcy case, Plaintiffs-Appellants Lloyd and
Barbara Charrier appeal the judgment of the district court
affirming the bankruptcy court’s holding that a 1979 collateral
mortgage encumbering a parcel of their community property is valid,
and that Security National of Oregon (“SNO”) is entitled to the
balance due on two promissory notes secured by that mortgage.
Concluding that the bankruptcy court’s holding is correct, we
affirm.
I
FACTS AND PROCEEDINGS
On January 3, 1979, Lloyd and Barbara Charrier executed a
promissory note (the “collateral mortgage note”) in the amount of
$200,000, paraphed ne varietur for identification with a 1979 act
of mortgage (the “collateral mortgage”) on community immovables ——
a 13 acre tract of land and the improvements on it, including the
couple’s personal residence —— in Walker, Louisiana. The Charriers
pledged the collateral mortgage note and collateral mortgage to
Livingston State Bank (“LSB”) to secure another promissory note
(the “hand note”) which represented the actual loan to the
Charriers from LSB. There is no evidence in the record as to the
precise amount actually owed on the hand note, but it appears that
the Charriers satisfied this obligation in August of 1979.1 It
also appears from the record that —— as indicated by the bankruptcy
court —— the Charriers had executed a written Act of Pledge,
although what became of that document is unknown.
On August 11, 1982, Mr. Charrier took out another loan with
LSB, evidenced by a new hand note. At the time of this
1
At trial, the Charriers claimed that they made their last
payment in August 1979. SNO was unable to obtain the payment
records on the original loan to dispute this point.
2
transaction, Mr. Charrier, but not his wife, signed a new Act of
Pledge that pledged the original $200,000 collateral mortgage note
and collateral mortgage. As additional security for the 1982 loan,
Mr. Charrier pledged another collateral mortgage note and
collateral mortgage, encumbering three different parcels of
community immovable property. One week later, on August 18, 1982,
Mrs. Charrier executed a power of attorney, making Mr. Charrier her
agent and attorney-in-fact. Pursuant to this authority, Mr.
Charrier could “make . . . and endorse promissory notes”; “pledge
. . . all or any part or parts” of her property; “encumber,
hypothecate or mortgage all or any part or parts of the property
belonging to [Mrs. Charrier]” and “consent and agree to all
privileges, mortgages and pledges in favor of, or against, [Mrs.
Charrier] that may be required and necessary.”
On September 18, 1985, and December 4, 1985, Mr. Charrier
executed two more hand notes payable to LSB, one in the amount of
$360,305.44 and the other in the amount of $15,000. Each note
indicated that it was secured by three separate collateral pledge
agreements, two of which were dated in 1984, and the other of which
was dated September 18, 1985. The 1985 pledge agreement is the one
that expressly repledged the 1979 collateral mortgage note and
collateral mortgage.
LSB continuously possessed the 1979 collateral mortgage note
until the bank went into receivership in 1992. At that time, the
3
Federal Deposit Insurance Corporation (“FDIC”), as receiver for
LSB, sold all three hand notes from 1982 and 1985, together with
their collateral —— including the 1979 collateral mortgage note and
collateral mortgage —— to Security National #4, from which SNO
subsequently purchased these instruments in 1994.
In November 1996, the Charriers sought protection under
Chapter 7 of the Bankruptcy Code. On February 3, 1997, SNO filed
an adversary complaint in the bankruptcy court seeking a judgment
against the Charriers for the balances due on the two 1985 hand
notes and recognition of the 1979 collateral mortgage as security
for these notes.
Following a trial on the merits, the bankruptcy court denied
the Charriers’ discharge, entered judgment in favor of SNO on the
two notes, and recognized the 1979 collateral mortgage as valid and
subsisting. In its oral reasons for judgment, the bankruptcy court
noted that, even though SNO could not locate the original or a copy
of the 1979 collateral pledge agreement, there was sufficient
evidence in the record to reflect that one had existed. And,
because LSB had continuous possession of the collateral mortgage
note from 1979 to 1992, reasoned the court, it could be presumed
that the parties intended for the pledged collateral mortgage note
and collateral mortgage to secure future advances. Consequently,
the court concluded, when LSB granted a new loan to the Charriers
in 1982 —— within five years of the original Act of Pledge —— this
4
loan was automatically secured by the 1979 collateral. Likewise,
the two loans made by LSB in 1985 constituted future advances
secured by the subject collateral pledges. As such, payments made
on these three loans interrupted prescription on the collateral
mortgage note and preserved the collateral mortgage.
