Federal Farm Mortg. Corp. v. Hatten

• Citation: 210 La. 249,26 So.2d 735
• Decision Date: 27 May 1946
• Docket Number: 38035.
• Court: Supreme Court of Louisiana
• Parties: FEDERAL FARM MORTG. CORPORATION v. HATTEN et al.

26 So.2d 735

210 La. 249

FEDERAL FARM MORTG. CORPORATION v. HATTEN et al.

No. 38035.

Supreme Court of Louisiana

May 27, 1946

Appeal from Eighth Judicial District Court, Parish of Winn; H. W. Ayres, Judge.

W T. Holloway, of Jonesboro, for defendants-appellants.

Truett L. Scarborough, of Ruston, and Harold Moses, of New Orleans for plaintiff-appellee.

FOURNET Justice.

The Federal Farm Mortgage Corporation, which, pursuant to acts of Congress approved January 31, 1934, c. 7, Sec. 3, 48 Stat 345, and June 25, 1940, c. 427, Section 4, 54 Stat. 573, 12 U.S.C.A � 1020b, became the transferee and owner of a mortgage executed by Mrs. Tennessee Smith and her husband, P W. Smith, in favor of the Land Bank Commissioner on property located in West Carroll Parish to secure a loan for the discharge of all of their debts under the authority of the Emergency Farm Mortgage Act of 1933, 12 U.S.C.A � 1016, filed this suit to have declared null and void and cancelled from the mortgage records of Winn and West Carroll parishes a judgment secured in 1936 by I. H. Hatten (one of the Smiths's creditors who had agreed to scale down the amount due him from $2,983.13 to $900 in order that this loan might be secured) on a deficiency note allegedly given Hatten secretly and fraudulently by the Smiths at the time this scaledown agreement was executed by Hatten for the difference between the amount originally owed Hatten and the amount paid him out of the loan thus secured, contrary to public policy and in violation of the act authorizing the loan, making parties defendant the administrator of the succession of Mrs. Smith, who has since died, P. W. Smith, Hatten, J. A. Nugent, the transferee of Hatten's judgment, and the clerks of court of Winn and West Carroll parishes. By supplemental petition the plaintiff sought to enjoin the sale of property owned by the Smiths seized on February 15, 1944, in execution of the said judgment, transferred to Nugent by Hatten on October 26, 1943.

Hatten filed a plea of misjoinder of parties defendant on the ground that he had sold and transferred the judgment to J. A. Nugent and had no further interest in the matter. Hatten and Nugent then filed, in separate instruments, exceptions of no cause and no right of action, pleas of res judicata and of prescription of 1, 3, and 5 years, and, when these were overruled with reservation of their right to replead them in their answers, they answered separately (although their answers are substantially the same) reiterating their pleas of prescription and of res judicata; denying the allegations of fraud and the illegality of the judgment, which they contend is in full force and effect; and averring that the real parties at interest are the heirs of Mrs. Smith, and P. W. Smith, the plaintiff being interposed on their behalf, and that Hatten was not bound by his agreement to accept $900 in full settlement of the $2,983.13 indebtedness since he was only paid $800 of this amount. Nugent specifically averred that the plaintiff is estopped to contend this judgment is a nullity as to him since it knew of the judgment and permitted it to remain on record during the years between 1936 and 1944, thus inducing him to purchase the same on the faith of the public record.

The defendant P. W. Smith answered admitting substantially the allegations of the plaintiff's petition but averring further that the note on which Hatten secured this judgment was null and void, having been obtained without the free consent of himself or his deceased wife and through coercion by threats to their personal safety and fortune.

There was judgment on the merits in favor of the plaintiffs, as prayed for, and Nugent and Hatten have appealed.

As a relief measure, passed by Congress during the great national emergency brought about by a severe economic depression, the Reconstruction Finance Corporation was authorized in 1933 by the Emergency Farm Mortgage Act, May 12, 1933, c. 25, Section 32, 48 Stat. 48, 12 U.S.C.A. � 1016, to allocate and make available to the Land Bank Commissioner the sum of $200,000,000 to be used for making loans to farmers who were in debt in order that they might liquidate their obligations and constitute the federal agency their sole creditor, thus eliminating by way of compromise all other creditors. To accomplish this purpose the federal agency required the farmer to have his creditor or creditors, both secured and unsecured, execute an agreement scaling down their claims so as to bring the aggregate within the amount the federal agency concluded the property would probably secure and that the farmer would be in a position to retire after the refinancing. Such an agreement recited in effect that the creditor agreed to accept in full payment and satisfaction of the entire debt the amount stipulated in the scaledown agreement and to surrender to the federal agency the instruments or evidences of indebtedness held against the former creditor, with the further declaration that no note or other consideration or evidence of indebtedness had been or would be received from the debtor incident to the acceptance by the creditor of the amount paid by the federal agency as agreed to and set out in the debt consolidation schedule.

