29,134 La.App. 2 Cir. 4/4/97, Gulf States Land and Development, Inc. v. Ouachita Nat. Bank in Monroe
| Decision Date | 04 April 1997 |
| Citation | 705 So.2d 189 |
| Parties | 29,134 La.App. 2 Cir |
| Court | Court of Appeal of Louisiana — District of US |
Jr., Monroe, Taylor, Porter, Brooks & Philips by Harry Philips, Jr., Baton Rouge, for Defendant-Appellee.
Boles, Boles & Ryan by Lawrence Scott Patton, Monroe, for Intervenor, Regions Bank.
Before BROWN, WILLIAMS and STEWART, JJ.
[29,134 La.App. 2 Cir. 1] BROWN, Judge.
This litigation spans nearly a decade. A group of individuals and their corporation, Gulf States Land & Development, Inc., sued the defendant-bank for breach of contract, extortion and defamation in connection with the Bank's failure to fulfill a loan commitment to develop a subdivision. The Bank sued the Gulf States parties for non-payment of 41 promissory notes. When the air cleared, there were judgments in favor of all parties. With certain amendments, this court affirmed. 1 The parties are now back with questions concerning offset and compensation of the different awards. The precise issue presented is whether the district court properly calculated the amounts owed to the respective parties under the terms of the judgment. We reverse and render.
Facts and Procedural History
The "Gulf States parties" (Mr. and Mrs. Stanley Palowsky, Mr. and Mrs. Larry James, Mr. and Mrs. Walter Meredith, Dr. John Smiarowski and Gulf States Land & Development, Inc.) attempted to develop a residential subdivision north of Monroe, Louisiana in the 1980s. Ouachita National Bank (known subsequently as "Premier Bank" and now "Bank One") committed to finance this project and loaned money to the Gulf States parties, who executed a series of promissory notes in connection with these loans.
Gulf States, Inc. signed all of the notes; however, the individual parties signed separate promissory notes as guarantors. A collateral note secured by a mortgage on the subdivision property was executed by the individual co-makers and their spouses to secure the 41 promissory notes. Palowsky was co-maker with Gulf States, Inc. on 12 promissory notes which had a combined face value of $675,666.66. James was a co-maker with Gulf States, Inc. on 13 promissory notes [29,134 La.App. 2 Cir. 2] which had a combined face value of $725,666.68. Smiarowski was a co-maker with Gulf States, Inc. on 13 promissory notes which had a combined face value of $725,666.66. Meredith was a co-maker with Gulf States, Inc. for three notes which had a combined face value of $264,000; however, Meredith also signed a continuing guaranty agreement for $563,000.
The business venture encountered difficulties and the parties became embroiled in litigation. 2 The Gulf States parties asserted various causes of action against the Bank; including an extortion claim by Palowsky. The Bank sought judgment against the Gulf States parties on the promissory notes.
The cases were consolidated for trial. A jury returned verdicts in favor of each of the Gulf States parties for breach of contract and in favor of Stanley Palowsky on his extortion and defamation claims. The trial judge granted judgment in favor of the Bank on the promissory notes and awarded attorney fees incurred in collection of the notes.
In its judgment on the promissory notes, the trial court found that the corporation, Gulf States, Inc., was liable to the Bank for the entire indebtedness, but that Palowsky, Smiarowski, James and Meredith were liable, in solido, with Gulf States, Inc ., to the limited extent of the guaranty and promissory notes they each individually executed as co-maker and for interest and attorney fees associated with those obligations.
[29,134 La.App. 2 Cir. 3] After adding interest accrued to July 31, 1992, the judgment on the unpaid promissory notes against Gulf States, Inc ., totaled $3,670,812.92. Each individual, however, was only liable in solido with Gulf States, Inc., to the following extent:
(a) Gulf States Inc.: $3,670,812.92
(b) Mr. Palowsky: 967,557.17
(c) Mr. Smiarowski: 1,038,285.64
(d) Mr. James: 1,038,446.78
(e) Mr. Meredith: 563,000.00
In addition, attorney fees of $855,646.50 were awarded to the Bank, the individual parties being liable in solido with Gulf States, Inc., to the following extent:
(a) Gulf States Inc.: $855,646.50
(b) Mr. Palowsky: 250,195.14
(c) Mr. Smiarowski: 268,616.58
(d) Mr. James: 268,616.58
(e) Mr. Meredith: 145,600.28
The jury found merit to Stanley Palowsky's extortion claim and awarded him $2.5 million in damages. However, the district judge determined after trial that Palowsky's extortion claim had prescribed and granted the Bank's motion for judgment notwithstanding the verdict (JNOV) on the extortion claim. 3 On appeal, this court agreed that Palowsky's extortion claim had prescribed, but that:
[T]he jury award of Two Million Five Hundred Thousand Dollars ($2,500,000) to Stanley R. Palowsky, Jr., and against Defendant, [Bank One], is affirmed only insofar as it may be used to offset the amount of [Bank One's] judgments, including interest, attorney fees and court costs, against Stanley R. Palowsky, Jr., in the March 19, 1993 judgment.
