Ferguson v. Porter

359 So. 2d 676, 1978 La. App. LEXIS 3457
CourtLouisiana Court of Appeal
DecidedMay 1, 1978
DocketNo. 11928
StatusPublished
Cited by3 cases

This text of 359 So. 2d 676 (Ferguson v. Porter) is published on Counsel Stack Legal Research, covering Louisiana Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Ferguson v. Porter, 359 So. 2d 676, 1978 La. App. LEXIS 3457 (La. Ct. App. 1978).

Opinion

SARTAIN, Judge.

The issue presented in this litigation concerns the rights of a conventional mortgagee of real property following the mortgagor-debtor’s discharge in bankruptcy. From a judgment decreeing his mortgage cancelled, the mortgagee has appealed. We reverse and remand.

The record on appeal does not contain a transcript of the evidence, a narrative of fact, nor oral or written reasons by the trial judge. However, from the pleadings, two exhibits, and briefs of counsel, the following occurred:

On July 5, 1973, Terrebonne Bank and Trust Company (Terrebonne Bank) recorded a collateral mortgage on certain real property owned by Howard A. Porter (Porter). On this same date, Don S. R. Ferguson (Ferguson) recorded a second mortgage covering the same property. On July 28, 1975, Porter and his wife were discharged in bankruptcy in the United States District [677]*677Court. Following recordation of the order of discharge, the Clerk and Recorder of Mortgages for the Parish of Terrebonne (Clerk of Court) on February 19, 1976, can-celled the above mortgages. On March 17, 1976, Porter executed a new mortgage in favor of Terrebonne Bank.

By letter dated July 16, 1977, Ferguson’s counsel forwarded his petition for executo-ry process. He requested the Clerk of Court to certify as true an enclosed copy of the mortgage and present the documents to the district judge for the issuance of the customary writ of seizure and sale.

Shortly thereafter Terrebonne Bank filed its petition of intervention and asserted that by virtue of the cancellation of the prior mortgages Ferguson’s claim is unenforceable and that its mortgage of March 17,1976, constituted a first mortgage on the property sought to be seized by Ferguson.

The matter proceeded to a hearing on companion rules directing Ferguson to show cause why his request for executory process should not be denied and the bank’s mortgage of March 17,1976, should not be designated as the first and only mortgage recorded against the subject property as of March 17, 1976.

Judgment thereon was rendered recognizing the bank’s mortgage of March 17, 1976, as the only uncancelled mortgage of record as of that day and rejecting Ferguson’s petition for the writ of seizure and sale.

On appeal, Ferguson argues that the trial judge erred (1) in holding that a discharge in bankruptcy voided his in rem rights against the subject property; (2) in holding that the Clerk of Court may cancel the subject mortgages on the authority of the discharge in bankruptcy; and (3) in failing to find that the new note and mortgage of Terrebonne Bank extinguished its prior mortgage of July 5, 1973, elevating Ferguson’s second mortgage of that date to a first lien.

Terrebonne Bank urges the correctness of the decision appealed and, alternatively, contends that in the event the earlier mortgages were erroneously cancelled, then both mortgages should be reinstated according to their order of recordation.

A copy of Porter’s discharge in bankruptcy was not offered in evidence. However, it appears from the arguments in brief of both counsel that the discharge was a general one and that the property was disclaimed by the Trustee in Bankruptcy. Further, it is abundantly clear that the Clerk of Court relied upon R.S. 9:5165 as his authority to cancel the two mortgages recorded on July 5, 1973. If the Clerk of Court has relied upon a general discharge in bankruptcy, he has misconstrued the statute.

R.S. 9:5165 provides:

“No clerk of court and ex officio recorder, and no recorder of mortgages, of the State of Louisiana, and no deputy of such officers, who cancels and erases from the records of his office any mortgage, judgment, lien or other encumbrance upon the written order or judgment of any judge, sheriff or United States referee in bankruptcy shall be liable in either his individual or official capacity to any person or persons for any damages as the result of such cancellation. This exemption from liability shall extend likewise to any surety on the official bond of such officer.”

There is nothing in the statute which states that a general discharge in bankruptcy automatically permits and/or requires the cancellation of all liens and mortgages recorded against the property of a bankrupt. The orders referred to in the statute are such orders as are specific and direct a Clerk of Court to cancel a given mortgage(s) so that property sold through bankruptcy sales may be conveyed with a clear title.

It has been the settled jurisprudence of this state for many years that prior recorded mortgages retain their viability in rem against the encumbered property. Schnailder v. Fontenot, 147 La. 467, 85 So. 207 (1920) and Socony Mobile Oil Co. v. Burdette, 309 So.2d 655 (La.1975). While most of the cases involved judicial mortgages the above rule is just as applicable to conventional mortgages.

[678]*678The argument advanced by Terrebonne Bank, i. e., that a general discharge in bankruptcy authorizes the cancellation of all prior recorded mortgages, would not only relieve the bankrupt of all personal liability but would also release his property. Thus, the bankrupt would then be free to remortgage or even sell his property to a third party free and clear of any encumbrances.

In W. K. Investment Co. v. Tyler, 303 So.2d 777, 779 (La.App. 1st Cir. 1974), we stated:

“When mortgaged property is disclaimed by the Bankruptcy Court, title to the property reverts in the bankrupt, subject to the mortgage, and a subsequent discharge in bankruptcy releases the bankrupt’s personal liability on the indebtedness, but the mortgage remains intact.”

In Excel Finance Mid City, Incorporated v. Williams, 205 So.2d 846, 847 (La.App. 4th Cir. 1968), the court said:

“Since the trustee in bankruptcy has disclaimed the chattel mortgaged property, the plaintiff-creditor may enforce his claim by foreclosure in the state courts. See Excel Finance Camp, Inc. v. Tannerhill, La.App., 140 So.2d 202. His rights against this property are limited to the ranking of his chattel mortgage along with privileges belonging to other creditors in this property and the amount for which his claim is secured. These rights are theoretically valid until prescribed, but are of practical value only so long as the property has a market value greater than the interests of all creditors who precede this chattel mortgage holder in the ranking of privileges and security rights against this property.”

See also, Excel Finance Camp, Inc. v. Tannerhill, 140 So.2d 202 (La.App. 4th Cir. 1962). For a general discussion relating to the effect of an adjudication in bankruptcy on prior existing mortgages against the property of the bankrupt, see 8B C.J.S. Verbo Bankruptcy, §§ 201(C) and 582(2).

If Porter’s discharge in bankruptcy was general in nature and if the mortgaged property was not administered but was disclaimed by the bankruptcy court and the Clerk of Court relied upon this instrument as his authority to cancel prior recorded mortgages, then same was done in error. This, however, does not diminish their legal effect. Zimmerman v. Fryer, 190 La. 814, 183 So. 166 (1938) and Davis-Wood Lumber Company v. DeBrueys, 200 So.2d 916 (La.App. 1st Cir. 1967).

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Bluebook (online)
359 So. 2d 676, 1978 La. App. LEXIS 3457, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ferguson-v-porter-lactapp-1978.