text:
    METROPOLITAN NEW ORLEANS CHAPTER OF the LOUISIANA CONSUMERS’ LEAGUE, INC., People Power, Mary Elizabeth Petts, Flossie Milford Simon, Brenda Davillier, Brother Kieran Dugas, Lynn Terrance, Alonde Harrison, Thelma Gath and Rita R. Smith and all others similarly situated v. The COUNCIL OF the CITY OF NEW ORLEANS and New Orleans Public Service, Inc.
    No. 10874.
    Court of Appeal of Louisiana, Fourth Circuit.
    Nov. 14, 1980.
    Writs Refused Jan. 26, 1981.

      John F. Robbert, New Orleans, for Metropolitan New Orleans Chapter of the Louisiana Consumers’ League, Inc., plaintiff-ap-pellee.
    Archie B. Creech and Brian J. Waid, New Orleans, for People Power, et al., plaintiffs-appellees.
    Burke & Mayer, Charles B. Mayer and James G. Burke, Jr., Christopher T. Screen, William C. Nelson, and Floyd A. Hennen, New Orleans, for NOPSI, defendant-appellant.
    Debra J. Fischman, Asst. City Atty., and Salvador Anzelmo, City Atty., New Orleans, for The Council of the City of New Orleans, defendant-appellant.
    Before SAMUEL, REDMANN and CHE-HARDY, JJ.
   SAMUEL, Judge.

This is a suit by ten plaintiffs, purporting to act on behalf of the class constituting all persons similarly situated, against the Council of the City of New Orleans (Council) and New Orleans Public Service, Inc. (NOPSI), to obtain a refund of a $0.05 bus and streetcar fare increase collected by NOPSI pursuant to council resolution R-75-150 for the period during which the increase was collected, November 14, 1975 to November 8, 1977. In the alternative, plaintiffs seek a reduction of transit fares by $0.05 for a period of time equal to the time the $0.05 increase was in effect. They contend they represent the class of transit riders who paid the increase during that time.

Following the filing, and the overruling, of several defendant exceptions, plaintiffs filed a motion for summary judgment, which the court granted. The summary judgment thus rendered is in favor of plaintiffs (on their alternative prayer) in the sum of $5,518,900 and orders that restitution be made by a $0.05 reduction of the prior transit fare for a period of two years. The summary judgment also includes an award to plaintiffs of $100,000 in attorney’s fees.

The Council and NOPSI have appealed. Plaintiffs have answered the appeal seeking an increase in the time the fare reduction will be in effect in order to compensate for judicial interest on the amount of the judgment, and also seeking an increase in the attorney’s fees awarded by the trial court.

On November 11, 1975, the Council had adopted the resolution raising transit fares by $0.05. This case is an offshoot of a previous case filed by the present plaintiffs against the present defendants. In the pri- or suit plaintiffs, acting in their individual or organizational capacities and not as representatives of a class, sought injunctive relief prohibiting enforcement of the ordinance. On December 22, 1975 the trial court declared the $0.05 transit fare increase illegal and issued a permanent injunction enjoining NOPSI from collecting the increased fare. On the same day, the trial court entered an order allowing NOP-SI to prosecute a suspensive appeal from the judgment. On that appeal this court affirmed the trial court judgment, the Supreme Court denied defendants’ application for writs, and on November 8,1977 NOPSI reduced the fare by $0.05, thereafter charging the fare in effect prior the increase.

The present action was filed on August 4, 1977, shortly after this court’s decision maintaining the trial court judgment in the prior case. The trial judge considered the previous suit between the same plaintiffs and the same defendants as determinative of the issues before it. Accordingly, he concluded no material factual issues existed and plaintiffs were entitled to judgment as a matter of law. We disagree.

The primary issue before us is the propriety of the summary judgment. Relative to that issue, we find it necessary to consider only two of appellants’ contentions. Both contentions are concerned with the class action, one with notice and the other with restitution. In our view, both have merit and either one, by itself, requires that we annul and set aside the judgment appealed from. Summary judgment is not a substitute for a trial on the merits and can be rendered only when there is no issue of material fact and the mover is entitled to a judgment as a matter of law.

In Louisiana we have only the true class action, wherein the judgment concludes not only the representative parties, but all other members of the class who are not joined as parties. Thus, in our state courts it is particularly important that proper notice of the action be given. In Williams v. State, the Supreme Court of Louisiana said:

“. .. despite the lack of any statutory requirement for notice to other members of the class sought to be represented, federal (if not also state) due process requires that at some stage of the proceedings, preferably in the earlier stages of the litigation, all identifiable prospective members of the class be given reasonable notice of the pendency of the litigation and the opportunity to opt out of or join in the class action. This notice should be ‘reasonably calculated, under all the circumstances, to appraise interested parties of the pendency of the action * * *’ ...” (Emphasis added and citations omitted).

