Farmers-Merchants Bank and Trust Co. v. CIT Group/Equipment Financing, Inc., FARMERS-MERCHANTS

• Decision Date: 01 December 1989
• Docket Number: FARMERS-MERCHANTS,No. 89-4409,89-4409
• Parties: BANK AND TRUST COMPANY, Plaintiff-Appellant, v. The CIT GROUP/EQUIPMENT FINANCING, INC., Defendant-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1524

888 F.2d 1524

FARMERS-MERCHANTS BANK AND TRUST COMPANY, Plaintiff-Appellant, v. The CIT GROUP/EQUIPMENT FINANCING, INC., Defendant-Appellee.

No. 89-4409

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Dec. 1, 1989.

Stanford B. Gauthier, II, Stephen J. Slater, Breaux Bridge, La., for plaintiff-appellant.

Linton W. Carney, Jr., Monroe & Lemann, New Orleans, La., for defendant-appellee.

Appeal from the United States District Court for the Western District of Louisiana.

Before REAVLEY, KING and JOHNSON, Circuit Judges.

PER CURIAM:

The district court held that La.Rev.Stat.Ann Sec. 9:5362 does not apply to a dation en paiement and granted defendant's motion to dismiss. Plaintiff appeals and we reverse.

I.

The essential facts are not disputed in this case. Farmers-Merchants Bank & Trust Company (Farmers) of St. Martin Parish was the last holder of a collateral chattel mortgage note dated December 3, 1984, and executed by Dugas Construction Company (Dugas), a Louisiana corporation domiciled in St. Martin Parish. The collateral mortgage note was secured by several pieces of Dugas' equipment (including a Case, 508 Front End Loader) under a collateral chattel mortgage recorded in St. Martin Parish. Dugas thereafter executed six promissory notes in favor of Farmers. In addition, Joseph Dugas (Joseph) and Genevieve Dugas (Genevieve) personally guaranteed the indebtedness of Dugas to Farmers.

On May 28, 1985, Farmers sued Dugas as well as Joseph and Genevieve. Farmers obtained judgment under the collateral chattel mortgage. After judgment became final, Joseph informed Farmers that the Case, 508 Front End Loader on which Farmers held a second mortgage had been returned to Cit Group/Equipment Financing Incorporated (Cit)--the holder of a first mortgage on the chattel--under a written voluntary surrender agreement allegedly executed in St. Martin Parish. Cit is incorporated in New York, has its principal place of business in New Jersey and its Louisiana agent for service of process is located in Orleans Parish. The agreement between Dugas and Cit contained no affidavit by Dugas that the property conveyed was free of encumbrances in favor of any other company. Cit accepted the agreement from Dugas without the affidavit and subsequently sold the property to a third party. ¹

Farmers brought suit against Cit in Louisiana state court seeking to recover the outstanding balance of its loan to Dugas on the theory that Cit violated La.Rev.Stat.Ann. Sec. 9:5362 by failing to obtain the required affidavit from Dugas. The action was removed to federal court. Cit then filed a motion to dismiss (or alternatively, for summary judgment) claiming that Sec. 9:5362 applies only to sales and not a dation en paiement and that the application of Sec. 9:5362 to a dation en paiement is contrary to the purposes of Sec. 9:5362. The district court agreed, and granted the motion to dismiss.

II.

At all times relevant hereto ² La.Rev.Stat.Ann. Sec. 9:5362 provided that:

It shall be unlawful for a resident of any parish to purchase the movable property described in R.S. 9:5351 from any nonresident of such parish, without first obtaining an affidavit from the nonresident that there is no mortgage on the property, nor any money due for the purchase price thereof, and the purchaser who shall buy the movable property without having obtained the affidavit, shall be personally liable to the creditor for the debt secured by the property.

