Exchange Nat. Bank of Chicago v. Spalitta
| Decision Date | 10 May 1974 |
| Docket Number | No. 6201,6201 |
| Citation | 295 So.2d 18 |
| Parties | EXCHANGE NATIONAL BANK OF CHICAGO v. Frank SPALITTA et al. |
| Court | Court of Appeal of Louisiana — District of US |
Roos & Roos, Leo S. Roos, New Orleans, for plaintiff-appellant.
Henican, James & Cleveland, C. Ellis Henican, Jr., Carl W. Cleveland, New Orleans, for defendants-appellees.
Before SAMUEL, GULOTTA and BOUTALL, JJ.
This is a suit for a deficiency judgment against accommodation guarantors in the sum of $1,376,113.00,1 including the unpaid balance, attorney fees, interest and costs on a loan made to Place Vendome Corporation, a subsidiary of Southern Land Title Corporation, in the total amount of $1,007,890.50. Negotiations for the loans were made by National American Bank. Plaintiff advanced a greater part of the sum loaned by the National American Bank and thereby participated in making the loan.2
Plaintiff alleged the indebtedness is represented by two hand notes and a collateral mortgage and collateral mortgage note dated February 21, 1966. Real property in the French Quarter area in New Orleans belonging to the debtor secured the payment of the loan. The debtor defaulted. Subsequently, Place Vendome was placed in bankruptcy with its parent corporation, Southern Land Title Corporation. The real property was sold at public auction in the bankruptcy proceedings pursuant to and in accordance with an order of the Federal District Court for the sum of $255,000.00. The property was purchased by the plaintiff herein. This suit was brought seeking a deficiency judgment for the unsatisfied part of the loan and is directed against the defendants as guarantors of the notes and as continuing guarantors of the indebtedness of the Place Vendome Corporation.3
The trial judge, in dismissing plaintiff's suit, maintained exceptions of no cause and of no right of action. In written reasons, the judge stated the requirements of the Louisiana Deficiency Judgment Act were not met because of lack of notice of seizure on defendants and because of lack of notice for the appointment of appraisers. Accordingly, he reasoned, plaintiff is not entitled to a deficiency judgment. Plaintiff appeals. We affirm.
Plaintiff, in seeking reversal, contends
(1) The Deficiency Judgment Act is not applicable to a separate contract of continuing guarantee, that the act is applicable to a principal obligor but not to guarantors, as in the instant case;
(2) The sale was ordered in the bankruptcy reorganization by the United States District Court and under such circumstances, neither the Louisiana Deficiency Judgment Act nor the Louisiana law on executory process is applicable.
Plaintiff claims defendants voluntarily surrendered the property to the bankruptcy court for adjudication and they cannot now be heard to complain that the bankruptcy sale was not in compliance with the Louisiana Act. Furthermore, plaintiff argues if the Louisiana Deficiency Judgment Act were applicable, there would be no uniformity of bankruptcy proceedings. Plaintiff further points out that it did not provoke the sale and had no control over the proceedings in the United States District Court. Exchange further argues the sale was ordered subject only to a minimum bid of 75 percent of the appraised value, thus giving more protection to the debtor than the Louisiana act which stipulates that no sale can be made for less than two-thirds of the appraised value.4
Defendants, on the other hand, claim the Deficiency Judgment Act is applicable to guarantors and endorsers as well as to principal obligors. They further argue the sale was provoked by the creditors in the bankruptcy proceedings under conditions set forth in the bank's petition for the sale and that the trustee's petition was withdrawn in favor of the plaintiff's petition. Accordingly, they insist plaintiff erred in not setting conditions for the sale in compliance with the Louisiana Act. Defendants finally insist that the Louisiana Deficiency Judgment Act is applicable to sales in bankruptcy and that there was failure of compliance with the Act. Specifically, defendants claim no notice of seizure was served on them;5 no notice was given to the debtors to appoint an appraiser;6 no appraiser was, in fact, appointed by the debtor; no oath was filed by the appraiser appointed by the court;7 and finally, no appraisal was delivered to the United States Marshall before the sale. Accordingly, defendants claim the sale was made without benefit of a valid appraisal. Defendants insist, therefore, plaintiff is not entitled to a deficiency judgment. Defendants rely on LSA-R.S. 13:4106 and LSA-R.S. 13:4107.8
We reject plaintiff's argument that the Deficiency Judgment Act is applicable only to principal obligors and not to endorsers and guarantors. The court in Simmons v. Clark, 64 So.2d 520 (La.App.1st Cir. 1953), when confronted with the question, where the guarantor executed a note and mortgage as collateral for the principal indebtedness (similar to the instant case), concluded since a deficiency judgment could not be obtained against the principal obligor, no such judgment could be obtained against the guarantor. In that case, the sale was made without benefit of appraisal. The court in applying the articles of the Civil Code on suretyship9 stated at page 523:
The court went on to say also at page 523:
'* * * Under the laws of suretyship this defense of the principal obligor now operates in favor of the sureties. * * *'
See also C.I.T. Corporation v. Rosenstock, 205 So.2d 81 (La.App.4th Cir. 1967).
