recent developments in louisiana law relating … cromwell - secured lending.pdf · after the...

RECENT DEVELOPMENTS IN LOUISIANA LAW

RELATING TO

SECURITY DEVICES, TITLE MATTERS AND OTHER ISSUES OF INTEREST TO BANKS

L. David CromwellPettiette, Armand, Dunkelman, Woodley, Byrd & Cromwell, L.L.P.

Chase Tower, 400 Texas Street, Suite 400 Shreveport, Louisiana 71101

(318) [email protected]

Louisiana Bankers AssociationBank Counsel Conference

The Ritz-CarltonNew Orleans, LouisianaDecember 11-12, 2014

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Table of Contents

PART ONE: RECENT LOUISIANA CASELAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Mortgages and other contractual security devices affecting immovables . . . . . . . . . . . . . . . . . . . 1Collateral mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Mortgage releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Mortgage assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Bonds for deed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Condominium assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Homestead exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Chapter 9 security interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Wrongful disposition of collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Voting rights of pledgee of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Private Works Act claims and privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Attorney's fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Untimely claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Required specificity in statement of claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Suretyship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Pro-rata guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Guaranty of obligations other than loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Sales and lease cases of interest to secured lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Notice of lis pendens of suit to annul purchase agreement . . . . . . . . . . . . . . . . . . . . . . . 22Redhibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Liability of lender as successor lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Executory process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Injunctive relief/reconventional demands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Incidental proceedings to gain possession of collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 31Abandonment of executory proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Post-sale attack in state court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Post-sale attack in federal court/Rooker-Feldman doctrine . . . . . . . . . . . . . . . . . . . . . . . 36

Ordinary process foreclosure/collection actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Default judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Summary judgment in suits on accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Summary judgment in suits on notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Litigious redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

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Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Attorney's fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Revocatory/oblique actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Mennonite issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Lender liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47Credit agreement statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47Discovery sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Other lender liability cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Deposit accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Timeliness of claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Detrimental reliance/negligent misrepresentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Breach of contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Professional responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Title insurance claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Prescription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

PART TWO: ACTS 2014, NO. 281 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Pledge; general rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72The pledge of a lessor's rights in the lease of an immovable and its rents . . . . . . . . . . . . . . . . . 75

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Table of Cases

2 S Sign Company, Inc. v. Keller, 2014-47 (La. App. 3d Cir. 5/17/14); 139 So.3d 552 . . . . . . 20

Akers v. Bernhard Mechanical Contractors, 48,871 (La. App. 2d Cir. 4/16/14); 137 So.3d 818 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Alphonse v. Arch Bay Holdings, L.L.C., 548 Fed. Appx. 979 (5th Cir. 2013) . . . . . . . . . . . . . . 37

American Bank v. Saxena, 553 So. 2d 836 (La. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Bank of America v. Erazo, 13-153 (La. App. 5th Cir. 10/9/13); 128 So.3d 383 . . . . . . . . . . . . 26

Bank of New York Mellon v. Smith, 71 So.3d 1034 (La. App. 3d Cir. 2011) . . . . . . . . . . . . . . 28

Bank of New York, Trust U/A dated 12/01/2001 v. Bass, 2013-0405 (La. App. 1st Cir. 11/13/13); 2013 WL 6040235 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Bernard Lumber Company, Inc. v. Lake Forest Construction Company, Inc., 572 So.2d 178 (La. App. 1st Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Brennan v. Brennan, 548 Fed. Appx. 264 (5th Cir. 2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Buckner v. Carmack, 272 So.2d 326 (La. 1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Cadlerock Joint Ventures Co., Inc. v. J. Graves Scaffolding Co., Inc., 49,475 (La. App. 2d Cir. 11/19/14); ___ So.3d ___, 2014 WL 6465120 . . . . . . . . . . . . . . . . . . 1

Capital One Bank v. Sanches, 2013-0003 (La. App. 4th Cir. 6/12/13); 119 So. 3d 870 . . . . . . . 39

Chase Home Finance, LLC v. Fox, 2014-489 (La. App. 3d Cir. 11/5/14) ___ So.3d ___, 2014 WL 5668112 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Ciolino v. First Guaranty Bank, 2012-2079 (La. App. 1st Cir. 10/30/13); 133 So.3d 686, writ denied, 132 So.3d 962 (La. 2/14/14) . . . . . . . . . . . . . . . . . . . . . . . . 24

Cottonport Bank v. Keller Property Management, LLC, 2013-649 (La. App. 3d Cir. 12/11/13); 128 So.3d 668 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Diamond Services Corp. v. Benoit, 780 So.2d 367 (La. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Eastern Savings Bank v. Pharr, 2012-1754 (La. App. 4th Cir. 7/3/13); ____ So.3d ____, 2013 WL 3375374 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Farmers-Merchants Bank & Trust Company v. Southern Structures, LLC, 2013-926 (La. App. 3d Cir. 3/5/14); 134 So.3d 142 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

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Federal Trust Bank v. Sheppard, 13-429 (La. App. 5th Cir. 4/9/14); 140 So.3d 86, writ denied 147 So. 3d 706 (La. 9/12/14) . . . . . . . . . . . . . . . . . . . . . . . . . . 9

First Bank and Trust v. Redman Gaming of Louisiana Inc., 13-369 (La. App. 5th Cir. 12/12/13); 131 So.3d 224 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

First Guaranty Bank v. Baton Rouge Petroleum Center, 529 So.2d 834 (La. 1987) . . . . . . . . . . 30

Frey Plumbing Company, Inc. v. Foster, 996 So. 2d 969 (La. 2008) . . . . . . . . . . . . . . . . . . . . . 14

G. A. Lotz Company, Ltd. v. Alack, 13-674 (La. App. 5th Cir. 4/9/14); 140 So.3d 94 . . . . . . . 20

Gulf Coast Bank and Trust Company v. Montoli & Pitre, LLC, 13-784 (La. App. 5th Cir. 3/12/14); 138 So.3d 57 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Gulf Coast Bank and Trust Company v. Warren, 2012-1570 (La. App. 4th Cir. 9/18/13); 125 So.3d 1211 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Harley-Davidson Credit Corp. v. Davis, 2013-214 (La. App. 3d Cir. 11/6/13); 127 So. 3d 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Hiers v. Defreche, 2012-1132 (La. App. 1st Cir. 5/31/13); 2013 WL 2395055 . . . . . . . . . . . . 3, 6

Hollier v. Perret, 2013-735 (La. App. 3d Cir. 12/11/13); 2013 WL 6536345 . . . . . . . . . . . . . . . 22

In re Green, 516 B.R. 347 (E. D. La. 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

In re Succession of Aucoin, 771 So.2d 286 (La. App. 1st Cir. 2000) . . . . . . . . . . . . . . . . . . . . . 19

Jefferson Financial Credit Union v. Williams, 13-852 (La. App. 5th Cir. 6/24/14); 145 So.3d 488 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

JP Mack Industries, LLC v. Mosaic Fertilizer, LLC, 970 F. Supp. 2d 516 (E.D. La. 2013) . . . . 15

LSREF 2 Baron, L.L.C. v. Tauch, 751 F. 3d 394 (5th Cir. 5/7/14) . . . . . . . . . . . . . . . . . . . . 19, 41

MC Bank & Trust Co. v. Elysian Enterprise, LLC, 2013-1305 (La.App. 3d Cir. 4/2/14); 136 So.3d 963 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Mennonite Board of Missions v. Adams, 462 U.S. 791 (1983) . . . . . . . . . . . . . . . . . . . . . . . 8, 47

MGD Partners, LLC v. 5-Z Investments, Inc., 2012-1521 (La. App. 1st Cir. 6/2/2014); 145 So.3d 1053 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Midland Funding, LLC v. Delcorral, 2012-1492 (La. App. 4th Cir. 10/2/13); 126 So.3d 634 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

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Mid-South Plumbing, L.L.C. v. The Development Consortium-Shelly Arms, L.L.C., 2012-1731 (La. App. 4th Cir. 10/23/13); 126 So. 3d 732 . . . . . . . . . . . . . . . . . . . . . . . . 17

Mott v. EZ Money, Inc., 2013-1017 (La. App. 4th Cir. 12/4/13); 131 So. 3d 117 . . . . . . . . . . . . 8

National Collegiate Student Loan Trust 2003-1 v. Thomas, 48,627 (La. App. 2d Cir. 11/20/13); 129 So. 3d 1231 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Nationstar Mortgage, LLC v. Harris, 2013-1335 (La. App. 4th Cir. 5/14/14); 141 So.3d 829 . . 32

Ndanyi v. White, 07-0682 (La. App. 1st Cir. 1/30/08) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Neeb v. Graffagnino, 13-687 (La. App. 5th Cir. 2/26/14); 136 So.3d 353 . . . . . . . . . . . . . . . . . . 5

Nine-O-Five Royal Apartment Hotel, Inc. v. Atkins, 2014-0325 (La. App. 4th Cir. 10/8/14); ___ So.3d ___, 2014 WL 5034238 . . . . . . . . . . . . . . . . . . . . 2

Pannagl v. Kelly, 13-823 (La. App. 5th Cir. 5/14/14); 142 So.3d 70 . . . . . . . . . . . . . . . . . . . . . 43

Peironnet v. Matador Resources Company, 2012-C-2292 (La. 6/28/13); 144 So.3d 791 . . . . . . 42

Prados v. South Central Bell Telephone Co., 329 So.2d 744 (La. 1975) . . . . . . . . . . . . . . . . . . 24

R. L. Drywall, Inc. v. B&C Electric, Inc., 2013-1492 (La. App. 1st Cir. 5/2/14); 2014 WL 3559390 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Reed v. Meaux, 292 So. 2d 557 (La. 1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Regions Bank v. St. James Hotel, L.L.C., 2013-1628 (La. App. 4th Cir. 6/04/14); 144 So. 3d 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Regua v. Saucier, 2013-0832 (La. App. 4th Cir. 11/20/13); 129 So.3d 798 . . . . . . . . . . . . . . . . . 8

Rivet v. State Department of Transportation and Development, 680 So.2d 1154 (La. 1996) . . . 45

Roofing Products & Building Supply Co., LLC v. Mechwart, 2013-1506 (La. App. 1st Cir. 5/2/14); 2014 WL 2711793 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Rountree v. Forsythe Holdings, Inc., 49-983 (La. App. 2d Cir. 6/25/14); 144 So.3d 1126 . . . . 38

Semel v. Green, 211 So.2d 300 (1968) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Shih Chang Hu v. Evergreen of the South, Inc., 2013-1773 (La. App. 1st Cir. 5/29/14); 148 So. 3d 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Simms Hardin Company, LLC v. 3901 Ridgelake Drive, L.L.C., 12-469 (La. App. 5th Cir. 5/16/13); 119 So. 3d 58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

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State v. Johnson, 2014-82 (La. App. 3d Cir. 6/4/14); 140 So.3d 854 . . . . . . . . . . . . . . . . . . . . . 12

Ted Hebert, LLC v. Infiniedge Software, Inc., 2013-2052 (La. App. 1st Cir. 9/19/14); 2014 WL 4669188 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Tee It Up Golf, Inc. v. Bayou State Construction, 30 So. 3d 1159 (La. App. 3d Cir. 2010) . . . 17

Truong v. Bank of America, N.A., 717 F. 3d 377 (5th Cir. 2013) . . . . . . . . . . . . . . . . . . . . 36, 38

Trustee for Bond Holders under that Certain Trust Indenture dated December 1, 2007 v. Southgate Suites LLC, 2013-0242 (La. App. 1st Cir. 12/10/13) . . . . . . . . . . . . . . . . . . 6

U.S. Bank National Association v. Dumas, 2012-1902 (La. App. 1st Cir. 4/13/14); 144 So.3d 29, writ denied 147 So. 3d 1119 (La. 8/25/14) . . . . . . . . . . . . . . . . . . . . . . . . 28

Welborn v. The Bank of New York Mellon, 2013 WL 149707 (M.D. La. 2013), aff'd 557 Fed. Appx. 383 (5th Cir. 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Wells Fargo Bank v. Settoon, 2012-1980 (La. App. 1st Cir. 6/7/13; 120 So. 3d 757, 80 UCC Rep. Serv. 2d 1002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Wells Fargo Bank v. Thompson, 14-3 (La. App. 5th Cir. 5/21/14); 142 So. 3d 182 . . . . . . . . . 35

Wells Fargo Bank v. Tonagel, 2012-0380 (La. App. 1st Cir. 6/7/13); 117 So. 3d 1263 . . . . . . . 26

Woodlands Development, L.L.C. v. Regions Bank, 12-754 (La. App. 5th Cir. 5/28/14); 141 So.3d 357 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 50, 53

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RECENT DEVELOPMENTS IN LOUISIANA LAW

RELATING TO

SECURITY DEVICES, TITLE MATTERS AND OTHER ISSUES OF INTEREST TO BANKS

PART ONE: RECENT LOUISIANA CASELAW

I. Mortgages and other contractual security devices affecting immovables.

A. Collateral mortgages.

Cadlerock Joint Ventures Co., Inc. v. J. Graves Scaffolding Co., Inc., 49,475(La. App. 2d Cir. 11/19/14); ___ So.3d ___, 2014 WL 6465120 (not yet releasedfor publication in the permanent law reports). In the record of executoryforeclosure proceedings, the original creditor filed the original hand notes andcollateral mortgage note, all of which had been executed by the borrower. Two yearsafter the executory process sale was completed, the original creditor sold the handnotes to the plaintiff, which, nearly six years later, filed a motion to substitute itselfas party plaintiff in the executory process suit and withdrew the original notes fromthe record. A few weeks later, it filed in another court a suit for deficiency judgmentagainst the borrower and guarantors, who responded with an exception ofprescription. The trial court sustained the exception, finding that the suit wasabandoned three years after the sheriff's sale and that the five-year prescriptiveperiod began to run on that date. The court of appeal affirmed.

The plaintiff argued that prescription was continuously interrupted by thepledge of the collateral mortgage note under the constant acknowledgment rule. Thedefendants' argument was that, once the property encumbered under the collateralmortgages was sold, the collateral mortgage note ceased to exist and was no longersubject to a pledge that could interrupt prescription. This argument was based uponthe holding of the Supreme Court in Diamond Services Corp. v. Benoit, 780 So.2d367 (La. 2001), buttressed by an argument that the possession of an empty andvalueless obligation is not the type of pledge that interrupts prescription. Since thefacts of Diamond Services involved a third-party pledge and the Supreme Court hadnot addressed whether its rationale could be extended to the situation where themaker of the collateral mortgage note and hand note are the same, the court chose notto rest its ruling on that argument but rather on the plaintiff's failure to "reconstitute"the pledge of the collateral mortgage note after the conclusion of the executoryproceedings. If an executory suit has been concluded by a sheriff's sale and thecreditor has not withdrawn the collateral mortgage note from the clerk of courtwithin five years, prescription operates.

The court rejected the plaintiff's assertion that the pledge of the collateral notecontinued upon the institution of the executory process suit and the filing of the note

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into the suit record. According to the court, the privilege imparted by the pledge, orthe pledge itself, exists only when the note has been actually put and remains in thepossession of the creditor or a third person agreed upon by the parties. Possessionis relinquished by the pledgee upon the filing of the suit, and the clerk is not a thirdperson agreed upon by the parties who might continue the pledge in force. Thus,prescription was interrupted by the partial payment received from the sheriff's saleand began to accrue on that date. In reaching this holding, the court cited the pledgearticles of the Civil Code, apparently believing that they apply to the granting of asecurity interest in a collateral mortgage note.

B. Authorization.

Nine-O-Five Royal Apartment Hotel, Inc. v. Atkins, 2014-0325 (La. App. 4thCir. 10/8/14); ___ So.3d ___, 2014 WL 5034238 (not yet released for publicationin the permanent law reports). A closely-held corporation controlled by threesisters contracted a loan from the lender under a promissory note signed by all threeof them. The corporate resolution authorizing this loan was signed by one of thesesisters as corporate secretary. Four years later, the lender made a personal loan tothat sister, who purported to secure her personal loan by executing a mortgage on thecorporation's property. At the time of execution of this mortgage, the sister whocontracted the loan submitted a resolution, signed by her as the alleged secretary ofthe closely-held corporation, purportedly clothing her with the authority to act onbehalf of the corporation in executing the mortgage, even though she had actuallyheld no corporate office in the corporation for nineteen years and there had been noactual board meeting authorizing her to act. Neither of the other two sisters signedthe resolution. Several years later, the other two sisters learned of the existence ofthe mortgage when they received a call from the lender advising that the mortgagewas in default. The corporation then filed a petition for mandamus seeking adeclaration that the mortgage was invalid. After a trial, the trial court held themortgage to be invalid, and the court of appeal affirmed.

The lender's defense was based primarily upon an argument that the threesisters, in contracting the earlier loan from the lender, had expressly held out thesister who signed the mortgage as the corporate secretary, suggesting that she had theapparent authority to execute the mortgage. Alternatively, the lender argued that thecorporation had ratified the unauthorized mortgage by failing to repudiate it withina reasonable period of time and in accepting the benefits of the mortgage afterlearning of its existence. As the trial court held, C.C. Art. 2996 provides that anagent must have express authority to encumber immovable property and to contracta loan. A mortgage may be established only by written contract. Under C.C. Art2993, when the law prescribes a certain form for an act, a mandate authorizing theact must be in that form. Thus, any authority granted by the corporation for thesigning of the mortgage must also have been in writing. The doctrines of apparentauthority and agency by estoppel may bar a principal from asserting the defense oflack of written authority if a third person can show a change of position in reasonablereliance on the representation of the principal. In this case, the evidence confirmedthat at no time did the corporation or the two corporate officers represent or manifest

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to the lender that the sister who signed the mortgage was authorized to do so. Thelender had failed to establish that its reliance on the alleged "previousrepresentations" was reasonable. A due diligence inquiry by the bank to theLouisiana Secretary of State or even perusal of its corporate database would haveconfirmed that the sister who signed the mortgage had not been an officer or directorof the corporation for many years. Moreover, the documents that had beenpreviously executed in connection with the prior loan bore the signatures of all threesisters and did not confer any authority on the sister who signed the mortgage to actalone to bind the corporation.

The court also rejected the lender's claim that the corporation had tacitlyratified the mortgage by accepting the benefit of the use of part of the proceeds of thelater loan to pay off a loan owed by the corporation. The corporate officers did notknow of the existence of the mortgage until being advised that there was a default.There was no evidence of any correspondence or communication whereby either ofthe other two sisters communicated anything to the bank that could be construed asa ratification. The fact that the sister who contracted the loan may have used someof the money to pay off a prior mortgage did not validate the mortgage shecontracted. The court also rejected the lender's argument that the corporation hadratified the mortgage by failing to repudiate it and continuing to accept its benefits.All benefits of the unauthorized act were disbursed by the bank long before thecorporation acquired knowledge of the unauthorized mortgage. Moreover, the factthat the two corporate officers, after learning of the existence of the mortgage,continued to allow the other sister to make payments on her own loan did not supporta theory of ratification. Finally, the court rejected the lender's argument that theinvalid mortgage should be validated on the basis of unjust enrichment; mortgagescannot be created by equitable considerations.

C. Mortgage releases.

1. Hiers v. Defreche, 2012-1132 (La. App. 1st Cir. 5/31/13); 2013 WL2395055. The sole member of a limited liability company held a mortgagenote that was secured by immovable property owned by the limited liabilitycompany. To secure a loan made by Bank A to the limited liability company,the member executed in favor of Bank A an act entitled "Act of Assignmentand Notarial Endorsement of Promissory Notes and Collateral Mortgage" bywhich he "did sell, assign, transfer, negotiate and endorse" unto Bank A allof his right, title and interest in the mortgage note. Subsequently, after thismember had transferred his membership interest in the limited liabilitycompany to another person, Bank B made a loan to the limited liabilitycompany secured by a mortgage on the property. As part of that transaction,the Bank A loan was paid off, and Bank A, at the request of Bank B, directedthe clerk of court to cancel all existing encumbrances on the property,including mortgage that had been the subject of the assignment from theformer member to Bank A. Subsequently, the former member filed amandamus action, asserting that he had merely pledged the mortgage note toBank A as collateral and that, since that note had not been satisfied, Bank A

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did not have the right to cancel the mortgage securing it.

At an evidentiary hearing, both parties to the assignment testified thatthe assignment was actually intended as a pledge and that Bank A did not payanything for the assignment but instead took the assignment merely asadditional collateral. The trial court determined that the mortgage waserroneously cancelled and granted the writ of mandamus. The trial court alsooverruled Bank B's exception of no cause of action that was predicated on anargument that mandamus was not the proper remedy to seek non-ministerialrelief.

In its original opinion, the court of appeal affirmed, holding that BankB's failure to file a dilatory exception waived its procedural argument thatmandamus was not the proper remedy. The court of appeal also rejectedBank B's arguments based on the public records doctrine. According to thecourt, the public records doctrine is a negative doctrine that does not createrights. Third persons are not allowed to rely on what is contained in thepublic records, but can rely on the absence from the public records of thoseinterests that are required to be recorded. Though it is a negative doctrine,the public records doctrine has a positive aspect in the sense that a thirdperson who acquires an interest in an immovable after the recordation of aninstrument that relates to the immovable may rely upon the recitals of thatrecorded instrument under the rule that secret claims and equities betweenthe parties to the instrument cannot be invoked to the prejudice of thirdpersons relying upon the public records. However, an exception to the publicrecords doctrine exists where a mortgage is cancelled from the public recordsthrough fraud, error or mistake. The cancellation of a mortgage throughfraud, error or mistake, without the knowledge of the holder, does not deprivethe holder of his security, even against third persons relying in good faith onthe public records.

In support of its arguments, Bank B relied on C.C. Art. 3342, whichprovides that a party to a recorded instrument may not contradict the termsof the instruments or statements of fact it contains to the prejudice of a thirdperson, and also on C.C. Art.3356(B), which provides that a recorded releaseof a mortgage made by the obligee of record is effective as to a third personnotwithstanding that the obligation secured by the mortgage has beentransferred to another. Though the court agreed with Bank B that on the faceof the public records it appeared that Bank A was the owner of the mortgagenote and that Bank B had no way of knowing that the assignment wasintended by the parties only as a pledge, the court nonetheless held that theexception to the public records doctrine applied. As the public recordsdoctrine is a negative doctrine, the fact that the assignment was recorded didnot mean that Bank A was, in fact, the owner of the mortgage note. Theexception to the public records doctrine applies when the cancellation of amortgage is through mistake and without the consent or knowledge of theholder. In this case, there was uncontroverted testimony from the officer of

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Bank A establishing that the mortgage was cancelled by mistake and withoutthe consent or knowledge of its original holder. Because the original holderof the mortgage note did not know or consent to the cancellation, he had noway of knowing of the wrongful cancellation and no means of protecting hissecurity interest in the property. Thus, the application of the exception to thepublic records doctrine is necessary in the interest of justice. In reaching thisholding, the court of appeal noted in a footnote that since the former memberand an officer of Bank A testified that they not only intended the assignmentto be a pledge but actually thought the document they signed pledged thenote as additional collateral and did not sell the note, there was no evidencepresented that there was any secret understanding or agreement betweenthose parties. The court also seemed to accept an argument by the formermember that the document upon which Bank B relied to conclude that it helda first mortgage on the property was the cancellation instrument that BankB's own attorney had prepared, rather than the assignment itself.

On rehearing, the court took cognizance of a line of cases holding thatan objection to the use of mandamus when the duty is not ministerial is moreproperly considered as a peremptory exception of no cause of action. Thecourt agreed with Bank B that, in order to perform the duty requested by theplaintiff, the recorder would be required to determine the effect of the publicrecords doctrine, the identity of the owner of the mortgage note in questionand whether the circumstances warrant application of an exception to thepublic records doctrine. Because these are acts that require the exercise ofjudgment and discretion, the issuance of mandamus was inappropriate. Thus,the court reversed the judgment of the trial court denying the exception of nocause of action and vacated its own original appellate opinion.

2. Neeb v. Graffagnino, 13-687 (La. App. 5th Cir. 2/26/14); 136 So.3d 353.An attorney filed suit against his former client to enforce his privilege forattorneys' fees upon property that was the subject of litigation that theattorney had handled. The client reconvened, disputing the fee agreementand seeking cancellation of the attorneys' privilege. The day before the clientconfirmed a default judgment on the reconventional demand, the attorneyfiled by fax an answer to the reconventional demand and within two daysfiled the original answer with the clerk. Nonetheless, the default judgmentwas confirmed, ordering cancellation of the attorney's privilege, and a weeklater the client sold the property by quitclaim to a third party. The trial courtannulled the judgment of default and entered judgment finding that the thirdparty had purchased the property subject to the attorneys' privilege. Thecourt of appeal affirmed. A defendant may file his answer at any time priorto confirmation of a default judgment. In this case, through his fax filing, theattorney properly and timely answered the reconventional demand. Theclient's actions in obtaining a judgment by default constituted ill practicesunder C.C.P. art. 2004, and the trial court therefore properly annulled thedefault judgment and the cancellation of the attorneys' privilege.

