Opinion
No. 48559.
November 6, 1967. Rehearing Denied December 11, 1967.
APPEAL FROM 19TH JUDICIAL DISTRICT COURT, PARISH OF EAST BATON ROUGE, STATE OF LOUISIANA, HONORABLE COLEMAN LINDSEY, J.
Frank P. Simoneaux, of Breazeale, Sachse Wilson, Baton Rouge, for defendant-appellant.
Ashton L. Stewart, of Laycock Stewart, Baton Rouge, for plaintiff-appellee-respondent.
Certain immovable property belonging to Emile G. Ezell was sold at a judicial sale as the result of executory proceedings initiated by Baton Rouge Wood Products, Inc. (hereafter referred to as Wood Products), and based on a recorded mortgage held by it. The funds derived from the sale were more than sufficient to satisfy the obligations secured by other recorded encumbrances which ranked first and second.
The issue now presented relates only to the proper distribution of the proceeds as between the respective holders of the two succeeding recorded mortgages, they being Southern Pipe and Supply Company of Mississippi, Inc. (hereafter referred to as Southern), and Wood Products.
The trial court ruled that Southern's mortgage had been cancelled by payment of the debt which the encumbrance specifically and solely secured. Accordingly, it ordered payment by preference out of the proceeds of the sale to Wood Products.
The judgment was affirmed on appeal ( 194 So.2d 372), and we granted certiorari at the instance of Southern ( 250 La. 266, 195 So.2d 146).
The note and mortgage held by Southern were executed by Ezell on October 5, 1962. The note, for $9000, was made payable to the order of that company; and such payee was named as mortgagee in the mortgage. The note further recited that it was secured by a pledge agreement of the same date, the agreement showing that Ezell had pledged to Southern as collateral four other mortgage notes of third parties. The $9000 obligation was subsequently paid, but Southern retained possession of the note and mortgage executed by Ezell.
It appears that Southern and Ezell had (for a number of years) carried on a business relationship, in the course of which Southern had extended credit to Ezell and also furnished direct loans to him. On October 5, 1962 Southern made a direct cash loan to Ezell in the amount of $9000, and in connection therewith the note and mortgage described above were executed.
The record convinces us beyond any doubt that such note and mortgage represented the specific $9000 indebtedness incurred at the time the transaction took place, and that this obligation was later paid. (Indeed, this is virtually conceded by Southern.) This being true, Southern's mortgage expired upon payment of the obligation. The numerous cases cited in the Court of Appeal opinion amply support this conclusion. (See also Revised Civil Code Article 3285.)
Southern recognizes the authority of the decisions just referred to; but it argues that by virtue of a prior "Collateral Pledge Agreement", entered into between it and Ezell on April 3, 1962, the instant mortgage was kept alive to secure all other obligations due it by Ezell. That agreement is described by the Court of Appeal as follows: "The agreement * * * in substance recites Ezell's desire to carry on a general business relationship with appellant whereby the latter will from time to time sell materials on credit and make cash advances to the former. To secure these proposed transactions Ezell expressly pledged to appellant any and all funds or assets belonging to him and held by appellant as security for all such credit sales and cash advances. The agreement provides a limitation upon the arrangement in the sum of $30,000.00. * * *"
Further, the agreement provided that such securities, which are described in an annexed document, shall be pledged to Southern to be held as security for any and all debts, present or future, owed by Ezell to Southern.
We fully agree with Southern that if the mortgage note in question had been pledged as collateral to secure the $9000 indebtedness then payment of such obligation would not extinguish the mortgage; and, as a consequence, the note and mortgage might later be used as security for other obligations (past or future). But, as we have said, that result does not obtain here because the mortgage note was given for, and represented, a specific indebtedness.
The distinction between the two situations is particularly pointed out in the decisions relied on by Southern itself. Hollingsworth v. Ratcliff et al., 162 La. 281, 110 So. 422, Citizens' National Bank of Hammond v. Loranger et al., 163 La. 868, 113 So. 129 and especially Lampton Reid and Company, Inc. v. Fortenberry et al., La.App., 168 So. 36. Each of those cases clearly shows that the mortgage note therein was given in pledge as security for another obligation; it did not represent the direct obligation, as here.
We concur in the conclusion of the Court of Appeal that the prior collateral agreement could not change the legal effect anent the mortgage when the direct and specific debt evidenced by the note was paid. Assuming that the parties intended that the note and mortgage could thereafter be held as collateral for other obligations, following payment of the principal indebtedness, such intention could not alter the express legal authority to the contrary. In virtually all of the cases where this issue arose it had been the intention of the parties to continue the effectiveness of the mortgage; but such intention, as against legal authority to the contrary, could not produce such a result. Under the law, once the direct and specific loan had been repaid the mortgage securing it expired; and no intention of the parties could continue its efficacy as security for other obligations.
