Carter's Ins. Agency, Inc. v. Franklin

• Decision Date: 12 October 1982
• Docket Number: No. 15057,15057
• Citation: 428 So.2d 808
• Parties: CARTER'S INSURANCE AGENCY, INC. v. Arthur FRANKLIN, Sr., et ux.
• Court: Court of Appeal of Louisiana — District of US

Page 808

428 So.2d 808

CARTER'S INSURANCE AGENCY, INC. v. Arthur FRANKLIN, Sr., et ux.

No. 15057.

Court of Appeal of Louisiana,

First Circuit.

Oct. 12, 1982.

On Rehearing Feb. 22, 1983.

W. Hugh Sibley and Clifton T. Speed, Greensburg, for plaintiff-appellee.

Guy Huard and Don Juneau, Hammond, for defendants-appellants.

Before COVINGTON, LEAR and LANIER, JJ.

LANIER, Judge.

This is a suit by the guarantor on three promissory notes against the makers of the notes for indemnification for the amounts the guarantor was required to pay the holder. There was judgment in the trial court in favor of the guarantor and the makers took this devolutive appeal. ¹

I. FACTS

Carter's Insurance Agency, Inc. (hereinafter referred to as Carter's) sold various insurance policies to Arthur and Yvonne Franklin during the period of November, 1975 to March of 1980. The Franklins had an open account with Carter's during this period on which various amounts were paid from time to time and upon which they did not pay interest or service charges. During this period, the Franklins secured six loans from the Bank of Greensburg and one from Premium Finance and used the money secured thereby to make some of the payments on the Carter's account.

A. THE NOTE OF DECEMBER, 1976

Prior to December 3, 1976, the Franklins had a balance due on their account with Carter's of $33.00. On December 3, 1976, the Franklins added coverage of a '71 Chevrolet pickup truck to an existing automobile policy at a cost of $145.00. On that same date, Arthur Franklin executed a promissory note in favor of the Bank of Greensburg (hereinafter referred to as Bank) for $242.97 with 8% per annum interest from maturity and payable in 7 equal monthly installments of $34.71 each commencing January 5, 1977. Carter's endorsed this note as a guarantor. The Truth in Lending disclosure statement executed in connection with this loan shows that the amount financed was $231.00, the finance charge was $11.97 and the annual percentage interest was 14.45%. Franklin paid the $231.00 to Carter's on that same day. This resulted in a credit balance on his account of $53.00. On February 7, 1977, the Bank called on Carter's to pay the January and February 1977 installments due on the December 1976 note plus a late charge of $1.74 for a total of $71.16. Carter's charged these payments against the Franklins' account which resulted in a debit of $18.16. On February 12, 1977, the Franklins removed the '71 Chevrolet pickup truck from the automobile policy and were given a premium refund of $119.00. This refund was sent by the insurer to Carter's. Carter's applied this payment to the Franklins' account which left a credit balance of $100.84. On March 31, 1977, the Franklins renewed their homeowners policy for a premium of $189.00. This amount was debited to the Franklins' account and resulted in a balance due of $88.16. On April 5, 1977, the Bank called on Carter's to pay the March and April 1977 installments due on the December 1976 note plus a late charge of $1.74 for a total of $71.16. Carter's charged these payments against the Franklins' account which resulted in a balance due of $159.32. On April 11, 1977, Carter's was required by the Bank to pay $61.50 due on another Franklin note and this sum was charged to the Franklins' account. On April 13, 1977, Carter's received a credit of $36.45 for the Franklins' account from the Bank. On May 8, 1977, the Bank required Carter's to pay the balance due of $69.42 on the December 1976 note. On that same date, the Bank transmitted to Carter's a credit of $31.50 for the Franklins' account. These transactions left a balance due by the Franklins on their account with Carter's of $222.29 at that time.

