Opinion
No. 10-CA-204.
November 9, 2010.
ON APPEAL FROM THE FORTIETH JUDICIAL DISTRICT COURT PARISH OF ST. JOHN THE BAPTIST, STATE OF LOUISIANA NO. 55623, DIVISION "B" HONORABLE MARY H. BECNEL, JUDGE PRESIDING.
JAMES M. GARNER, JOHN T. BALHOFF, II, ALVIN C. MIESTER, III, CHARLES E. TABOR, Attorneys at Law, New Orleans, LA, COUNSEL FOR INTERVENOR/APPELLANT, U.S. BANK NATIONAL ASSOCIATION.
MARK C. LANDRY, Attorney at Law, Metairie, LA, COUNSEL FOR PLAINTIFF/DEFENDANT-IN-INTERVENTION/APPELLEE, FIRST NATIONAL BANK USA.
Panel composed of Judges MARION F. EDWARDS, SUSAN M. CHEHARDY, and FREDERICKA HOMBERG WICKER.
This appeal arises in a suit for executory process. At issue is whether a mortgage cancelled from the public records can be reinstated by a notarial act of correction. The district court found it could, but we disagree. We reverse the ruling.
FACTS
On January 6, 2006, DDS Construction, LLC ("DDS") executed a multiple indebtedness mortgage ("Construction Mortgage") in favor of First National Bank USA ("First National Bank") to secure several promissory notes on which DDS was the debtor.
On April 29, 2008 First National Bank filed suit in executory process against DDS to seize and sell the property that secured the promissory notes, because DDS had defaulted on the notes.
On November 9, 2009, U.S. Bank National Association, as Trustee for the benefit of certain Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2007-BC2 ("U.S. Bank"), intervened in the suit and sought ranking of creditors.
U.S. Bank alleged that part of the property secured by the Construction Mortgage had been sold by DDS to Lena L. Bering on September 29, 2006, specifically Lot 8, Square A, Homewood Place Extension, Parish of St. John the Baptist, State of Louisiana, located at 131 Homewood Place in Reserve. In connection with the purchase, Bering executed a promissory note on that date in favor of EquiFirstCorporation ("EquiFirst"). To secure the promissory note (hereafter "Bering Note"), Bering granted a mortgage over Lot 8 in favor of EquiFirst on October 17, 2006 (hereafter "Bering Mortgage").
On June 9, 2009, Abril B. Sutherland, Notary Public, filed an Act of Correction pursuant to La.R.S. 35:2.1, to remedy a clerical error in the legal description of the property in both the Act of Cash Sale and the EquiFirst Mortgage that incorrectly listed Lot 8 as Lot 8A. Exh. D to Order and Rule to Show Cause, filed November 10, 2009 by U.S. Bank.
U.S. Bank further alleged that EquiFirst had made U.S. Bank payee on the Bering Note, pursuant to an allonge to the note dated October 28, 2009. MERS was the nominee of EquiFirst and was designated as mortgagee on the Bering Mortgage. According to the petition of intervention, MERS subsequently assigned its right in the Bering Mortgage to U.S. Bank.
An allonge is "[a] piece of paper annexed to a . . . promissory note, on which to write endorsements for which there is no room on the instrument itself. Such must be so firmly affixed thereto as to become a part thereof. U.C.C. § 3-202(2)." Black's Law Dictionary 70 (5th ed. 1979).
MERS is an acronym for Mortgage Electronic Registration Systems.
U.S. Bank alleged that when DDS sold Lot 8 to Bering, DDS failed to cancel the Construction Mortgage over the property. As a result, when First National Bank filed this executory process action, Lot 8 was included as part of the property seized due to the failure of DDS to pay amounts due under the loans extended to DDS by First National Bank. On June 10, 2009, the St. John the Baptist Parish Recorder of Mortgages cancelled the Construction Mortgage over Lot 8, pursuant to a request for cancellation submitted by First National Bank.
U.S. Bank asserted that First National Bank improperly attempted to reinstate its cancelled Construction Mortgage on June 15, 2009, by filing a Notarial Act of Correction executed by a vice president of First National Bank. That Notarial Act of Correction averred that the Construction Mortgage remains in full force and effect over Lot 8.
A second Notarial Act of Correction was executed by the notary who executed the original cancellation of the mortgage, dated October 28, 2009, and recorded on October 29, 2009.
U.S. Bank contended the Notarial Acts of Correction did not reinstate the cancelled Construction Mortgage and that the Construction Mortgage no longer has any effect against third parties. Accordingly, U.S. Bank asserted, the Bering Mortgage is the superior mortgage encumbering Lot 8, so that U.S. Bank is entitled to first payment of any proceeds from judicial sale of the property.
U.S. Bank requested that the court rank the Bering Mortgage and the Construction Mortgage pursuant to La.C.C.P. art. 2592(7).
La.C.C.P. art. 2592(7) states, "Summary proceedings may be used for trial or disposition of the following matters only: . . . (7) The determination of the rank of mortgages, liens, and privileges on property sold judicially, and of the order of distribution of the proceeds thereof.
