Commercial Germania Trust & Savings Bank v. White
| Decision Date | 05 May 1919 |
| Docket Number | 21529 |
| Citation | 145 La. 54,81 So. 753 |
| Parties | COMMERCIAL GERMANIA TRUST & SAVINGS BANK v. WHITE |
| Court | Louisiana Supreme Court |
McCloskey & Benedict, of New Orleans, for appellant White.
Hall Monroe & Lemann, of New Orleans, for intervening appellants.
Buck Walshe & Buck, of New Orleans (Dart, Kernan & Dart, of New Orleans, of counsel), for appellee.
The sale by which the defendant, White, acquired the property in litigation, was in reality a cash sale, and the entire purchase price was paid cash at the time of the passage of the act of sale. But, in order to create a note secured by mortgage and vendor's privilege on the said property, to be used by him thereafter as a collateral in obtaining loans, he caused the sale to be made as if on a credit. Accordingly, the act of sale was made to recite that the sale was on a credit; that he, the purchaser, executed his note for the purchase price, secured by mortgage and vendor's privilege on the property; and that the note was delivered to the vendor.
As a matter of fact, the note was not so delivered, but was kept by the defendant, White, the maker of it, and was by him delivered on the same day to the plaintiff bank in pledge as collateral for a loan equal to its full amount, $ 6,000. This was in 1905. In 1914 the plaintiff bank sued out executory process in foreclosure of the mortgage and vendor's privilege. In its petition it alleged that the said note was secured by mortgage and vendor's privilege on the property in controversy.
In the meantime, while the said note was thus being held in pledge by the plaintiff bank, the defendant, White, failed in business, and made an amicable assignment of his property to trustees for the benefit of his creditors, including the property in controversy. These creditors have enjoined the executory process, on the ground that the debt originally evidenced by said note has been extinguished either by payment or confusion, the note having been acquired by the plaintiff bank directly from the maker thereof 'a considerable time after the original issue' thereof, and that the mortgage and vendor's privilege originally securing said note ceased to exist as a consequence of the extinguishment of the note, and could not be revived by a reissuance of the note.
To that petition the plaintiff bank answered, alleging the facts to be hereinabove stated.
When the debt which a mortgage secures ceases to exist, either by payment or confusion, the mortgage also ceases to exist; and, as against third persons, it cannot be revived by the reissuance of the mortgage note, whether before or after maturity. Our jurisprudence is firmly settled on that point; but our jurisprudence is equally settled on the point that a mortgagor may make a mortgage in favor of a nominal, or straw, mortgagee, and himself negotiate the note secured by the mortgage. Schepp v. Smith, 35 La.Ann. 1.
Usually, in such cases, the note is made to the order of the maker, and is by him indorsed in blank, and the mortgage is made in favor of the nominal mortgagee and of all future holders of the note; and that is precisely what White did in this case. Burke, the vendor, who figured in the act as mortgagee, was only nominally such, since the price of the sale had been paid to him in full, and therefore nothing was due him for which a real mortgage could have been given.
But, for showing these facts, the plaintiff bank has had to resort to parol evidence, and the plaintiffs in injunction have made the objection that parol evidence is inadmissible for contradicting or varying the written act, basing themselves upon the following articles of the Code:
By the expression 'against the contracting parties,' the latter article means 'between the contracting parties.' This is shown by the text of the Code Napoleon from which said article was taken verbatim, and also by the French text of the Code of 1825, where the word used is 'entre,' the English equivalent of which is 'between.' The article is not intended to announce a different rule of evidence from that enunciated by article 2276, but merely to provide that an act when in authentic form makes full proof of its contents.
Article 2276, if taken literally, would have operation as well between a party to the act and a stranger as between the parties to the act; but such is not the idea intended to be expressed. Finlay v. Bogan, 20 La.Ann. 443. The intention of the article is simply to enunciate the well-known rule of the law of evidence that parol is not admissible to contradict or vary the terms of the writing which the parties have drawn up to serve as the evidence of their contract.
That rule 'is applied only in suits between the parties to the instrument.' Greenleaf, Ev. § 279. And, of course, under familiar principles, the privies to the parties to the act come also within the rule.
In any controversy, therefore, between a party to the act and a stranger, the party to the act is as free to avail himself of parol evidence for contradicting or varying the act as the stranger is. See note, 8 Ann. Cas. 350, where an English decision and decisions of federal courts and of the Supreme Courts of the states of Alabama, Arkansas, California, Illinois, Kentucky, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Texas, and Washington are cited to that effect.
That legal situation is illustrated by the vast number of cases in our reports in which sales and mortgages have been attacked on the ground of fraud and simulation. In such cases the door has been open to parol as widely for defending the acts as for attacking them. And the reason why third persons, or strangers, to the act are allowed to use parol in such cases, is not because of the allegation of fraud, but because of these third parties being strangers to the act, and therefore not bound by its recitals. It is only as between the parties to the act that an allegation of fraud or error is necessary for opening the door to the introduction of parol.
And not alone in cases of that kind, but in others when the consideration expressed in the act has been shown by parol to be false, the true consideration has been allowed to be shown by the same kind of evidence. D'Meza v. Generes, 22 La.Ann. 285; Brown v. Brown, 30 La.Ann. 966; Jackson v. Miller, 32 La.Ann. 432; Landry v. Landry, 40 La.Ann. 229, 3 So. 728; Linkswiler v. Hoffman, 109 La. 954, 34 So. 34; Phelan v. Wilson, 114 La. 813, 38 So. 570. Indeed, article 1900 of the Code expressly provides for such a case. Thus --
'If the cause expressed in the consideration should be one that does not exist, yet the contract cannot be invalidated, if the party can show the existence of a true and sufficient consideration.'
Show it by parol, of course.
In Robinson v. Britton, 137 La. 863, 69 So. 282, where a different consideration than that mentioned in the act was sought to be shown by parol as between the parties, and Jackson v. Miller, supra, was invoked as authority, this court distinguished that case, saying:
'The case was therefore one between the parties to an act of sale, on the one hand, and a third person, attacking it for fraud and resulting prejudice to his rights, on the other, and it does not fall within the meaning of the law which makes an authentic act full proof as against the contracting parties litigating inter sese, and has no application to the case now under consideration.'
In Vial v. Moll, 37 La.Ann. 205, this court again made the distinction between the cases where the litigation is between the parties to the act, and those 'in which third parties are the movers.'
The question of the admissibility of parol evidence to...
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