The record before us is devoid of any evidence showing, or even tending to show, that the members of the class plaintiffs purport to represent were given any notice of either the pendency of this litigation or the opportunity to join therein or disassociate themselves therefrom. Consequently, plaintiffs are not entitled to a class action summary judgment.

Regarding the second contention, a suit for restitution after the avoidance of a set rate is equitable in origin and nature. In order to prevail in such a suit, a plaintiff must show the money in contest was received under such circumstances that equity and good conscience would be offended if the defendant was allowed to retain it. The question presented is not whether the court would have allowed the defendant to receive the money originally, it is whether the court, following a full consideration of all the facts and circumstances, will take the money from the defendant’s possession after it has been allowed to collect it.

It has been held that restitution is not a matter of right. It is a privilege resting on the existence of sound judicial discretion, and restitution will not be ordered when the equities of the case do not call for it. In such cases, the question is whether all the circumstances dictate that equitably the defendant should restore to the plaintiff what it has received. In order to prevail in a restitution case, a plaintiff must demonstrate the unreasonableness of the rate subsequently held invalid and the reasonableness of the rate sought to be used in substitution therefor.

There was no hearing in the trial court on the unreasonableness of the rate fixed by the Council and subsequently held invalid for want of a technical formality. Moreover, there has been no hearing regarding the propriety and reasonableness of the $0.05 rate reduction for two years ordered by summary judgment.

In his Reasons for Judgment the trial judge stated defendants did not file affidavits for his consideration in determining whether restitution was appropriate. He thus implied summary judgment was proper in the absence of any evidence countervailing that produced by plaintiffs in support of their motion for summary judgment. However, as the court had before it the entire record in the first suit, which record includes the public hearings held by Council on the fair and appropriate rate of return to be earned by NOPSI and, as shown therein, the fact of a then current and large transit deficit, there was some countervailing evidence before the court regarding the fairness and reasonableness of the rate of return represented by the $0.05 rate increase; plaintiffs’ evidence was not uncontradicted, and there was an issue of material fact. In addition, as we have pointed out, in this suit for restitution plaintiffs had the burden of showing it would offend equity and good conscience if NOPSI was allowed to retain the later prohibited increase. Thus far, plaintiffs have failed to carry that burden.

For the foregoing reasons, the summary judgment appealed from is annulled and set aside, and this case is remanded to the trial court for further proceedings in accordance with law and the views herein expressed. Plaintiffs are to pay all costs of this appeal; all other costs are to await a final determination.

ANNULLED, SET ASIDE AND REMANDED.

REDMANN, J., concurs with written reasons.

REDMANN, Judge,

concurring.

The grant of summary judgment was wrong because, as a matter of law, plaintiffs are not entitled to judgment on the undisputed facts. In order to recover the cost of a fare increase whose only defect was that it was not properly advertised, plaintiffs should be required to show that, if the fare increase had been properly advertised, it would not have been granted (or that it would have been smaller). Plaintiffs’ motion for summary judgment made no such showing.

These plaintiffs have already cost the city too much (even NOPSI’s legal fees will but increase the transit deficit that the city pays). I should therefore prefer to dismiss the class on the ground of prescription and League and People Power on the ground that they have no right of action. I cannot, however, raise that preference to the level of dissent because the only question before us is whether summary judgment was correct.

      . Eight New Orleans individuals and two New Orleans organizations.

      . Metro. N.O. Chap. of La. Consumers League v. Council of City of New Orleans, La.App., 349 So.2d 400.

      . La., 351 So.2d 177.

      . LSA-C.C.P. Art..966.

      . LSA C.C.P. Arts. 591, et seq., and Comment (c) under Article 591.

      . La., 350 So.2d 131, 137.

      . See Atlantic Coast R. Co. v. State of Florida, 295 U.S. 301, 55 S.Ct. 713, 79 L.Ed. 1451.

      . See Atlantic Coast R. Co. v. State of Florida, supra, note 7.

      . See Abbotts Dairies Division of Fairmont Foods v. Butz, 584 F.2d 12.


source: Caselaw Access Project

author: SCHOTT, Judge.

license: Public Domain

text:
    Alfred EDWARDS and Paula Toliver v. Martha T. SMITH, Wife of and Loring Smith, Jr., and The U-Haul Company of Southern Louisiana.
    No. 12017.
    Court of Appeal of Louisiana, Fourth Circuit.
    Nov. 17, 1980.