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With respect to the third-party purchaser's claim that it was entitledto the protection of the public records doctrine, the court cited the unreportedcase of Hiers v. Defreche, 2012-1132 (La. App. 1st Cir. 5/31/13) 2013 WL2395055 for the proposition that an exception to the public records doctrineexists where a mortgage is cancelled from the public records through fraud,error or mistake. Cases where this doctrine have been applied typicallyinvolve mortgage holders who have no way of knowing of the wrongfulcancellation of the mortgage and thus no means of protecting their securityinterest in the property. In this case, the attorney did not become aware ofthe default judgment or the order for cancellation of his privilege until afterthe sale. Thus, he had no means of protecting his privilege upon the propertyprior to the sale, and an application of the exception to the public recordsdoctrine was necessary in the interest of justice.

3. Trustee for Bond Holders under that Certain Trust Indenture datedDecember 1, 2007 v. Southgate Suites LLC, 2013-0242 (La. App. 1st Cir.12/10/13); 2013 WL 6506256. In connection with the bond financing of ahotel project, a bank holding a mortgage on a larger tract of land executed apartial release of its mortgage as to the hotel tract. After construction, it wasdiscovered that the tract on which the hotel was built was approximately 32feet shorter than originally believed, with the result that fourteen guestrooms, as well as the hotel's lobby, conference room and parking, encroachedupon land still encumbered by the bank's mortgage. The trustee for thebondholders who had financed the construction of the hotel brought suitagainst the bank and other persons for a reformation of the partial release ofthe mortgage and for declaratory judgment recognizing a predial servitudeallowing for the continued use and operation of the hotel without anyinterference from the neighboring landowner or the bank.

The trial court sustained an exception of no cause of action filed bythe bank, and the bond trustee appealed. However, while the appeal waspending, the hotel was sold at a judicial sale to a separate affiliate of the bondtrustee. After these facts were disclosed during oral argument, the court ofappeal questioned whether the appeal was moot and remanded for the takingof evidence of the judicial sale and its effect upon the mortgage. The trusteeargued that it was a beneficiary of the mortgage release and thus had standingto reform it. The trustee also argued that, as the sole shareholder of thepurchaser at the sheriff's sale, it currently held a 100% economic interest inthe hotel as a shareholder. Nonetheless, the court of appeal found the appealto be moot. Because the trustee no longer held a security interest in the hotel,the issues of whether the trustee, as the holder of a security interest, had aright or cause of action for reformation of the mortgage release or forrecognition of a predial servitude were moot.

D. Mortgage assignments.

Welborn v. The Bank of New York Mellon, 2013 WL 149707 (M.D. La. 2013),

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aff'd 557 Fed. Appx. 383 (5th Cir. 2014). Clerks of court of 47 Louisiana parishesbrought a RICO suit against fourteen financial institutions alleging injury from lossof recording fee revenue resulting from the defendants' alleged pattern of indictablemail and/or wire fraud related to the Mortgage Electronic Registration Systems, Inc.The complaint alleged that MERS was operated "as a scheme in the secondarymortgage markets by misrepresenting the need for recording mortgage assignments,thereby avoiding the payment of assignment recording fees on the mortgages." Theclerks also claimed that federal law, specifically the Trust Indenture Act of 1939,imposed a duty on the defendants to perfect and maintain the priority of themortgages securing mortgage-backed securities that had been issued to the publicand that this duty required the defendants to record each mortgage and anysubsequent assignment of the mortgage in order to maintain priority of the lien underthe Louisiana public records doctrine.

The court granted the defendant's motion to dismiss under Rule 12(b)(6). Theclerks admitted that they were not claiming that Louisiana law affirmatively createsa duty to record assignments of mortgages and that they did not base their claimsunder Louisiana land recording statutes. Faced with the defendant's contention thatthe Trust Indenture Act does not create a private right of action, the clerks assertedthat they were not suing to enforce the Trust Indenture Act or any securities filingsand did not need to demonstrate any private cause of action under anything otherthan RICO. Following jurisprudence in other circuits, the court held that purportedstatutory violations pleaded in RICO terms cannot form the basis of a civil RICOclaim. For the court to make the necessary determination under RICO of whethermail or wire fraud existed, it would have to determine whether the defendantsviolated the Trust Indenture Act, and by undertaking that analysis the court wouldencroach upon the SEC's congressionally-delegated authority to enforce the TrustIndenture Act. It would be inconsistent with legislative intent to allow the plaintiffsto bring a RICO claim that seeks to enforce the Trust Indenture Act.

On appeal, in a case consolidated with a Texas district court case that hadadopted the same rationale as the Louisiana district court's opinion, the court ofappeals affirmed the lower courts' holdings but without determining whether thecomplaints sought to enforce the Trust Indenture Act or whether that would bepermitted through civil RICO. Instead, the court of appeals found that dismissalunder Rule 12(b)(6) was proper because the complaints failed to adequately pleada RICO injury to the plaintiff's "business or property." When a government suesunder the civil RICO statute, the "business or property" element requires that theinjury refer to commercial interests or enterprises. A government cannot claimdamages for general injury to the economy or to the government's ability to carry outits functions. The injuries alleged by the plaintiffs are the loss of recording fees andgeneral damage to the integrity of the public records. These injuries do not arisefrom commercial activity, but rather from the provision of a governmental function.The recording systems were not created to serve a revenue-generating function forthe state and, it is not accurate to cast the recording systems as commercial. Inreaching this holding, the court rejected the plaintiff's claim that the business ofcollecting fees to record mortgage transfers and maintain public records is

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commercial because it is essentially the same type of business in which MERSengages.

E. Bonds for deed.

1. Mott v. EZ Money, Inc., 2013-1017 (La. App. 4th Cir. 12/4/13); 131 So.3d 117. A bond for deed contract contained a "special mortgage" clause infavor of the purchasers in order to ensure the full and faithful performanceof the seller in the event that the purchasers made all of the payments but theseller failed to transfer title. The bond for deed contract also required thepurchasers to pay all taxes assessed against the property. Approximatelyfifteen years later, taxes were not paid with the result that the property wassold at a tax sale. Notice of the tax sale was properly given to the bond fordeed seller but not to the bond for deed purchasers. Several years after thetax sale, the tax sale buyer filed a petition to quiet tax title, naming only thebond for deed seller as the defendant. The trial court entered judgment infavor of the tax sale buyer, which thereafter filed a petition for injunctionagainst the bond for deed purchasers enjoining them from using theproperty. Shortly afterward, the bond for deed purchasers filed a petitionagainst the tax sale buyer and the bond for deed seller to annul the tax saleon the ground that they were not given notice of it. The trial court grantedthe tax sale buyer's exception of no right of action, and the court of appealaffirmed.

Mennonite Board of Missions v. Adams, 462 U.S. 791 (1983)requires that notice of a tax sale be given to mortgagees because they havea legally protected property interest; nonetheless, the "special mortgage"included in the bond for deed contract nonetheless did not trigger a noticerequirement under Mennonite. Although the bond for deed contract includedthe word "mortgage," it did not provide for a mortgage as contemplated bythe court in Mennonite. Mennonite and every other case relied upon by thebond for deed purchasers involved a traditional mortgage rather than aconditional mortgage like the one found in the bond for deed contract in thiscase. Even though the bond for deed contract was recorded, the mortgagemay never come into being and therefore this type of "mortgage" does notfall under the ambit of Mennonite.

2. Regua v. Saucier, 2013-0832 (La. App. 4th Cir. 11/20/13); 129 So.3d 798.Shortly after Hurricane Katrina, the plaintiff acquired badly damagedproperty under a bond for deed contract that required the plaintiff to make adown payment of $5,000 and to pay the balance of the $40,000 price in 96installments. Some three years later, the plaintiff defaulted in making themonthly payments. After giving the 45-day notice prescribed in the bond fordeed statute, the bond for deed sellers recorded an affidavit of cancellationand changed the locks on the property. The bond for deed purchaser thenfiled suit for wrongful eviction, conversion, breach of contract and fraud.The trial court granted the plaintiff judgment for an amount that included her

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original down payment, the monthly installments she had paid, the cost of therenovations she had performed and the property taxes she had paid.However, the trial court denied the claims for conversion and wrongfuleviction. The court of appeal affirmed. There was no dispute that the bondfor deed sellers followed both the law and the bond for deed contract whenthey filed the affidavit for cancellation of the bond for deed. However, thevendor in a bond for deed contract is not entitled to retain all monies paid bythe purchaser because that would lead to an inequitable, unreasonable andillegal attempt to recover punitive damages.

F. Condominium assessments.

1. Federal Trust Bank v. Sheppard, 13-429 (La. App. 5th Cir. 4/9/14); 140So.3d 86, writ denied 147 So. 3d 706 (La. 9/12/14). After the death of theowner of a condominium unit, both a mortgage that the owner had granted18 years before his death and assessments owed to the condominiumassociation fell into default. The condominium association filed an affidavitasserting a privilege on the unit for unpaid assessments and, a few monthslater, filed a petition to enforce the privilege, seeking the appointment of asuccession representative in the enforcement suit. Some time later, thecondominium association and the succession representative appointed at itsrequest entered into a consent judgment that the amounts owed to thecondominium association would be paid as a priority claim under C.C. art.3276. After the mortgagee filed executory proceedings, the successionrepresentative obtained an ex parte order in the suit filed by the condominiumassociation recognizing her curator fees and expenses in the amount of$13,000 as a priority claim against the succession to be paid prior to anysecured and unsecured claims from the proceeds of any sheriff's sale. In anensuing rule for ranking filed by the mortgagee, the trial court found thatboth the condominium association's privilege and the curator's chargesprimed the bank's mortgage. The court of appeal reversed.

C.C. art. 3276 provides generally that charges against a succession,such as funeral charges and law charges, are paid before the debts contractedby the deceased person. In this case, the property was encumbered by aconventional mortgage long before the death of the mortgagor, and,according to the court, the condominium unit is considered an asset of thesuccession subject to administration only to the extent that the executoryprocess sale might generate proceeds in excess of the indebtedness due on themortgage. The condominium association's claim is not governed by thegeneral Civil Code articles regarding privileges in a succession but rather bythe Louisiana Condominium Act, which specifically provides in R.S.9:1123.115(C) that the condominium association's privilege is outranked byencumbrances recorded before the recordation of the privilege.

As for the succession representative's claim, the court took judicial

notice that the succession representative was appointed in a proceeding filed

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by an unsecured creditor seeking to assert its privilege against the property.As such, the succession representative's appointment falls squarely withinC.C.P. art. 5091, which provides that the compensation for that appointmentis due and owing in accordance with C.C.P. art. 5096 from the plaintiff whoinitiated the request for the appointment. Moreover, virtually all of the feesaccrued by the succession representative arose out of the condominiumassociation's proceeding and were incurred to perfect the privilege and lienof the condominium association rather than to administer the succession ingeneral.

2. In re Green, 516 B.R. 347 (E. D. La. 2014). Affirming a decision of thebankruptcy court, the district court held that a privilege arising under theLouisiana Condominium Act is a statutory lien rather than a security interest.Section 101(51) of the Bankruptcy Code defines a security interest as a lienthat is created by an agreement. The condominium privilege in this case isreferred to in both the Louisiana Condominium Act and the governingcondominium declaration. However, Louisiana law recognizes only twotypes of security that pertain to immovable property: privilege and mortgage.A privilege is a non-consensual security device that arises as a matter of law.Thus, the creditor's attempt in the condominium declaration to give itself aprivilege is ineffective, because the inclusion of language in thecondominium declaration could never have given the creditor a privilege.The only other possibility was that the condominium declaration gave thecreditor a mortgage; however, for a conventional mortgage to exist theparties must execute a written contract, which must be signed by themortgagor, state the amount secured and describe the immovable property.The filing of the condominium declaration was insufficient to create amortgage because, among other things, it lacked the signature of themortgagor. The fact that the creditor had to take certain additional steps topreserve its privilege did not affect the fact that the privilege in this casearose solely by force of a statute.

G. Homestead exemption.

Shih Chang Hu v. Evergreen of the South, Inc., 2013-1773 (La. App. 1st Cir.5/29/14); 148 So. 3d 1. After a judgment creditor obtained a writ of attachmentagainst the judgment debtor's residence, the judgment debtor sold the residence, andthe sales proceeds remaining after paying closing costs and the balance of the firstmortgage were deposited into the registry of the court. The judgment debtor thenfiled a motion to determine ranking of claims to these funds. Without firstconducting a contradictory hearing, the trial court ruled against the judgment debtor.Though it found that the trial court had erred in failing to conduct a contradictoryhearing before ruling, the court of appeal nonetheless affirmed the judgment. Priorto depositing the funds from the sale of the home into the registry of the court, thejudgment debtor paid off the first mortgage. Presumably, this meant either that thefirst mortgage contained a waiver of the homestead exemption or that the judgmentdebtor effectively waived the homestead exemption by voluntarily paying off the

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first mortgage out of the funds received from the sale of the home. Either way, theentire homestead exemption went to satisfy the first mortgagee's claim and there wastherefore no merit to the judgment debtor's argument that the homestead exemptionshould be paid first out of the funds deposited into the registry of the court. JudgeMcClendon dissented, believing that a creditor that does not have a homesteadwaiver cannot encroach upon the homestead exemption merely because a priormortgage contains a waiver. In other words, a waiver of the homestead exemptionin a mortgage operates in favor of that mortgagee alone and not in favor of othercreditors.

II. Chapter 9 security interests.

A. Wrongful disposition of collateral.

1. Farmers-Merchants Bank & Trust Company v. Southern Structures,LLC, 2013-926 (La. App. 3d Cir. 3/5/14); 134 So.3d 142. A bank held aproperly perfected security interest in an item of equipment owned by amanufacturer. As it was going out of business, the manufacturer and itsbroker entered into discussions with a buyer from South Carolina resultingin buyer's purchase of the equipment, which was only six months old, for60% of its original purchase price. Shortly after the sale, the buyer shippedthe equipment to its plant in South Carolina. The buyer was aware that theconsent of the bank was necessary to the sale and received an email from thebroker to the effect that the broker had spoken with the owner who "thinkshe can keep the bank at bay for a month." Upon learning of the sale, thebank brought suit against the borrower, the broker and the buyer for returnof the equipment as well as damages. After trial, the court rendered ajudgment for damages in favor of the bank against all three defendants insolido, and the court of appeal affirmed.

As revised in 2001, Section 9-315(a)(3) of the UCC provides that apurchaser of collateral incurs no personal liability on account of anunauthorized transfer unless he fails to act in good faith. The trial courtinterpreted this statute to mean that a buyer who acts in bad faith incurspersonal liability. The buyer took issue with this interpretation, arguing thatthe analogous provision of the pre-revision UCC, former Section 9-306(2),negated personal liability on the part of a purchaser "unless he has conspiredwith the debtor to defeat the interest of the secured party." Rejecting thebuyer's contention on this point, the court of appeal held that the 2001amendment was intended to reduce the burden of proof required to imposepersonal liability on a buyer. The court also upheld the trial court's findingthat the buyer had acted in bad faith since it knew of the bank's securityinterest and acted to deprive the bank of its security interest.

The court also found that the buyer was subject to the court's personaljurisdiction, in light of the fact that its representatives had physically cometo Louisiana to examine the equipment before the purchase. Moreover, it

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filed an answer never objecting to the court's jurisdiction. According to thecourt, the real issue was whether the trial court had jurisdiction over theequipment for the purpose of recognizing a lien. The court believed that thisissue was not governed by the Code of Civil Procedure but rather by Chapter9 of the UCC. However, without referring to any provision of the UCC onpoint, the court cited pre-UCC jurisprudence to the effect that the weight ofauthority is that a valid security interest recorded in the state where it isexecuted continues to have the same effect when the mortgaged property ismoved to another state. According to the court, the subsequent relocation ofthe equipment from Louisiana to South Carolina did not affect the bank'ssecurity interest, as Louisiana courts have the authority to recognize a lien onproperty that was in the state when a valid security interest was created.

The court also rejected contentions by the buyer that it had acted onthe belief that the broker was actually the seller, upholding the trial court'sholding that this testimony was not credible. Finally, the court rejected thebuyer's contention that it was protected as a buyer in the ordinary course ofbusiness. Though Section 9-320 provides a general rule that a buyer in theordinary course of business takes free of a security interest created by thebuyer's seller, even if the security interest is perfected and the buyer knowsof its existence, Section 1-201 defines a buyer in the ordinary course ofbusiness as someone who buys "from a person, other than a pawnbroker, inthe business of selling goods at that type." As the comments to this sectionreflect, the buyer-in-the-ordinary-course exception applies to inventorycollateral. Since the equipment in this case was used in the manufacturingof products, it was "equipment" rather than "inventory."

Finally, the court affirmed the trial court's holding that the buyer wassolidarily liable under tort principles. C.C. art. 2324 provides that he whoconspires with another person to commit an intentional or willful act isanswerable in solido with that person for the damage caused by such act.The buyer in this case conspired with the borrower to defraud the bank byallowing the purchase to occur while the bank was "being kept at bay." Theunlawful act was the sale of equipment with knowledge of the securityinterest in violation of R.S. 14:72.4. Thus, the finding of solidary liabilitywas proper.

2. State v. Johnson, 2014-82 (La. App. 3d Cir. 6/4/14); 140 So.3d 854. Afterdisposing of certain items of collateral that were subject to a security interestin favor of a bank, the defendant was convicted of an attempted violation ofR.S. 14:201, the unauthorized use of withdrawal of collateral securities. Thecourt of appeal reversed the conviction. Although the evidence at trialclearly established that the defendant used, sold or otherwise disposed of thecollateral, R.S. 14:201 requires the collateral to be pledged by him.Notwithstanding R.S. 1:59, which provides that the term "pledge" as used inthe Revised Statutes means the granting of a security interest under theUniform Commercial Code, there can be no pledge under the Civil Code

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without delivery. Since there was no proof of any actual delivery of any ofthe collateral to the bank, there was no violation of the statute. Moreover,even if R.S. 1:59 creates a valid pledge when there is a granting of a securityinterest, R.S. 14:201 requires a trust receipt or other form of receipt when acustomer is allowed by any bank to withdraw any collateral pledged by him.The State could have prosecuted the defendant under R.S. 14:72.4,criminalizing the disposal of encumbered property with fraudulent ormalicious intent, but it did not do so.

B. Voting rights of pledgee of stock.

Brennan v. Brennan, 548 Fed. Appx. 264 (5th Cir. 2013). In order to resolve asuit that a family member holding stock in a family-owned corporation had filedagainst the corporation, the corporation and the family member entered into asettlement agreement by which he agreed to sell his stock to the corporation anddismiss all claims against it in exchange for a sum of money to be paid in monthlyinstallments. He was granted a security interest in the stock and retained possessionof the share certificates. Within a year, the corporation defaulted on the settlementagreement, and the family member filed suit to enforce the agreement. While thatsuit was pending, this family member, still claiming shareholder status, purported toarrange a meeting of the shareholders and to elect new directors. In ensuinglitigation, the district court held that the settlement agreement was a stockredemption, within the meaning of R.S. 12:75(A), with the result that the familymember retained the right to vote as a shareholder until full payment was made. Thecourt of appeals reversed.

The district court applied a broad definition of "redemption" as a general termreferring to any purchase of corporate shares by a corporation from its shareholder.Unlike the law in many other states, the statutory language of the Louisiana BusinessCorporation Law distinguishes between repurchase, which is often used as the broadgeneric description for any acquisition of the corporation's own shares, andredemption, which more narrowly applies to the acquisition of shares pursuant tosome right or obligation created at the time of issuance of the shares. Cases applyingLouisiana law demonstrate a corporation's ability to either repurchase its sharesthrough a negotiated agreement or to redeem its shares through a unilateral right. Inthis case, the family member entered into a settlement agreement in order to resolvelitigation and toward that end he agreed to "sell to Brennans all of his stock inBrennans," while the corporation agreed to pay a purchase price over time. Theagreement was unambiguously a negotiated credit sale of stock rather than theexercise of a unilateral right to redeem the stock. The credit sale was complete whenthe parties finalized the settlement agreement. Although the family member retainedpossession of the shares to perfect his security interest in them, the terms of thesettlement agreement rebutted a presumption of ownership and demonstrated that thecorporation was the owner of the shares. As the family member himself asserted inhis collection action, he was a creditor seeking to enforce a perfected security interestin the corporation's shares. Thus, the family member did not have the right to requestor participate in any shareholders' meeting, and the district court erred in ordering

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the corporation to recognize the family member as a shareholder.

III. Private Works Act claims and privileges.

A. Attorney's fees.

1. R. L. Drywall, Inc. v. B&C Electric, Inc., 2013-1492 (La. App. 1st Cir.5/2/14); 2014 WL 3559390. When a building owner failed to honor ademand for payment made by its drywall contractor, the contractor filed astatement of claim or privilege under the Private Works Act and then broughta timely suit for recognition of its privilege along with a money judgment forthe amount owed including reasonable attorneys' fees. The trial court grantedjudgment in favor of the contractor, and the court of appeal affirmed.Following the holding of the Supreme Court in Frey Plumbing Company,Inc. v. Foster, 996 So. 2d 969 (La. 2008), the court held that the OpenAccount Statute, R.S. 9:2781, furnished an appropriate basis for attorneys'fees, regardless of whether the account reflected one or more transactions orwhether or not at the time of contracting the parties expected futuretransactions. Just as in Bernard Lumber Company, Inc. v. Lake ForestConstruction Company, Inc., 572 So.2d 178 (La. App. 1st Cir. 1990), whichheld that an attorneys' fee provision in a credit application furnished anappropriate basis for an award of attorneys' fees in a suit under the PrivateWorks Act, the Open Account Statute serves as another basis for an awardof attorneys' fees. Note: Since the owner and contractor were in directprivity of contract, the privilege in question arose under R.S. 9:4801, ratherthan R.S. 9:4802, and the court therefore did not address the issue of whetheran owner who is not in privity of contract with a Private Works Act claimantwould be liable for attorneys' fees under the Open Account Statute.Moreover, it is unclear from the opinion whether a privilege upon theowner's property secured the award of attorney's fees.

2. Cf. Akers v. Bernhard Mechanical Contractors, 48,871 (La. App. 2d Cir.4/16/14); 137 So.3d 818, in which the Second Circuit held, in a caseinvolving a ventilation subcontractor's suit under the Public Works Act, thatthe trial court did not err in finding that a contract, rather than an openaccount, was involved, in view of the offer, acceptance and a "whirl ofnegotiations" between the parties. The court held that these facts made thecase factually distinguishable from the customary running account extendedby the plumber in Frey Plumbing. The court also rejected the subcontractor'ssuggestion that a contractual provision for 18% interest resulted inuncertainty over the total payment that might be owed and thus changed thecontract into an open account. Such a construction is overly broad and wouldtransform virtually every construction contract into an open account.

3. Roofing Products & Building Supply Co., LLC v. Mechwart, 2013-1506(La. App. 1st Cir. 5/2/14); 2014 WL 2711793. In a Private Works Act case,the trial court awarded judgment against the owner and the owner's

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contractor for the amount owed to a roofing supplier plus attorneys' feesunder the Open Account Statute. The owner had ordered roofing materialsdirectly from the roofing supplier, using his American Express credit card topay for the order. Three months later, the roofing supplier received a charge-back from American Express, predicated upon a revocation of payment basedon the owner's complaint that the roofing materials were not what he hadordered. In reversing the award of attorneys' fees under the Open AccountStatute, the court of appeal observed that there was no evidence that theroofing supplier had agreed to any extension of credit to facilitate thepurchase of the roofing supplies. Instead, the owner paid for the order in fullat the time of sale using his American Express card. The record was devoidof any evidence that the parties intended at the time of sale to create anaccount with a balance that was to be paid by the owner at a later date. Theoriginal nature of the transaction was not subsequently converted to a sale onopen account by the owner's unilateral action resulting in the reversal of thepayment.

B. Untimely claims.

1. JP Mack Industries, LLC v. Mosaic Fertilizer, LLC, 970 F. Supp. 2d 516(E.D. La. 2013). After failing to timely preserve its claim and privilegeunder the Louisiana Private Works Act, a subcontractor brought suit againstthe owner and general contractor claiming unjust enrichment and alsoclaiming to have been a third-party beneficiary of certain change orders thathad been agreed to by the owner and general contractor. In response to theowner's motion to dismiss, the subcontractor argued that the Private WorksAct does not exclude other remedies, citing R.S. 9:4802 (D), which providesthat the claims granted by the Act are in addition to other contractual or legalrights claimants may have for payment. In granting the owner's motion todismiss, the court found that it need not determine whether the Private WorksAct is the exclusive remedy for subcontractors, because a claim for unjustenrichment is a subsidiary claim, rather than an alternative claim, and isapplicable only to fill a gap in the law where no express remedy is provided.The fact that a plaintiff did not successfully pursue another available remedydoes not give the plaintiff the right to recover under a theory of unjustenrichment. Moreover, the subcontractor's claims with regard to third-partybeneficiary status were conclusory and lacked factual content permitting thecourt to draw an inference that the owner was liable under a third-partybeneficiary theory. Moreover, this theory, if accepted, would mean thatevery contract between an owner and a general contractor confers a third-party benefit on a subcontractor as a matter of law, rendering the LouisianaPrivate Works Act's provision of a remedy to subcontractors against anowner an empty and unnecessary remedy.