Assuming, in the alternative, that the parties did not
contemplate future advances in their original pledge, the
bankruptcy court concluded that the collateral mortgage was
nevertheless valid because Mr. Charrier had repledged the 1979
collateral mortgage note in 1982. The court reasoned that when
Mrs. Charrier granted the power of attorney to her husband just
days after the pledge, her act was sufficient to ratify his
encumbrance of the community property. Finally, concluded the
court, even if the 1979 collateral mortgage note had prescribed,
the Charriers made a valid pledge in 1985 of a natural obligation
under Louisiana Civil Code article 3139, and thereby revived the
collateral mortgage.
The Charriers appealed to the district court, which affirmed
solely on the basis that the debtors had repledged the 1979
collateral mortgage note.2 The court reasoned that Mrs. Charrier’s
2
The district court did not address the bankruptcy court’s
theory that LSB’s retention of the pledged note provided automatic
security for future advances. Furthermore, the district court
found it unnecessary to reach the bankruptcy court’s alternative
conclusion that the Charriers made a valid pledge of a natural
obligation.
5
1982 power of attorney not only vested her husband with express
authorization to grant future mortgages on their community
property, but also ratified the encumbrance Mr. Charrier made
without her concurrence on August 11, 1982. By repledging the 1979
collateral mortgage note and remitting payment on the 1982 hand
note, concluded the court, the Charriers interrupted prescription
and preserved the collateral mortgage. The Charriers timely filed
a notice of appeal.
II
ANALYSIS
A. Standard of Review
Although this case has already been reviewed on appeal by the
district court, we review the bankruptcy court’s ruling as though
this were a direct appeal to us.3 We thus review the bankruptcy
court’s findings of fact under the clearly erroneous standard, and
its conclusions of law de novo.4
B. Applicable Law
In a typical Louisiana collateral mortgage transaction, the
borrower contemporaneously executes a promissory note (known as a
collateral mortgage note) and an act of mortgage (known as a
collateral mortgage). In this latter instrument, the mortgagor
3
Texas Lottery Comm’n v. Tran (In re Tran), 151 F.3d 339, 342
(5th Cir. 1998).
4
Id.
6
acknowledges his indebtedness and states his intent to pledge the
collateral mortgage note, which is secured by the collateral
mortgage, as security for the advancement of funds. The collateral
mortgage note is customly made payable on demand, to “Bearer” or
“Myself” or “Any Future Holder,” and is “paraphed” for
identification with the mortgage.5 This collateral mortgage
package is then delivered by the borrower in pledge to the lender
to secure an indebtedness which is usually represented by a
separate “hand note.”6 A collateral mortgage note prescribes five
years from the date of its execution unless prescription is
interrupted by acknowledgment or by partial payment on the
indebtedness it secures.7
The pledge of a collateral mortgage note and collateral
mortgage to secure a debt is a contract.8 The pledge secures only
the debt or debts contemplated in the act of pledge between the
pledgor and the pledgee.9 A collateral mortgage package may be
pledged to secure particular debts, either previously existing or
5
First Guar. Bank v. Alford, 366 So. 2d 1299, 1302 (La. 1978).
6
Texas Bank of Beaumont v. Bozorg, 457 So. 2d 667, 671 (La.
1984).
7
La. R.S. 9:5807; Kaplan v. University Lake Corp., 381 So. 2d
385, 390-91 (La. 1979). On prescription of the collateral mortgage
note, the underlying collateral mortgage is lost, and the hand note
remains as a purely personal obligation of the borrower. Id.
8
La. Civ. Code art. 3133.
9
Alford, 366 So. 2d at 1304; Durham v. First Guar. Bank of
Hammond, 331 So. 2d 563, 565 (La. Ct. App. 1st Cir. 1976).