A hearing on the motion to rank creditors was held on November 18, 2009. No testimony was presented at the hearing; counsel relied on documents attached to the pleadings as support for their arguments.
Counsel for U.S. Bank stated the sole issue is whether First National Bank can voluntarily cancel the mortgage and then retroactively reinstate that mortgage using the notarial act of correction statute. U.S. Bank argued that a notarial act of correction can be used only to affect a recorded document that remains in effect as notice to third parties. Once a mortgage is cancelled, the mortgage document no longer affects third parties. While a change in the document may be made to correct an error, the status of the document cannot be altered. Further, U.S. Bank asserted, once a recorded document is cancelled the recorder of mortgages or clerk of court does not have the power to reinstate it. Any reinstatement would have to be done by judicial order, but Louisiana has no statutory or jurisprudential law that allows a cancelled mortgage to be reinstated by a unilateral act.
In opposition, counsel for First National Bank argued that U.S. Bank had failed to produce proof that it has any interest in the case. There was no original or certified documentary proof of its interest in evidence. First National Bank also contradicted U.S. Bank's claim that there is no law allowing reinstatement of a cancelled mortgage. Rather, First National Bank asserted, the 1947 case cited by U.S. Bank had been superseded by a law passed in 1987, specifically La.R.S. 35:2.1, that allows any and all notarial acts that affect movable or immovable property, or any rights therein, to be corrected by notarial act.
Ruling from the bench, the district court granted judgment in favor of the plaintiff, First National Bank USA, and against the intervenor, U.S. Bank National Association, denying the motion to rank creditors, with prejudice and at its cost. The judge gave the following oral reasons for judgment:
The court finds that R.S. 35:2.1, regarding a notarial act, which the act of correction is a notarial act, which affects movable or immovable property, does not in any way except, E-X-C-E-P-T, acts of corrections regarding cancellations of mortgage.
Further, there's been no showing that U.S. Bank relied on this error and there's been no prejudice shown during the five days before the act of correction was passed.
The court directed that the sheriffs sale of the property, already scheduled for November 18, 2009, the date of the hearing, go forward and that all proceeds from the judicial sale of 131 Homewood Place, Reserve, Louisiana be placed into the registry of the court pending a final judgment on appeal.
The court's oral ruling was rendered in a written judgment signed on January 12, 2010. On January 25, 2010, the district court ordered that the judgment be designated as final and appealable, finding there is no reason for delay because all issues and allegations asserted by U.S. Bank National Association have been adjudicated.
A second written judgment, exactly the same as the first, was signed on January 20, 2010. Nothing in the records indicates why the duplicate judgment was made.
U.S. Bank has appealed, raising the following assignments of error:
1. The district court erred by holding that a mortgage cancelled from the mortgage records at the request of the mortgagee could be retroactively reinstated into the public records by an act of correction;
2. The district court erred by holding that a mortgagee's voluntary cancellation of its mortgage was a clerical error that could be retroactively remedied, to the detriment of other creditors, through an act of correction under Louisiana Revised Statutes 35:2.1;
3. The district court erred by allowing First National Bank to use La.R.S. 35:2.1 to alter a document that was unilaterally executed and recorded by the bank, when the statute applies only to documents executed by two or more parties.
U.S. Bank contends, first, La.R.S. 35:2.1 allows acts of correction to remedy only clerical errors in recorded documents and, second, the statute prohibits acts of correction from being used to alter unilaterally executed and recorded documents.
U.S. Bank argues that First National Bank cannot use an act of correction, executed over three-and-one-half months after the cancellation, to retroactively reinstate its mortgage into the public records and give itself priority over another creditor.
In opposition, First National Bank asserts the district court did not err because the text of the statute does not limit the act of correction from being used to reinstate a cancelled mortgage or to correct a unilateral act. First National Bank contends the limitations that U.S. Bank suggests be placed on La.R.S. 35:2.1 would hamper, if not defeat, the clear legislative purpose in enacting the statute — to allow mistakes to be retroactively corrected, while protecting those who reasonably rely on the original act containing the error. First National Bank argues that La.R.S. 35:2.1 is intended to change perceived inequities arising out of the Public Records Doctrine.
First National Bank also takes issue with documentary evidence produced/not produced by U.S. Bank. First National Bank, however, has neither appealed nor answered the appeal to protest the district court's acceptance of U.S. Bank's evidence, so we do not consider that question.
LAW AND ANALYSIS
La.R.S. 35:2.1, added to the Revised Statutes by Acts 1984, No. 245, § 2, provides for an affidavit of correction to be executed to correct clerical errors in notarial acts affecting property or other rights. It specifies the following:
A. A clerical error in a notarial act affecting movable or immovable property or any other rights, corporeal or incorporeal, may be corrected by an act of correction executed by the notary or one of the notaries before whom the act was passed, or by the notary who actually prepared the act containing the error. The act of correction shall be executed by the notary before two witnesses and another notary public.