B. THE NOTES OF MARCH AND MAY, 1979

Prior to February 26, 1979, the Franklins had a balance due on their account with Carter's of $195.61. On February 26, 1979, the Franklins secured automobile insurance on their '73 Mercury at a cost of $537.00. This amount was debited against their account by Carter's leaving a balance due of $732.61. On March 1, 1979, Yvonne Franklin executed a promissory note in favor of the Bank for $529.70 with 8% per annum interest from maturity and payable in 10 equal monthly installments of $52.97 each commencing April 1, 1979. Carter's endorsed this note as a guarantor. The Truth in Lending disclosure statement executed in connection with this loan shows that the amount financed was $488.80 and the finance charge was $40.90. On that same date, the Franklins paid the $488.80 to Carter's leaving a balance due on their account of $243.81. On March 12, 1979, the Franklins paid $50.00 on their account directly to Carter's. On March 26, 1979, the Franklins paid $20.00 on their account directly to Carter's. On March 31, 1979, the Franklins renewed their homeowners policy at a premium of $261.00 increasing their balance due with Carter's to $434.81. On May 22, 1979, Yvonne Franklin executed a promissory note in favor of the Bank for $265.10 with 8% per annum interest from maturity and payable in 8 equal monthly installments of $33.14 each commencing June 15, 1979. Carter's endorsed this note as a guarantor. The Truth in Lending disclosure statement executed in connection with this loan shows that the amount financed was $248.46 and the finance charge was $16.64. On that same date, the Franklins paid the $248.46 to Carter's leaving a balance due on their account of $186.35. On July 17, 1979, the Bank called on Carter's to pay the June and July 1979 installments due on the May 1979 note with a late charge of $1.66 for a total of $67.94. On August 10, 1979, the Franklins cancelled their homeowners policy and had a refund on their premium of $166.00. This refund was sent by the insurer to Carter's who applied it to the Franklins' account leaving a balance due of $88.29. On September 19, 1979, the Bank called on Carter's to pay the August and September 1979 installments due on the May 1979 note with a late charge of $1.66 for a total of $67.94. This increased the balance due on the Franklins' account to $154.23. On September 21, 1979, the Bank made Carter's redeem the balance due on the May 1979 note of $132.54. On December 6, 1979, the Bank required Carter's to pay two past due installments on the March 1979 note with a late charge of $2.65 for a total of $108.59. On March 6, 1980, the Bank required Carter's to redeem the balance due on the March 1979 note of $58.27. The balance on the Franklin account with Carter's at that time was $455.63. At the trial, the Franklins produced a receipt dated December 3, 1976, for a payment in the sum of $30.00 which was made directly to Carter's, but which was not credited against their account. This reduced the final balance to $425.63.

II. CLAIM FOR THE DECEMBER 1976 NOTE

The trial court rendered judgment in favor of Carter's on the December 1976 note for $175.29, with 8% per annum interest thereon from August 5, 1977, until paid, together with an attorney fee of 25% of the principal and interest due. The Franklins assert that the premium refund of $119.00 made on their behalf to Carter's on February 12, 1977, should have been credited against the December 1976 note pursuant to the doctrine of mitigation of damages recognized in Unverzagt v. Young Builders, Inc., 252 La. 1091, 215 So.2d 823 (1968) and Lawyers Title Insurance Company v. Carey Hodges & Associates, Inc., 358 So.2d 964 (La.App. 1st Cir.1978).

The doctrine of imputation of payments, La.C.C. arts. 2163 et seq., and not that of mitigation of damages, is applicable under the facts of this case. Carter's was required to redeem the December 1976 note in May of 1977. After that date, almost $2,000.00 in credits were entered on the Franklins' account. These credits were indiscriminately applied against the balance due on the account, and were not designated by either the Franklins or Carter's for a specific portion of the account. In the absence of a designation by the debtor or the creditor, payments made on accounts are imputed to those which the debtor has the most interest in discharging, and if there are several of the same nature, the payments are to be applied to the oldest. La.C.C. art. 2166; Sanders v. Pasternack, 386 So.2d 685 (La.App. 3rd Cir.1980); Bonura v. Christiana Bros. Poultry Co. of Gretna, Inc., 336 So.2d 881 (La.App. 4th Cir.1976); Washington v. King, 331 So.2d 112 (La.App. 1st Cir.1976). Between paying the general account which did not bear interest and paying the December 1976 note which did (and which also had a potential liability for an attorney fee), clearly the Franklins had a greater need to discharge the note. The payments made on the account should have been credited to the note first and thereafter to the open account. Had this been done the $242.97 note of December 1976 would have been satisfied long before suit was filed. The Franklins are entitled to judgment in their favor dismissing the claim on this note.

III. DID CARTER'S VIOLATE THE TRUTH IN LENDING LAW?

The Franklins assert that Carter's is a "creditor" in the contemplation of the Truth in Lending Act, 15 U.S.C. 1601 et seq., and that it violated the regulations promulgated thereunder, 12 C.F.R. § 226.4(a), § 226.5(b), § 226.8(d)(1), by failing to disclose its policy of applying refunded premiums to the "customer's" account instead of returning them directly to the "customer".

In the instant case, the Bank was a "creditor" in the contemplation of the Truth in Lending Act at the time of the transactions and was required to make certain disclosures. It "regularly extends ... consumer credit ... for which the payment of a finance charge is or may be required...." 15 U.S.C. 1602(f). The guarantor of a consumer credit transaction, such as Carter's, is not a "creditor" under Truth in Lending Regulations. Regulation 12 C.F.R. 226.2(u) defines a "Customer" as "a natural person to whom consumer credit is offered or to whom it is or will be extended,...