University Properties Corp. v. Fidelity Nat. Bank of Baton Rouge
| Decision Date | 23 December 1986 |
| Docket Number | No. CA,CA |
| Citation | 500 So.2d 888 |
| Parties | UNIVERSITY PROPERTIES CORPORATION, et al. v. FIDELITY NATIONAL BANK OF BATON ROUGE. 85 0411. |
| Court | Court of Appeal of Louisiana — District of US |
George L. Clauer, III, Baton Rouge, for plaintiffs-appellants University Properties Corp. and Fred C. Frey.
Ralph E. Hood, Baton Rouge, for defendant-appellee Fidelity Nat. Bank of Baton Rouge.
Before GROVER L. COVINGTON, C.J., and LOTTINGER, EDWARDS, WATKINS, SHORTESS, CARTER, SAVOIE, LANIER, CRAIN, ALFORD, JOHN S. COVINGTON and LeBLANC, JJ.
This action commenced as a suit for a declaratory judgment by the maker and surety of a promissory note alleging the obligation was null because it was obtained in violation of the Louisiana Deficiency Judgment Act (LDJA), La.R.S. 13:4106 et seq. 1 The holder of the note answered and reconvened for judgment on the note for (1) $36,398.83, with interest thereon at the rate of 14% from March 9, 1984, until paid, (2) unpaid accumulated interest of $706.04, (3) an attorney fee of 25% of the principal and interest due, and (4) all costs. The parties filed cross motions for summary judgment. After a hearing, the trial court rendered judgment (1) dismissing the motion for summary judgment filed by the maker and the surety, (2) granting summary judgment in favor of the holder as prayed for, except the assessment of a reasonable attorney fee was reserved for a subsequent hearing, and (3) dismissing the suit for declaratory judgment with prejudice. The parties waived the hearing to fix the attorney fee and submitted the matter on affidavits. The trial court fixed the attorney fee at $5,000. The maker and surety took this devolutive appeal.
On November 16, 1981, University Properties Corporation (University) executed two promissory notes, each in the sum of $72,800 (a total of $145,600). These notes were secured by construction mortgages in favor of Fidelity National Bank of Baton Rouge (Fidelity) on Lots 5H1 and 5H2 of Sharlo Subdivision in East Baton Rouge Parish, Louisiana. The mortgage hand notes were secured by the personal guarantee of University's President, Fred C. Frey, Jr.
University completed construction of homes on each lot in August of 1982. University attempted to sell each property for $81,500. University had individual offers of $79,000, $79,500 and $80,000, but these offers did not mature into sales because of difficulties in obtaining financing.
By June of 1983, the two lots were not sold and University was in arrears in payments on the two construction notes. On June 30, 1983, Fidelity wrote to University's president, Fred C. Frey, Jr., advising that the loans had matured and, as of that date, $145,600 in principal and $21,451 in interest (a total of $167,051) was owed on the obligations. Fidelity "strongly" suggested that the interest be brought current in ten days and that University consider "reworking the terms of the remaining debt." On July 28, 1983, University executed a promissory note in favor of Fidelity for $168,849.52, which note was payable eighty-one days after date (October 17, 1983). Frey personally guaranteed payment of this note.
On January 10, 1984, University (represented by Frey) entered into a new agreement with Fidelity. This agreement is entitled a dation en paiement (dation) and act of cancellation. This agreement recites the following: (1) University was indebted to Fidelity for $168,849.52 with interest thereon from July 28, 1983, and this obligation was past due; (2) this indebtedness was represented by a promissory note which was secured by the pledge of the two construction notes; (3) University was unable to pay the note; (4) to satisfy this obligation, the parties agreed that University would make a dation by transferring to Fidelity the ownership of the two lots and a $36,398.83 promissory note executed by University and personally endorsed by Frey; and (5) the $168,849.52 obligation was discharged and the note representing same, along with the two construction notes and the construction mortgages, were cancelled. In this transaction, University was given a credit of $140,000 for the value of the two lots. The new note represented the balance of principal and interest due. The record does not reflect that an appraisal of the lots was made prior to the execution of the agreement.
On February 3, 1984, Fidelity sold the two lots for $140,000. On February 20, 1984, Constance Rhodes Harris issued an appraisal to Frey which valued the two lots at $160,000. Neither Frey nor University made any payments on the new note. This suit was filed on February 27, 1984.