2. Ted Hebert, LLC v. Infiniedge Software, Inc., 2013-2052 (La. App. 1stCir. 9/19/14); 2014 WL 4669188. When a subcontractor was not paid fora larger lift station that it had installed at the request of the project engineer,

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it filed suit against the owner claiming unjust enrichment. The owner filedexceptions of no right and no cause of action, urging that the subcontractor'sremedy was governed by the Private Works Act and that the subcontractorhad failed to file suit within the one-year period provided by the PrivateWorks Act. After the trial court denied these exceptions, the court of appealgranted supervisory writs and issued a one-paragraph opinion to the effectthat the judgment of the trial court denying the exception was reversed butwithout stating that the plaintiff's suit was dismissed. While the writapplication was pending, the plaintiff had filed an amended petition assertingthat the owner had authorized the project engineer to instruct the plaintiff toinstall the larger sewer lift station and that these actions created anindependent contract between the owner and the plaintiff for the installationof that substation. After the court acted on its writ application, the ownerfiled a peremptory exception of res judicata, which was sustained by the trialcourt but reversed by the court of appeal.

The Private Works Act provides that the extinguishment of a claimor privilege does not affect other rights that the claimant may have againstthe owner, contractor or surety and that any claims granted by the Act or inaddition to other contractual or legal rights the claimant may have for thepayment of amounts owed to him. Accordingly, although the plaintiff'sclaims under the Private Works Act were perempted, there was still a viablecause of action for breach of contract. Res judicata did not apply in this casebecause neither the trial court's original ruling denying the owner'sexceptions nor the court of appeal's action on the writ contained decretallanguage dismissing all of the plaintiff's claims. A final judgment mustcontain decretal language.

Though the court disagreed that res judicata operated, it recognizedthat the writ action may nonetheless constitute "law of the case." However,there was no indication that the court of appeal had considered the breach ofcontract claim when it ruled on the earlier writ application. Thus, theexception of res judicata could not be sustained on the basis of the law of thecase doctrine.

C. Required specificity in statement of claim.

1. Simms Hardin Company, LLC v. 3901 Ridgelake Drive, L.L.C., 12-469(La. App. 5th Cir. 5/16/13); 119 So. 3d 58. In connection with theconstruction of a condominium development, various subcontractors filedstatements of claims for specific amounts of money, describing the workperformed as "electrical and lighting work," "wall preparation and generalpainting work," "plumbing installation work" and other similar jobdescriptions. The statements did not identify the work performed onparticular condominium units. In response to the suit filed by thesubcontractors to enforce their privileges, the owner reconvened for damagesfor the cost of obtaining lien release bonds and ongoing damages for every

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day that the subcontractors' liens remained on the public records. The courtof appeal affirmed summary judgment in favor of the subcontractors on boththe main demand and the reconventional demand.

The court first rejected a contention by the subcontractors that theappeal was moot, on the ground that the lien claims had been cancelled ofrecord and the subcontractors had apparently all been paid the entirety of theamounts owed to them under their lien release bonds. The issue of whetherthe liens were valid continued to have direct relevance to the owner'sreconventional demand. The owner's contention that the lien claims wereinvalid was based upon arguments that the statements of claim did notreasonably identify the immovable with respect to which the work wasperformed and that they did not reasonably itemize the elements comprisingthe subcontractors' claims, as required by R.S. 9:4822(G). Rejecting bothcontentions, the court held that the statements of claim were not invalidbecause they referenced the original lot numbers that existed prior to theowner's resubdivision of the property into one lot. The description used inthe statements of claim comported with the statute's requirement to put theowner and third persons on notice regarding the immovable property subjectto the privilege. It was also not necessary for the statements to particularlyidentify the work performed on each particular condominium unit, becausethe record showed that the work performed by each subcontractor wasperformed throughout the entire development prior to the sale of individualunits. The court also found that the description of the work was sufficient,because it was individualized as to each subcontractor and sufficientlydescribed the work performed by each. In so holding, the court distinguishedTee It Up Golf, Inc. v. Bayou State Construction, 30 So. 3d 1159 (La. App.3d Cir. 2010), which had held that a description of "materials supplied" wasmerely a lump sum amount that did not meet the statutory requirement to setforth the amount and nature of the claim giving rise to the privilege.

2. Mid-South Plumbing, L.L.C. v. The Development Consortium-ShellyArms, L.L.C., 2012-1731 (La. App. 4th Cir. 10/23/13); 126 So. 3d 732.In 2002, a plumbing contractor filed a statement of claim in the mortgagerecords, identifying the property but not naming the owner of the property.The following year, the plumbing contractor filed a suit to recover theoutstanding balance from a prior owner of the property who had no interestin the property at the time the work was performed. The plumbing contractoralso filed a notice of lis pendens in the mortgage records misidentifying theowner of the property as the prior owner. The plumbing contractor later filedan amended petition substituting the correct owner as the party defendant butfailed to amend either its statement of claim or the notice of lis pendens. Thefollowing year, when the correct owner granted a mortgage to the bank, thetitle attorney did not discover either the statement of claim or the notice oflis pendens. Five years afterward, the plumbing contractor obtained ajudgment in its suit and arranged for the property to be seized by the sheriff.Upon receiving a Mennonite notice, the bank filed a petition for an injunction

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against the plumbing contractor, arguing that its privilege was unenforceablebecause the statement of claim had failed to identify the correct owner of theproperty as mandated by law. The plumbing contractor responded withexceptions of no right of action and no cause of action, which the trial courtoverruled. The trial court also granted the preliminary injunction sought bythe bank. The court of appeal affirmed.

The contractor's exception of no right of action was premised uponan assertion that the Code of Civil Procedure allows a third person claiminga mortgage upon seized property to intervene only to share in the distributionof sales proceeds and to contest ranking. According to this argument, sincethe earlier judgment had recognized the privilege as valid and this judgmentwas neither appealed nor declared to be null, the bank had no standing tochallenge the sale. The court disagreed, finding that nothing in the Code ofCivil Procedure expressly prevents a mortgagee from seeking injunctiverelief to stop the sale of unlawfully seized property, regardless of whetherthere is a previously undisputed judgment recognizing the alleged validity ofthe underlying privilege. Though C.C.P. art. 1092 permits a third partyclaiming a mortgage to assert his claim by intervention, that article does notaddress the rights of third parties contesting the validity of the sale itself.Moreover, contrary to the plumbing contractor's arguments, C.C.P. art. 2298,which permits judgment debtors and third persons claiming ownership ofseized property to seek injunctive relief, does not provide that they are theonly parties entitled to injunctive relief.

The court then turned to the issue of whether the preliminaryinjunction had been properly issued. Neither the statement of claim nor thenotice of lis pendens identified the correct owner of the property. It is a long-standing principle of statutory interpretation that statutes creating liens andprivileges are stricti juris and their provisions are to be strictly construedagainst the parties in whose favor the privileges are created. R.S. 9:4855(G)lists the information that must be included in a statement of claim or privilegeand states that it must "reasonably identify" the owner of the affectedproperty. Accordingly, the trial court did not abuse its discretion in grantinga preliminary injunction in favor of the bank. The court also rejected thecontractor's argument that the bank had failed to demonstrate irreparableinjury. Even though the bank's damages would be quantifiable, injunctiverelief is still proper where a monetary judgment is expected to be valuelessdue to the insolvency of a judgment debtor or for other reasons, such asevidence that the judgment would likely not be paid. Moreover, the courtshave long held that it is not necessary to allege irreparable injury in a suitseeking injunctive relief on the ground that the party to be enjoined ispursuing a course of action reprobated by law.

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IV. Suretyship.

A. Authorization.

Gulf Coast Bank and Trust Company v. Montoli & Pitre, LLC, 13-784 (La.App. 5th Cir. 3/12/14); 138 So.3d 57. To evidence an SBA loan to a limitedliability company owned by two spouses, the husband signed a promissory note onbehalf of the limited liability company, himself and his wife, purportedly actingpursuant to a power of attorney. He also executed a continuing guaranty agreementon his wife's behalf. Though the power of attorney in question did not specificallymention executing a guaranty, it did empower the husband to act "in connection withthe loan transaction with Gulf Coast Bank and Trust Company and to execute anyand all documents necessary to consummate said loan transaction," and it furthergranted the husband "complete power to perform any and all acts necessary andproper in the premises as fully as [the principal] could do if she were personallypresent and acting for herself." When the bank brought suit to enforce her guaranty,the wife claimed that the power of attorney did not authorize the guaranty. The trialcourt granted summary judgment in favor of the bank, and the court of appealaffirmed.

C.C. art. 2997 provides that the power to become a surety must be expresslygiven. Moreover, the fact that a suretyship must be in writing means that a powerof attorney authorizing a suretyship must also be in writing. Both requirements weremet in this case. The wife gave the husband authority to act "as fully" if she were"personally present and acting for herself." The power of attorney did not limit thehusband's authority to acting for his wife in her capacity as a member of the limitedliability company. The words "for herself" authorized the husband to bind the wifepersonally. In reaching this holding, the court distinguished In re Succession ofAucoin, 771 So.2d 286 (La. App. 1st Cir. 2000), in which a general mandate in favorof a husband was held not to give him express authority to donate his wife's property.The court distinguished Aucoin on the ground that it involved a general grant ofauthority executed over four years before the transaction in question, rather than alimited grant of authority in connection with a specific loan transaction executedonly two days before the loan closing. Finally, the court observed that, under C.C.art. 3021, one who causes a third person to believe that another person is hismandatary is bound to the third person who in good faith contracts with the putativemandatary. Even if the power of attorney did not expressly grant the husbandauthority to bind his wife as surety, her acts in executing this particular power ofattorney caused the bank to believe that her husband was her mandatary for thispurpose.

B. Pro-rata guaranty.

See LSREF 2 Baron, L.L.C. v. Tauch, infra (granting the lender summaryjudgment in a suit on a percentage guaranty, where the guarantor filed an answer inthe form of a general denial but did not raise the affirmative defense of payment.)

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C. Guaranty of obligations other than loans.

1. G. A. Lotz Company, Ltd. v. Alack, 13-674 (La. App. 5th Cir. 4/9/14);140 So.3d 94. A written purchase agreement provided for the sale of acompany's business assets in exchange for a price payable by the buyer overtime, with the final installment based upon the company's EBITDA. Inaddition to the signature of the buyer's principal as guarantor, the agreementcontained the signatures of two of the seller's employees as "intervenors"without stating specifically the reason for their signatures. However, the textof the agreement provided that those two employees would remain on asemployees of the company for purposes of calculating the company'sEBITDA. When the seller sued for payment of the final installment, thebuyer reconvened against the seller and the two intervenors, alleging that theagreement had been induced by fraud. The trial court granted summaryjudgment in favor of the two intervenors, and the court of appeal affirmed.The buyer argued that mere allegations of fraud in the inducement aresufficient to withstand summary judgment and that individual liability forcorporate obligations is imposed. Rejecting this contention, the courtobserved that the allegations of fraud were not substantiated in the record, byevidence or by testimony. The buyer's conjectural allegations of fraud weretoo speculative, and the buyer failed to produce factual support sufficient toestablish that it would be able to satisfy its burden of proof at trial.

The buyer also sought to hold the two intervenors liable asguarantors, even though the language of the agreement did not name them asguarantors nor contain any guaranty. The intervenors contended that theyhad signed the purchase agreement for purposes of agreeing to remain asemployees. The buyer's corporate representative admitted in depositiontestimony that the only party designated as a guarantor in the agreement wasthe buyer's guarantor and that there were no documents by which theintervenors agreed to act as guarantors. This representative testified,however, that it was his understanding that the two intervenors signed inorder to mislead the buyer into believing that they were guarantors. Thecourt rejected this contention, finding that there was nothing in the agreementto indicate that the intervenors were acting as guarantors. Moreover, thebuyer was not without counsel to review the agreement, as its current counselwas involved in the negotiations over the agreement. Judge Johnsondissented, finding the agreement to be ambiguous because there was noevidence in the agreement that the two intervenors signed only for thepurposes of continued employment. The deposition testimony of the buyer'srepresentative that the purpose of the intervenors' signature was to bind thempersonally to make sure the seller performed its obligations should have beensufficient to withstand the intervenors' motion for summary judgment.

2. 2 S Sign Company, Inc. v. Keller, 2014-47 (La. App. 3d Cir. 5/17/14); 139So.3d 552. Following trial of a suit on open account for the price of customadvertising signs, the trial court rendered judgment against both the limited

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liability company that had ordered the signs as well as its employee who hadnegotiated for the signs. This employee was neither a member nor officer ofthe limited liability company. The trial court's ruling did not disclose thetheory upon which it found the employee to be personally responsible.Reversing the judgment against the employee, the court of appeal observedthat the employee could not be held liable as a surety because there was nowriting whereby the employee purported to express an intent to be personallybound for the obligations of the company. Moreover, the plaintiff's ownerand operator testified that she was aware that the contract was with thelimited liability company and that the employee never provided anything inwriting or even made a verbal representation that he guaranteed the paymentobligation. Though the pleadings contained no specific allegations of fraud,the plaintiff advanced an argument at trial that the employee had defraudedthe plaintiff. However, no evidence or testimony was presented to provefraud. The plaintiff also advanced a theory of piercing the corporate veil;however, piercing the corporate veil applies only to shareholders, directorsand officers, not to employees. Thus, the trial court's judgment was clearlywrong.

V. Sales and lease cases of interest to secured lenders.

A. Repurchase agreements.

First Bank and Trust v. Redman Gaming of Louisiana Inc., 13-369 (La. App.5th Cir. 12/12/13); 131 So.3d 224. In connection with the sale of gaming assets, thebuyer's lender and the seller entered into an agreement by which the seller agreed torepurchase certain of the assets for $1,000,000 in the event that the buyer defaultedunder the promissory note held by the lender. After the buyer's default, the lendersent notices to the seller demanding repurchase, but the seller refused to perform onthe ground that the agreement was unenforceable or ambiguous because the buyerno longer owned all of the assets that were to be repurchased. The trial court grantedsummary judgment in favor of the lender, and the court of appeal affirmed.

Contracts are interpreted according to the true intent of the parties. A courtis not authorized to alter or make a new contract for the parties. Even if a contractis inartfully drawn and a party now regrets the final outcome, the contract must beenforced if the plain language of the contract is clear and unambiguous. Rejectingthe seller's argument that the contract was ambiguous because it did not provide forthe repurchase of a portion of the assets, the court of appeal found that the contractwas clear and unambiguous. It required the repurchase price to be paid by the sellerwithin 45 days of written notice of default from the lender. It further provided thatthe buyer would deliver the repurchased assets to the seller contemporaneously withthe delivery of the purchase price and that the seller would look solely to the buyerfor return of the assets and would have no rights or claims against the lender as aresult of the buyer's failure to do so. Thus, the agreement made clear that, if therewere any problems relating to the delivery of the assets following the repurchase, theseller's sole remedy would be against the buyer. The court of appeal also affirmed

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the trial court's rejection of the seller's argument that the lender was obligated tomitigate its damages by first pursuing the buyer in order to reduce the amount of theseller's liability. The doctrine of mitigation of damages is inapplicable as there wasno indication that the lender suffered further actual damage as a result of the seller'sfailure to perform its obligation to repurchase the assets. The seller's liability wasnot increased beyond that which was contemplated by the agreement.

B. Notice of lis pendens of suit to annul purchase agreement.

Hollier v. Perret, 2013-735 (La. App. 3d Cir. 12/11/13); 2013 WL 6536345. Aperson who had contracted to purchase an immovable filed suit to annul his purchaseagreement, and at the time the suit was filed his attorney filed a notice of lis pendensin the mortgage records. Eight days later, the immovable was sold to a buyer, whothen brought a mandamus suit against the clerk of court and the attorney who hadfiled the notice of lis pendens to order to have it cancelled of record. The attorneyfiled exceptions of no cause of action, no right of action and improper use ofsummary proceedings, all of which were rejected by the trial court in renderingjudgment in favor of the buyer, directing the clerk of court to cancel the notice of lispendens.

The court of appeal reversed and remanded, but only after upholding most ofthe trial court's rulings. The buyer clearly had a right of action to pursue thelitigation, and R.S. 44:115(B) provides that a writ of mandamus is available to cancelan improperly recorded document. Moreover, under C.C.P. art. 2592, mandamus istriable by summary proceedings. The grounds asserted in support of the exceptionof no cause of action were simply that the petition did not state a cause of actionagainst the clerk because it did not seek to compel the performance of a ministerialduty. Since the petition alleged that the underlying suit giving rise to the notice oflis pendens sought only to cancel a purchase agreement and not to assert any interestin the property, the trial court did not err in overruling the exception of no cause ofaction on this point. However, when counsel of record signs a notice of lis pendens,he is acting on behalf of his client and not in an individual capacity. Whilemandamus is directed to a public official, the party who recorded or caused therecordation of a notice of lis pendens is a necessary party to an action to have itcancelled. Non-joinder of a party is a peremptory exception that can be raised by theappellate court on its own motion. Naming a party's counsel of record as a defendantdoes not equate to naming the party personally, nor does it cause the counsel ofrecord to be personally responsible for his client's actions. The court held that thepetition did not state a cause of action against the attorney, and the court noticed onits own motion the buyer's failure to name the attorney's client as a necessary partyto the mandamus action.

C. Redhibition.

MGD Partners, LLC v. 5-Z Investments, Inc., 2012-1521 (La. App. 1st Cir.6/2/2014); 145 So.3d 1053. The plaintiff purchased several tracts of undevelopedland from the defendant with the intention of creating a residential development.

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Almost three years after the sale, the buyer received a notice from the Army Corpsof Engineers that the entirety of the property was located within the boundaries ofa former bombing and gunnery range. Accordingly, the parish would issue nofurther permits for development activities on the property until the risk ofcontamination had been fully investigated and remedied. Several months later, thebuyer filed suit for redhibition. The seller responded with an exception ofprescription, asserting that it did not know of the redhibitory defect at the time of thesale and that the claim was therefore prescribed by the passage of one year. Theseller also reconvened against the buyer for deficiency judgment on promissory notesthat had been given to represent the unpaid purchase price of two of the tractspurchased. Finding that the property was purchased for residential purposes, the trialcourt applied the one-year prescriptive period applicable under C.C. art. 2534(A)(2),sustained the seller's exception of prescription and granted summary judgment infavor of the seller on the notes. The court of appeal reversed.

C.C. art. 2534(A)(2) provides that, when a defect exists in residential orcommercial immovable property, an action for redhibition against a good-faith sellerprescribes in one year from the day of delivery. The language of this provision doesnot specifically address whether the classification is based on the intended use of theproperty or the state of the property at the time of the sale. Overruling its previousholding in the unpublished opinion of Ndanyi v. White, 07-0682 (La. App. 1st Cir.1/30/08), the court held that the prescriptive period for redhibition is determined bythe actual character of the property as of the date of the sale based upon objectiveevidence and not upon the intended use of the property. C.C. art. 2520 provides thatthe seller warrants the buyer against redhibitory defects in the thing sold. The "thingsold" has a definite character at the time of sale which cannot be altered by thebuyer's intent. When the property was purchased, it was neither residential norcommercial. Instead, it was unimproved, undeveloped pasture land. Thus, given thenature of the property at the time of the purchase, the four-year prescriptive periodapplies.

The court of appeal also reversed the trial court's grant of summary judgmenton the seller's reconventional demand for recovery on the buyer's promissory notes.A deficiency judgment proceeding is subject to all of the ordinary defenses availableto a debtor, including the defense that the obligation has been modified orextinguished. In this case, the purchaser is requesting that the sale of certainproperty be rescinded and the price of the remainder of the property be reducedbecause of a redhibitory defect. Since the redhibition claim had not prescribed,summary judgment on the deficiency action was not appropriate. Although theevidence submitted by the buyer in opposition to summary judgment was notsufficient to prove the buyer's claim in redhibition, it was at least sufficient to raisea genuine issue of material fact. Judge Kuhn dissented, pointing out that the entirebasis of the redhibition claim was that the buyer was unable to use the property forits intended purpose of residential development. The majority's conclusion that theproperty was not residential since residential development had not occurred as of thedate of the sale turns a blind eye to the requirements necessary to support a claim forredhibition. In order to reach the conclusion that a thing sold is useless under an

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application of the provisions of C.C. art. 2520, the trier of fact must necessarilydetermine the thing's intended use.

D. Liability of lender as successor lessee.

Ciolino v. First Guaranty Bank, 2012-2079 (La. App. 1st Cir. 10/30/13); 133So.3d 686, writ denied, 132 So.3d 962 (La. 2/14/14). The original lessee under afifty-year lease assigned the lease to two banks under a dation en paiement pursuantto which the two banks bound themselves to perform all conditions and obligationsof the lease as though they were the original lessees. The lessor intervened in thedation to expressly release the original lessee from further liability. Seven monthslater, the banks transferred the lease to an assignee, but the lessor did not consent tothe transfer. Over twenty years later, the assignee advised the donee to whom theoriginal lessor had transferred the property in the meantime that the assignee wouldnot be able to continue to honor its lease obligations, and the donee thereupon filedsuit against the banks for unpaid rent. The banks' primary defense was predicatedupon an act of acknowledgment the lessor had signed a few years earlier inconnection with yet another assignment of the lease. In that instrument, the lessorsrepresented that no other persons had any right or interest in the lease other than thecurrent lessees. The trial court granted summary judgment in favor of the owner(lessor), and the court of appeal affirmed.

The banks' argument was essentially one of novation, which takes place whena new obligor is substituted for a prior obligor who is discharged by the obligee.Novation may not be presumed, and the burden of proving novation falls upon theparty who seeks its protection. The language of the act of acknowledgment signedby the lessor did not establish a clear and unequivocal intention to extinguish thebanks' liability under the lease. The act of acknowledgment did not state that anotherparty had been substituted for the banks or that the banks had been discharged fromtheir obligations under the lease. The acknowledgment contained no express releaseof the banks nor did it represent that the current lessees were the only partiesobligated by the lease.

An alternative argument advanced by the banks was that the plaintiff did nothave the right to enforce the lease as the owner of the property that was subject to thelease. According to this argument, the original lessor's rights in the lease werepersonal rights that were not transferred with the property because they were notidentified in the act of donation. The court observed that the banks were correct thata lease of an immovable is a personal right and not a real right. Under C.C. art.2711, the transfer of leased property does not terminate a lease unless the partieshave agreed otherwise. Under R.S. 9:2721(c), anyone who acquires immovableproperty that is subject to a recorded lease agreement that is not divested by theacquisition takes the property subject to all of the provisions of the lease. In Pradosv. South Central Bell Telephone Co., 329 So.2d 744 (La. 1975), the Supreme Courtheld that, while predial leases involve personal rights rather than real rights, whenthe lessor sells property during the term of a recorded lease, the successor in theabsence of a contrary stipulation is bound by the obligations of the lessor and in the

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absence of a contrary stipulation the new owner is likewise entitled to the rentaccruing subsequent to his acquisition. Professor Yiannopoulos explains in histreatise that, for reasons of social and economic utility, the successor is entitled tocollect the rent and is bound to maintain the lessee in undisturbed enjoyment, but isnot bound by personal obligations that the former owner assumed with respect to theproperty, even vis-a-vis the lessee. In finding that the donee had the right to collectthe rent, the court rejected the banks' attempt to rely upon the official revisioncomments to C.C. art. 2711 for the proposition that a transferee does not, by virtueof the transfer alone, become the lessor or become subrogated to the lessor's rights.This statement neglects to consider the legal consequences that flow from therecordation of the lease prior to the transfer and in any event is not the law.

The court also rejected the banks' argument of equitable estoppel, which wasapparently based upon the actions of the lessor in acknowledging an assignment ofthe lease as well as their receipt of rent from the subsequent assignees. Equitableestoppel is a jurisprudential doctrine involving the voluntary conduct of a partywhereby he is precluded from asserting rights against another who has justifiablyrelied upon such conduct or changed his position such that he will suffer injury if theformer is allowed to repudiate the conduct. The record contained no evidence thatthe banks made a detrimental change in their position in reliance upon arepresentation by the lessor.

Finally, the court rejected the banks' defense that summary judgment wasinappropriate because the plaintiff had failed to offer any proof that he had mitigatedhis damages. The failure to mitigate damages is an affirmative defense, and theburden of proof is on the party asserting the defense. Thus, the banks were obligatedto produce factual support sufficient to establish that they would be able to satisfytheir burden of proof at trial that the plaintiff had failed to make reasonable effortsto mitigate damages. Since the record was silent on whether any efforts were madeto relet the property, the banks failed to satisfy their burden of proof.

VI. Executory process.

A. Injunctive relief/reconventional demands.

1. Wells Fargo Bank v. Settoon, 2012-1980 (La. App. 1st Cir. 6/7/13; 120So. 3d 757, 80 UCC Rep. Serv. 2d 1002. In response to an executoryprocess suit, the defendant filed a petition for injunction alleging thatexecutory process was improper because the corporate status of the originalholder of the mortgage note had been suspended by the California Secretaryof State since 1990, and the endorsement of the note was made on an allongethat was not dated or notarized, nor was there any identification of the personwho signed the allonge other than her name and title. The trial court grantedthe injunction, but the court of appeal reversed.