Palowsky v. Premier Bank, N.A., 26,255, consolidated with 26,299, 26,300, 26,301 (La.App.2d Cir. 4/5/95), 653 So.2d 1380 (), writs denied, 95-1335, 95-1378 (La.10/27/95), 661 So.2d 1368.
Furthermore, on appeal this court reduced the jury's $7 million breach of [29,134 La.App. 2 Cir. 4] contract award to Gulf States, Inc. to $2 million and the Palowskys' award of $1.25 million for breach of contract to $400,000. This court otherwise left the jury's findings and trial court's judgment undisturbed. The jury and court had decreed that:
Larry and Dianne James were entitled to a $200,000 breach of contract award against the Bank;
John Smiarowski was entitled to a $200,000 breach of contract award against the Bank;
Walter and Mona Meredith were entitled to a $200,000 breach of contract award against the Bank;
The Bank was entitled to funds in the registry of the court, which would be credited against the sums due the Bank;
The Bank's mortgage was to be recognized and maintained; and;
The Gulf States parties were liable for interest on the unpaid principal from the date of July 31, 1992, at the rate of 9.25% per annum.
After the supreme court denied direct review on October 27, 1995, the parties attempted to execute the judgment as amended on appeal.
The parties submitted their respective interpretations of the final judgment. 4 The trial court's calculation of the amounts due the parties is now at issue. The trial court offset the prescribed extortion award as to Palowsky only. Thus, Palowsky's obligation on the promissory notes he signed was extinguished; however, the court refused to reduce the debt owed by Gulf States, Inc., and the other Gulf States parties by the amount of Palowsky's offset.
The trial court then set off the non-Palowsky Gulf States parties' breach of contract claims against the Bank's judgment and found that the Bank was owed [29,134 La.App. 2 Cir. 5] $830,782.02 plus interest. Gulf States, Inc., John Smiarowski, Larry James and Walter Meredith were found liable in solido for this amount, except that Meredith's liability was limited to the principal sum of $48,641.85 plus interest. Because Palowsky's debt to the Bank was extinguished by the prescribed extortion judgment, the Bank was held liable to Palowsky for the $400,000 awarded by the jury for breach of contract.
The Gulf States parties now appeal. They contend that under a proper interpretation of the March 1993 judgment as amended on appeal, they are net judgment creditors of the Bank, who has answered the appeal, asking only that the district court's judgment be amended to explicitly acknowledge continuing interest in Bank One's favor.
Discussion
Compensation is a method by which obligations are extinguished. When two persons owe each other money, compensation is a mechanism of extinguishing each obligation without the necessity of an actual disbursement of funds by the parties. La.C.C. art 1893. In common law, this is known as set-off. Saul Litvinoff, Obligations § 19.1, at 658, 5 Louisiana Civil Law Treatise (1992).
Solidary obligors are liable for the whole debt; however, the creditor is only entitled to collect the full amount and no more. Thus, when one solidary obligor pays the debt in full, the creditor can collect nothing more from the other obligors. As noted above, compensation is a method of paying a debt. Under La.C.C. art. 1898, compensation only extinguishes the debt to the extent owed by the obligor who is entitled to the compensation. Tolbird v. Cooper, 243 La. 306, 143 So.2d 80 (1962).
In Young v. Fremin-Smith, Inc., 265 So.2d 341 (La.App. 4th Cir.1972), a plaintiff-employee filed suit against his former employer seeking unpaid wages. [29,134 La.App. 2 Cir. 6] The defendant-employer asserted as set-off $4,000 allegedly owed by the employee for damaged equipment. Because the employer's claim was prescribed, he was unable to directly obtain a monetary award. However, the court permitted the employer to extinguish the employees claim for unpaid wages with the prescribed claim pursuant to La.C.C.P. art. 424. 5 The court held that the obligation owed to the employee was extinguished by judicial compensation as recognized and defined by the supreme court in Tolbird, supra.
In Fireman's Fund v. Charles Carter Construction, 382 F.Supp. 332 (M.D.La.1974), the federal district court recognized that a claim can be compensated legally or judicially even though prescribed. In holding that the prescribed claim could be offset, the federal court referred to the holding in Tolbird, supra, that to urge a prescribed claim...
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