      Francis G. Weller, Philip D. Lorio, III, New Orleans, for relator.
    Steven M. Koenig, New Orleans, for respondent.
    Before GULOTTA, SCHOTT and BARRY, JJ.
   SCHOTT, Judge.

We granted a writ of certiorari in order to examine the validity of a judgment of the trial court which overruled an exception of prescription filed by realtor, U-Haul Co. of Southern Louisiana. The issue is whether the filing of the suit originally in Jefferson Parish was sufficient under LSA-R.S. 9:5801 to interrupt the one year prescription established by C.C. Art. 3536 for an action in tort growing out of an automobile accident.

The accident in question occurred on May 13, 1978, in the Parish of St. Tammany and plaintiffs originally filed a suit in the Parish of Jefferson on May 11, 1979, against Mr. and Mrs. Loring Smith, Jr. and relator. In that suit plaintiffs alleged that the Smiths were domiciled in the Parish of Jefferson and that relator was a Louisiana corporation authorized to do and doing business in the State of Louisiana. Service of process was made on relator on May 16, 1979, and relator responded with a declina-tory exception of improper venue pursuant to C.C.P. Art. 925. In support of its exception relator relied on R.S. 9:5801 which provides as follows:

“All prescriptions affecting the cause of action therein sued upon are interrupted as to all defendants, including minors or interdicts by the commencement of a civil action in a court of competent jurisdiction and in the proper venue. When the pleading presenting the judicial demand is filed in an incompetent court, or in an improper venue, prescription is interrupted as to the defendant served by the service of process.” (Emphasis supplied).

At the trial of the exceptions relator established that its domicile and the address of its registered agent for the service of process were located in Orleans Parish. It also filed a letter written by its attorneys to the U.S. Postal Service in Metairie requesting a change of address on the Smiths, whose previous address was in Jefferson Parish, and a response from the U.S. Postal Service showing that the forwarding address for the Smiths was in Biloxi, Mississippi. The trial court overruled the exception reasoning that C.C.P. Art. 71 provides that an action against a defendant who has changed his domicile from one parish to another may be brought in either parish for a period of one year after the date of the change unless the party has filed a declaration of an intent to change his domicile in a manner provided by law. From this ruling relator filed an application for supervisory relief to this court which was denied. However, supervisory writs to the Supreme Court were granted with the following statement:

“Writs granted. Judgment of trial court overruling exception of venue reversed. Case remanded to district court to grant change of venue to either Orleans Parish or St. Tammany Parish.”

The case was subsequently transferred by the District Court in Jefferson Parish to the Civil District Court for the Parish of Orleans. There relator filed a peremptory exception of prescription under C.C.P. Art. 927, relying on the provisions of R.S. 9:5801 and arguing that since Jefferson Parish was not the court of proper venue prescription was not interrupted because service of process was not obtained until three days after prescription had run. The trial judge overruled the exception of prescription, whereupon relator applied for writs to this court.

Respondents argue that there was an insufficient showing that the Smiths had changed their domicile to Mississippi since the only evidence consisted of the letter from the Post Office indicating a new address on these defendants. They contend that the burden of proof was on relator to establish that the Smiths changed their domicile and that relator failed to carry this burden. However, this argument flies in the face of final action taken by the Supreme Court which maintained relator’s exception of improper venue. Since Jefferson Parish was not the court of proper venue, prescription was not interrupted by the service of process served on relator more than one year after the accident. R.S. 9:5801, Verdun v. Plaisance, 339 So.2d 533 (La.App. 4th Cir. 1976). See also Calhoun v. Ford, USCA 5th Cir. September 5, 1980.

Accordingly, the judgment of the trial court overruling the exception of prescription by U-Haul Co. of Southern Louisiana is reversed and set aside, and there is judgment in favor of relator, U-Haul Co. of Southern Louisiana, and against respondents, Alfred Edwards and Paula Toliver, maintaining the exception of prescription filed by U-Haul Co. of Southern Louisiana, and dismissing respondents’ suit at their cost.

CERTIORARI GRANTED.

JUDGMENT REVERSED.


author: STOKER, Judge. PER CURIAM.

text:
    Eugene C. GOODWIN and Mary Joe Ireland Goodwin, Plaintiffs-Appellees, v. Roy E. Lee GULLEDGE and Nellie Pearson, Defendants-Appellants.
    No. 8094.
    Court of Appeal of Louisiana, Third Circuit.
    Nov. 21, 1980.
    Rehearing Denied Jan. 7, 1981.

      Paul E. Wilkins, Columbia, for plaintiffs-appellees.
    Patrick L. Durusau, Jena, for intervenor-appellee.
    Before DOMENGEAUX, GUIDRY and STOKER, JJ.
   MOTION TO DISMISS

STOKER, Judge.