As amended in 2012, R.S. 9:4422 provides that signatures affixed tothe promissory note, whether negotiable or not, secured by a mortgage are

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presumed genuine, and no further evidence of those signatures is required forthe purposes of executory process. R.S. 10:3-204(A) provides that, for thepurpose of determining whether a signature is made on an instrument, a paperaffixed to the instrument is a part of the instrument. In this case, thedefendant had alleged in her verified pleading that the allonge was attachedto the original promissory note. The court found this to be a judicialconfession that the allonge was in fact attached to the note. Accordingly, theallonge formed part of the note and the signature on the endorsementappearing on the allonge, which purported to convert the note to bearerpaper, was presumed genuine. No further evidence of the endorsement orassignment of the note was required for executory process. Nor was the bankrequired to produce any further evidence of the identification or employer ofthe person who actually signed the endorsement on behalf of the originalholder. In a footnote, however, the court indicated that it expressed noopinion on whether the defendant could amend her petition on remand toremove on grounds of error the allegation of attachment of the allonge so asto revoke the judicial confession for purposes of the trial on the permanentinjunction. With regard to the defendant's argument that executory processwas improper because the California Secretary of State had suspended theoriginal holder's corporate status in 1990, the court observed that R.S. 10:3-202(A) provides that negotiation is effective even if obtained from acorporation exceeding its powers or a person without capacity.

2. Wells Fargo Bank v. Tonagel, 2012-0380 (La. App. 1st Cir. 6/7/13); 117So. 3d 1263. In response to a petition for executory process, the defendantfiled a petition for injunction, a motion to disqualify the plaintiff's counseland a reconventional demand for damages, also seeking to have the order forseizure of the mortgaged property set aside and the writ of seizure and salerecalled, to enjoin the sheriff from proceeding with the sale and to orderreinstatement of the mortgage without penalties. When the plaintiff failed toanswer the reconventional demand in a timely manner, the court confirmeda default judgment granting the defendant all of the relief she sought. Thecourt of appeal reversed. Though the defendant had notified the plaintiff bycertified mail of her intent to seek a preliminary default, she failed to providethe plaintiff with notice of the date of entry of the preliminary default bycertified mail at least seven days before confirmation of the default judgment,as required by C.C.P. Art. 1702(A). That provision requires that notice of theentry of the preliminary default must be given to a party in default who madean appearance of record. In this case, since the bank had initiated theexecutory proceeding, it clearly had made an appearance of record and wasentitled to the notice. Strict compliance with the procedural requirements ofthis statute is required in order to obtain a valid confirmation of the defaultjudgment. Since the defendant had notified the plaintiff only of her requestfor a preliminary default, and not the date of entry of the default, thejudgment confirming the default was null.

3. Bank of America v. Erazo, 13-153 (La. App. 5th Cir. 10/9/13); 128 So.3d

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383. In opposition to an executory process suit against an immovable, thedefendant filed both a petition for injunction against the use of executoryprocess and a reconventional demand, claiming damages for the lender'salleged violations of the Unfair Trade Practices Act and the lender's failureto negotiate under the covenants of good faith and fair dealing, as well as aclaim that Louisiana's executory process law is unconstitutional. The trialcourt issued a temporary restraining order and set a hearing on the request fora preliminary injunction. After the defendant's counsel sent a copy of thisorder to the plaintiff's attorney by certified mail, the plaintiff responded withan exception of insufficiency of service of process, arguing that it shouldhave been served with this order by the sheriff, as well as an exception ofimproper cumulation of the reconventional demand with the executoryprocess suit, and a motion to strike the reconventional demand. The plaintiffalso filed an exception of no cause of action under the Unfair Trade PracticesAct. At the conclusion of the hearing, the trial court granted the motion tostrike and all of the plaintiff's exceptions, dismissing the defendant's claimswithout addressing the merits of either the claim for an injunction or thereconventional demand. The court of appeal affirmed in part and reversedin part.

C.C.P. Art. 1313 allowed the order setting the hearing on thepreliminary injunction to be served by certified mail because it was apleading that was filed subsequent to the original petition and that set a courtdate. Thus, the exception of insufficiency of service of process should havebeen overruled. Though the exception of improper cumulation of thereconventional demand was properly granted, the trial court erred in simplydismissing the reconventional demand, rather than severing it and assigningit a new suit number. Finally, with respect to the defendant's appeal of thegranting of the exception of no cause of action, the court of appeal found thatthe trial court had not ruled on the claims for wrongful foreclosure, failure tonegotiate under covenants of good faith and fair dealing or the defendant'sconstitutional challenge to executory process, because the exception waslimited in its scope to a claim that the defendant had not stated a cause ofaction under the Unfair Trade Practices Act.

4. Eastern Savings Bank v. Pharr, 2012-1754 (La. App. 4th Cir. 7/3/13);____ So.3d ____, 2013 WL 3375374 (not yet released for publication inthe permanent law reports). After the sheriff had made severalunsuccessful attempts to serve the defendant in an executory proceeding atan unoccupied address and after the plaintiff had attempted unsuccessfullyto locate the defendant through a skip-trace service, the trial court appointeda curator. Two weeks before the scheduled sale, the defendant filed apetition for preliminary injunction of which the plaintiff's attorney obtainedinformal notice one day before the scheduled sale. On the date of the sale,the trial court entered a preliminary injunction, even though plaintiff'scounsel was not served with the petition for injunction until several dayslater. The court of appeal reversed, finding that the trial court had failed in

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several respects to comply with mandatory provisions of law. First, the trialcourt failed to follow the mandatory provisions of C.C.P. Art. 3602, whichprovides that a preliminary injunction shall be assigned for hearing not lessthan two days after service of the notice. The trial court also erred in findingthat the plaintiff had not complied with the requirements for appointment ofa curator, in view of the fact that the steps taken by the plaintiff to serve thedefendant were reasonable. Finally, the trial court erred in excusing thedefendant from the obligation to post security for the preliminary injunction.The requirement of security is mandatory unless dispensed with by law. Thetrial court's belief that the plaintiff had failed "to exercise the mostfundamental requirements of our legal system: due process" was not apermissible basis for dispensing with security.

5. U.S. Bank National Association v. Dumas, 2012-1902 (La. App. 1st Cir.4/13/14); 144 So.3d 29, writ denied 147 So. 3d 1119 (La. 8/25/14). Oneday before a scheduled executory process sale, a residential mortgagor fileda petition to enjoin the seizure and sale of the property. Although C.C.P. art.2752 prohibits the granting of a temporary restraining order to arrest theseizure and sale of immovable property, the mortgagor obtained an ex parte"stay order" prohibiting the sheriff from proceeding with the sale. After ahearing, the trial court granted a preliminary injunction.

In reversing the trial court's action, the court of appeal rejected a longlitany of perceived defects alleged by the mortgagor. The mortgageeproperly filed with its executory process petition a copy of the mortgagecertified by the clerk of court. Contrary to the mortgagee's arguments, Bankof New York Mellon v. Smith, 71 So.3d 1034 (La. App. 3d Cir. 2011), a caseinvolving a lost mortgage note, does not stand for the proposition that theonly certified copy that may be produced is one certified by the same notarybefore whom the mortgage was initially executed.

The mortgagor also attempted to seize upon other language in Bankof New York Mellon to the effect that the confession of judgment in themortgage involved in that case did not contain the phrase "if the obligationis not paid at maturity." Rejecting this contention, the court pointed out thatthe court in Bank of New York Mellon did not attribute any substantiveconsequences to the omission of that phrase and based its ruling on othergrounds. In the mortgage in this case, the mortgagor confessed judgment forall sums secured by the mortgage. Moreover, by its terms, the paragraph inwhich the confession of judgment appeared is applicable only in the event ofacceleration of the promissory note which, under another paragraph of themortgage may occur only upon failure of payment. These provisions aresufficient to satisfy the requirements for confession of judgment under C.C.P.art. 2632.

The mortgagor's third asserted defect was that the petition failed toallege that the mortgagee was the holder or owner of the promissory note,

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claiming that the mortgagee had failed to satisfy any of the essentialrequirements of R.S. 10:3-301, which defines a person entitled to enforce aninstrument as the holder of the instrument, a non-holder in possession of theinstrument who has the rights of a holder, or a person not in possession of theinstrument who is entitled to enforce it pursuant to Section 3-309 or 3-418(d). Rejecting this contention, the court pointed out that a holder isdefined, in part, as the person in possession of a negotiable instrument thatis payable either to bearer or to an identified person who is the person inpossession. With its foreclosure petition, the mortgagee presented theoriginal note which had been endorsed to its order. These allegationssatisfied the requirements of Section 3-301.

The mortgagee's next contention was based upon discrepancies in thename of the plaintiff as shown on the endorsement on the original promissorynote ("RFMSI 2005 S7"), when an affidavit from a purported expert inforeclosure and mortgage documentation examination opined that theplaintiff was a trust actually named "RFMSI Series 2005 S-7 Trust." Thecourt held that the plaintiff in its capacity as a trustee was the payee of thepromissory note and was in possession of it and therefore was the properplaintiff in the proceeding. Since a trust is a relationship rather than anentity, purported discrepancies in the name of the trust did not affect theprocedural right of the plaintiff, as trustee, to enforce the promissory note.In a related contention, the mortgagor argued, based on an affidavit from anexpert in mortgage securitization analysis, that the promissory note wastransferred to the trust after the "closing date" and is therefore null and void.Rejecting this contention, the court observed that no statute or jurisprudencein Louisiana suggests that the acquisition of a promissory note and mortgageafter the closing date of a trust prevents the trustee from enforcing the noteand mortgage.

The mortgagor also claimed that he was not provided notice of thetransfer of the promissory note until foreclosure in violation of both theTruth-in-Lending Act, 15 U.S.C. §1641, and the Real Estate SettlementProcedures Act, 12 U.S.C. §2601. The Truth-in-Lending Act does notprovide that the failure to give the notice is a defense to payment of the debtor otherwise prevents the creditor from invoking foreclosure proceedings ifthe borrower defaults. The RESPA provision requires that a loan servicernotify the borrower in writing of any assignment, sale or transfer of theservicing of the loan. The mortgagor provided no evidence of any transfermade for loan servicing and thus failed to make a prima facie showing thathe was entitled to a RESPA notice. Moreover, an individual's remedy for aviolation of this RESPA provision is a claim for actual damages. RESPAdoes not prevent the assignee from using executory process to enforce themortgage. As an aside, the court pointed out that C.C. art. 2643 provides thatan assignment of a right is effective against the debtor only from the time thathe has actual knowledge or has been given notice of the assignment. Serviceof a petition to enforce an assigned obligation is sufficient notice under C.C.

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art. 2643, particularly in this case where the mortgagor does not allege thathe failed to pay the note because of any uncertainty or confusion concerningthe assignee's identity.

Another argument advanced by the mortgagor was that the bank wasobligated to furnish corporate resolutions confirming the authority of thoseindividuals who endorsed the promissory note on behalf of prior holders todo so. This contention was based primarily upon First Guaranty Bank v.Baton Rouge Petroleum Center, 529 So.2d 834 (La. 1987), in which theSupreme Court had held that a creditor seeking to use executory process wasrequired to offer authentic evidence of a corporate resolution authorizing theexecution of the mortgage. According to the court, First Guaranty Bank isdistinguishable because in the present case the mortgagor is challenging onlythe authority of corporate representatives to endorse a promissory note. R.S.10:3-308(a) provides that in any action with respect to an instrument, theauthenticity of and the authority to make each signature on the instrument isadmitted unless specifically denied in the pleadings. Even then, the signatureis presumed to be authentic and authorized unless the action is to enforce theliability of the purported signer and the signer is dead or incompetent at thetime of trial. Under this provision, the authority for those signing on behalfof prior endorsers is presumed and the mortgagee was not required to presenta corporate resolution to prove the authority of the corporate representativesto endorse the promissory note.

Another of the mortgagor's contentions was that the endorsements didnot qualify as signatures because they were made by stamps rather than beinghandwritten. R.S. 10:1-201(37) defines the word "sign" to include anysymbol executed or adopted with present intention to adopt or accept awriting. Following a decision in which the North Carolina Supreme Courthad construed this provision to mean that the UCC does not limit a signatureto a long-hand writing of an individual person's name, the court found thata stamped signature indicated an intention to adopt or accept a writing for thepurpose of negotiating a promissory note. The stamped signature wastherefore deemed authentic pursuant to R.S. 9:4422.

Yet another contention rejected by the court was that, since themortgage had been executed in favor of MERS and MERS never assignedthe mortgage, the note and mortgage had become "split" with the effect thatthe plaintiff could not foreclose on the property. The mortgage identifiedMERS as the mortgagee but explained that MERS was acting solely as anominee for the identified lender who was the holder of the promissory notesecured by the mortgage. A mortgage is an accessory obligation to the debtit secures under C.C. art. 3282. Louisiana law is well-established that thetransfer of a note identified with a mortgage also transfers the mortgageitself. The out-of-state cases cited by the mortgagor provide no authority fordeparting from Louisiana law that an assignment of the note also transfers themortgage securing repayment of the note.

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The court also rejected the mortgagor's argument that the verificationwas defective because it was signed by counsel and based upon recordsprovided to the affiant by the secured party kept or obtained in the ordinarycourse of business. As the mortgagor conceded, C.C.P. art. 2634 does notrequire a petition for executory process to be verified, though the Code ofCivil Procedure does permit certain matters to be established by verificationor affidavit. The mortgagor's specific complaint in this case was that theverification did not affirm that the endorsers' signatures are genuine;however, those signatures are presumed genuine under R.S. 9:4422. Thus,the claim that the deficiencies in the verification precluded the use ofexecutory process was without merit.

The mortgagor also contended unsuccessfully that there was noauthentic evidence of the endorsements and transfers of the note, citing an1884 case requiring authentic evidence of transfers. However, the necessaryevidence to establish a signature on an instrument is now governed by R.S.9:4422, which provides that all signatures on an instrument are presumed tobe genuine and no further evidence is required of those signatures forexecutory process. In this case, the original note had been endorsed to themortgagee and the note reflected on its face that the mortgagee had the rightto enforce the instrument.

A related contention was based on a statement in the affidavit of anexpert in foreclosure and mortgage documentation to the effect that she is"currently investigating the person who signed one of the endorsements andthat person had instructed document custodians in thousands of foreclosurecases to apply her stamped endorsement after foreclosure proceedings hadbeen commenced and a consumer had challenged the chain of title." Thecourt found that this could not possibly apply in the present case because theendorsed note was presented at the time the executory process petition wasfiled.

Judge Whipple dissented, believing that the trial court's preliminaryinjunction was supported by the two affidavits outlining numerous perceivedissues with the chain of title, the stamped endorsements of the note that werenot done by authentic act and the lack of notice to the defendant of thetransfers of the note.

B. Incidental proceedings to gain possession of collateral.

1. Harley-Davidson Credit Corp. v. Davis, 2013-214 (La. App. 3d Cir.11/6/13); 127 So. 3d 50. In an executory proceeding filed by a secured partyholding a security interest in a motorcycle, the sheriff seized the motorcyclefrom the possession of an automotive repairman. When it was determinedthat the petition contained an error in the vehicle identification number of themotorcycle, the sheriff returned the motorcycle to the repairman, whoenforced his repairman's privilege by selling the motorcycle pursuant to R.S.

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32:719 before the clerical error in the foreclosure petition was corrected. Nonotice of this sale was given to the secured party, which later filed a ruleagainst the repairman to produce the collateral. When the repairman failedto appear at the hearing, the trial court issued a judgment declaring therepairman to be in contempt of court for failing to appear and ordering therepairman to immediately deliver the motorcycle to the sheriff's office.Affirming the trial court's judgment, the court of appeal rejected therepairman's contention that the trial court had improperly used a summaryproceeding in an action that sought relief in the form of either a declaratoryjudgment or a mandatory injunction. The rule to show cause filed by thesecured party was an incidental matter pertaining to the executoryproceedings for the location and production of collateral. The repairman'sproper remedy was to intervene in the pending executory processproceedings under C.C.P. Art. 1091. Moreover, the secured party'suncontested security interest in the motorcycle outranked any claim that therepairman might have under R.S. 9:4501.

2. Jefferson Financial Credit Union v. Williams, 13-852 (La. App. 5th Cir.6/24/14); 145 So.3d 488. In executory proceedings, the sheriff was unableto locate the pick-up truck in which the plaintiff held a security interest. Theplaintiff filed a motion seeking to rule the defendant into court to produce thetruck for seizure. At the hearing on the rule, the trial court ordered thedefendant to produce the truck or face jail time for contempt of court,rejecting arguments by the defendant that a suit against the secured partypending in a different division of the court precluded seizure. The defendantthen filed a motion for appeal, which the court of appeal dismissed. UnderC.C.P. art. 2642, defenses and procedural objections to an executoryproceeding must be asserted either through an injunction to arrest the seizureand sale or a suspensive appeal taken within fifteen days of the signing of theorder. The defendant sought neither avenue of relief but instead attempteda devolutive appeal, which was an improper procedural vehicle to arrest theseizure and sale of the vehicle.

C. Abandonment of executory proceedings.

Nationstar Mortgage, LLC v. Harris, 2013-1335 (La. App. 4th Cir. 5/14/14); 141So.3d 829. After filing an executory process foreclosure, the lender requested thatthe sale be rescheduled until a title problem had been cleared. More than three yearsafter the last step taken in the executory proceedings, the defendants filed an ex partemotion to dismiss on grounds of abandonment, which was granted by the trial court.The court of appeal reversed, agreeing with the lender that no abandonment hadoccurred under the facts of the case but without accepting the lender's argument thatan order of executory process is a final judgment. The true judgment in anexecutory proceeding is not the order of seizure and sale but rather the debtor'sconfession of judgment in the mortgage. Semel v. Green, 211 So.2d 300 (1968) heldthat C.C.P. Art. 561 applies to executory proceedings, and logic dictates that thearticle must continue to apply in an executory proceeding until there is a sale.

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However, the doctrine of abandonment must be tailored to fit executory proceedingsand the difference between executory and ordinary proceedings cannot be ignored.Once the trial court renders an order of seizure and sale, all of the activities in theexecutory proceeding occur not in the trial court but in the sheriff's office. In thiscase, the lender contended that the steps it took to clear two prior encumbrances weresteps in the prosecution of the suit. The trial court had rejected this claim on theground that a step in prosecution must be taken in the record in the trial court, exceptin the case of formal discovery. The court of appeal disagreed. Although there is noexception in C.C.P. Article 561 for title clearing actions, it is appropriate given theunique nature of an executory proceeding to define a step in an executory proceedingas including actions taken to facilitate the sale of the property. Thus, the lender's titleclearing actions constituted a step in the prosecution of the executory proceedings.Judge Love dissented, finding that while a mortgage cancellation need not be filedin the suit record to be valid, there is no precedent that filing a document into themortgage records constitutes a step in furtherance of the prosecution of an executoryproceeding.

D. Post-sale attack in state court.

1. Gulf Coast Bank and Trust Company v. Warren, 2012-1570 (La. App.4th Cir. 9/18/13); 125 So.3d 1211. After both the sheriff and a specially-appointed process server were unable to serve the defendant in an executoryprocess proceeding, the plaintiff arranged for the appointment of a curator,who mailed certified letters to defendant at two addresses and also placed anadvertisement in the local newspaper. Seven months after the executoryprocess sale, the defendant filed a reconventional demand, seeking apreliminary injunction and/or annulment of the sheriff's sale, return of theproperty and damages. The plaintiff responded with an exception of no causeof action, which was sustained by the trial court. After granting thedefendant's motion for suspensive appeal, the trial court reversed itself anddenied the motion for a suspensive appeal on the ground that a suspensiveappeal cannot be taken from the denial of a preliminary injunction. On thisprocedural issue, the court of appeal held that the trial court was divested ofjurisdiction upon granting the motion for a suspensive appeal and thereforehad no ability to reverse itself. Converting the appeal to a devolutive one, thecourt of appeal then affirmed the sustaining of the exception of no cause ofaction.

With respect to the defendant's claim for annulment of the sheriff'ssale on the ground that the curator had taken insufficient actions to informhim of the pendency of the executory proceedings and had not filed his noteof evidence into the record until one month after the sheriff's sale, the courtobserved that a debtor who fails to exercise his right to appeal suspensivelyfrom an order of executory process or to enjoin the sale may attempt tonullify the completed sheriff's sale if the creditor is the adjudicatee, but onlyif there were substantive defects in the executory proceeding, such as fraud,lack of notice or ill practices by the foreclosing creditor. Objections to the

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lack of authentic evidence or to minor defects of form or procedure may notbe used as grounds to annul a judicial sale after recordation of the sheriff'ssale or proces verbal. In this case, the defendant had not made any factualallegations to support a claim that the plaintiff had failed to comply with thestrict requirements of notice of seizure and sale. The defendant did not assertthat he was not an absentee or that he was available to be served. The failureof a curator to represent an absentee defendant does not affect the validity ofan executory process sale. Thus, the defendant had not stated a valid causeof action for violation of due process. In support of the claim ofunconstitutionality of executory process, the defendant argued that 1989amendments to the Code of Civil Procedure made in 1989, after theLouisiana Supreme Court had upheld the constitutionality on executoryprocess in Buckner v. Carmack, 272 So.2d 326 (La. 1973), substantivelychanged the laws of executory process by removing the requirement that acreditor prove by authentic evidence the right to use executory process andthat the amendments therefore made executory process unconstitutional.Rejecting this argument, the court found that the 1989 amendments did notchange the substantive requirements for a creditor to use executory process.Rather, the legislature's stated purpose in enacting the 1989 amendments wasto amend pre–existing Louisiana security device law to accommodate theimplementation of Chapter 9 of the Louisiana Commercial Laws.

Finally, the defendant claimed that the trial court had erred insustaining an exception of no cause of action as to his claim that the plaintiffhad breached a covenant of good faith and fair dealing by failing to advisehim of options available to him to avoid foreclosure. The defendantattempted to draw an analogy to the statutory duty of good faith and fairdealing owed by an insurer to its insured. Though Louisiana law providesthat good faith governs the conduct of the parties in whatever pertains to anobligation, and that all contracts in Louisiana must be performed in goodfaith, Louisiana does not recognize a separate and distinct obligation of goodfaith, the breach of which is equivalent to a breach of contract. A party'sgood faith is not examined unless the court first finds that the party has failedto perform an obligation. The extent of recovery of the obligee's recoverabledamages is then determined according to whether the obligor failed toperform in good faith. Thus, judicial determination of whether there was agood faith or bad faith failure to perform a conventional obligation is alwayspreceded by a finding that there was a failure to perform. In this case, thedefendant's allegations do not indicate the source of any alleged duty on thepart of the lender to advise him of loan modification options, nor did thegoverning loan documents impose such an obligation. Thus, the trial courtproperly held that the defendant had failed to state a valid cause of action foran alleged breach of a covenant of good faith and fair dealing. In a footnote,the court also rejected the defendant's claim that a relationship of trust existsbetween a mortgagor and mortgagee thereby giving rise to a fiduciaryresponsibility. R.S. 6:1124 specifically provides that financial institutions donot owe fiduciary obligations to their customers in the absence of a specific

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written agency or trust agreement by which the financial institution agreesto act in the capacity of a fiduciary.

2. Wells Fargo Bank v. Thompson, 14-3 (La. App. 5th Cir. 5/21/14); 142 So.3d 182. Following the institution of executory proceedings to enforce aresidential mortgage, the lender and borrower entered into a forbearancearrangement under which the borrower agreed to make a series of scheduledpayments over the next four months. After the borrower defaulted in payingthe second of these payments, the lender filed a supplemental and amendedpetition alleging the borrower's failure to comply with the special forbearanceagreement and alleging the reduced balance owing under the loan. Theborrower then filed a Chapter 13 bankruptcy proceeding and, after thebankruptcy proceeding was dismissed, entered into another loan modificationagreement with the lender by which she agreed to make future payments.When the borrower failed to comply with the terms of this loan modificationagreement, the lender proceeded with its foreclosure action without filinganother amended petition. Less than a year after the sheriff's sale, theborrower filed suit to annul the sale alleging that the lender's failure to amendits petition to allege the terms of the second loan modification agreementconstituted a substantive defect rendering the sheriff's sale null. The trialcourt granted the lender's motion for summary judgment, and the court ofappeal affirmed.

The general rule is that defenses and procedural objections to anexecutory proceeding may be asserted only through an injunction to arrestthe seizure and sale or by suspensive appeal from the order directing theissuance of a writ of seizure and sale. However, the courts allow anexception to this general rule where the creditor is the adjudicatee at the saleand the debtor seeks to annul the sale based on substantive defects in theexecutory proceeding, such as fraud, lack of notice or ill practices by thecreditor. R.S. 13:4112 prohibits actions to annul executory process sales onthe ground of any objection to form or procedure or a lack of authenticevidence. In this case, the lender's failure to amend its petition to allege thechange in principal balance and interest rate reflected in the second loanmodification agreement did not constitute a substantive defect but rather wasonly a procedural objection, which was lost when the borrower failed to raisethis defense through an injunction or suspensive appeal.