Nevertheless, we do not believe that the issuance of the note and mortgage in question came within the contemplation of that provision of the general collateral agreement of April 3, 1962 (relied on principally by Southern) whereby it was recited that possession by Southern of "any security or property of the undersigned [Ezell] * * * shall conclusively evidence the fact that such property has been delivered in accordance with the agreement * * *." The mortgage note involved here was not security for an obligation; it represented and evidenced a direct and specific indebtedness. Nor, as contended by Southern, does the use of the general word "property" affect this result. Since the note represented the obligation itself, or was evidence thereof, it was not the property of Ezell (the "undersigned" debtor). It, along with the securing mortgage, belonged to Southern.
In this connection we think that the following observations of the trial judge are pertinent: "There has been offered in evidence, first, a pledge agreement dated April 3, 1962, under which it might conceivably be held that a note of $9000 given by Ezell to Southern Pipe six months later would remain pledged to Southern Pipe regardless of subsequent payments by Ezell on the note. However, in my opinion, the facts shown by the record here do not justify any such conclusion. The $9000 note in question shows on its face that it was secured by a pledge agreement of even date therewith. The pledge agreement is in evidence and shows that as security for the payment of this $9000 note Ezell pledged to Southern Pipe four collateral mortgage notes, as shown by Exhibit A attached to the pledge agreement of October 5, 1962. It appears, therefore, that instead of the $9000 note being one that might be said to serve as a pledge to Southern Pipe, that note itself was secured by a pledge of the four collateral mortgage notes just mentioned." (Emphasis ours)
Southern urges that the Court of Appeal erred in observing in effect that a note or mortgage must indicate on the face thereof that it is being issued as collateral and that, therefore, proof of this fact cannot be made by parole. Even if this were a correct interpretation of the court's observation, it would not affect the outcome of the decision herein inasmuch as the court found that the instant note was not issued as collateral but was granted for a specific debt which had been paid.
True, the court did not dwell on this finding, nor discuss the evidence leading to its conclusion; but apparently this was because such finding was warranted by an admission made by Southern. Thus, in its brief to the Court of Appeal it asserted: "* * * The open security agreement of April 3, 1962 clearly refers to security for present and future indebtedness of Mr. Ezell not to exceed $30,000.00 whereas the October 5, 1962 agreement concerns itself with a particular $9,000.00 loan made to Mr. Ezell. * * *" (Emphasis ours)
However, the mentioned observation complained of does not require the use of any particular language. It simply says that if the mortgage note in question were "executed for future use in favor of a future holder or holders and pledged as security for either a previously existing or subsequently contracted obligation" the mortgage would not be extinguished by payment of the debt. This is virtually the identical language used by the court in numerous cases involving this issue, including all of those relied on by Southern. The court does not say that the words "for a future holder or holders" must be used. Other language carrying the same import would be sufficient, i. e., if the note is payable "to the order" of an individual (as here), or if it is payable to the maker himself and endorsed in blank. The important thing is that such note be pledged as security, and not be given to represent a specific indebtedness.
We conclude, therefore, that the Court of Appeal correctly found that the mortgage note in question had been issued for a specific debt, not as security for either a previously existing or subsequently contracted obligation. Consequently, its holding that the mortgage became extinguished on payment of the debt was proper.
For the reasons assigned the judgments of the district court and of the Court of Appeal are affirmed. Southern shall pay all costs incurred in the litigation between it and Wood Products.
McCALEB, J., dissents with written reasons.
SUMMERS, J., dissents and assigns reasons.
ON APPLICATION FOR REHEARING
In its application for rehearing, Southern Pipe and Supply Company complains of the following language in the majority opinion:
"Assuming that the parties intended that the note and mortgage could thereafter be held as collateral for other obligations, following payment of the principal indebtedness, such intention could not alter the express legal authority to the contrary."
Since this statement is based upon an assumption, it was unnecessary for our decision. We did not intend thereby to declare ineffectual counter letters or agreements executed by the parties prior to or contemporaneously with a mortgage note providing for its collateral use.
The application for rehearing is denied.
McCALEB and SUMMERS, JJ., are of the opinion that a rehearing should be granted.
Albeit the $9,000 indebtedness of Ezell to Southern Pipe (secured by the mortgage and mortgage note dated October 5, 1962) was given for a specific debt, this mortgage note was not extinguished by payment of that debt for the reason that it was also held in pledge to secure any indebtedness of Ezell to Southern Pipe under the Collateral Pledge Agreement of April 3, 1962 that may have existed (and did actually exist) at the time the payment of the $9,000 advance was credited to Ezell's running account. Indeed, the Collateral Pledge Agreement of April 3, 1962 clearly provides that all future security given by Ezell to Southern Pipe for his indebtedness, which was not to exceed $30,000, would remain thus pledged.
The agreement reads:
"Whereas, the undersigned is presently indebted unto the Southern Pipe Supply Co., Meridian, Mississippi, for loans and advances made and credit extended and desires to carry on a general business with that company, in the course of which the undersigned may from time to time apply for additional loans and advances, renewals thereof and the further extension of credit; therefore, in order to secure the payment of all such indebtedness within the limitation of amount hereinafter fixed, whether presently existing or hereafter incurred, whether directly or indirectly, and whether primarily or secondarily, and whether represented by notes, drafts, bills, overdraft, or otherwise, any and all renewals or extensions thereof, together with interest thereon and all costs of collection including attorney's fees the undersigned does by these presents pledge and hypothecate unto the Southern Pipe and Supply Co. the securities hereinafter described.