This court has, ex proprio motu, issued a rule to show cause why this appeal filed August 13, 1980, should not be dismissed as untimely. The rule has been answered by the intervenor-appellant Nellie Pearson. We dismiss the appeal.

On December 30, 1979, the plaintiffs, Eugene C. Goodwin and Mary Joe Ireland Goodwin, filed suit for change of tutorship and custody of Sheri Renee Gulledge. The appellant, Nellie Pearson, intervened, also seeking the tutorship and custody of the child. Subsequently, the intervenor-appel-lant served interrogatories on the plaintiffs which were not answered. The intervenor-appellant then filed a rule to compel discovery and requested attorney fees pursuant to LSA-C.C.P. art. 1469. The plaintiffs opposed the rule, contending the rule was filed without substantial justification and also requested reasonable attorney fees pursuant to LSA-C.C.P. art. 1469(4).

On May 6, 1980, judgment was rendered, dismissing the rule to compel answers to the interrogatories and awarding the plaintiffs $400 in attorney fees for opposing the rule. No motion for new trial was filed. The judgment was rendered in open court with both parties represented, therefore no notice of judgment was required by LSA-C. C.P. art. 1913. The original judgment, which was signed on May 7,1980, contained a typographical error, in that the wrong suit number was placed on it.

On July 9, 1980, counsel for plaintiffs presented the trial judge with a motion and order seeking an amended judgment. The trial judge granted the motion and signed a judgment on that same day. In format, the new judgment is not an amended judgment inasmuch as it reads exactly like the first judgment. In examining the record we note that the first judgment was filed in the proper record and bears a stamp with a signature indicating the time of filing in the clerk of court’s office. The stamp and signature read as follows:

Docket No. 16468
Filed:
May 7, 8:44 AM ’80
s/ Nella Ganev Clerk of Court

At some time someone struck an ink line through the typewritten incorrect docket number which appears on this original judgment and wrote the correct number above it. Hence, insofar as the record is concerned, the first judgment was actually filed in the correct record on the same day that it was signed and as corrected bears the proper docket number.

Under the circumstances related above we regard the second judgment as superfluous. The delays for applying for an appeal began to run on May 7, 1980. If the delay allowed for an appeal in this case is 60 days, the maximum allowed under any circumstances, the appeal filed August 13, 1980, was not timely.

Appellant contends that the original judgment was amended by the second judgment and that he had 60 days from July 9, 1980, within which to appeal. Theorizing that the judgment was amended, appellant contends that the delays began to run anew from the date of the amended judgment. Assuming that appellant is correct and that the second judgment of July 9,1980, was an amended judgment, what then would be the effect of the amended judgment in this case?

The issue presented by such an assumption is: Did the delay for the taking of an appeal begin to run from the date of the original judgment or from the date of the amended judgment? It is clear that this appeal is untimely if the delay began to run from the date of the original judgment, otherwise the appeal is timely.

The trial court may amend a final judgment at any time to correct typographical errors. LSA-C.C.P. art. 1951. The only way the amended judgment differed from the original judgment was that the suit number was changed. Therefore, the amendment did not effect a change in substance of the judgment. Villaume v. Villaume, 363 So.2d 448 (La.1978). The time delay for taking an appeal from a final judgment is not affected by a judgment amended in accordance with LSA-C.C.P. art. 1951. Miciotto v. Cox, 335 So.2d 798 (La.App. 2nd Cir. 1976).

We hold that for either of two reasons the time delay for taking an appeal in this matter commenced to run from the date of the original judgment, May 7, 1980. The first reason is that in our opinion the original judgment signed on May 7, 1980, required no amendment as the handwritten correction of the docket number was sufficient. Also, the second judgment was not in fact an amended judgment in format or form. The second reason is that, even if an amended judgment is involved, the amendment related back to the date of signing of the first judgment. The amendment merely corrected a mistake or typographical error and did not affect the substance of the judgment.

For the reasons assigned, the appeal of Nellie Pearson is dismissed at her cost.

APPEAL DISMISSED.

ON APPLICATION FOR REHEARING

PER CURIAM.

Application for rehearing by intervenor-appellant Nellie Pearson denied.