3. Chase Home Finance, LLC v. Fox, 2014-489 (La. App. 3d Cir. 11/5/14)___ So.3d ___, 2014 WL 5668112 (not yet released for publication in thepermanent law reports). At an executory process sale, the collateral wassold for two-thirds of appraised value to a third-party purchaser. The seizingcreditor, which was not present at the sale, notified the sheriff's officeafterward that it disputed the sale and that the sheriff should not issue asheriff's sale deed in favor of the purchaser. The purchaser then filed a writof mandamus against the sheriff and, in response, the creditor filed a motionto annul the sheriff's sale. The court of appeal affirmed the trial court's

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judgment annulling the sheriff's sale. Under C.C.P. Art. 2338, when theseizing creditor is not present, the property cannot be sold for less than theamount necessary to satisfy his writ plus costs. In response to the third-partypurchaser's attempt to rely on Reed v. Meaux, 292 So. 2d 557 (La. 1973),which purportedly protects the rights of a third-party purchaser at anexecutory process sale, the court noted that, after that case was decided, R.S.13:4112 was enacted to provide that no suit may be set aside to enjoin anexecutory process sale after the sheriff has filed the proces verbal or the saleinto the conveyance records. It follows, therefore, that an executory processsale can be attacked where the property is sold to a third party provided thatthe attack is made prior to the recordation of the proces verbal or therecordation of the sale.

E. Post-sale attack in federal court/Rooker-Feldman doctrine.

1. Truong v. Bank of America, N.A., 717 F. 3d 377 (5th Cir. 2013). After astate court foreclosure sale, the mortgagor brought a diversity action againstthe mortgagee in federal court, alleging violations of the Louisiana UnfairTrade Practices Act in connection with the mortgage foreclosure proceeding.The district court dismissed the action on the basis of the Rooker-Feldmandoctrine. The court of appeals affirmed, but for different reasons.

The purported violations of the Unfair Trade Practices Act includeda claim that the foreclosing creditor lacked standing to seek executoryprocess because the note attached to the foreclosure petition had not been notproperly endorsed to it and, in addition, the lender had misled the plaintiffinto believing that it would process her application under the HomeAffordable Modification Program and had falsely told her that no sale wouldbe scheduled until that process was completed. She also alleged that theaffidavit submitted with the foreclosure petition was not authentic evidencebecause the person signing it was a known "robo-signer" who had notreviewed any documents concerning the mortgagor and was not authorizedto give such testimony. Finally, the plaintiff alleged that the foreclosingcreditor had failed to include all necessary authentic evidence required byLouisiana law.

Addressing first the applicability of the Rooker-Feldman doctrine, thecourt noted Supreme Court precedent that the doctrine is a narrow one andapplies when the federal plaintiff asserts as a legal wrong an allegedlyerroneous decision by a state court and seeks relief from a state courtjudgment based on that decision. On the other hand, the Rooker-Feldmandoctrine does not apply when a federal plaintiff asserts as a legal wrong anallegedly illegal act or omission by an adverse party. In this case, theplaintiff was alleging that the foreclosing creditor had misled the state courtinto believing that the evidence submitted with its executory process petitionwas authentic when it was not and had misled her into foregoing heropportunity to dispute authenticity of the evidence in state court proceedings.

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These are independent claims over which the district court had jurisdiction,because the plaintiff did not seek to overturn the state court judgment and thedamages sought were for injuries caused by the bank's actions, not injuriesarising from the foreclosure judgment. Although damages recoverablethrough an independent claim might be limited by preclusion principles, theRooker-Feldman doctrine does not turn all disputes about the preclusiveeffects of judgments into matters of federal subject-matter jurisdiction. Withregard to the defendants' contention that the Rooker-Feldman doctrine barsclaims that are "inextricably intertwined" with the state court judgment, thecourt observed that the defendants had conceded that the labels "independentclaim" and "inextricably intertwined" are mutually exclusive, and since thecourt had already found that the claims were independent, the defendants'invocation of the "inextricably intertwined" label was unavailing.

Nonetheless, even though the district court had jurisdiction to hear theplaintiff's suit, her claims seeking a declaration that the defendants hadlacked the necessary authentic evidence to support the use of executoryprocess were properly dismissed under Louisiana preclusion principles.Because the issuance of a writ of seizure and sale required a Louisiana judgeto determine that the executory process evidence was authentic, the object ofher declaratory judgment action claim has already been decided in a judicialproceeding and, if the authenticity was to be challenged, it had to be done inan injunction proceeding in the court that ordered the writ to be issued.

The court also held that the damage claims asserted by the plaintiffon account of alleged Unfair Trade Practice Act violations could not beasserted against these defendants because they were exempted as a "federallyinsured financial institution" under R.S. 51:1406. In reaching this holding,the court rejected the plaintiff's claims that courts "routinely find exceptionsto bank exemptions under state unfair and deceptive trade practice statutes,"as well as her arguments that the defendants did not act in their capacities asbanks but rather as mortgage servicer and bond trustee. The court held thatit could not look behind the text of the statute in an effort to give effect to itsspirit, nor could the court hold that the exemption is overbroad.

2. Alphonse v. Arch Bay Holdings, L.L.C., 548 Fed. Appx. 979 (5th Cir.2013). After failing to contest in state court the sale of his home pursuant toexecutory process, the plaintiff brought suit in federal court allegingviolations of the federal Fair Debt Collection Practices Act and the LouisianaUnfair Trade Practices Act. This suit was not brought against the foreclosingcreditor but rather against a parent company of a prior holder of the mortgagenote and the loan servicer. Specifically, the plaintiff alleged that theforeclosure was fraudulent because it involved inauthentic supportingdocuments that were the product of "robo-signing." The district courtdismissed the suit for lack of subject matter jurisdiction on the basis of theRooker-Feldman doctrine.

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In opposition to the plaintiff's appeal, the defendant conceded thatdistrict court's holding was erroneous under the intervening decision by theFifth Circuit in Truong v. Bank of America, 717 F. 3d 377 (5th Cir. 2013).Nonetheless, the defendants urged that the district court's dismissal wasappropriate on account of principles of res judicata as there a existed asufficient identity of interest between the foreclosing creditor and thedefendants in the present suit. The court of appeals rejected this argument,holding that the district court erred when it dismissed the declaratoryjudgment claims since the defendants did not meet their burden to show anidentity of parties at the motion to dismiss stage. Since the legal separationof a business entity from its parent company is a fact-intensive question, theidentity of these parties should not have been decided on a motion to dismiss.Moreover, the relationship between the mortgage servicer and the note holderis not necessarily identical, and the issue of their identity as the same partyshould not have been on the sparse record on appeal. Finally, the courtagreed with the plaintiff that the district court had erred in holding that theparent company was the wrong party to sue because its wholly ownedsubsidiary was a separate entity that actually held the note. The district courthad relied on provisions of the Delaware corporate law to the effect that asubsidiary is a separate juridical entity from its parent limited liabilitycompany as well as provisions of Louisiana law that the laws of the stateunder which a foreign limited liability company is organized govern itsinternal affairs. The district court did not consider whether liability to a thirdparty by a holding company LLC or its subsidiary constitutes internal orexternal affairs. Dismissal on a motion to dismiss was in error, and thematter was remanded to district court to consider this question further withthe benefit of factual development.

VII. Ordinary process foreclosure/collection actions.

A. Default judgment.

Rountree v. Forsythe Holdings, Inc., 49-983 (La. App. 2d Cir. 6/25/14); 144So.3d 1126. The plaintiff filed suit against the maker of a promissory note seekingonly a money judgment without any prayer for recognition of a mortgage that hadbeen executed as security for the note by the principals of the maker. On the basisof a motion for default judgment that included a collateral mortgage note and madereference to a collateral mortgage, the plaintiff obtained a default judgmentrecognizing and maintaining the collateral mortgage. Although the collateralmortgage had been executed by the principals of the maker, the mortgaged propertywas actually owned by the maker. Several years before the suit was filed, themortgagors had the mortgage cancelled on the basis of an affidavit of lost promissorynote and arranged for the maker to sell the property shortly thereafter to a third party.

After learning that the plaintiff had arranged for the mortgaged property tobe seized, the third party buyer filed a petition for intervention and sought apreliminary injunction, which was issued by the trial court on the ground that the

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default judgment was legally defective because it granted relief that had not beenprayed for and because the foreclosure petition did not name either of the mortgagorsor the third-party buyer as defendants. The court of appeal affirmed. The prayer forrelief in the plaintiff's petition requested only a money judgment against thedefendant, and the ex parte default judgment improperly expanded the relief toinclude recognition and enforcement of the mortgage. Moreover, the plaintiff did notname the intervenor as a party despite knowing that the intervenor was the recordowner of the property. It was also undisputed that the mortgage was granted bypersons who did own the property. A person is required to be joined as a party whenhe claims an interest relating to the subject matter of the action and is so situated thatthe adjudication of the action in his absence may as a practical matter impair orimpede his ability to protect that interest. The default judgment was not onlydefective as a matter of law for granting relief not prayed for in the petition but it wasalso absolutely null because the intervenors were not put on notice of the adverseclaim to their property. Moreover, the original petition failed to name themortgagors as defendants even though the plaintiff was asserting rights under amortgage they had granted.

B. Summary judgment in suits on accounts.

1. Capital One Bank v. Sanches, 2013-0003 (La. App. 4th Cir. 6/12/13); 119So. 3d 870. In support of a motion for summary judgment in a suit to collectthe unpaid balance of a credit card account, the bank submitted an affidavitfrom its litigation support representative, who stated in the affidavit that thedefendant owed a certain balance. However, the affidavit did not identify orauthenticate the documentation that was attached to it. Reversing summaryjudgment that the trial court had granted in favor of the bank, the court ofappeal held that a prima facie case on an open account requires proof of theaccount by showing that the record of the account was kept in the course ofbusiness and by introducing supporting testimony regarding its accuracy. Inthis case, the vague wording of the supporting affidavit did not serve toauthenticate the attached documents that were not specifically referred towithin the affidavit. Thus, the bank did not carry its burden of proof on itsmotion for summary judgment.

2. Midland Funding, LLC v. Delcorral, 2012-1492 (La. App. 4th Cir.10/2/13); 126 So.3d 634. On the basis of an affidavit of correctnesspresented by a successor credit card company, the trial court renderedsummary judgment in favor of the credit card company, and the court ofappeal affirmed. Once the plaintiff established a prima facie case through thesubmission of its affidavit of correctness, the burden shifted to the defendantto prove the inaccuracy of the account or to prove that he was entitled tocredits. The defendant failed to produce any evidence to negate the evidencepresented by the plaintiff and produced no evidence that he satisfied any partor all of the debt or that the charges on the account were inappropriate.Although he denied entering into a credit card agreement with the successorbank, his affidavit to that effect did not raise a genuine issue of material fact.

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The fact that the plaintiff did not produce the defendant's original signedcredit card agreement was of no consequence considering that the plaintiffproduced evidence that the defendant purchased goods using his credit cardand made payments to the account. In accordance with the card memberagreement, the contract between the parties was perfected upon use of thecard by the defendant.

C. Summary judgment in suits on notes.

1. National Collegiate Student Loan Trust 2003-1 v. Thomas, 48,627 (La.App. 2d Cir. 11/20/13); 129 So. 3d 1231. The plaintiff filed a two-paragraph petition seeking to recover the balance due on a student loan, notmentioning any specific promissory note that had been signed by thedefendant. In response to discovery, the plaintiff disclosed that the originallender was not the plaintiff but rather Bank One, which "may have assigned"the loan to the plaintiff in a pooling agreement that referred to a bundle ofstudent loans but did not include any specific listing of the assigned loans.The plaintiff also produced a signature page from a loanapplication/promissory note which stated that the defendant agreed to bebound by all four pages of the document, even though there were only twopages to the document presented by the plaintiff. In opposition to theplaintiff's motion for summary judgment, the defendant filed an affidavitdenying that he had signed the alleged promissory note and asserting that hehad not received any funds from either Bank One or the plaintiff. The trialcourt granted the plaintiff's motion for summary judgment, but the court ofappeal reversed.

In a suit on a promissory note, the plaintiff establishes a prima faciecase when the plaintiff produces the note into evidence, shows it was signedby the defendant, shows that the defendant has defaulted and, as to anassignee, presents evidence of a chain of assignments. Once the plaintiffsubmits evidence establishing a prima facie case, the burden shifts to thedefendant to submit evidence establishing the existence of a triable issue offact with respect to a bona fide defense. In this case, the plaintiff did notproduce the note, but rather produced a copy of the signature page.Louisiana law requires that a financial institution present into evidence theoriginal promissory note when the note is being utilized in the judicialproceeding. If the original note has been lost, the plaintiff can recover uponcompliance with R.S. 13:3740, but in this case the plaintiff took no steps tocomply with that statute. Not only had the plaintiff failed to establish a primafacie case, the defendant's response demonstrated the existence of materialfact issues.

2. See Woodlands Development, L.L.C. v. Regions Bank, infra.

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D. Defenses.

1. Payment.

LSREF 2 Baron, L.L.C. v. Tauch, 751 F. 3d 394 (5th Cir. 5/7/14). Inresponse to a suit on a percentage guaranty, the guarantor filed an answer inthe form of a general denial without raising any affirmative defenses. Whenthe lender moved for summary judgment after the deadline for amendingpleadings had passed, the guarantor opposed the motion on the ground thatthe borrower and the lender had agreed to make certain capital improvementsto the collateral and that those improvements, under the terms of theguaranty, reduced dollar-for-dollar the guarantor's liability. The district courtgranted the lender summary judgment, and the court of appeals affirmed.Under C.C.P. Article 1005, payment and setoff, being matters leading to an"extinguishment of the obligation in any manner," are affirmative defensesthat must be specifically pleaded since they are not a necessary part of theplaintiff's complaint. Here, the lender had to allege in its complaint only thatthere was an event of default triggering the guarantor's obligation under theguaranty. Had the lender not alleged anything else, the court would havebeen able to determine the extent of the lender's entitlement (i.e., the fullamount). Even though the two paragraphs of the guaranty describing theguarantor's extent of liability and describing any potential credit appear in thesame section of the guaranty, they are two distinct provisions, and the latter,like the affirmative defenses of payment and setoff, is not a necessary part ofthe plaintiff's complaint. Moreover, the district court did not abuse itsdiscretion in preventing the guarantor from untimely raising the allegedpayments because the delay prejudiced the lender. Plaintiffs must be awareof issues outside of their complaints so that they can prepare oppositions andadjust their cases in light of new facts and issues. Here, the district courtfound that the guarantor's failure to raise the alleged payments until after thesummary judgment motion unquestionably prejudiced the lender in its abilityto respond because the claim would require proof of additional facts beyondthe face of the complaint. The general allegations in the guarantor's answerfailed to provide any notice that defenses might be raised as the caseprogressed.

2. Litigious redemption.

Regions Bank v. St. James Hotel, L.L.C., 2013-1628 (La. App. 4th Cir.6/04/14); 144 So. 3d 50. In response to a suit for the unpaid balance of apromissory note, the maker of the note answered denying liability. While thesuit was pending, a third party successfully negotiated with the holder of thenote to purchase it at a substantial discount. A few days after the purchase,the maker tendered the amount of the purchase price that the assignee hadpaid, but the tender was rejected. The maker then initiated a concursusproceeding, depositing the full balance amount claimed by the assignee intothe registry of the court but contending that only $250,000 was in dispute.

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The assignee then filed an unopposed motion to withdraw the undisputedamount. The assignee contended that it was entitled to be paid not just theamount paid to the original holder of the note but also the assignee's cost ofborrowing funds from another lender to finance its purchase of the note and$140,000 paid to an investment banking company to assist in the negotiationswith the original holder of the note. On cross-motions for summaryjudgment, the trial court ruled in favor of the maker, holding that its liabilitywas limited to the amount that the buyer had paid for the note plus legalinterest from the date of purchase until the date of tender. The judgment alsoordered the cancellation of all mortgages securing the note.

Upon the buyer's devolutive appeal, the court of appeal firstconsidered the maker's motion to dismiss the appeal on the ground that thebuyer's actions in withdrawing the money from the registry of the court andcancelling all mortgages constituted a voluntary participation in the judgmentdepriving the third party of the right to appeal. The court denied this motion,finding that, in the absence of a suspensive appeal, complying with ajudgment that has become executory does not make one's actions voluntary.Nonetheless, the court affirmed the ruling of the trial court. The maker wasentitled to extinguish the obligation by paying the exact amount the buyerhad paid to the original holder, there being no support in the law to permit thebuyer to recoup what it paid to third parties in connection with the purchaseof that litigious right. The court also held that the proper rate of interest isthe legal interest rate (rather than the default interest rate provided under thenote) from the date of the assignment until the maker deposited the moneyinto the registry of the court (rather than until the money was withdrawn, asthe buyer contended). Under C.C.P. Art. 4658, after deposit of money intothe registry of the court, the plaintiff is relieved of all liability for the moneydeposited, including future interest.

3. Error.

a. Bank of New York, Trust U/A dated 12/01/2001 v. Bass, 2013-0405 (La. App. 1st Cir. 11/13/13); 2013 WL 6040235. In defenseof a suit on a note and mortgage, the borrowers contended that theyhad intended to mortgage only a portion of the property described inthe mortgage. The borrowers' argument of error was based upon anassertion that the municipal address recited in the mortgage was theaddress of only a house situated upon a part of the mortgagedproperty. The trial court granted judgment in favor of the lender onthe note but rescinded the mortgage because of the borrowers' erroras to the property they intended to mortgage. The court of appealaffirmed the judgment on the note but reversed the portion of the trialcourt's judgment rescinding the mortgage. In so doing, the court ofappeal cited the Supreme Court's holding in Peironnet v. MatadorResources Company, 2012-C-2292 (La. 6/28/13); 144 So.3d 791 thatcourts must consider whether an asserted error was excusable or

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inexcusable and that a party who signs a written instrument ispresumed to know its contents and cannot avoid his obligations bycontending he did not read it or did not understand it. The borrowers'argument ignored the legal description that clearly referred to theentire acreage. Moreover, the record was replete with evidence ofnumerous transactions involving the subject property over the years,indisputably establishing that the borrowers had ample understandingthat transactions involving real property are based upon legalproperty descriptions rather than municipal addresses.

b. Pannagl v. Kelly, 13-823 (La. App. 5th Cir. 5/14/14); 142 So.3d70. The plaintiff invested substantial sums of money with thedefendant for the purpose of purchasing immovable property throughdifferent entities. Because he was undergoing marital difficulties, theplaintiff made clear that he did not want a membership interest inthese entities issued to him and that the two parties could "settle up"at a later date. After the plaintiff's marital difficulties were resolved,he indicated to the defendant that he wanted to obtain membershipinterests in the two entities that had purchased the real estate.Accordingly, the defendant assigned his 100% membership interestin the entities to the plaintiff and in the assignment stated that thedefendant would be responsible for and liable to both the limitedliability companies and the plaintiff for all payments under amortgage note that the limited liability companies had given to abank. At the same time, he executed what purported to be apromissory note whereby he unconditionally promised to pay onbehalf of the limited liability companies and the plaintiff the amountowed to the bank. When the defendant defaulted in making payment,the plaintiff brought suit on this note. The defendant filed a third-party demand against the limited liability companies forreimbursement. The trial court granted summary judgment in favorof the plaintiff and dismissed the third-party demand. The court ofappeal affirmed.

In American Bank v. Saxena, 553 So. 2d 836 (La. 1989), theSupreme Court held that summary judgment is the appropriateprocedural device to enforce a negotiable instrument when thedefendant establishes no defense against enforcement. Although adefendant may have a separate, unrelated claim or reconventionaldemand against the holder based on fraud, deceit ormisrepresentation, this separate claim is not necessarily a defensesufficient to thwart the motion for summary judgment. In this case,the defendant asserted a defense of failure of consideration, claimingthat he had received nothing of value for his execution of theassignment of membership interest or the promissory note. However,in his deposition testimony, the defendant admitted that the plaintiffhad invested at least $300,000 and that the assignment was made in

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an effort to make the men "square." Negotiable instruments aredeemed prima facie to have been issued for valuable consideration.The defendant failed to rebut the presumption that consideration wasgiven for the note.

With respect to the defendant's claim of error, based upon acontention that he did not intend both to assign his interest in thelimited liability companies and to remain solely responsible forpayment of the companies' debt, the court found that his assertionswere unsupported by the record. The documents clearly andunequivocally reflected that the defendant, in addition to assigninghis membership interest, would remain solely liable and responsiblefor payment of the bank loan. Unilateral error does not vitiateconsent if the cause of the error was the complaining party'sinexcusable neglect in discovering the error. A party who signs awritten instrument is presumed to know its contents and cannot avoidhis obligations by contending that he did not read it or understand itor that the other party failed to explain it to him. Moreover, adefendant has the burden of proving the affirmative defense of errorvitiating consent, and the defendant failed to do so in this case.

Another defense the defendant asserted was that of uncleanhands, based on the fact that the plaintiff's original intent was to hideassets from his wife. The court found that the clean hands doctrineapplies only when the fraud relates to a matter or transaction beingasserted as a claim or defense. Even if the plaintiff did not have cleanhands with regard to his domestic litigation, the defendant has failedto show that the plaintiff engaged in any fraud or misrepresentationrelative to the instant transaction or litigation.

Finally, the court held that the trial court correctly dismissedthe third-party demand against the limited liability companies forreimbursement of sums paid on the bank note. While the defendantmight originally have been only a surety, he unequivocally agreed toremain responsible for and liable to both the limited liabilitycompanies and the plaintiff for all payments on the bank note. Theplain language of the documents was clear and unambiguous, and thedefendant executed them with full knowledge of their terms and withthe assistance of counsel.

E. Attorney's fees. 1. Cottonport Bank v. Keller Property Management, LLC, 2013-649 (La.

App. 3d Cir. 12/11/13); 128 So.3d 668. During the course of a bank's suitto enforce two promissory notes having an unpaid balance of approximately$100,000, the defendant paid the full amount of principal and interest due.The bank then obtained a summary judgment for $10,000 in attorneys' fees.

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The defendant appealed, arguing the fee was out of proportion to the servicesrendered by the attorneys in a simple suit to collect on a promissory note.Affirming the award, the court quoted extensively from the trial court'sopinion, which recited how the defendant's actions in opposing the suit hadmade the litigation anything but routine, twice pointing out that one of thedefendant's four attorneys had "remarkably argued to this court that a bankhas a duty to renew loans when they mature." A trial court's determinationof attorneys' fees will not be disturbed unless it is manifestly erroneous, andin this case the record reflected that the trial court's ruling was proper in lightof the factors cited by the Louisiana Supreme Court in Rivet v. StateDepartment of Transportation and Development, 680 So.2d 1154 (La. 1996).

2. MC Bank & Trust Co. v. Elysian Enterprise, LLC, 2013-1305 (La.App.

3d Cir. 4/2/14); 136 So.3d 963. In a suit for executory process that wasvoluntarily converted to ordinary process, the trial court granted judgment infavor of the plaintiff for the amount demanded, except that it awarded only$5,000 in attorneys' fees rather than the 25% attorneys' fees provided forunder the note ($56,000) or the $44,000 in attorneys' fees the bank claimedto have incurred. Rather than providing the court with an affidavit ofattorneys' fees, counsel for the plaintiff provided a proposed judgment alongwith copies of invoices representing services rendered to the plaintiff. In theabsence of any admissible evidence concerning the attorneys' fee issue, thecourt of appeal increased the award of attorneys' fees to $15,000 afterconsidering the relevant factors: (1) the ultimate result obtained, (2) theextent and character of the work performed, (3) the responsibility incurred,(4) the number of court appearances made, (5) the intricacies of the factsinvolved, (6) the importance of the litigation, (7) the legal knowledge and theskill of the attorneys, and (8) the diligence and skill of the attorneys.

VIII. Revocatory/oblique actions.

A. Obey Financial Group, Inc. v. Blue, 2013-554 (La. App. 3d Cir. 11/6/13); 125 So.3d 573. A casino jackpot winner who had accepted a long-term payout optionestablished an account with an investment advisor under an agreement containing anarbitration clause and, with the assistance of the investment advisor, sold a numberof his future annual payments from the casino winnings. Several years later, one ofthe jackpot winner's judgment creditors filed a revocatory action against the jackpotwinner, the investment advisor and the purchaser of the annual payments. Thejudgment creditor later amended its petition to assert against the investment advisora claim for breach of a fiduciary duty owed to the jackpot winner. The investmentadvisor filed both an exception of lack of subject matter jurisdiction, based on anarbitration clause in the client agreement, and exceptions of prescription andperemption based upon an argument that the judgment creditor had failed to assertthe oblique action within one year of learning of the action complained of or withinthree years from the date of that act, as required by C.C. Art. 2041. The trial courtdenied the exception of lack of subject matter jurisdiction, finding that thetransaction at issue fell outside the scope of the arbitration agreement, but sustained

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the exceptions of prescription and peremption, holding that the amended petitionasserting the oblique action, being an entirely independent action from the revocatoryaction, did not relate back to the time of filing of the original petition. The judgmentcreditor appealed, and the investment advisor both answered the appeal and appliedfor supervisory writs, arguing that the trial court had erred in finding the arbitrationagreement to be inapplicable. The court of appeal reversed the judgment in full.