B. The act of correction executed in compliance with this Section shall be given retroactive effect to the date of recordation of the original act. However, the act of correction shall not prejudice the rights acquired by any third person before the act of correction is recorded where the third person reasonably relied on the original act. The act of correction shall not alter the true agreement and intent of the parties.
C. A certified copy of the act of correction executed in compliance with this Section shall be deemed to be authentic for purposes of executory process.
D. This Section shall be in addition to other laws governing executory process. [Emphasis added.]
The key phrases in the statute are "clerical error," paragraph A; "shall not prejudice the rights acquired by any third person before the act of correction is recorded," paragraph B; and "shall not alter the true agreement and intent of the parties," paragraph B.
It is well established that when a statute is clear and free of ambiguity, it must be given effect as written. Words and phrases shall be read with their context and shall be construed according to the common and approved usage of the language. When interpreting a statute, the court should give it the meaning the Legislature intended. It is presumed that every word, sentence or provision in the statute was intended to serve some useful purpose, that some effect is to be given to each such provision, and that no unnecessary words or provisions were used. Conversely, it will not be presumed that the Legislature inserted idle, meaningless or superfluous language in the statute or that it intended for any part or provision of the statute to be meaningless, redundant or useless. . . . A statute's meaning and intent is determined after consideration of the entire statute and all other statutes on the same subject matter, and a construction should be placed on the provision in question which is consistent with the express terms of the statute and with the obvious intent of the Legislature in its enactment of the statute. Where it is possible, the courts have a duty in the interpretation of a statute to adopt a construction which harmonizes and reconciles it with other provisions. Moreover, when a law is clear and unambiguous and its application does not lead to absurd consequences, it shall be applied as written. A construction of a law which creates an inconsistency should be avoided when a reasonable interpretation can be adopted which will not do violence to the plain words of the statute and will carry out the Legislature's intention. Ultimately, it is clear that the law provides that the statute be accorded a fair and genuine construction. A reasonable construction in light of the statute's purpose is what is required. [Citations omitted.]
ABL Management, Inc. v. Board of Sup'rs of Southern University, 2000-0798, pp. 5-7 (La. 11/28/00), 773 So.2d 131, 135.
In City of Harahan v. State ex rel. Div. of Admin., 08-106, p. 9 (La. App. 5 Cir. 5/27/08), 986 So.2d 755, 761, this Court stated,
We are not aware of any statute or other authority permitting amendment of the substantive terms of a contract via an Act of Correction. Further, it would be illogical to find that the correction of a clerical error would be subject to more stringent requirements, as set forth in LSA-R.S. 35:2.1, than correction or amendment of substantive terms in an agreement.
In Vickers v. Vickers, 2009-280, p. 6 (La. App. 3 Cir. 11/18/09), 25 So.3d 210, 213, the third circuit held that naming the wrong party as mortgagor in a mortgage was a substantive error and could not be corrected by an act of correction: "An error of ownership rights does not constitute a minor mistake in writing or copying within the meaning of a clerical error. The error was substantive."
Here, the Act of Correction attempted to revoke the cancellation of the mortgage as to Lot 8. An obligation that burdened Lot 8 had been removed, then was attempted to be restored. That is a substantive change, not a clerical error, and as such it could not be performed by a notarial act of correction. This limitation creates a safeguard against the improper alteration of recorded instruments.
DECREE
For the foregoing reasons, the judgment is reversed. Judgment is rendered in favor of the appellant, U.S. Bank National Association, and its Motion to Rank Creditors is granted. U.S. Bank National Association will be given first priority over proceeds of the November 18, 2009 judicial sale of Lot 8, Square A, Homewood Place Extension, Parish of St. John the Baptist, State of Louisiana, located at 131 Homewood Place in Reserve.
In all other respects, the case is remanded for further proceedings. Costs of this appeal are assessed against the appellee, First National Bank USA.
REVERSED AND REMANDED
NOTICE OF JUDGMENT AND CERTIFICATE OF MAILING
I CERTIFY THAT A COPY OF THE OPINION IN THE BELOW-NUMBERED MATTER HAS BEEN MAILED ON OR DELIVERED THIS DAY NOVEMBER 9, 2010 TO THE TRIAL JUDGE, COUNSEL OF RECORD AND ALL PARTIES NOT REPRESENTED BY COUNSEL, AS LISTED BELOW:
MARK C. LANDRY ATTORNEY AT LAW 212 VETERANS BOULEVARD SUITE 100 METAIRIE, LA 70005
JAMES M. GARNER JOHN T. BALHOFF, II ELWOOD F. CAHILL, JR. ALVIN C. MIESTER, III CHARLES E. TABOR ATTORNEYS AT LAW
909 POYDRAS STREET 28TH FLOOR NEW ORLEANS, LA 70112
JAMES M. GARNER ATTORNEY AT LAW 909 POYDRAS STREET SUITE 2800 NEW ORLEANS, LA 70112