The foregoing facts were established primarily by the documentary evidence submitted by the parties. The parties also submitted the depositions of Thomas W. Chiasson, an officer in Fidelity's Special Loans division, Frank R. Clark, Fidelity's Senior Vice-President in charge of Loan Administration, Special Loan division, and Frey. The depositions establish the following additional facts.
Chiasson testified he directed Jim Smolenski to send the Fidelity letter of June 30, 1983, to Frey. Frey came in pursuant to the letter, the consolidated note was executed and the loan date extended to October 17, 1983. After the new maturity date had passed and payment was not forthcoming, Fidelity considered a foreclosure proceeding with a subsequent deficiency judgment against Frey personally. Frey's financial statement indicated he had a house. Chiasson did not recall discussing this alternative with Frey. This loan was turned over to Clark, who was Chiasson's superior.
Clark testified he became involved with University's consolidated note after it was in default. Fidelity was ready to proceed legally. Frey apparently had talked to other persons at Fidelity who asked Clark to discuss the matter with Frey. Clark called Frey and set up a meeting. During several meetings, Clark discussed various alternatives with Frey. The first alternative was a suit by Fidelity against University and Frey. Frey responded that this might put him in bankruptcy. A second alternative was for University to sell the two mortgaged properties and apply the proceeds to the debt. Frey said he did not think he could sell them for what he owed the bank. Clark suggested that the two mortgaged properties could be set up on a separate loan to give University time to sell them, and Frey could give a note secured by a third mortgage on his home with only interest due until the lots were sold. Frey rejected this alternative. Clark discussed a dation with Frey. Frey advised he wanted to talk to his attorney again about filing bankruptcy. About a week later, Frey returned, advised he had talked to his attorney and said the dation was agreeable to him. Clark advised Frey that $140,000 was a correct value for the properties. Frey seemed to agree to that. Frey agreed to sign a note for the balance due on the loan. Clark said, "we had a couple of people that were interested in the properties and Mr. Frey said that he did not want to sell the properties, that he wanted to go through with the dation and the note and let the bank worry about selling the properties." Only interest payments would be required on the new note for the first year and, thereafter, a payment schedule for the principal would be set up. Frey indicated he had a project "across the river" with which "he would make sufficient income there to be able to either pay us off or either put us on a repayment schedule." At some point in time, the persons who bought the properties from Fidelity contacted Fidelity and were referred to Frey. However, no action was taken. After the dation was completed, these persons came back to Fidelity and the sale of the properties to them was passed. Fidelity financed the transaction for one year at the base rate. Fidelity had other offers for the properties, but the one accepted was the best.
Frey testified that on July 28, 1983, the two construction loans were in arrears and he was unable to make the interest payments. Chiasson contacted Frey about the loans, and Frey told him he was unable to pay. Chiasson agreed to extend the loan to give time to sell the properties. Frey was unable to sell them during the extension. In November of 1983, Chiasson called Frey and told him he had to pay. Frey told Chiasson he was unable to do so and that he "needed some help from the bank in the form of creative financing." Chiasson said the only alternative was foreclosure. This upset Frey, and he went to see Don Gerald (apparently of Fidelity), told Gerald of his situation and asked if he "could get some help on some creative financing." On the Monday or Tuesday after Thanksgiving in 1983, Chiasson called Frey and told him Fidelity was going to proceed with the foreclosure and explained the foreclosure and deficiency judgment scenario. That frightened Frey, so he sought legal advice. The attorney he consulted advised that his only recourse was Chapter 11 bankruptcy and referred him to another attorney. Frey met with the second attorney and explained his situation. Around December 1, 1983, Frey went to see Clark and Chiasson, still seeking "creative financing." At this meeting, the term "dation" came up. Frey's attorney explained it to him. The bank only wanted to give $130,000 for the property. Frey did not think this was enough. At that time, the only viable solutions seemed to be foreclosure or bankruptcy. Frey decided to go bankrupt and commenced the preliminary paper work with his attorney. At this time, University was involved in a joint venture "across the river." This joint venture was the only source of income to pay the balance due on the loan. If University took bankruptcy, it would probably cancel the joint venture. (Frey felt this way after discussing the problem with the joint venture partners.) About this time, Frey met again with Clark and they agreed to a value of $140,000 for the properties in a dation. The dation...
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