On the exception of lack of subject matter jurisdiction, the court of appealheld that the trial court had erred in finding that the arbitration agreement was limitedto claims arising out of or relating to the investment agreement. Instead, thearbitration clause applied to all controversies or claims between the designatedactors, including those arising from related agreements. The clause was specificallyapplicable to any claim based on or arising from an alleged tort. Moreover, theoblique action asserting a breach of fiduciary duty obviously alleged the existenceof a fiduciary relationship, and it would be difficult to conceive of how a fiduciaryrelationship could exist outside the very contract on which the claim could be based.Thus, the trial court's denial of the exception of lack of subject matter jurisdictionwas reversed and the judgment was vacated in full. In doing so, the court of appealnoted that it was not addressing the judgment creditor's appeal of the trial court'saction in sustaining the exceptions of prescription or peremption, even though theinvestment advisor asserted on appeal that the court should grant the exception oflack of subject matter jurisdiction only in the event of a reversal of the sustaining ofthe exceptions of prescription and peremption. The foundational nature of theexception of lack of subject matter jurisdiction dictates that it should first beconsidered. The court also indicated that it specifically did not resolve the questionof the appropriate forum for consideration of the timeliness issue.

B. Meyer v. Vayles, 559 Fed. Appx. 312 (5th Cir. 2014). The successful plaintiff ina discrimination suit brought suit against the principals who owned the originaldefendant and against a successor corporation, claiming that the defendants in thenew action should be liable for the original judgment. When those defendants failedto answer, the plaintiff attempted to obtain a default judgment. The district court,finding that the plaintiff's action most closely resembled a revocatory action, refusedto grant a default judgment and dismissed the case with prejudice. The court ofappeals affirmed. The plaintiff failed to carry her burden of proving prejudicebecause the documents that she offered to prove the asset transfer showed that amortgage company held a preferred claim against the property. Because there wasno evidence that the property was worth an amount in excess of that claim, theplaintiff failed to carry her burden of demonstrating that she was injured by thetransfer.

C. Holland v. Holland, 2013-636 (La. App. 3d Cir. 12/11/13), 120 So. 3d 844. A yearafter suit was filed against him for sexual battery, a man and his wife filed divorceproceedings. Four years later, after the tort plaintiffs obtained a judgment against thehusband, they filed a motion to intervene in the divorce proceedings. The wife filedexceptions of no cause of action and peremption, which the trial court sustained. Thecourt of appeal reversed, holding that the tort plaintiffs had a cause of action to

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intervene into the divorce proceeding to assert revocatory actions against certaindispositions the tortfeasor's spouse had made, even though there was no pendingproceeding to partition former community property.

IX. Mennonite issues.

A. MRB Mortgage, Inc. v. Jones, 13-61 (La. App. 5th Cir. 7/30/13); 121 So. 3d 202.Several years after a tax sale, a mortgagee filed suit to annul the tax sale, contendingthat it was an absolute nullity because notice had not been given to the mortgagee.Without conducting a trial or taking testimony or other evidence, the trial court ruledin favor of the mortgagee, holding the tax sale to be an absolute nullity. In a prioropinion of the court of appeal reported at 90 So. 3d 1104, this holding was reversed,and the matter was remanded so that a trial could be conducted. After trial, the trialcourt rendered a judgment denying the mortgagee's petition to annul the tax sale.The defendants nonetheless appealed, asserting that, while they agreed with theruling, they nonetheless disagreed with certain findings made by the trial court in itsreasons for judgment, specifically the finding that the mortgagee held a validmortgage on the property and that the defendants had purchased at the tax sale onlythe improvements on the land and not the land itself. The court of appeal dismissedthe appeal, finding that an appeal lies only from a judgment not from written reasonsfor judgment, and the defendant's arguments could therefore not be considered onappeal. In a footnote, the court observed that no party to the suit had filed a pleadingseeking a declaration as to the scope or extent of the tax sale.

B. Levier, LLC v. Thomas, 2013-472 (La. App. 3d Cir. 11/6/13); 127 So. 3d 953.A city tax sale was conducted without notice to a mortgagee holding a properlyrecorded mortgage. Later, after acquiring the immovable at a foreclosure sale, themortgagee sold the property to the plaintiff, who filed suit seeking to be declared theowner of the property. The trial court granted the plaintiff's motion for summaryjudgment, and the court of appeal affirmed. A failure to give notice renders a taxsale an absolute nullity. The plaintiff submitted an affidavit from the clerk of thetaxing authority that he did not check the clerk of court's records or obtain amortgage certificate to determine whether there were any liens against the propertyand that he did not send notice of the pending tax sale to the mortgagee. Thus, thetrial court correctly found that the tax sale was null and did not transfer title to thetax sale buyer.

C. See Mott v. EZ Money, Inc., supra (holding that a bond for deed purchaser, evenif the holder of a mortgage on the property to secure the seller's obligation, is notprotected by Mennonite.)

X. Lender liability.

A. Credit agreement statute.

1. St. Landry Homestead Federal Savings Bank v. Vidrine, 2012-1406 (La.App. 3d Cir. 6/12/13); 118 So. 3d 470. In response to an ordinary process

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foreclosure, the borrowers filed a reconventional demand against the bankalleging fraud and duress, conduct prohibited by law and public policy,detrimental reliance, breach of contract and tortious interference with theirbusiness and contractual relationships. According to the reconventionaldemand, the bank's president used his insider position for his own personalgain and, after his death, the bank changed its conduct to an effort to coverup the earlier illegal activity "by fraudulently misleading, deceiving andcoercing [the defendants] into either paying off or consolidating the illegallyextended loans, forfeiting their collateral and/or moving their bankingbusiness elsewhere." Allegedly, the bank president became a regularcustomer at a café operated by the borrower and, after developing afriendship with the borrower, convinced him to purchase from the bankpresident, with 100% financing from the bank, certain property that the bankpresident had acquired just six days earlier at less than half the price theborrower was to pay. Later, when another tract near the borrower's café wenton the market, the borrower approached the bank about financing it, but thebank president refused to consider the loan request unless the borrowerpurchased an additional tract that belonged to the bank president's mother.According to the allegations of the reconventional demand, the borrowercomplained that this additional tract was overpriced, but he nonethelessagreed to include it in the transaction in exchange for the bank's agreementto finance 100% of the purchase price of both parcels. There were allegedlyseveral other transactions in which the bank president had pressured theborrower to acquire other tracts, again upon a promise to provide 100%financing and with the bank president's promise that "I will sell the propertyfor you as soon as possible."

When the bank president developed health problems, another officertook over, criticizing the bank president for having made the loans andultimately intimating that she intended to put the borrower and the bankpresident's other customers out of business. Toward that end, the bankallegedly stopped applying proceeds from lot sales to the borrower's notepayments and refused to release to the borrower any portion of the revenuefor his own personal use. Allegedly, this change in policy, together withthousands of dollars per month in NSF charges, completely absorbed therevenue from the borrower's business. Ultimately, the new officer offered theborrower a plan "to save him" by consolidating all of his indebtedness intoone note at a lower interest rate. The borrower allegedly discovered after thefact that the true purpose of this new plan was to cause him to default on hisconsolidated loan so that the bank could seize all of his assets throughlitigation. In furtherance of this plan, the bank allegedly instructed theappraiser to appraise the property at an arbitrary value of less than 50% ofits true value. Based on this flawed appraisal, the bank classified theborrower as a high-risk customer and used this as a justification for refusingto apply lot proceeds to loan payments. When the borrower replied that hewas unable to meet this burden, the bank officials allegedly responded thathe would have to either take bankruptcy or move his accounts elsewhere. In

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a final effort to meet his financial obligations to the bank, the borrowerplaced the collateral on the market and was in the process of closing a saleof the property for $500,000, when the bank officer allegedly informed thebuyer that the bank was foreclosing on the property and that the buyer shouldlook at purchasing other property that the bank had for sale instead.

The trial court sustained the bank's exception of no cause of action,primarily on the basis of the Louisiana Credit Agreement Statute. The courtof appeal affirmed in part and reversed in part. After tracing the evolution ofthe Louisiana Credit Agreement Statute and the Supreme Court's holdings inJesco Construction Corp. v. NationsBank, 830 So. 2d 989 (La. 2002) andKing v. Parish National Bank, 885 So. 2d 540 (La. 2004), the court of appealheld that the trial court erred when it concluded that the Credit AgreementStatute barred not only oral promises and representations made by the bankto the borrower in relation to the various credit agreements but also all otherallegations made by the borrower. The trial court correctly determined thatthe borrower had no cause of action arising out of the statements,representations or promises made by any bank official before or inconjunction with the execution of various credit agreements. However, theCredit Agreement Statute does not render a financial institution immune fromany and all liability arising from its business operations, including businessoperations that occur outside the parameters of a credit agreement. Thus, thecourt of appeal turned to each of the factual scenarios alleged by theborrower to determine whether a valid cause of action had been pleaded.

The borrower's fraud claim was premised upon an alleged pattern ofmisrepresentations and suppressions of the truth with the intention to obtainan unjust advantage for the bank and to cause a loss or inconvenience to theborrower. The borrower also asserted that the purported friendship by thebank president created a relation of confidence that reasonably induced theborrower's reliance on the bank's representations to his detriment. Withregard to the initial transaction whereby the bank president assured himselfof a huge personal profit, there was nothing in the alleged facts to establishthat the bank had any knowledge of the president's fraudulent action and thefacts therefore did not establish a cause of action against the bank for theactions of the bank president outside the course and scope of his relationshipwith the bank. With regard to the other transactions, the pattern of fraudulentactivity fell within the negotiation process giving rise to the various creditagreements and was therefore precluded by the Credit Agreement Statute.

The court next considered whether the borrower had stated a causeof action for duress. Applying the Credit Agreement Statute to preclude anyclaim for duress based on the pre-credit-agreement negotiations, the courtfound that the plaintiff's allegations concerning the actions of the secondbank officer from the time of the beginning of the bank president's illness, aswell as the bank's actions after it told the borrower to take bankruptcy ormove his loans elsewhere, state a cause of action for duress falling outside

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the scope of the Credit Agreement Statute.

With respect to the contention of detrimental reliance, the court foundthat any reliance on oral statements made in the Credit Agreementnegotiation phase was clearly barred under the Supreme Court's decision inJesco and King and could not be the basis for a cause of action.

With respect to the borrower's claim for breach of contract, theborrower was apparently not arguing breach of any oral agreement enteredinto during the negotiation process but rather breach of the writtenagreements themselves. However, the borrower offered no specifics on howthose contracts might have been breached by the bank and, since Louisianahas a system of fact pleading, mere conclusions unsupported by facts do notstate a cause of action.

Finally, with respect to the borrower's claim for tortious interferencewith contracts and business relationships, the court observed that this causeof action was predicated upon the second bank officer's interference with theborrower's attempt to sell the collateral, leading to the loss of the sale of theproperty. The trial court incorrectly held that this cause of action is limitedto a corporate officer for tortious interference with a contract to which hisemployer is a party. In the present suit, the contract at issue is between theborrower and a third party. Thus, this claim can better be described as aclaim for tortious interference with a business relationship which is derivedfrom C.C. Art. 2315. Though this cause of action is not favored, and theplaintiff has the burden of proving actual malice, the court held that the factsalleged in the reconventional demand established a cause of action fortortious interference that is not precluded by the Credit Agreement Statute.

2. Woodlands Development, L.L.C. v. Regions Bank, 12-754 (La. App. 5thCir. 5/28/14); 141 So.3d 357. In an ordinary process foreclosure, the trialcourt dismissed the lender's claims with prejudice as a discovery sanction forhaving destroyed emails in accordance with its record retention policymonths before litigation developed. The court of appeal vacated thejudgment of dismissal, granted summary judgment in favor of the lender onits loan documents, and remanded for further proceedings on the borrower'sfraud claims.

Under the facts of the case, the borrower and lender had entered intoa loan forbearance agreement after the loan matured allowing the borrowerto sell the mortgaged property to a third party, which assumed the mortgageloan owed to the lender and also granted the borrower a second mortgage.Two years later, that third party sold the property yet again, and the borrowerfiled suit against the lender for declaratory judgment that its obligationsunder the note had become extinguished because of the lender's fraudulentcomplicity in this second sale. The lender reconvened for the balance of thenote and for recognition of its mortgage.

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The lender moved for summary judgment on both demands. The trialcourt granted the motion to dismiss the borrower's petition for declaratoryjudgment on the basis of the Louisiana Credit Agreement Statute, reasoningthat there was no writing absolving the lender from its obligations under thenote. However, the trial court denied the lender's motion for summaryjudgment on its reconventional demand, reserving the borrower's right toraise the same issues as a defense to the lender's reconventional demand. Ina prior ruling published at 83 So.3d 147, a different panel of the court ofappeal affirmed the summary judgment dismissing the borrower's action fordeclaratory relief and also affirmed the trial court's judgment allowing thelender's reconventional demand to continue subject to the borrower'saffirmative defense of fraud.

Afterward, during further discovery, the lender was unable to produceemails sought by the borrower because many of them, if they existed at all,would have been deleted under the lender's electronic record retention policy.Under this policy, documents in electronic form are maintained for as longas a paper document would be maintained in the normal course of the bank'sbusiness. In the case of emails, unless the individual employee determinesthat the information contained in the email should be maintained for a longertime under the general retention policy, the email is automatically deletedafter 90 days. When suits are filed, the policy requires retention of all emailsrelated to the suit. The trial court found this retention policy to be in badfaith and dismissed the lender's reconventional demand with prejudice as adiscovery sanction pursuant to C.C.P. art. 1471. The court of appealreversed.

C.C.P. art. 1471(B) provides that, absent exceptional circumstances,the court may not impose sanctions on a party for failing to provideelectronically stored information lost as a result of the routine, good-faithoperation of an electronic information system. The draconian sanction ofdismissal is available only in the most egregious of cases involving willfulviolation of discovery orders. In this case, any emails concerning possiblefraudulent conduct in connection with the second sale of the mortgagedproperty would have been deleted by this policy eight months before suit wasever filed. It was thus impossible for the lender to retrieve these emails oncesuit was filed. There was no evidence to show that the lender's retentionpolicy was anything but routine or that it operated in any bad-faith manner.Thus, the trial court abused its discretion in dismissing the suit.

The court then turned to the lender's claim that its motion forsummary judgment on its reconventional demand had been improperlydenied. The lender satisfied its burden of putting forth a prima facie case ofits entitlement to recovery by simply producing the promissory note andguaranty sued upon. Thereafter, the burden shifted to the borrower to provethe existence of a triable issue of fact. The court of appeal disagreed with theborrower's assertion that its allegations of fraud in connection with the

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second sale are "affirmative defenses" which, if proven, would entitle it toextinguishment of its debt. Though fraud is listed among the affirmativedefenses in C.C.P. art 1005, the borrower's allegations of fraud were not inregard to the negotiation for its credit agreement with the lender and weretherefore outside the parameters of the credit agreement. Thus, theborrower's fraud allegations, even if proved, would not serve as anaffirmative defense or have the effect of defeating the lender's right torecovery. Rather than being affirmative defenses, the borrower's specificallegations of fraud amounted to a separate cause of action sounding in tort.Any evidence of this fraud was insufficient to raise a genuine issue ofmaterial fact precluding summary judgment on the note and guaranty.

As additional grounds for summary judgment on its promissory note,the lender argued that the prior dismissal of the borrower's declaratoryjudgment action was res judicata, precluding relitigation of the borrower'sfraud allegations. Since the court of appeal granted the lender summaryjudgment on its claim on the note on other grounds, it was not necessary forthe court to address this argument in the resolution of the lender's summaryjudgment. However, in light of the prior opinion rendered by another panelof the same court of appeal, the court found that it was compelled to addressthe lender's argument "as to the preclusive res judicata effect of the priorjudgment, insofar as it implicates the current status of [the borrower's] claimsagainst [the lender] for fraud." The prior ruling had dismissed the fraudclaims on the basis of the credit agreement statute since there was no writtencredit agreement purporting to release the borrower from liability. At thesame time, the other panel of the court specifically recognized that thesubstance of the fraud allegations could be asserted as affirmative defensesto the lender's reconventional demand. Following St. Landry HomesteadFederal Savings Bank v. Vidrine, 118 So.3d 470 (La. App. 3d Cir. 2013),writ denied, 126 So.3d 1283 (La. 2013), the court of appeal in the currentopinion held that the credit agreement statute is intended to preclude a claimthat a verbal agreement for credit exists or that the terms of a written creditagreement have been verbally altered. The statute is not intended to insulatefinancial institutions from any and all liability that arises outside theparameters of a credit agreement.

The specific allegations of fraud made by the lender were based uponconduct that post-dated the credit agreement by six years and were thereforeclearly outside the parameters of the credit agreement. It would beinconsistent to find (as the present opinion does) that the borrower's fraudallegations are not sufficient to raise a genuine issue of material fact forpurposes of a motion for summary judgment on the credit agreement yet find(as the prior panel did) that those same fraud allegations are within theparameters of the credit agreement for purposes of the credit agreementstatute. R.S. 13:4232(A)(1) provides that a judgment does not bar anotheraction by the plaintiff where exceptional circumstances justify relief from theres judicata effect of the judgment. The court held that exceptional

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circumstances existed here because the court did agree with the prior panelthat the borrower's allegations of fraud should still be viable, just not in theprocedural posture of affirmative defenses to the lender's suit on the note.Therefore, the court rejected the lender's argument that res judicataprecluded further litigation of the fraud allegations.

B. Discovery sanctions.

1. See Woodlands Development, L.L.C. v. Regions Bank, supra.

2. BancorpSouth Bank v. Kleinpeter Trace, L.L.C., 2013-1396 (La. App.1st Cir. 10/1/14); ___ So. 3d ___, 2014 WL 4925698 (not yet released forpublication in the permanent law reports). In response to a bank'sordinary process foreclosure, the mortgagor and guarantor reconvened,claiming that the bank's president had fraudulently allowed some of the loanproceeds to be used for the purpose of repaying unrelated indebtedness owedby one of the members of the mortgagor. During the course of discovery, thedefendants filed a motion to compel and motion for sanctions, complainingof the bank's alleged failure to produce a number of requested documents,including the bank's president's "desk file," and the bank's destruction of afile maintained by the loan officer's assistant. On the same day this motionwas filed, the bank filed a motion for a protective order to prohibit thedefendants from discovering documents reflecting the bank's internalevaluation or analysis of the loan, claiming that this information was notdiscoverable pursuant to R.S. 6:333(I). In a judgment rendered in October2012, the trial court denied the bank's motion and at the same time grantedthe defendants' motion to compel, ordering the bank to produce a number ofdocuments and files, including all documents that had previously beenwithheld on the basis of R.S. 6:333(I). The October judgment "reserved" thedefendants' motion for sanctions for a ruling after the bank had compliedwith the judgment.

A few weeks later, the defendants filed another motion to compel andfor sanctions "based on new and troubling facts" that the bank had revealedtwo days after the rendition of the October judgment that it had known forseveral months of thousands of discoverable emails and electronic documentsthat it had failed to produce. As a sanction, the defendants moved to strikeall of the bank's affirmative defenses to the reconventional demand and fordismissal of the main demand. The bank defended on the basis that theadditional information referred to by the defendants had been identified in anexpanded data search of the bank's electronic files and that the results of thatsearch were stored on a disk that had been delivered to bank's counsel severalmonths before the first discovery hearing was held. Counsel for the bankrepresented that the information on the disk was under review in compliancewith the October judgment and that the information on the disk that hadalready been reviewed had been produced to the defendants. At theconclusion of the hearing on the latest motion to compel, the trial court

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ordered the bank to deliver a complete unredacted copy of the disk to thecourt and to produce to the defendants all responsive non-privilegedelectronic documents stored on the disk. The trial court warned the bank thatnon-compliance with this order could lead to dismissal of the bank's maindemand and the striking of its affirmative defenses to the reconventionaldemand. The court also ruled that it would impose an adverse presumptionon account of the bank's destruction of the file maintained by the loanofficer's assistant. These rulings were embodied in a judgment signed inJanuary 2013.

In May 2013, the court held another hearing to determine whether thebank had complied with the January judgment. At this hearing, the bank'sattorney testified that he had realized in May 2012 that there had been a"disconnect" in document production causing him to arrange for the bank'sinternet technology department to conduct an additional search and toproduce the disk in question. Upon reviewing this disk, the bank's attorneyerroneously concluded that there were "maybe two dozen total emails" that"were all irrelevant" and some stand-alone documents that were subject tothe privilege the bank had claimed. During the hearing that had led to theOctober judgment, the bank's attorney discovered his error, and heimmediately began the review process so that the emails on the disk could beproduced. However, he admitted that he did not advise opposing counsel ofhis error. At the May 2013 hearing, the bank also produced extensivetestimony of the efforts it had undertaken since that time to analyze andproduce the documents on the disk and otherwise to produce discoverableelectronic documents.

At the conclusion of this hearing, the trial court dismissed the bank'smain demand and struck its defenses to the reconventional demand. Thoughthe trial court indicated that it did not doubt the veracity of the bankattorney's testimony concerning the disk and did not feel that the bank'sattorneys had intentionally misled the court and though the courtacknowledged that each discovery incident standing alone would not besufficient for the imposition of severe sanctions, when viewed collectivelythe bank's actions rise "to a level of an extreme pattern of abuse" warrantingthese sanctions. As support for this finding, the court observed thatdocuments that should have been produced three years earlier were just nowbeing produced and some had yet to be produced. The trial court alsoawarded $225,000 in attorney's fees to the defendants, without identifying thegrounds on which it was doing so.

The court of appeal affirmed the trial court's ruling that there was noprivilege under R.S. 6:333(I). Though paragraph (I) provides that allfinancial records prepared by a bank in connection with its evaluation oranalysis of the loan "shall be confidential and shall not be discoverable oradmissible in evidence in any civil action pertaining to . . . any such loan,"this provision must be construed with the remainder of the statute, which

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creates a duty of confidentiality in favor of a bank's customers and implicitlywithdraws protection for banks when the prescribed procedures are notfollowed. The statute does not limit or otherwise prevent a customer fromobtaining financial records that pertain to his own loan. To the contrary,paragraph (F) expressly provides that nothing in the statute prohibits orrestricts any such disclosure. The bank's interpretation of paragraph (I)cannot be reconciled with the statute's broad definition of "financial records"to which a customer is entitled.

However, the court reversed the trial court's discovery sanctions.Louisiana law distinguishes between sanctions available for failure to complywith discovery requests and sanctions available for disobedience of court-ordered discovery. It is only in the latter case that C.C.P. Art. 1471 allowsthe court to impose the most severe sanctions, such as orders strikingpleadings, dismissing the action or rendering a judgment by default.Dismissal for a discovery violation is a draconian penalty that should beapplied only in extreme circumstances and after considering whether theviolation was willful, whether less drastic sanctions would be effective,whether the violations prejudiced the opposing party's trial preparation, andwhether the client participated in the violation. Dismissal is justified only forviolations of court-ordered discovery and then only if the record containssufficient evidence of willful disobedience, bad faith or fault by a party, asopposed to its counsel.

The October judgment directed the bank to produce all documentsthat had been withheld on the basis of R.S. 6:333(I). The bank had actuallydelivered the entire disk to its counsel five months before the entry of thatorder without in any manner instructing or directing its counsel not todisclose the entire disk. The trial court accepted as credible the bankattorney's testimony that his failure to disclose the disk was due to his ownmistaken belief that it contained very little new information. Thus, anyfailure with respect to the disclosure of the disk was the fault of the bank'sattorney, rather than that of the bank, and did not support the sanction ofdismissal.

The destruction of the file maintained by the loan officer's assistantcould not support discovery sanctions under C.C.P. Art. 1471, because thedestruction occurred before the order was entered. Nonetheless, an adversepresumption could be imposed under a theory of spoliation of evidence.When a litigant fails to produce evidence within his reach, a presumption thatthe evidence would have been detrimental to his case is applied. The bankhad offered an explanation that this file had been inadvertently picked up byan outside vendor and shredded. The record supported the trial court'sfactual determination that the explanation offered by the bank as to thedestruction of the file was pretextual and did not constitute a reasonableexplanation. Thus, the trial court's imposition of an adverse presumption onaccount of the destruction of the file was not an abuse of discretion.

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Because the evidence did not support a finding that the bank willfullyfailed to obey any discovery order, C.C.P. Art. 1471 did not authorize anaward of attorneys' fees and, to the extent that the trial court's award ofattorneys' fees was imposed as a sanction under that article, the trial courtabused its discretion. C.C.P. Art. 1469(4) authorizes a court in ruling on amotion to compel to award the reasonable expenses incurred in obtaining theorder including attorneys' fees, but the awardable expenses authorized by thisarticle are not as broad as those that may be imposed under C.C.P. Art. 1471.Thus, the trial court erred in ordering the bank to pay more than thereasonable cost of obtaining the discovery order, and the matter wasremanded for a determination of the amount of the reasonable expenses thedefendants had incurred in obtaining the January judgment.