In an application for rehearing with respect to our dismissal of the appeal in this matter because it was filed untimely appellant Nellie Pearson suggests that we are in error as to our appreciation of the facts. It is asserted that, contrary to our conclusion stated in our opinion, the first judgment was not filed in the proper suit record. The appellant suggests that the first judgment “only appears to have been properly filed due to its transfer at a later time to the proper record.” Accepting appellant’s suggestion as true, we nevertheless do not consider that the circumstance referred to had the effect of extending the delay for taking an appeal.


author: MARVIN, Judge. FRED W. JONES, Jr., Judge,

text:
    TALLULAH PRODUCTION CREDIT ASSOCIATION, Appellant, v. J. C. TURNER, Appellee. Ruth P. TURNER, Appellee, v. Jimmie C. TURNER et ux., Appellee.
    Nos. 14294, 14295.
    Court of Appeal of Louisiana, Second Circuit.
    Dec. 2, 1980.
    Writ Refused Jan. 26, 1981.

      Voelker, Ragland, Brackin & Crigler by William B. Ragland, Jr., Lake Providence, for plaintiff-appellant, Tallulah Production Credit Association.
    Hamilton, Carroll & Miller by Orlando N. Hamilton, Jr., Oak Grove, for Ruth P. Turner.
    Jimmie C. Turner, in pro. per.
    Before PRICE, HALL, MARVIN, JASPER E. JONES and FRED W. JONES, Jr., JJ.
   MARVIN, Judge.

The dispute in these consolidated cases is between the pledgee of a collateral mortgage note and a subordinated secured creditor of a common debtor as to who outranks whom as to the proceeds from the sale of the property securing both creditors.

The trial court held that the pledgee does not outrank the subordinated creditor as to loans made to the pledgor after the pledge and subordination where the circumstances indicate that the subordinated creditor was not aware that she was subordinating other than to one specific indebtedness and where promissory notes evidencing these later loans were not “clearly identified” with the pledge. The pledgee appeals. We reverse.

Resolution of the issues requires our consideration of the collateral mortgage, the subordination, the pledge agreement, and CC Art. 3158, in the light of the particular circumstances of this case.

The subordinated secured creditor (Mrs. Turner) is the mother of the common debt- or (Jimmie C. Turner). She sold the property in question to her son on credit in 1973. About one month later Jimmie sought to borrow money from Tallulah Production Credit Association (PCA). On November 13, 1973, Jimmie executed the collateral mortgage and the separate pledge agreement. and his mother executed the act of subordination.

The collateral mortgage is titled in large bold-face print “Collateral Mortgage”, and its pertinent provisions read that the property shall remain mortgaged “. . . until the full payment of any debt or obligation for which the note may be pledged as collateral security.”

The pertinent provisions of the pledge agreement read:

“The consideration for the pledge is the particular loan . . . currently made to .. . Pledgor . . . and any further advances ... and any further or other debts ... of Pledgor to Pledgee until the pledge is cancelled as hereafter provided. “The pledge shall ... secure the payment of:
“(1) The particular loan . . . $12,000 . . . “(2) Any and all further or other loans or advances to or further or other debts, obligations, or liabilities of Pledgor to Pledgee, now existing or hereafter arising, up to a total of, excluding and not including the particular loan to or debt of Pledgor herein described, $12,000.
“ * * * It is the purpose of this pledge to fully secure Pledgee in every way and in particular with all the rights ... and benefits provided and authorized by [CC] Article 3158 ...
“This pledge shall remain in . .. effect until ... the pledged instrument ... shall have been legally and physically returned to the Pledgor. * * *
“This pledge shall in no way affect and shall in no way be affected by any other security for the payment of any amounts here secured.”

The “Act of Subordination” in conventional typewritten form, reads to the effect that Mrs. Turner subordinates her “mortgage” to the “Mortgage of Tallulah Production Credit Association” and that it is her intent that “the said mortgage in favor of Tallulah Production Credit Association shall be a first mortgage ... and that [her] mortgage .. . shall be ... a second mortgage ... and [that] in the event of a sale of the said mortgaged property, by foreclosure ... the said note [of PCA] shall be paid by preference and priority ... of the notes held by [Mrs. Turner] ...”

About six months after these instruments were executed and recorded, Jimmie Turner paid the particular loan of $12,000. PCA retained the collateral mortgage note. In 1975 Jimmie Turner executed two notes to PCA for money loaned him at that time. Each of these notes were noted as being secured by a crop pledge and a chattel mortgage. No mention was made on these notes of the 1973 collateral pledge agreement or of the 1973 collateral mortgage note.

In 1979 PCA sued to foreclose on its $12,000 collateral mortgage note and asserted that the indebtednesses which arose in 1975 were secured by the collateral mortgage note as well as by the 1975 crop pledge and chattel mortgage. Mrs. Turner then sued for foreclosure by executory process for the balance due on her vendor’s lien. PCA intervened in her action. Eventually the property was sold by the Sheriff and the distribution of the balance of the proceeds ($26,335) awaits final disposition of the competing claims of Mrs. Turner and PCA.