7
contracted contemporaneously with the pledge, or future loans by
the pledgee to the pledgor —— or both —— up to the limits of the
pledge.10
As a general rule, Louisiana law does not require a written
pledge agreement because the pledge of a promissory note is
confected by mere delivery.11 To secure future advances, however,
a creditor must prove that the parties intended for the original
collateral mortgage note to be used for this purpose.12 At one
time, it was generally agreed that, as long as a creditor retained
possession of the pledged note, he could rely on standard future
advance language contained in a collateral mortgage to establish
10
Bozorg, 457 So. 2d at 672; La. Civ. Code art. 3158 (amended
1989).
11
La. Civ. Code art. 3158 (amended 1989). This article
provided in pertinent part:
When a debtor wishes to pledge promissory notes
. . . he shall deliver to the creditor the
notes . . . and such pledge so made . . . shall
without further formalities be valid as well
against third persons as against the pledgor
thereof, if made in good faith . . . . All
pledges may be made by private writing of any
kind if only the intention to pledge be shown
in writing, but all pledges . . . must be
accompanied by actual delivery.
See Pontchartrain State Bank v. Gross, 508 So. 2d 901, 903 (La. Ct.
App. 5th Cir. 1987); Plumbing Supply House, Inc. v. Century Nat’l
Bank, 440 So. 2d 173, 175 (La. Ct. App. 4th Cir. 1983). The 1989
amendment did not alter the above quoted language.
12
La. Civ. Code art. 3158 (amended 1989); New Orleans
Silversmiths, Inc. v. Toups, 261 So. 2d 252, 255 (La. Ct. App. 4th
Cir. 1972); State Bank & Trust Co. of Golden Meadow v. Boat D.J.
Griffin, 755 F. Supp. 1389, 1398 (E.D. La. 1991).
8
the parties’ requisite intent.13 Under this theory, full payment
of a debtor’s principal obligation would not extinguish the
collateral mortgage note and accompanying mortgage.14 As long as
the pledged collateral mortgage note had not prescribed, subsequent
advances would be secured automatically.
Following the Louisiana Supreme Court’s 1984 decision in Texas
Bank of Beaumont v. Bozorg, however, this area of law has become a
bit murky.15 In Bozorg, the court “emphasized” in a footnote that
evidence of the parties’ intent to secure future advances “must be
in the contract of pledge and not in the collateral mortgage
instrument.”16 This is so, explained the court, because “the
pledgee is generally not a party to the collateral mortgage
instrument, and the instrument is frequently executed prior to a
contract of pledge.”17 In light of Bozorg, it is now unclear how,
if at all, a creditor can prove intent in the absence of a written
13
See Alford, 366 So. 2d at 1302-03; Acadiana Bank v. Foreman,
352 So. 2d 674, 676-77 (La. 1977). Max Nathan, Jr. & Anthony P.
Dunbar, The Collateral Mortgage: Logic and Experience, 49 La. L.
Rev. 39, 57 (1988).
14
Alford, 366 So. 2d at 1302.
15
457 So. 2d 667 (La. 1984).
16
Id. at 674 n.10.
17
Id. We note the presence on the 1979 act of mortgage of the
signature of a person designated as representing “Any Future Holder
or Holders” of the collateral mortgage note. It is not clear,
however, from either the mortgage itself or the record, whether
this signatory was a representative of LSB.
9
pledge agreement.18
If a creditor cannot prove intent to secure future advances,
the collateral mortgage becomes dormant when a debtor’s principal
obligation is extinguished, even if the creditor retains physical
possession of the collateral mortgage note.19 To activate the
collateral mortgage, the debtor must repledge the collateral
mortgage note, before it prescribes, as security for a new loan.
In sum, absent proof that the parties intended to secure
future obligations or that the obligor on a collateral mortgage
note subsequently repledged it, mere retention of the collateral
mortgage note after extinguishment of the original hand note does
not give a creditor a continuing security interest.20
The Charriers base their challenge of the bankruptcy court’s
holding that the 1979 collateral mortgage was valid and subsisting
on the ground that their intent to secure future advances has not
been proven.21 Indeed, argue the Charriers, in the absence of a
18
See Nathan & Dunbar, Logic and Experience, 49 La. L. Rev. at
58.