3. KeyBank National Association v. Perkins Rowe Associates, L.L.C., 539Fed. Appx. 414 (5th Cir. 821-2013). In mortgage foreclosure litigation, thedistrict court ordered that the borrower's counterclaims and defenses to theforeclosure be dismissed as a discovery sanction, and it also granted thelender summary judgment. In addition to appealing these rulings, theborrower challenged the district court's jurisdiction. The court of appealsaffirmed.

On the jurisdictional issue, the borrower pointed out that the lenderhad assigned portions of the loan to eight other banks one of which had thesame Louisiana citizenship as the borrower. The borrower thus argued thatall of the lending banks were real parties to the controversy and must beconsidered for diversity purposes. The court of appeals was unpersuaded.KeyBank was the only party plaintiff and was authorized under the loanagreement to pursue all default remedies. The fact that other banks had aninterest in the outcome of the foreclosure did not affect the diversity analysisbecause KeyBank had a real interest in the suit and was not acting solely onbehalf of others for the purpose of creating diversity jurisdiction. The courtwent on to observe, however, that whether the other non-party banks arenecessary parties whose joinder would defeat diversity is a much differentquestion. Because the borrower had failed to brief that issue, the court ofappeals did not consider it.

A district court's discovery sanction is reviewed for an abuse ofdiscretion. In this case there were multiple discovery disputes, resulting innumerous motions to compel filed by both sides and requiring inordinateintervention by the magistrate judge in the district court, who together issuedsome fifteen orders related to discovery. During the course of the litigation,the borrower sought to depose three bank witnesses on the eve of expirationof the first discovery deadline by seeking information that was not irrelevantand by giving inadequate notices of the deposition. The borrower produceda redacted expert report which the magistrate judge found was improper. Theborrower asserted blanket objections that were meritless, legally unsupportedand baseless. Despite a court ruling, the borrower continued to assert a

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privilege objection by withholding approximately 1,500 documents,prompting the bank to file a motion for contempt. On this record, the districtcourt did not abuse its discretion. The continuing nature of the borrower'sdiscovery conduct supported the district court's finding of willfulness.Furthermore, because the district court had imposed costs on four prioroccasions it was not required to impose lesser sanctions before orderingdismissal.

In upholding the grant of summary judgment to the lender, the courtrejected the borrower's contention that it was entitled to a lower rate ofinterest because it had met certain equity benchmarks. As the district courtcorrectly concluded, that reduction was permitted under the loan documentsonly if the borrower did not default, and the borrower's default necessarilymeant that it was not entitled to the reduction. The borrower also did notraise a genuine issue of material fact with respect to revenue from themortgaged property held in a reserve account. As the district court held, thisprocedure was consistent with the terms of the loan agreement, which did notrequire the bank to apply the funds to the borrower's debt first.

C. Other lender liability cases.

1. First Bank and Trust v. Treme, 13-168 (La. App. 5th Cir. 10/30/13); 129So.3d 605. In response to a deficiency judgment petition, the borrowerreconvened against the bank and the bank chairman alleging that over aperiod of 18 years the borrower had, at the request of the bank, entered intonumerous contracts for the renovation of blighted properties, borrowingmoney from the bank to fund cost overruns with assurances from the bankthat the cost overruns would be recouped on subsequent projects. Allegedly,the recoupment never occurred, and the borrower's reconventional demandasserted that the bank's collection efforts constituted breach of contract,fraud, fraudulent inducement, illegal tying, extortionate banking transactionsand a breach of fiduciary duty. The reconventional demand asserted a secondcause of action arising out of an alleged joint venture with the bank to builda banking branch. The borrower alleged that, once the bank's chairmanlearned of the personal involvement of a bank employee in the transaction bywhich the borrower would acquire the necessary land, the bank chairmanintentionally interfered with the borrower's ability to negotiate and therebytortiously interfered with the borrower's ability to perform under the jointventure that allegedly existed between the borrower and the bank. In viewof the absence of any evidence that the bank chairman had ever acted outsidehis official capacity, the trial court granted partial summary judgment againstthe borrower on all claims against the bank chairman in his personalcapacity. The trial court also granted partial summary judgment on thebreach of fiduciary duty claims concerning the construction contracts as wellas the claims arising from the alleged joint venture for the building of thebank branch. The court of appeal affirmed.

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With regard to the bank chairman's alleged personal liability, theborrower attempted to argue for the first time on appeal that the bank'schairman had intentionally interfered with his construction contractsinvolving the blighted property. However, this way a claim that the borrowerhad not presented to the trial court, and the borrower was therefore precludedfrom asserting it on appeal. With regard to the claims concerning the allegedjoint venture to build the bank branch, the borrower had not submittedsufficient evidence to prove the existence of the joint venture. Although heoffered his own testimony to prove the alleged joint venture, the affidavit hesubmitted from the bank employee who was to be involved in the transactiondid not indicate that the employee had any personal knowledge of a jointventure between the borrower and the bank, but instead simply recited thatthe affiant understood from the borrower that a joint venture existed.Without further corroborating circumstances, the borrower failed to carry hisburden under C.C. art. 1846 of proving an oral contract over $500 throughone witness and other corroborating circumstances. Judge Wicker concurredthat, in order to sustain a claim for intentional interference of contract, onemust first prove that there is a contract that was interfered with, in this case,the alleged joint venture. However, she did not agree that joint ventures aresubject to the proof requirements of C.C. art. 1846.

2. First Bank and Trust v. Proctor's Cove II, LLC, 13-802 (La. App. 5thCir. 9/24/14); ___ So. 3d ___, 2014 WL 4723851 (not yet released forpublication in the permanent law reports.) In response to an ordinaryprocess foreclosure, the borrower reconvened asserting that the bank and itspresident had breached a settlement agreement by continuing to claim that abalance remained owing under the borrower's promissory note. Accordingto the reconventional demand, the bank's president had renegotiated the termsof the promissory note and set performance obligations for the borrower tomeet in order to have the debt satisfied. The borrower's allegations weresupported by an affidavit from the bank's vice president stating that he hadknowledge of the settlement agreement and that the borrower had fulfilled itsobligations under the agreement. After numerous procedural skirmishes,including a motion by the defendants to force the recusal of the trial judge,the trial court rendered summary judgment in favor of the bank.

The court of appeal held that the trial court had properly struck themotion to recuse because it had been filed on the borrower's behalf by aperson who was not licensed to practice law. Nonetheless, the court ofappeal reversed the summary judgment because the bank had failed tointroduce into evidence any of the documentation attached to its motion. Atthe time of the hearing on the motion, C.C.P. Art. 966 provided that onlyevidence formally admitted into evidence could be considered. Evidencethat is attached to the motion or filed into the record cannot be consideredunless properly admitted into evidence at the summary judgment hearing.Thus, without any evidence for summary judgment purposes, the court couldnot find that the bank had met its burden of proving that there are no issues

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of material fact. Note: A 2013 amendment to C.C.P. Art. 966 provides thatevidence cited in or attached to a motion for summary judgmentmemorandum filed by an adverse party is deemed admitted for purposes ofthe motion for summary judgment.

XI. Deposit accounts.

A. Timeliness of claims.

1. Specialized Loan Servicing, L.L.C. v. January, 2012-2668 (La. 6/28/13);119 So. 3d 582, 80 UCC Rep. Serv. 2d 1225. Resolving a split in the courtsof appeal, the Supreme Court held that the fourth category of the doctrine ofcontra non valentem, i.e. the discovery rule, does not operate to suspendprescription of a conversion claim against a payor under R.S. 10:3-420.Under the facts of the case, an insurance company issued a check for a fireloss payable jointly to the insured and her mortgage company. The insurancecompany sent the check to the insured, who altered it by erasing the word"and" on the check and then negotiated it at the defendant bank without themortgage company's endorsement. When the bank rejected the mortgagecompany's fraud claim, the mortgage company filed suit against the bank forconversion under the Uniform Commercial Code and general negligenceunder C.C. Art. 2315. Although the mortgage company was aware of themisappropriation of the check well within one year after the date the insurednegotiated it, it did not file suit against the bank until thirteen months afterthe check had been negotiated. In response to the bank's exception ofprescription, the mortgage company claimed that the prescriptive period didnot begin to run until it had knowledge that the check had been negotiated,and that it had filed suit within one year of that date. The trial courtoverruled the exception, but the court of appeal granted the bank's writapplication and reversed on the ground that the mortgage company had failedto introduce evidence showing that it did not obtain knowledge of themisappropriation until less than one year before suit was filed. Since thecourt of appeal's discussion implied that contra non valentem could apply onsatisfactory proof in conversion cases, the bank filed a writ application withthe Supreme Court to resolve the narrow legal issue of whether the fourthcategory of contra non valentem can apply to suspend prescription on aconversion claim under R.S. 10:3-420.

In this case, the plaintiff was contending that the bank made paymentwith respect to the check in question to a person who was not entitled toreceive payment. Thus, the claim fell squarely within Section 3-420, whichprovides specifically that an action for conversion prescribes in one year.The jurisprudential doctrine of contra non valentem applies in four instances,the fourth of which is where the cause of action is not known or reasonablyknowable by the plaintiff, even though his ignorance is not induced by thedefendant. The First and Second Circuits have held that contra non valentemcannot be applied to suspend prescription of a cause of action under Section

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3-420, except in the event of fraudulent concealment by the defendantasserting prescription. The Third Circuit applies the doctrine of contra nonvalentem on a case-by-case basis, and in this case the Fourth Circuit wouldhave applied contra non valentem to suspend prescription if the plaintiff hadintroduced sufficient evidence to prove its lack of knowledge of theconversion.

Under Cromwell v. Commerce & Energy Bank of Lafayette, 464So.2d 721 (La. 1985), it is appropriate to look to the jurisprudence of otherstates in interpreting provisions of the Uniform Commercial Code, and it isevident that the overwhelming majority of jurisdictions addressing thisspecific issue have refused to apply the discovery doctrine to toll the statuteof limitations on UCC conversion claims. Courts that have embraced themajority rule have observed that the discovery rule would be inimical to theunderlying purposes of the UCC, including the goals of certainty of liability,finality, predictability, uniformity and efficiency in commercial transactions.In addition, in rejecting the discovery rule, many courts reason that the victimof conversion is often in the best position to prevent or detect a loss. Inadopting the majority rule for application in Louisiana, the Court rejected theplaintiff's argument that, because other states have a three-year statute oflimitations for conversion claims, adoption of the discovery rule would ineffect make Louisiana's conversion more uniform with the other states.According to the Court, the uniformity that should be fostered is the clear-cutrule that the prescriptive period begins to run on the date of conversion.

Further, even without regard to other states' positions on this issue,Louisiana law leads to the conclusion that the discovery rule cannot suspendprescription on a conversion claim. Contra non valentem applies only inexceptional circumstances, and there is nothing exceptional about conversioncases that would necessitate the application of the discovery rule absent fraudon the part of the defendant. In fact, in this case, the plaintiff had knowledgeof the claim even before it prescribed. Statutory or jurisprudential rules canonly be used to supplement, not supplant, the provisions of the UCC.Inserting the discovery rule of contra non valentem would result in thisjurisprudential rule supplanting the Uniform Commercial Code's prescriptiveperiod, in violation of R.S. 10:1-103. Finally, had the legislature intendedthe prescriptive period of Section 3-420 to be suspended by the discoveryrule, it would have said so. In support of this observation, the Court pointedout that other UCC prescriptive provisions, such as those dealing withtransfer warranties, have the discovery rule built in by providing that theprescriptive period runs from the time the claimant has reason to know of thebreach.

Justice Knoll dissented, observing out that longstanding jurisprudenceapplies the discovery rule to tort claims where the cause of action is notknown or reasonably knowable by the plaintiff, and there is no provision ofthe UCC prohibiting application of the discovery rule to conversion claims.

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She also noted that the official commentary to UCC Section 3-118, whichprovides the prescriptive period of conversion claims, notes that thecircumstances under which the running of a limitations period may be tolledis left to other law pursuant to Section 1-103. She disagreed with thepresumption that the plaintiff in this case was in the best position to detectthe loss. It did not issue the check in question and was not the depositorybank. Thus, it could not have learned of the conversion simply by checkingits own bank accounts. She also disagreed with the majority's suggestionthat, since the plaintiff knew of the conversion within one year of itsoccurrence, the plaintiff could not benefit from the discovery rule.

2. Hardin Compounding Pharmacy, LLC v. Progressive Bank, 48-397 (La.App. 2d Cir. 9/25/13); 125 So.3d 493, writ denied, 131 So.3d 60 (La.1/27/14). Within one year after a pharmacy discovered that its counter clerkhad forged the pharmacy's endorsement on numerous checks over a periodof several years, the pharmacy filed a conversion suit under R.S. 10:3-420against the bank that paid the checks on a forged endorsement. In additionto conversion claims, the pharmacy also alleged that the bank was guilty ofnegligence, had violated its own internal policies and breached its contractwith the pharmacy. The bank moved for summary judgment, contending thatall of the plaintiff's claims constituted claims for conversion that were barredby the prescription of one year. After indicating that it disliked the outcomeand "sincerely hoped that the court of appeal would reverse," the trial courtgranted the motion for summary judgment, finding that all of the plaintiff'sclaims had prescribed.

The court of appeal affirmed, following the holding of the SupremeCourt in Specialized Loan Servicing L.L.C. v. January, 2012-2068 (La.6/28/13) to the effect that the fourth category of contra non valentem, i.e. thatthe cause of action is not known or reasonably knowable by the plaintiff,does not apply to the prescriptive period for conversion claims. Thepharmacy unsuccessfully attempted to distinguish Specialized LoanServicing by claiming that in that case the plaintiff was not a customer of thebank and therefore had no contract with the bank. Section 3-420 does notdraw a distinction between claims by a customer and claims by a non-customer. Moreover, the jurisprudence holds that where Section 3-420applies, this statute supplants other general laws regarding personal actionsand breach of fiduciary duty claims. Finally, the court rejected thepharmacy's claim that the trial court should not have rendered summaryjudgment without first allowing the plaintiff to conduct discovery in order toobtain evidence to support its claim that an insider at the bank must haveassisted the counter clerk and that therefore contra non valentem would beavailable on the ground of fraudulent concealment. Because nearly two yearshad elapsed since the pharmacy discovered the conversion, nearly one yearsince the pharmacy had filed suit and four months since the summaryjudgment motion was filed, the plaintiff had not been denied time to conductadequate discovery to uncover evidence of collusion between a bank insider

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and the counter clerk.

3. Grubaugh v. Central Progressive Bank, 2014 WL 794141 (E. D. La.2014), 82 UCC Rep. Serv. 2d 829. Over a period of several years, theplaintiff allowed his mother and sister, who were employees of the defendantbank, to manage his finances. Following his mother's death, the plaintiffdiscovered that his account had been nearly depleted because of wrongfulacts of his mother and sister. When the plaintiff brought suit against thebank, the court granted the bank's motion for summary judgment. Withrespect to the claim for those items drawn on the account without anauthorized signature of the plaintiff, R.S. 10:4-406(f) requires a customer toreport his unauthorized signature within one year after a statement has beenmade available to him, regardless of the care or lack of care of either thecustomer or the bank. In this case, the bank sent monthly statements but theplaintiff ignored them because he "wasn't really fooling with the money."Section 4-406(f) does not require the customer to have actually received thestatements; rather it requires only that the bank send or make the statementsavailable. Moreover, the plaintiff's assertions of good faith are irrelevantoutside the one-year window.

With respect to claims under R.S. 10:3-420 for items paid by the bankon the plaintiff's forged endorsement, R.S. 10:3-420 contains a one-yearprescriptive period. As the Louisiana Supreme Court recognized inSpecialized Loan Servicing, LLC v. January, 119 So.3d 582 (La. 2013), thedoctrine of contra non valentem does not apply to claims under Section 3-420 except where there is fraud on the part of the defendant. Though theplaintiff submitted some evidence that his mother or sister misrepresented amaterial fact with an intent to deceive, there was insufficient evidence toprove that the plaintiff's reliance on their representations was justifiable.Even assuming the plaintiff asked his mother about the statement shortlyafter he opened his account, it is difficult to conclude that asking that onequestion gave the plaintiff license to never question the absence of statementsover the ensuing two and a half years. Finally, the court held that theplaintiff did not have a cause of action for breach of fiduciary duty becausehe provided no evidence that he entered into any written agency or trustagreement under which the bank agreed to act as a fiduciary, as required byR.S. 6:1124.

4. Pace v. Gulf Coast Bank and Trust Company, 2014-0342 (La. App. 4thCir. 9/17/14); 2014 WL 4657482. A man whom the plaintiff had befriendedat a casino made a number of withdrawals from her bank accounts. In lateFebruary 2008, the local branch manager called the plaintiff to notify her thatmoney was missing for her accounts, and the plaintiff immediately executedan affidavit disputing 211 ATM withdrawal transactions between October 6,2007 and February 22, 2008. When the bank refused to credit her account,she brought suit for reimbursement of the unauthorized transfers occurringbetween December 17, 2007 and February 18, 2008, indicating that the

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withdrawals that pre-dated December 17, 2007 had been previously markedas unauthorized out of an abundance of caution. According to her testimony,the plaintiff had been instructed by the branch manager to put down all of thetransactions that were suspicious "just in case, 'til all of the police detectivesand all the work was in." The trial court awarded the plaintiff judgment forall of the disputed items, and the court of appeal affirmed.

The bank's defense was that the unauthorized transactions had notbeen reported within 60 days. The Electronic Funds Transfer Act limits aconsumer's liability to $50, but provides that reimbursement need not bemade to the consumer for losses a financial institution establishes would nothave occurred but for the failure of the consumer to report an unauthorizedelectronic funds transfer within sixty days after transmittal of a statementshowing the transfer. The burden of proof is on the bank to prove that thedebits were unauthorized and that a loss would not have occurred but for theplaintiff's failure to report the unauthorized transfers within sixty days oftransmittal of the periodic statement. At trial, the plaintiff testified that shenever gave the man she met at the casino her ATM card or PIN number.Even though she had asserted in her affidavit that the transactions pre-datingDecember 17, 2007 were unauthorized, she did so only because the bankmanager told her to list all transactions that were questionable. The trialcourt was confronted with two permissible views of the evidence as towhether the unauthorized transactions began in October or December 2007,and there was no manifest error in believing the plaintiff's testimony that theunauthorized transactions had begun in December 2007.

B. Detrimental reliance/negligent misrepresentation.

1. Simmons, Morris & Carroll, LLC v. Capital One, N.A., 49,005 (La. App.2d Cir. 6/27/14); 144 So.3d 1207, writ denied ____ So.3d ____ (La.11/14/14). The plaintiff law firm received a "spam" email from a sender inJapan purportedly seeking to retain the firm for debt collection purposes. Inresponse, the law firm asked for information about the debt and proposedeither a $275 hourly rate or a 25% contingency fee. Rather than answeringthe law firm's inquiry for information about the debtor, the purported clientresponded that the debtor had agreed to issue a check to the law firm for$350,000 and gave instructions for the firm to deduct its retainer fee once thecheck was received. Though the law firm never received any informationabout the debtor or the debt it was purportedly retained to collect, it didreceive what appeared to be a cashier's check issued by the Bank of NovaScotia in the amount of $350,000 payable to the law firm. At the time thelaw firm deposited the check into its trust account, both the law firm and thedepository bank failed to recognize the check as a foreign check, and as aresult the law firm's account was provisionally credited for $350,000. Thisprovisional credit was reversed that night by the bank's proof department.The bank generated a letter to the law firm to that effect, but that letter wasnot received until six days later. A day before receipt of the letter, an

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associate in the law firm contacted an employee at the local bank branch andwas told that the check "had cleared" and that the funds were in the account.The associate asked another attorney in the firm to authorize the wire, butthis other attorney was hesitant to do so because she had heard of scamstargeting attorneys. After being again assured on the telephone by the bankemployee that the funds were in the account, the law firm authorized a wirefor $349,175, deducting $825 for its charges for its services. However, thelaw firm never accessed its account records online to verify that the fundswere in its account and never informed the bank employee that the check wasa foreign check. The next day, the law firm received the bank's notificationletter, and a day later the bank's branch manager informed the firm that theBank of Nova Scotia had verified that the check was counterfeit. Two of theattorneys from the law firm then went to the bank to speak to the employee,who admitted telling the attorneys previously that the check had cleared. Thelaw firm then brought suit against the bank for negligent misrepresentation.

At the close of the trial, the judge ruled from the bench in favor of thelaw firm finding the case to be a "straightforward negligent misrepresentationand detrimental reliance case." The trial judge not only granted judgment forthe amount of the wire but also attorneys' fees of $90,000 on the basis of afinding that the requests for admissions propounded by the law firm were notproperly supplemented when appropriate. The court of appeal reversed theentire award.

To prevail on a negligent misrepresentation claim, there must be alegal duty on the part of the defendant to supply correct information, and theplaintiff's damages must result from his justifiable reliance on the defendant'smisrepresentation. Similarly, a claim of detrimental reliance requires proofof justifiable reliance on the representation as well as a change in position toone's detriment because of the reliance. In this case, there was no writtenagreement establishing a fiduciary relationship, as contemplated by R.S.6:1124. However, the legislature, in enacting R.S. 6:1124 did not intend tototally immunize banks from all legal duties in their relationships withcustomers and third parties. The case of In re Succession of McKnight, 768So.2d 794 (La. App. 2d Cir. 2000) held a bank liable under a theory ofnegligent misrepresentation where it had failed to provide correctinformation when advising its customer on how to open a joint account inorder to allow for the disbursement of the account funds to the plaintiff uponthe customer's death.

In this case, however, the information sought from the bank employeewas equally available to the law firm by accessing its trust account online.Rejecting the law firm's arguments that the bank's deposit account rulesestablished a legal duty on the part of the bank to exercise ordinary care, thecourt found that both parties erred in failing to recognize the check as aforeign check. Regardless of the error on the part of the bank's teller, thebank discovered the error and reversed it that very same day. The bank's

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notification letter was not mailed until four days later, but according to thedeposit account rules all notices to the customer are deemed effective whenmailed. Moreover, the deposit correction would have appeared on the lawfirm's online account well before receipt of the notification letter. By loggingonto its online banking account, the law firm could have seen the very samething anyone at the bank would have seen in checking the law firm's account,namely, that the deposit error had been corrected and the funds were notavailable in the account. Thus, the law firm failed to prove the element ofjustifiable reliance required to recover for either negligent misrepresentationor detrimental reliance. There was no duty on the part of the bank to informthe law firm as to whether the foreign check had cleared nor did the bankbreach any duty with regard to the handling of the check. The court thenpointed out that there were "numerous red flags" in the purportedrepresentation that should have put the law firm on notice that a scam wasafoot. The law firm was in the best position to protect itself from the loss itsuffered at the hands of the scam artist.

2. Bluebonnet Hotel Ventures, L.L.C. v. Wells Fargo Bank, N.A., 754 F.3d272 (5th Cir. 2014). While the owner of a hotel was negotiating with thedefendant bank for the issuance of a letter of credit to provide credit supportfor bonds that were to be sold to investors, the bank presented the owner witha presentation of how swap transactions work. Despite the fact that the letterof credit was never issued, the owner entered into the swap agreement withthe bank. Several months later, interest rates rose above the fixed rate, suchthat the owner could have terminated the agreement and received in excessof $1,000,000 from the bank. Although the owner was informed of thisoption, it chose not to terminate the swap agreement at that time. Thefollowing year, when interest rates dropped to historic lows, the owner wasrequired to pay $6,000,000 to the bank under the swap agreement. Theowner then filed suit against the bank, seeking to rescind the swap agreementbased on failure of cause, negligence and detrimental reliance. Afterdiscovery, the bank moved for summary judgment on the claim of failure ofcause. The district court granted summary judgment in favor of the bank,and the court of appeals affirmed.

A party's consent may be vitiated by, and a contract rescinded upon,error that concerns a cause without which the obligation would not have beenincurred, if that cause was known or should have been known to the otherparty. Here, the owner claimed that its agreement for entering into the swapagreement was to fix the rate on variable rate bonds, contingent on the bank'sissuance of a letter of credit for the bonds. However, the unambiguouscontractual language of the swap agreement undercut this argument. Theswap agreement specifically obligated the owner to pay the bank anyunfavorable difference between the fixed interest rate amount and thefloating interest rate amount irrespective of whether there existed at any timea commitment for any financing. Moreover, in executing the swapagreement, the owner affirmed that the agreement created an obligation that

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was separate and apart from any existing or future financing. Thus, under theexpress terms of the agreement, finalizing financing for the bonds was not theowner's cause for entering into the swap agreement. In reaching this holding,the court refused to consider, on the basis of the parol evidence rule, emailsthat were exchanged around the time the swap agreement was signed, sinceunder Louisiana law courts may consider parol evidence only when acontract is ambiguous.