THE ACT OF SUBORDINATION

Mrs. Turner effectively subordinated her security rights (vendor’s lien, mortgage) to the mortgage of PCA. She declared in the subordination that her note arising out of the “Act of Credit Sale” to her son would be subordinate to, and would be a “second mortgage” to PCA’s “first mortgage”, and that in the event of a foreclosure, PCA’s mortgage note would be preferred and paid before her mortgage note. Terms used in an alleged waiver of legal rights must be construed in the light of the legal significance intended by the parties. See Sliman v. McBee, 311 So.2d 248, 253 (La.1975). For us to hold that Mrs. Turner waived only her “mortgage” and not her vendor’s lien, as she contends, would abort the stated intent of the act of subordination.

The act of subordination relates only to the ranking of the security rights held by Mrs. Turner and by PCA and does not otherwise purport to define or limit, or limit the effect of the security. The effect of the security instrument must be determined by the instrument itself and Mrs. Turner cannot complain that she was not aware that she was subordinating to a collateral mortgage. PCA made no representations to Mrs. Turner.

THE COLLATERAL MORTGAGE

Mortgage is a generic term which encompasses several species. We have conventional, legal, and judicial mortgages. Three types of conventional mortgages are recognized in Louisiana: the ordinary mortgage, the mortgage to secure future advances, and the collateral mortgage. The collateral mortgage is the product of judicial recognition that one can pledge a note secured by a mortgage and use this pledge to secure yet another debt. First Guaranty Bank v. Alford, 366 So.2d 1299, 1303 (La.1978). There, the Supreme Court further explained:

“A collateral mortgage note may be pledged to secure future obligations. In that event full payment of a given obligation [particular obligation] will not extinguish the collateral mortgage note and accompanying mortgage. (And in such cases the collateral mortgage will have a ranking from the initial pledge. La.Civil Code, Art. 3158.)”
Bracketed material and emphasis supplied.

This collateral mortgage expressly provides that the mortgage note may be pledged to secure other debts and obligations and that the property shall remain mortgaged until the other debts secured by the pledged note have been fully paid.

THE COLLATERAL PLEDGE AGREEMENT

This instrument pledges the collateral mortgage note as security for the particular loan ($12,000) and any further or other debts of pledgor to pledgee until the pledge is cancelled as the instrument provides. Cancellation of the pledge occurs only when the pledged note is legally and physically returned to the pledgor. As between Jimmie Turner and PCA, Jimmie Turner could not contend that the pledged note did not secure his indebtedness to PCA which arose in 1975. See First Guaranty Bank, supra, and CC Art. 3158, as discussed therein.

We find no requirement of a written connection between the subsequent loan and a pledged collateral mortgage note. The trial court correctly observed that the required connexity between the subsequent loan and the pledged collateral mortgage note may be satisfied by the pledge agreement. See First Guaranty Bank, supra. The pledge agreement, which expresses the contractual intent of the pledgor and pledgee, determines whether subsequent or further loans are secured by the pledged note. This pledge agreement is sufficiently broad and express to cover all loans made by PCA to Jimmie Turner while PCA retained the pledged note.

The fact that the 1975 loans were noted as being secured by a crop pledge and a chattel mortgage does not negate the security of the collateral mortgage note because the pledge agreement states that the pledge shall in no way be affected by any other security for payment of any amounts secured by the pledge. It is axiomatic and in keeping with the function of the collateral mortgage that this collateral mortgage and pledge agreement, by their express terms, secured “any and all further or other loans ... or further or other debts ... of pled-gor to pledgee, [then] existing or [later] arising ...”

Paraphrased, CC Art. 3158 effectively provides that whenever a pledge of a mort gage note is made to secure indebtednesses of the pledgor to the pledgee which arise after the pledge is made, and the pledged instrument remains in the hands of the pledgee, and without the necessity of any added notification or other formality, the indebtednesses of the pledgor to the pledgee which arise after the pledge shall be secured by the pledged instrument to the same extent as if the indebtednesses had come into existence when the pledge was made. If the pledge was made in good faith, the pledge shall be as valid against third persons as it is against the pledgor.

As in New Orleans Silversmiths, Inc. v. Toups, 261 So.2d 252 (La.App. 4th Cir. 1972), writ refused, the “obvious tenor of these documents [the collateral mortgage and the pledge agreement] is to fully utilize the retrospective privilege afforded by LSA-C.C. art. 3158.” It is true that that ease stated that retrospective effect would be given to subsequent loans only if four conditions were met. That court apparently attempted to determine and derive from the article the conditions under which the article would be applied. These conditions were:

The initial pledge was properly confected,

Each succeeding loan was specifically secured by a pledge of the instrument.