It is clear under the Simmons case, therefore, that the Deficiency Judgment Act applies not only to the principal obligor but to the guarantor when the defense interposed by the principal obligor is not personal to the debtor.10
We reject also plaintiff's suggestion that the creditor cannot be bound by the provisions of the Louisiana Act when the debtor voluntarily surrendered the immovable property to the bankruptcy court for adjudication and that it (the creditor) had no control over the proceedings in the United States District Court. It is true, as contended by plaintiff, that the trustee petitioned the court in the bankruptcy proceeding to sell the property. However, plaintiff also petitioned for the sale of the property in the bankruptcy proceedings and in that petition set forth the conditions for the sale. At a hearing before the Referee in Bankruptcy on the petition of the trustee and the petition of plaintiff to sell the property, the attorney for the trustee stated:
(emphasis ours)
By order of the United States District Court, dated July 18, 1969, the property was ordered sold under substantially the same conditions set forth in plaintiff's petition for sale filed in the bankruptcy proceedings. The property was adjudicated by the public auction on September 4, 1969 for the sum of $255,000.00 to the National American Bank, the highest bidder, one of the creditors along with the plaintiff.11 Exchange National Bank cannot now be heard that it did not provoke the sale nor control the conduct of the proceedings before the United States District Court. Exchange provoked the sale and set forth in their petition conditions of the sale which were subsequently substantially followed by the federal court. See Universal C.I.T. Credit Corporation v. Hulett, 151 So.2d 705 (La.App.3rd Cir. 1963), where the court stated at page 707:
'* * * Under the stringent policy provisions of the Deficiency Judgment Act as interpreted, a mortgage creditor is absolutely barred from a deficiency judgment where he provokes a sale, judicial or private, without the benefit of appraisement. * * *'
We now turn to a consideration of whether there was compliance with the Deficiency Judgment Act. The trial judge correctly observed in written reasons when he stated:
'It appears evident that Exchange National Bank did not comply with the Louisiana Deficiency Judgment Act, particularly with regard to the service of notice of seizure and notice for the appointment of two appraisers.'
There is no evidence that service of a notice of seizure was effected or that notice to the debtor for the appointment of an appraiser was given or that an oath of the appraiser was filed as required in a judicial sale under LSA-R.S. 13:4363 and LSA-R.S. 13:4365. In such instances, when the requirements for a judicial sale are not met, a creditor cannot avail himself of the benefit of a deficiency judgment under LSA-R.S. 13:4106 and LSA-R.S. 13:4107,12 the Deficiency Judgment Act.
In Margolis v. Allen Mortgage & Loan Corporation, 268 So.2d 714 (La.App.4th Cir. 1972), involving executory process, we stated that this is a harsh procedure and unless the deficiency judgment statutes are strictly followed in every...
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