Martin Lebreton Ins. Agency v. Phillips

• Decision Date: 13 November 1978
• Docket Number: No. 62351,62351
• Citation: 364 So.2d 1032
• Parties: MARTIN LEBRETON INSURANCE AGENCY v. Mrs. Sara PHILLIPS, wife of/and Lewis Ray Lamastus, Metro, Inc. and Lucy Reid Rausch, Clerk of Court.
• Court: Louisiana Supreme Court

Page 1032

364 So.2d 1032

MARTIN LEBRETON INSURANCE AGENCY v. Mrs. Sara PHILLIPS, wife of/and Lewis Ray Lamastus, Metro Inc. and Lucy Reid Rausch, Clerk of Court.

No. 62351.

Supreme Court of Louisiana.

Nov. 13, 1978.

Rehearing Denied Dec. 14, 1978.

Robert J. Oster, Edmund T. Wegener, Jr., Stephen F. Babin, Gauche, Wegener & Oster, New Orleans, for plaintiff-applicant.

Conrad Meyer, III, Robert R. Rainold, Jr., Baldwin & Haspel, New Orleans, Julian J. Rodrigue, Rodrigue & Pierson, Covington, for defendants-respondents.

SANDERS, Chief Justice.

The plaintiff, Martin Lebreton Insurance Agency, brought suit to revoke a dation en paiement from Mr. and Mrs. Lewis Ray Lamastus to Metro, Inc. The district court, finding that the donors were solvent and that the dation did not prejudice the plaintiff, rejected the demand. The Court of Appeal affirmed, finding that the donors were insolvent but that the plaintiff had failed to establish that it was prejudiced by this dation. 357 So.2d 883. On application of plaintiff, we granted a writ to review that decision. 359 So.2d 632.

Mr. and Mrs. Lamastus were owners of approximately eighty acres of land in St. Tammany Parish known as Saray Beach Marina. They were indebted to Metro, Inc. for $257,442.52, secured by a mortgage on this property. The Lamastuses also owed $56,207.47 to other creditors holding mortgages upon this land. Metro, Inc. sought to liquidate the indebtedness owed it. After securing releases from the other mortgage creditors, Metro, Inc. and the Lamastuses entered into a dation en paiement on February 24, 1977. The dation recited $257,442.52 as the consideration for the transfer.

On February 11, 1977, Mr. Lamastus executed a promissory note for $30,000.00, secured by a collateral mortgage on the Saray Beach Marina for insurance premiums due to the Martin Lebreton Insurance Agency. The agency did not record this mortgage until March 24, 1977, approximately four weeks after the dation en paiement. The Insurance Agency then filed this revocatory action to annul the dation.

Article 1970 of the Louisiana Civil Code, dealing with the revocatory action, provides:

"The law gives to every creditor, when there is no cession of goods, as well as to the representatives of all the creditors where there is any such cession, or other proceedings by which they are collectively represented, an action to annul any contract made in fraud of their rights."

Article 2658 provides:

"This difference gives rise to another in the effect of these contracts, in cases of the insolvency of the debtor. He may, although insolvent, lawfully sell for the price which is paid to him; but the law forbids to give in payment to one creditor, to the prejudice of the others, any other thing than the sum of money due."

Both lower courts found that the subject property had a value of $303,500.00. The total mortgage indebtedness, exclusive of that of the plaintiff, aggregated $313,649.99. The record discloses that the property was the subject of a sheriff's sale on October 27, 1976. The minimum bid was fixed at $295,877.00; no bids were submitted. Hence, we find no reason in the record to disturb the finding of insolvency.

Insolvency alone, however, is an insufficient basis for revoking a dation en paiement. The law requires prejudice, or injury, to the complaining creditor. LSA-C.C. Arts. 1978, 2658; Harman v. Defatta, 182 La. 463, 162 So. 44 (1935); Deposit Guaranty National Bank v. Shipp, La.App., 232 So.2d 810 (1970).

Under Article 1977, the effect of a judgment of revocation is that the contract is avoided as to the complaining creditor and the property is applied to the payment of the judgment of that creditor. See Zuberbier & Behan v. Morse, 36 La.Ann. 970 (1884). Hence, the law contemplates a present injury as distinguished from one that may occur in the future. Feist v. Willer & Gamm, 16 La.App. 618, 133 So. 797 (1931).

In Feist v. Willer & Gamm, supra, the Court of Appeal stated:

"The revocatory action, we think, is given to individual creditors in contemplation that they have or will proceed under their judgments against the property of the debtor (article 1972, Civ.Code; N. O. Credit Men's Ass'n v. Cattana et al., 145 La. 330, 82 So. 289), and that when the action sought to be revoked is merely a preference, such preference must relate to property which is subject to execution under their judgments and not to property which may become subject to execution in the near or distant future (see Alexandria v. Police Jury, 139 La. 635, 71 So. 928, Ann.Cas. 1918A, 362)."

In the present case, the Saray Beach Marina is not the common pledge of all the creditors, because some of the creditors, including the transferee, hold mortgages on the property, giving them "lawful causes of preference." LSA-C.C. Art. 3183. Since plaintiff's mortgage was unrecorded at the time of the transfer, it concedes that it has only the status of an unsecured creditor in this litigation. ¹

Here, the debtors made the dation to a secured creditor. ² Evidence relevant to the plaintiff's prejudice was offered in the trial court. We think, as did the Court of Appeal, that the evidence is adequate to resolve the prejudice issue.

The test for determining prejudice is a factual one, based on the value of the property and the ranking of the indebtedness. The creditors enumerated in the mortgage certificate retain precedence over the Martin Lebreton Insurance Agency. See Succession of Cottingham, 29 La.Ann. 669 (1877). These preferred claims amount to $313,649.99, more than the value of the ceded property, leaving nothing for the unsecured plaintiff. Hence, we conclude that the record negates the claim of injury. Jackson v. Miller, 32 La.Ann. 432 (1880); Deposit Guaranty National Bank v. Shipp, supra.

The plaintiff cites Quality Finance Co. of Donaldsonville v. Bourque, La., 315 So.2d 656 (1975) in support of its contention that prejudice to the complaining creditor is not an essential basis for the revocatory action. This decision is inapposite. The narrow issue before the court there was whether a transferee of property in a dation en paiement from its mortgage debtor was entitled to have inferior mortgages and liens cancelled. This Court held that it was not.

For the reasons assigned, the judgment of the Court of Appeal dismissing the plaintiff's suit is affirmed.

TATE, J., dissents and assigns reasons.

TATE, Justice, dissenting.

I respectfully dissent.

Under the findings of the majority, the mortgaged property had a value of $303,500. The secured creditor (Metro) obtained this property from the debtor by a dation en paiement to discharge a debt owed it in the amount of $257,442.52. (It secured releases as to inferior secured creditors owed $56,207.47 by Lamastus, secured by mortgages on the property.)

Under these findings, a secured creditor acquired the mortgaged property from the insolvent debtor for less than its true value,...