The parties to the pledge agreed that the pledge would secure any obligations of the pledgor arising after the pledge, and

The pledged instrument remained in the hands of the pledgee and the parties acted in good faith at all times.

Even if we agree that the second condition is derived from CC Art. 3158, as the other three conditions obviously are, we find that this second condition was fulfilled by the terms of the pledge agreement. That agreement expressed that the pledge of the collateral mortgage note “shall . .. secure the payment of: (1) the particular debt [and] (2) any and all further or other debts ... of Pledgor to Pledgee, ... hereafter arising, up to a total of ... $12,000.”

We find that Art. 3158 permits a collateral mortgage note to be pledged in 1973 to secure any further debts of pledgor to pledgee which may arise afterward and that a debt created in 1975 by pledgor to pledgee will be secured by the pledged collateral mortgage note though the 1975 debt does not itself contain the notation that it is secured by the pledge. The obligations which are secured by the pledge are determined from the pledge agreement even though the evidence of the obligation does not mention that it is so secured. Retrospective effect of the pledgor’s privilege is afforded by the statute and not by the pledge agreement.

The judgment appealed is reversed and these cases are remanded to lawfully authorize the proceeds of the sale of the common debtor’s property to be paid pro tanto by preference and priority to PCA to the extent of its collateral mortgage note over the security held by Mrs. Turner. See Central Bank v. Bishop, 375 So.2d 149 (La.App. 2d Cir. 1979), writ refused.

All costs, here and below, are assessed against the appellee. REVERSED and REMANDED.

FRED W. JONES, Jr., J., dissents with written reasons.

FRED W. JONES, Jr., Judge,

dissenting.

These consolidated suits involve competing claims by rival creditors to the proceeds of a sheriff’s sale of mortgaged property.

By credit deed dated October 11, 1973, Ruth P. Turner conveyed to her son, Jimmie C. Turner, husband of Willie Rustin Turner, certain immovable property located in West Carroll Parish. The vendee executed a promissory note in the sum of $27,200 representing the consideration for this sale, which note was secured by a vendor’s lien and special mortgage stipulated in the deed which was duly recorded on November 12, 1973.

On November 13, 1973 Jimmie C. Turner borrowed from Tallulah Production Credit Association (TPCA) $12,000 and executed a hand note in favor of the creditor to evidence that indebtedness. In connection with that transaction, on the same date Turner and his wife executed a collateral mortgage note in the principal amount of $12,000, payable to the order of “Myself” at the office of TPCA, which note was due on demand after December 1, 1974. This note was paraphed for identification with an Act of Collateral Mortgage, recorded on November 19, 1973, covering and affecting the immovable property conveyed to Turner by his mother. Also as part of this transaction Turner and his wife, on November 13, 1973, executed a Collateral Pledge Agreement under which the described collateral mortgage note was pledged to TPCA to secure payment of the $12,000 hand note. In addition, the pledge agreement provided that it was to secure:

“Any and all future or other loans or advances to or further or other debts, obligations, or liabilities of pledgor to pledgee, now existing or hereafter arising, up to a total of, excluding and not including the particular loan to or debt of pledgor described, TWELVE THOUSAND AND NO/100 ($12,000.00) DOLLARS .... This pledge shall remain in full force and effect until all indebtedness, obligations, and liabilities secured hereby shall have been paid in full and the pledge instruments or items shall have been legally and physically returned to the pledgor.”

The collateral mortgage note was delivered to TPCA on November 13, 1973 and has remained in its possession.

On November 13, 1973, Ruth P. Turner executed an Act of Subordination which provided that she subordinated her mortgage securing the $27,200 promissory note to and in favor of the “mortgage to Tallu-lah Production Credit Association” for $12,-000, specifically stipulating that it was her intention that her mortgage “in all respects and for all purposes be subordinate and inferior to the aforesaid mortgage granted by Jimmie C. Turner in favor of Tallulah Production Credit Association.” The Act of Subordination was recorded on November 19, 1973.

Jimmie C. Turner paid the initial $12,000 loan from TPCA in full on May 30, 1974. On September 10, 1975, he executed a promissory note in favor of TPCA for $28,-000, which note was paraphed for identification with and secured by a crop pledge and chattel mortgage. On November 18, 1975 Turner executed another promissory note in favor of TPCA, for $3,000, which note stipulated that its payment was also secured by the crop pledge and chattel mortgage identified with the September 10 note. Neither of these notes made any reference to the pledge of the $12,000 collateral mortgage note nor to the collateral mortgage.

TPCA filed suit on January 25, 1979 to foreclose on the $12,000 collateral mortgage executed by Turner and his wife on November 13, 1973, asserting that Turner had defaulted in his payment of the last two described notes which plaintiff alleged were secured by the pledge of the $12,000 collateral mortgage note in addition to the crop pledge and chattel mortgage.