C. Breach of contract.

PAF, Inc. v. Regions Bank, 14-195 (La. App. 5th Cir. 9/24/14); ___ So.3d ___,2014 WL 4723867 (not yet released for publication in the permanent lawreports). A 1991 real estate purchase agreement between the plaintiff and apredecessor to the defendant bank provided that the plaintiff would be permanentlyrelieved of all service charges on all of its bank accounts as a condition of the sale.Five years later, the predecessor bank was acquired by the defendant, and elevenyears after the acquisition, the defendant bank began charging the plaintiff servicecharges. When this was brought to the bank's attention, the bank contended that itwas entitled to charge for "miscellaneous charges" which were different from"service charges." The plaintiff then closed its accounts and brought suit against thebank for breach of contract. At trial, the bank's treasury management officer testifiedthat, in the banking industry, service charges include fees for monthly accountmaintenance, checks, debits, credits, deposits and the like, and miscellaneous chargesinclude fees for overdrafts, returned checks and stop payments. Holding that thebank had breached its contractual obligations, the trial court ordered the bank toreimburse $13,000 in charges. The court of appeal reversed.

Under the circumstances of the case, since the two contracting parties werebusiness entities one of which was a bank, the court found that the parties intendedthe technical meaning of "service charges" as used in the banking industry. The trialcourt had apparently based the amount of its award on testimony from the plaintiff'sexpert witness, who did not distinguish between service charges and miscellaneouscharges. Thus, the trial court's award of damages must be reversed. The court ofappeal also found specific performance to be impracticable because it would requirethe re-establishment of a contractual relationship between the parties. Since theplaintiff voluntarily terminated the purchase agreement when it voluntarily closedits bank accounts, the bank no longer had an enforceable obligation and specificperformance was unavailable. However, the court opined at the end of its opinionthat, while it could not compel specific performance, "we offer the remedy ofspecific performance in the event the plaintiff chooses to re-establish its relationshipwith the bank, in which event the bank accounts previously subject to the agreementwould again be subject to the agreement as interpreted." Judge Liljeberg concurred,objecting that the last two sentences of the court's opinion "offering" the remedy ofspecific performance was an inappropriate advisory opinion. Moreover, if theplaintiff were to re-establish a relationship with the bank, more information wouldbe required before the court could determine whether the accounts would be subjectto the 1991 agreement.

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D. Arbitration.

Green v. Regions Bank, 2013-0771 (La. App. 1st Cir. 3/19/14); 2014 WL3555820. Following settlement of a minor's personal injury lawsuit, the minor'sfather was appointed as trustee of a special needs trust for her behalf and in thatcapacity opened trust accounts at Regions Bank and Morgan Keegan. The governingaccount agreements contained detailed arbitration provisions. After the father'sdeath, it was determined that almost all of the trust funds had been exhausted. Thesuccessor trustee brought suit against the bank and Morgan Keegan claiming breachof contract, negligence, breach of duty of reasonable care and negligentmisrepresentation. The defendants responded with dilatory exceptions ofprematurity based on the arbitration provisions. The trial court sustained theseexceptions and dismissed the successor trustee's claims without prejudice. Twoyears later, the minor, who had since reached the age of majority, filed a new suitagainst the bank and Morgan Keegan asserting the same claims. The trial court againsustained the defendant's exceptions of prematurity based upon the arbitrationprovisions, and the court of appeal affirmed.

The plaintiff's argument was that, as trust beneficiary, she had separate causesof action against the defendants under R.S. 9:2222(2), which provides that a trusteeis the proper plaintiff to sue to enforce a right of the trust estate except that abeneficiary may do so in order to protect his own interests in an action against anobligor if there is no trustee that can be subjected to the jurisdiction of the court.According to the court, there is no question that the trustee in this case had the powerto enter into the contracts on behalf of the trust and to submit claims affecting trustproperty to arbitration. To the extent the plaintiff's claims are based upon breach ofthese agreements, she cannot have it both ways by holding the defendants to theterms of the agreements but repudiating the arbitration provisions. The court alsorejected the plaintiff's contention that she had a direct cause of action under R.S.9:2222(2) on the ground that the successor trustee was a Georgia resident whocannot be subjected to the jurisdiction of the Louisiana court. According to the TrustCode, a trustee who accepts a trust established under it submits to the jurisdiction ofthe courts of this state.

XII. Professional responsibility.

A. Title insurance claims.

In the matter of West Feliciana Acquisition, L.L.C., 744 F. 3d 352 (5th Cir.2014). A mortgagee that had obtained a mortgage from a troubled paper mill sentthe mortgage to a title company for purposes of recordation but failed to attach legaldescription. The title company then recorded the mortgage without a description ofthe mortgaged property and issued a policy of mortgagee title insurance. When theabsence of the legal description was discovered, the title company apparentlyresolved the problem about six weeks later. The paper mill continued to sufferfinancial problems and, acting on advice of its counsel that it owed a fiduciary duty

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to its unsecured creditors to file for bankruptcy within 90 days after the correctedrecording, the mortgagor applied for Chapter 11 relief. Though the validity of itsmortgage was never adjudicated, the mortgagee brought suit against the titlecompany and title underwriter based on both the title insurance policy and a generalnegligence claim. The district court granted summary judgment in favor of thedefendants, and the court of appeals affirmed. Under the title policy, the underwritercontracted to indemnify the mortgagee for loss but only in the event the loss resultedfrom a failure of title. The mortgagee's title to the paper mill never failed and, on thecontrary, its title was preserved through the title company's correction efforts. Thus,it is impossible for any loss to be attributed to a failure of title and thus be coveredby the policy. The court also rejected the mortgagee's arguments, based on CiticorpSavings of Illinois v. Stewart Title Guaranty Co., 840 F. 2d 526 (7th Cir. 1988), thatthe title policy was breached at the time the loan was made because that is when thetitle of the mortgage became voidable. The court observed that Citicorp's holdingthat a title policy actually guarantees to the lender that its mortgage is valid has beenrejected by many other courts. Finally, the court of appeals held that the districtcourt had correctly dismissed the negligence claims for lack of proof of causation.Not only had the mortgagee failed to demonstrate that the title defect was a cause infact of the ultimate financial failure of the paper mill, legal causation is ultimatelya question of policy as to whether a particular risk falls within the scope of the duty.In this case, the defendant's duty to the mortgagee was defined by the title policy,which simply provided for indemnity against actual loss and not a guarantee of theeffectiveness of the mortgage or the property's fair market value.

B. Prescription.

1. Gibsland Bank & Trust Company v. Kitchens, Benton, Kitchens &Black, 47, 763 (La. App. 2d Cir. 5/15/13); 114 So.3d 529. On July 31,2008, an attorney issued a title opinion opining as to the priority of theplaintiff bank's mortgage. During the course of her title search, she had notdiscovered a 1999 judicial mortgage that misspelled the judgment debtor'sname. On July 31, 2009, the plaintiff bank sent the attorney a letter statingthat the judgment creditor had filed suit to enforce the judgment against theproperty, claiming to hold a first-lien position. The bank formally requestedresearch and remediation by the attorney in order to protect the bank'sinterest. Two months later, the bank intervened in the judgment creditor'ssuit and petitioned to enjoin the sheriff's sale. In a prior appeal reported at46 So.3d 793, the court of appeal issued an opinion on August 11, 2010 thatthe judicial mortgage had priority, notwithstanding the variance in the names.On August 11, 2011, the bank filed a malpractice action against the attorney,who responded with an exception of prescription contending that the one-year prescriptive period provided by R.S. 9:5605 began to run when the bankdiscovered that its interest in the property was in jeopardy due to thejudgment creditor's suits. The trial court denied the exception ofprescription, agreeing with the bank that prescription began running from thedate of the court of appeal's adverse ruling on the ranking issue. The courtof appeal granted writs and reversed.

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Under R.S. 9:5605(A), an action for legal malpractice must bebrought within one year of the date of the act or neglect or within one yearof the date of discovery, but in all events within three years of the date of theact of neglect. In the present case, the act, omission or neglect that formedthe basis of the bank's claim for malpractice was the July 31, 2008 titleopinion. The critical inquiry, however, was the date upon which the bankdiscovered or should have discovered the law firm's mistake which resultedin damage to the bank. As the Supreme Court held in Jenkins v. Starns, 85So. 3d 617 (La. 2012), in the context of a legal malpractice claim the date ofdiscovery from which prescription begins to run is the date on which areasonable man in the position of the plaintiff has or should have eitheractual or constructive knowledge of the damage, the delict and therelationship between them to indicate to a reasonable person that he is avictim of a tort. In this case, the act of malpractice occurred when theattorney failed to find the judicial mortgage in the public records and issuedher July 31, 2008 title opinion. The bank began to incur damage when thebank issued its loan, believing that it held the superior lien position. Theone-year period did not begin to run at that time because the bank wasunaware of the attorney's negligence. The one-year period began to run inJuly 2009 when the bank received notice that the judgment creditor had filedsuit and was seizing the property based upon a claim of a prior securityinterest. In its July 31, 2009 letter to the law firm, the bank demonstratedactual knowledge that its superior property interest was in jeopardy as aresult of the attorney's failure to disclose the judgment in her title opinion.The malpractice suit, which was not filed until August 2011, was thereforeuntimely.

2. First NBC Bank v. Broussard, 13-534 (La. App. 5th Cir. 12/19/13); 131So.3d 966. Within one year after learning of the existence of a priorencumbrance on property in St. Tammany Parish mortgaged in its favor, thebank brought suit in Orleans Parish against the title attorney, even though theattorney lived and worked in Jefferson Parish. The attorney responded withan exception of improper venue, which was denied by the trial court butreversed on appeal by the Fourth Circuit. The case was then transferred toJefferson Parish, where the title attorney filed an exception of peremption,asserting that the suit was filed more than one year after the bank had learnedof its alleged cause of action against him. Finding his own holding"personally distasteful," the district judge in Jefferson Parish nonethelessgranted the exception of peremption. The court of appeal affirmed. R.S.9:5605 provides that no suit against an attorney for damages shall be broughtunless filed in a court of competent jurisdiction and proper venue within oneyear from the date of the alleged act or omission. In a legal malpracticeaction, venue is proper in the parish where the wrongful conduct occurred,as well as the parish of the defendant's domicile. Though the court found thatthe suit was not filed in a parish of proper venue, it appears not to have usedthe lack of filing in the proper venue as the basis for its holding. Rather, the

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court pointed out that the suit was filed more than two years after the date ofthe loss that the bank alleged that it had sustained in its petition. Whereprescription is evident on the face of the pleadings, the burden shifts to theplaintiff to show why the action has not prescribed. The bank made noshowing why it did not know or should not have known of the allegedmalpractice by the date on which it had sustained its loss. The bank clearlyshould have been aware of its cause of action against the attorney more thanone year before it filed suit.

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PART TWO: ACTS 2014, NO. 281

ENACTMENT AND REVISION OF CIVIL CODE TITLES ON SECURITY AND PLEDGE

and COORDINATING REVISIONS OF TITLE ON REGISTRY, R.S. 9:4401, and UCC DEFINITION OF "ACCOUNT"

I. Overview.

A. Act 281 is the latest effort in the on-going revision of the Louisiana Civil Code of1870:1. It includes a comprehensive revision of the Civil Code title on pledge, now

Title XX-A. 2. It also adds a new title on security, Title XX.

B. Effective date: January 1, 2015.C. The revision seeks to harmonize the Civil Code articles on pledge with Chapter 9 of

the Uniform Commercial Code, making the domain of the two regimes mutuallyexclusive.

D. The revision suppresses the concept of antichresis.E. The revision wholly revises La. R.S. 9:4401.

1. The pledge of the lessor's interest in the leases and rents of an immovable isbrought into the framework of pledge within the Civil Code. See C.C. arts.3168 through 3175.

2. After the effective date of the act, pledges of the lessor's interest in the leaseof an immovable and its rents must be recorded in the mortgage records,rather than the conveyance records.

II. Security.

A. The eight articles of new Civil Code Title XX are largely conceptual and include fewsubstantive rules of law.1. C.C. art. 3133 restates the substance of Article 3182 of the Louisiana Civil

Code of 1870 that whoever is personally bound for an obligation is obligatedto fulfill it out of all of his property, present and future.

2. C.C. art. 3134 carries forward the familiar principle that all of an obligor'sproperty is available to his creditors, while deleting the imprecise statementthat his property is the "common pledge" of his creditors.

3. Any written contract, whether involving security or not, may provide that theobligee's recourse is limited to certain property. C.C. art. 3135. This makesmore general the concept behind the non-recourse mortgage.

4. Security is defined by C.C. art. 3136:a. An accessory right established by legislation or contract over

property, or an obligation undertaken by a person other than theprincipal obligor, to secure performance of an obligation.

b. Security includes suretyship, privilege, mortgage and pledge, as wellas a security interest established to secure performance of anobligation. See C.C. art. 3138.

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5. Security interest is defined and governed by the Uniform Commercial Code.C.C. art. 3139.

B. Prohibited forfeitures.1. C.C. art. 3140 restores to the Civil Code an express statement that an

agreement of forfeiture is null and applies this prohibition to all forms ofsecurity. a. An express prohibition of agreements of forfeiture in contracts of

pledge was contained in Article 3132 of the Louisiana Civil Code of1825 and also in the second paragraph of Article 3165 of theLouisiana Civil Code of 1870, until the repeal of that paragraph byActs 1872, No. 9.

b. Despite the repeal, agreements of forfeiture have continued to beviewed as unenforceable in Louisiana. See Alcolea v. Smith, 90 So.769 (La. 1921), holding that agreements of forfeiture have beenprohibited by the civil law "since the edict of Constantine" and that"it would require something more than a doubtful implication [i.e.,the 1872 amendment of Article 3165] to justify any court in anycivilized country in now reading it into a statute."

2. The Louisiana Pawnshop Act, which provides statutorily for forfeiture ofpawned goods, is an exception to this general rule. See La. R.S. 37:1800.

3. C.C. art. 3140 also provides that a contractual provision obligating the ownerof a thing to give it in payment (i.e. to make a dation en paiement) upon afuture default is null.

III. Pledge; general rules.

A. Chapter 1 of Title XX-A applies to all pledges, including both pledges of movablesand pledges of the lessor's rights in the lease of an immovable and its rents.

B. Definition of pledge.1. C.C. art. 3141 defines pledge as a real right established by contract over

property of the kind described in Article 3142 to secure performance of anobligation.

2. Pledge is thus now defined as the real right in a thing, similar to a mortgage,rather than the contract creating this real right.

C. Domain of pledge.1. According to C.C. art. 3142, the only things that may be pledged are:

a. A movable that is not susceptible of encumbrance by a securityinterest.

b. The lessor's rights in the lease of an immovable and its rents.c. Things made susceptible of pledge by law.

2. What was formerly known as an assignment of leases and rents, governed byformer La. R.S. 9:4401, is now a pledge governed by the Civil Code itself.

3. As a practical matter, pledge involves only two types of collateral:a. Encumbrance, as original collateral, of rights under a policy of

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insurance.(1) The UCC nonetheless applies to insurance claims as proceeds

of UCC collateral, as well as health-care insurancereceivables;

(2) Unlike the rule in other states, life insurance policies areencumbered under the UCC in Louisiana; therefore, they areoutside the domain of pledge.

b. The lessor's rights in the lease of an immovable and its rents.4. The limited domain of pledge explains why the revision has few rules

involving corporeal movables and places great emphasis on third-partyobligations pledged as collateral.

D. Antichresis is completely suppressed as a form of security, thus obviating the needfor the term "pawn" to distinguish pledges of movables from antichresis.

E. A person may pledge his property to secure an obligation of another person. In thatevent, the pledgor has the rights and defenses of a surety. C.C. art. 3148.

F. Formal requirements.1. C.C. art. 3149 greatly simplifies the formal requirements of the contract of

pledge. 2. The pledge of a corporeal movable is effected between the parties only upon

delivery of possession. No written contract is required.3. The pledge of other things is effective between the parties only if established

by written contract, without the necessity of delivery. 4. The requirement of delivery of a writing evidencing a pledged incorporeal

has been suppressed.5. Except in the case of the pledge of the lessor's rights in the lease of an

immovable and its rents, the requirement that a contract of pledge state theamount of the secured obligation has been suppressed.

G. Effectiveness against third parties.1. In order to be effective against third persons, all pledges must be evidenced

by a written contract. C.C. art. 3153.2. In the case of the pledge of the lessor's rights in the lease of an immovable

and its rents, the pledge is effective against third persons other than the lesseeupon recordation in the mortgage records. See C.C. arts. 3154 and 3169.

3. In the case of a pledge of another person's obligation not arising under thelease of an immovable, the pledge is effective against third persons from thetime the obligor has actual knowledge of the pledge or has been given noticeof it. C.C. art. 3155. This parallels the rule applicable to assignments ofrights under C.C. art. 2643.

4. These rules do not govern when the lessee or other obligee must renderperformance to the pledgee. See C.C. art. 3161, discussed below.

H. Enforcement.1. The pledgee of a movable may, upon default, enforce the pledge by a sale at

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public or private auction, if agreed in the written contract of pledge.Otherwise, he must resort to judicial process. C.C. art. 3158.

2. The pledgee (of a movable or of leases and rents of an immovable) is entitledto receive the fruits of the thing pledged and, in the case of the pledge of anobligation of a third person, to enforce performance of the third person'sobligation and to apply any money collected to the secured obligation, evenif not yet due. C.C. arts. 3159 and 3160.

3. The third person obligated on a pledged obligation is bound to renderperformance to the pledgee only from the time that the pledgor or pledgeenotifies him of the pledge and directs him in writing to render performanceto the pledgee. C.C. art. 3161. Unlike the rule that applies to assignmentsof rights under C.C. art. 2643, mere notification of the existence of the pledgewill not authorize or obligate the third person to render performance to thepledgee.

4. The pledge of the lessor's rights in the lease of an immovable and its rentsmay be enforced only by collecting the rents and otherwise enforcing theobligations of the lessee; judicial sale of the lessor's rights is prohibited. C.C.art. 3174.

I. Defenses available to the obligor of a pledged obligation. C.C. art. 3162.1. Unless the obligor agrees otherwise, he may assert against the pledgee any

defense arising out of the transaction that gave rise to the pledged obligation.2. The obligor may also assert any other defense that arises against the pledgor

before the obligor has been given written notice of the pledge.

J. Prohibition of pledge of contractual payments. 1. A clause in a contract restricting the pledge of payments that become due

under the contract or making the pledge or its enforcement a default orgrounds for non-performance or termination is null. C.C. art. 3163.

2. This parallels a provision found in Chapter 9 of the UCC.

K. Modification of a pledged obligation.1. The parties to a contract from which a pledged obligation arises (including

a lease) may modify or terminate the contract or substitute a new contract solong as they act in good faith. C.C. art. 3164.

2. However, after written notice of the pledge has been given to the obligor ofa pledged obligation that has been fully earned by performance, an agreementmodifying or extinguishing that obligation is without effect against thepledgee unless made with his consent.

3. In any event, the pledgor and pledgee may agree that modification ortermination of the contract from which a pledged obligation of a third personarises is a default by the pledgor.

L. Pledge of rights under policies of insurance covering an immovable.1. R.S. 9:5386 is revised to provide that a mortgage of an immovable may

contain a pledge of the mortgagor's rights to insurance covering theimmovable.

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2. In that event, the pledge has effect against third persons when the act ofmortgage is recorded, without the necessity of notice to the insurer.

3. This is an exception to C.C. art. 3155, which provides that a pledge isgenerally effective against third persons only from the time the obligor hasactual knowledge of the pledge or has been given notice of it.

IV. The pledge of a lessor's rights in the lease of an immovable and its rents.

A. Chapter 2 of Title XX-A provides specific rules that are applicable (in addition to thegeneral rules of Chapter 1) to the pledge of a lessor's rights in the lease of animmovable and its rents.

B. C.C. art. 3168 follows the wording of C.C. art. 3288 (applicable to mortgages)concerning the requirement of a property description and a statement of the securedobligation or the maximum amount of secured obligations that may be outstandingfrom time to time.

C. A pledge may be established over all or any part of the leases of an immovableincluding future leases, without the necessity of specific description. C.C. art. 3171.

D. Effectiveness against third persons.1. The pledge is effective against third persons other than the lessee upon

recordation in the mortgage records. . C.C. art. 3169.2. The pledge is effective against the lessee when he is given written notice of

the pledge, without the necessity of recordation. See C.C. arts. 3154 and3169.

3. A pledge may be contained in an act of mortgage. In that event, the pledgeis given the effect of recordation for so long as the mortgage is given thateffect. C.C. art. 3170.

E. Mineral payments.1. A landowner or mineral servitude owner may pledge bonuses, delay rentals,

shut-in payments and any payments classified as rent under the MineralCode, but the pledge must expressly state that it covers this type of collateral. C.C. art. 3172.

2. Mineral payments owing to other persons are not susceptible of pledge butinstead are "accounts" susceptible of encumbrance under Chapter 9 of theUCC.

3. A corresponding change is made to the definition of "accounts" in Chapter9 of the UCC (R.S. 10:9-102(a)(2), thereby ensuring that "accounts" asdefined in Chapter 9 of the UCC and the kinds of mineral paymentssusceptible of encumbrance by pledge are mutually exclusive.

4. C.C. art. 3172 clarifies an issue that was uncertain under former R.S. 9:4401:whether mineral lease bonus payable to a landowner or mineral servitudeowner is susceptible of encumbrance by pledge, rather than by a securityinterest under Chapter 9 of the UCC. As is the case with other mineral leasepayments owing to a landowner or mineral servitude owner, mineral lease

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bonus is susceptible of pledge, rather than encumbrance under Chapter 9.

F. Collections of rent.1. Generally, under C.C. art. 3173, a pledgee is not bound to account to a

superior pledgee for rent collected, unless:a. he collects the rent more than one month before it is due; or b. he collects rent with actual knowledge that the payment of rent to him

violates written instructions given to the lessee to pay rent to theholder of the superior pledge.

2. This is similar to the rule that applies to collections of accounts by the holderof an inferior security interest under the UCC .

3. Cf. former R.S. 9:4401(G)(2), which made any person who received pledgedrents liable to the pledgee for the sums received.

4. The pledge of the lessor's rights in the lease of an immovable and its rentsmay be enforced only by collecting the rents and otherwise enforcing theobligations of the lessee; judicial sale of the lessor's rights is prohibited. C.C.art. 3174.

G. Proceeds of rent. 1. New R.S. 9:4402 limits the reach of the assignment of leases and rents,

which previously applied to all proceeds ad infinitum. 2. The pledge of the lessor's interest in the rents of an immovable encumbers

any identifiable cash proceeds of rent, such as money, checks, depositaccounts or the like.

3. If the rent is deposited into a deposit account, the rights of the pledgee aresubject to the rights of:a. the financial institution with which the deposit account is maintained.b. a transferee of funds from the deposit account (unless in collusion

with the pledgor in violating the rights of the pledgee).c. a secured party holding a security interest perfected by control of the

deposit account. d. another pledgee holding a superior pledge of the rent.

4. However, if the deposit account into which the collections are deposited ismaintained by the pledgee himself (or on his behalf), then any rentalcollections deposited into it are free of the claims of a superior pledgee,unless the pledgee who collected the rent has an obligation to account for thecollections to the superior pledgee under C.C. art. 3173.

H. Registry.1. Title XXII-A of the Civil Code was amended to apply all the rules pertaining

to recordation and reinscription of mortgages to pledges of the lessor's rightin the lease of an immovable and its rents.

2. Precisely the same time periods apply to both mortgages and pledges.3. The place of recordation is now the same for both mortgages and pledges:

the mortgage records (rather than the conveyance records) of the parish inwhich the immovable is located.

4. New R.S. 9:4403 provides transitional filing rules for assignments of leases

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and rents recorded prior to January 1, 2015. a. After that date, reinscriptions, releases, amendments or other

modifications of a pre-existing assignment of leases and rents arefiled in the mortgage records, even if the original assignment or aprior reinscription was filed in the conveyance records.

b. The statute specifically provides that filing of a notice of reinscriptionin the conveyance records on or after January 1, 2015 is neithernecessary nor effective.

5. R.S. 9:4403(B) provides a sunset rule for assignments of leases and rentsrecorded only in the conveyance records prior to January 1, 2015.Regardless of the maturity date stated in such an assignment, it must bereinscribed in the mortgage records in all events no later than December 31,2024 or will cease to be effective against third persons after that date.a. This applies even if the maturity date of the secured obligated is nine

years or more, such that reinscription would otherwise have beenrequired within six years after the stated maturity date.

b. December 31, 2024 is an outside deadline. After that date, noassignment of leases and rents that is filed only in the conveyancerecords will be effective against third persons.

6. An assignment of leases and rents that was recorded (incorrectly) only in themortgage records prior to January 1, 2015 will be given the effect ofrecordation on that date, without further action, as though it were first filedon that date. R.S. 9:4403(G). The period for reinscription of such anassignment will, however, still run from the date of the instrument (ratherthan January 1, 2015) by operation of the ordinary rules applicable toreinscription.

APPENDIX A ACT 281 OF 2014

APPENDIX B PURCHASE MONEY MORTGAGE REPORT

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