In the instant case despite the fact that on January 12, 1935, I. H. Hatten executed one of these scaledown agreements wherein he agreed to accept $900 'in full satisfaction of' the unsecured $2,983.13 indebtedness of the Smiths and on February 8 thereafter executed a receipt and agreement with respect to the payment of this $900 to him by the federal loan agency wherein he agreed 'not to collect, attempt to collect, or revive in any way any further part of said indebtedness, nor to take any new security therefor,' and stipulated that he had 'no understanding or arrangement with debtor that, when the loan and/or loans * * * are closed, any consideration will be given him by debtor for the amount which the debt has been scaled down, or any part thereof,' he had obtained contemporaneously with his execution of the instrument and agreement of January 12 a note from his debtors, the Smiths, for the difference between the amount paid him by the federal loan agency and the actual amount of the debt--$2,083.13--and on February 4, 1936, shortly after the maturity date of the note, instituted suit to recover the amount thereof, such suit being reduced to judgment on December 8, 1936. Although the Smiths offered as a defense in that suit the invalidity of the note because of its execution in violation of Hatten's scaledown agreement and in contravention of law, they took no appeal from the adverse judgment secured and it was duly recorded in the mortgage records of both Winn and West Carroll parishes. On October 26, 1943, Hatten transferred this judgment to the defendant J. A. Nugent for the recited cash consideration of $1,500, and he, on February 15 following, sought to enforce the same by executing on the debtor's property in Winn Parish and the plaintiff, upon being informed of this action, filed this suit on February 21, 1944.

The courts have, without exception, held that the security or other advantage given contemporaneously, prior, or subsequent to the execution of such a scaledown agreement in addition to the amount to be received by the creditor from the federal loan agency is void, being in contravention of law and against public policy. O'Neil v. Johnson, D.C., 29 F.Supp. 307; Arndt v. Bank of America, D.C., 48 F.Supp. 961; Anderson v. Nelson, 110 Colo. 374, 134 P.2d 1053; Sears Roebuck & Co. v. McClure, 150 Fla. 667, 8 So.2d 390; Bilgore v. Gunn, 150 Fla. 799, 9 So.2d 184; Russell v Douget, La.App., 171 So. 501; International Harvester Co. v. Young, 288 Mich. 436, 285 N.W. 12; Geel v. Valiquett, 292 Mich. 1, 289 N.W. 306; Kniefel v. Keller, 207 Minn. 109, 290 N.W. 218; Jones v. McFarland, 178 Miss. 282, 173 So. 296; May v. Whitbeck, 111 Mont. 568, 113 P.2d 332; Federal Land Bank of St. Paul v. Koslofsky, 67 N.D. 322, 271 N.W. 907; Oregon & Western Colonization Co. v. Johnson, 164 Or. 517, 102 P.2d 928; Bell v. Jones, 100 Utah 87, 110 P.2d 327; Meek v. Wilson, 283 Mich. 679, 278 N.W. 731; Markowitz v. Berg, 125 N.J.Eq. 56, 4 A.2d 410; Ganchoff v. Bullock, 234 Wis. 613, 291 N.W. 837; Haugens v. Foster, 320 Ill.App. 212, 50 N.E.2d 524; Murphy v. Plains State Bank, 157 Kan. 530, 142 P.2d 733; Northwest Adjustment Co. v. Payne, 173 Or. 229, 144 P.2d 718; Smeltzer v. McCrory, Tex.Civ.App., 101 S.W.2d 850; and Pries v. Hurning, 218 Minn. 189, 15 N.W.2d 515. And such a note or other advantage held contrary to the terms of the creditor's scaledown agreement is not only void as between the parties thereto but is also a nullity against the federal loan agency. Federal Land Bank of St. Paul v. Koslofsky, 67 N.D. 322, 271 N.W. 907; O'Neil v. Johnson, D.C., 29 F.Supp. 307; and Jones v. McFarland, ...