"* * *
"* * * it shall be conclusively presumed that any and all loans and advances hereafter made to the undersigned by said Company shall have been made in accordance with and upon the security provided for in this agreement which shall remain in force and effect so long as the undersigned is indebted unto the Southern Pipe and Supply Co. and it is expressly understood that the possession of the Southern Pipe and Supply Co. of any security or property of the undersigned of any character whatever shall conclusively evidence the fact that such property has been delivered in accordance with this agreement whether or not the same may be specifically described as contemplated herein." (Emphasis mine)
This agreement exhibits in precise and unmistakable terms the intent of the parties that all securities given by Ezell subsequent to April 3, 1962 shall remain pledged to Southern Pipe, and that possession by the latter of any security or property of Ezell shall conclusively evidence the fact that it has been delivered * * * in accordance with this agreement whether or not the same may be specifically described as contemplated herein.
The rationale of the majority opinion appears to rest on a dual basis. First, it is said that the collateral agreement of April 3, 1962 * * * could not change the legal effect anent the mortgage when the direct and specific debt evidence by the note was paid. Secondly, it is declared that, even if the parties intended otherwise — that is, that the note and mortgage was to remain extant after its payment to be held as collateral for other obligations of Ezell to Southern Pipe — the agreement would be unenforceable since * * * such intention could not alter the express legal authority to the contrary.
Both of these deductions are unsound in my opinion. For a casual perusal of the above quoted provisions of the Collateral Pledge Agreement shows that the parties, by express language, agreed that any securities given in the future by Ezell to Southern Pipe would be pledged for the payment of any indebtedness, present or future, due by Ezell. Thus, when the $9,000 mortgage was given, the subsequent payment of the mortgage note did not and could not extinguish the mortgage because the note was pledged from the date of its issuance to secure the payment of Ezell's indebtedness under the prior Collateral Pledge Agreement.
To say in these circumstances that the prior collateral agreement could not change the legal effect of the subsequent mortgage debt is not in keeping either with the law or the jurisprudence construing it. On the contrary, the collateral pledge and mortgage agreement of April 3, 1962 was specifically authorized by Civil Code, Article 3158, which provides not only that a pledge of collateral may be made to secure future advances to the debtor up to a certain amount, but also that "* * * the instrument or item may remain in pledge to the pledgee or, without withdrawal from the hands of the pledgee, be repledged to the pledgee to secure at any time any renewal or renewals of the original loan or any part thereof or any new or additional loans, even though the original loan has been reduced or paid, up to the total limit which it was agreed should be secured by the pledge, and, * * * to secure any other obligations or liabilities of the pledger to the pledgee, then existing or thereafter arising, up to the limit of the pledge, without any added notification or other formality, and the pledge shall be valid as well against third persons as against the pledger thereof, if made in good faith; * * *." (Emphasis mine)
Nor do I perceive how the majority obtains any comfort out of the jurisprudence, particularly Hollingsworth v. Ratcliff, 162 La. 281, 110 So. 422; Citizens' National Bank of Hammond v. Loranger, 163 La. 868, 113 So. 129; and Lampton Reid Co. v. Fortenberry (La.App.), 168 So. 36. In reality, the conclusion that the mortgage note in question was given herein for a specific debt only must necessarily ignore, as it does, the provisions of the Collateral Pledge Agreement quoted above.
The additional holding of the majority that the result in the case would be the same, even if the parties intended that the note and mortgage could be held as collateral for other obligations following payment of the $9,000 indebtedness, constitutes, in truth, a refusal to enforce the agreement made by the parties. Of course, there is no need for the Court to assume that the parties intended that the $9,000 mortgage note was actually pledged as collateral because, as I have already shown, the collateral agreement itself clearly specifies that such is the case. Hence, since the agreement thus provides, it is to be wondered why the expressed intent of the parties cannot be accorded efficacy by the judiciary. I am not aware of any legal barrier which renders such an agreement unenforceable in our courts. Article 3292 of the Civil Code provides that a mortgage may be given for an obligation "which has not yet risen into existence." And Article 3158 authorizes, as stated above, a pledge of collateral to secure advances to be made in the future to the pledger up to a certain amount.
It is my understanding of the law that parties may make any contract that they desire, provided it is not forbidden by statute or otherwise contrary to public policy. Article 1945 of the Civil Code enunciates this fundamental principle in stating "Legal agreements having the effects of law upon the parties, none but the parties can abrogate or modify them." So, in the case at bar, where the intent of the parties is clear, it is pertinent to ask why cannot this contract made in good faith by the parties thereto be enforced as written? The answer is obvious; it is found in the mandate contained in the second paragraph of Civil Code, Article 1945, which declares "That courts are bound to give legal effect to all such contracts according to the true intent of all the parties;".
I respectfully dissent.
I am in accord with the reasons assigned for dissent by Mr. Justice McCALEB.