19
Alford, 366 So. 2d at 1303.
20
Id.
21
The Charriers also argue that, contrary to the conclusion
reached by the bankruptcy court, Mr. Charrier was prohibited under
Louisiana community property law from repledging the 1979 note
without Mrs. Charrier’s concurrence, and that Mrs. Charrier did not
ratify the 1982 repledge. Because we affirm the bankruptcy court’s
holding on other grounds, however, we find it unnecessary to
address any of the alternative theories on which the court based
its ruling.
10
written pledge agreement specifically authorizing the use of the
1979 collateral mortgage note to secure future indebtednesses, the
mere physical retention of the note by LSB was insufficient to
preserve the mortgage on their property. We disagree.
We acknowledge that, in the wake of Bozorg, it may be quite
difficult to prove intent absent a written pledge agreement, but
the bankruptcy court found ample evidence in the record of the
existence of such a document, and so do we.22 The Charriers are
correct in stating that the actual 1979 pledge document was never
located. Nevertheless, a plethora of commercial loan memoranda
referring to a 1979 “CPA” —— or collateral pledge agreement —— was
introduced at trial. In addition, a former bank president and a
loan officer testified regarding LSB’s longstanding practice of
always obtaining pledge agreements using the same standard form as
those obtained by the bank from Mr. Charrier in 1982 and 1985.
Both of these later agreements contain express language granting
the bank a security interest in the 1979 collateral mortgage note
for all existing and future indebtednesses.23 In light of this
22
Under La. Civ. Code. art. 1832, the existence of a written
contract may be proved by testimony or presumption when the written
instrument has been destroyed, lost, or stolen.
23
The pledge agreements obtained by the bank in 1982 and 1985
provide in pertinent part:
As an inducement to LIVINGSTON STATE BANK & TRUST
CO. (hereinafter referred to as “Bank”) to extend
credit to the undersigned (whether one or more) from
time to time, the undersigned herein and hereby
agree that:
11
evidence, the bankruptcy court was satisfied that such a pledge
agreement had also been executed in connection with the 1979
transaction. The Charriers have made no attempt to rebut this
finding, and we see nothing in the record to persuade us that it
was clearly erroneous.
We further note in passing that the act of collateral mortgage
signed by Mr. and Mrs. Charrier in 1979 contains language that
specifically authorized future advances.24 This, together with the
Charriers’ failure to retrieve the collateral mortgage note or seek
a. All promissory notes executed by the
undersigned or any one or more of them to
the order of Bank, in principal, interest
and attorney’s fees, as therein stipulated, and
all extensions and/or renewals thereof; and
b. Any and every other debt, liability and
obligation, direct or indirect, absolute or
contingent, liquidated or unliquidated, due or
to become due, whether now existing or
hereafter arising, of the undersigned, or any
one or more of them, to Bank;
up to the sum, in aggregate, of . . . , at any one
time outstanding, are and shall be secured by the
pledge of all securities and/or property listed and
described . . . .
24
Specifically, the collateral mortgage provides:
The above described note is given and this
mortgage is granted for the purpose of being used
as collateral security by MORTGAGOR for any
indebtedness due the holder of the note, direct or
contingent. The note may be issued and pledged by
MORTGAGOR as his interest and convenience may
require to secure loans and advances made or to be
made or to secure the debt of the maker or of
another. (Emphasis added).
12
its cancellation after paying off the original debt represented by
the original hand note, and their repeated willingness to accept
new loans based on the purported pledge of the 1979 collateral
mortgage package, are clear indicators of the Charriers’ intent to
secure future indebtednesses with that collateral. As this intent
was also evidenced in the original contract of pledge, we are
convinced that the monies received by the Charriers after 1979 were
secured future advances. For the foregoing reasons, the ruling of
the bankruptcy court, as previously affirmed by the district court,
is in all respects,
AFFIRMED.
13
Charrier v. Security National of Oregon
Court: Court of Appeals for the Fifth Circuit
Date filed: 1999-02-18
Citations: 167 F.3d 229
Copy CitationsCombined Opinion