The statute is penal in nature, and because it often generates "harsh results" serving "questionable purposes," we have determined that it must be strictly construed "so that it is effectuated only so far as is necessary to accomplish its intended purpose." Marshall Nat'l Bank v. Norwel Equip. Co., 787 F.2d 1004, 1006 (5th Cir.1986). As we stated in Marshall:

The obvious purpose of the statute is to protect the rights of "the creditor for the debt secured by the property" by forcing buyers who purchase from sellers not residing in the buyer's parish "to look for outstanding debt secured by the property and thus protect lenders from losing track of their collateral." A creditor of debt secured by property cannot practically follow that property around and prevent its unauthorized transfer, especially when it is taken out of the parish wherein the mortgage is recorded. The buyer of such property, however, can easily request a Sec. 9:5362 affidavit from the seller, and therefore is in a better position to prevent statutory violations than the creditor who will find out about the transfer after the fact.

Id. at 1006-07 (citations omitted); see also, Note, Security Devices-Personal Liability of Third Party Purchasers Under Revised Statutes 9:5362, 12 La.L.Rev. 516, 518 (1952) ("One of the means for achieving [this] purpose is the requirement of an affidavit and the imposition of personal liability on those who fail to obtain it."). Section 9:5362, by its terms, addresses sales--the question presented is whether Sec. 9:5362 is also applicable to a dation en paiement. ³ The district court held that Sec. 9:5362 does not apply to a dation en paiement and we reverse.

III.

The parties do not dispute the existence of a dation en paiement in the case at bar. A dation en paiement or "giving in payment" is defined as "an act by which a debtor gives a thing to a creditor, who is willing to receive it, in payment of a sum which is due." 11 La.Civ.Code Ann. art. 2655. The dation en paiement is the civil law counterpart of "accord and satisfaction" in common law. Comment, The Contract of Dation En Paiement, 14 Tulane L.Rev. 263, 265 (1940). ⁴

The famous French jurist Pothier drew an analogy between a dation en paiement and a contract of sale--viewing the thing which is given in payment as akin to the thing sold, and the sum in payment of which the thing is given as the price. Id. at 268. Thus, with limited exceptions, ⁵ the Louisiana Civil Code provides that "the giving in payment is subject to all the rules which govern the ordinary contract of sale." 11 La.Civ.Code Ann. art. 2659 (emphasis added). See also Quality Fin. Co. v. Bourque, 315 So.2d 656, 658 (La.1975); Succession of Dupre, 218 La. 907, 51 So.2d 317, 320 (1951). The district court conceded that article 2659 presented a "strong[ ] argument" for the proposition that a dation en paiement should be treated like sales under Sec. 9:5362. However, applying a strict construction to Sec. 9:5362, the district court rejected Farmers' argument.

We reject the district court's analysis. Article 2659 clearly states that, with limited exceptions, a dation en paiement shall be governed by the same rules applicable to ordinary contracts of sale. Those rules include Sec. 9:5362. Thus, Sec. 9:5362 generally applies to a dation en paiement.

Our conclusion is reinforced by a decision of the Louisiana Court of Appeals rendered after the district court's decision in this case. In City Bank and Trust Co. v. Riley, 544 So.2d 114 (La.Ct.App.1989), the Louisiana Court of Appeals held that Sec. 9:5362 applied to a dation en paiement. The debtor-defendant in Riley borrowed a sum of money from the plaintiff and executed a promissory note secured by a chattel mortgage in favor of the plaintiff which was duly recorded in Natchitoches Parish, the domicile of the mortgagor and mortgagee. Subsequently, in Concordia Parish, the debtor conveyed all of the mortgaged chattel to the co-defendant Hudnall, a resident of Concordia Parish, as a dation en paiement for a debt owed to Hudnall. However, Hudnall failed to obtain an affidavit from the debtor pursuant to Sec. 9:5362. The Louisiana Court of Appeals determined that Hudnall was a "purchaser of the mortgaged property" despite the fact that he had obtained it through dation en paiement rather than sale. Id. at 116. Thus, the court determined that Sec. 9:5362 "clearly applie[d] to the factual situation present[ed]" since "[t]he statute [was]...