Ruth P. Turner filed a petition for execu-tory process on March 28, 1979, seeking to have the immovable property covered by her vendor’s lien and mortgage sold at public sale to satisfy the unpaid balance due on her $27,200 promissory note. TPCA intervened in this action, claiming that the $12,-000 collateral mortgage which secured its indebtedness outranked plaintiffs lien because of the Act of Subordination executed by her.

These suits were consolidated for trial purposes.

The immovable property allegedly covered by the competing liens was sold at public sale and a balance of $26,335.60 was held by the Sheriff of West Carroll Parish for distribution in accordance with a court judgment.

Holding that TPCA had failed to prove “some circumstances or writing to show that the parties unequivocally intended to pledge the collateral note and mortgage to secure the indebtedness” [evidenced by promissory notes dated September 10 and November 18, 1975], the trial judge ruled that Ruth P. Turner’s claim primed that of TPCA to the proceeds of the sheriff’s sale and rendered judgment accordingly. The district judge also questioned, incidentally, whether the Act of Subordination was intended to subordinate the mortgage in favor of Ruth P. Turner to any obligation other than the initial loan of $12,000 by TPCA to Jimmie C. Turner since the instrument in question never referred to a collateral mortgage.

TPCA appealed from the lower court’s judgment. Although numerous specifications of error were alleged, their thrust is that the trial judge erred in his finding that: (1) there was no “connection ” between the two promissory notes sued upon and the Act of Pledge and (2) that the Act of Subordination should have in some way alerted Ruth P. Turner to the fact that she was subordinating to a collateral mortgage.

late unique nature of the collateral mortgage, a specie of conventional mortgage created by our jurisprudence, has been extensively analyzed in appellate court cases and scholarly law review articles, There seems to be general agreement that the purpose of the collateral mortgage package is to confect a mortgage note that can be pledged as collateral security for either a pre-existing debt, for a debt created contemporaneously with the mortgage, for a future debt, or for a combination of these. Therefore, the package represents a blend of pledge and mortgage, drawing upon both for its efficacy but not fully on either. The collateral mortgage note or “ne varietur” note is not the evidence of the indebtedness, but is merely the security that will be pledged as collateral for the true debt. Therefore, the mortgagor must also become a pledgor of the collateral mortgage note itself to the creditor to secure a debt which is generally but not necessarily evidenced by a hand note.

It is now clear that, unlike other conventional mortgages which affect third persons upon filing in the office of the clerk of court, the collateral mortgage which has been filed obtains ranking against third parties only from the time that it is issued or pledged to secure a debt. When the secured, debt is paid and the collateral mortgage note returned to the pledgor, the collateral mortgage is not extinguished. However, it does lose its original ranking. Subsequent pledges of the collateral mortgage note are called “reissuances” and the collateral mortgage obtains new rank at the date of reissuance. Because of confusion which arose over what constituted a “reissuance”, La.Civil Code Article 3158 was amended in 1952 to provide that the date for the ranking of a collateral mortgage is the date of the pledge and not the date of the advance of funds.

The first appellate court ease to interpret Article 3158 after the 1952 amendment was New Orleans Silversmiths, Inc. v. Toups, 261 So.2d 452 (La.App. 4th Cir. 1972), which involved competing collateral mortgages. It held that the effect of the amendment was to impart a retrospective effect to all subsequent advances to the date of the initial loan, provided:

“(a) the initial pledge was properly con-fected
(b) each succeeding loan was specifically secured by a pledge of the instrument (emphasis added)
(c) the parties had mutually agreed at the time of the original pledge that it would also secure any obligations or liabilities of the pledgor then existing or thereafter arising to the limit of the pledge
(d) all of the aforegoing being subject to the pledge instrument continuously remaining in the hands of the pledgee and the parties acting in good faith at all times.”

It was further held that the parties were authorized by the codal article to agree that its retroactive effect would apply not only to renewal of the primary loan but to new loans even though the initial loan had been liquidated. The legal result would be the securing of the subsequent obligations by the original collateral pledged to the same extent as if the debt was incurred at the time the pledge was confected.

The claim that a collateral mortgage did not secure loans made subsequent to an initial loan was considered by the Louisiana Supreme Court in First Guaranty Bank v. Alford, 366 So.2d 1299 (La.1979). There a husband had executed a $155,000 promissory note evidencing money borrowed from a bank. His wife executed a collateral mortgage note and collateral mortgage covering her separate property, followed by her execution of a written act of pledge specifying that the collateral mortgage note was pledged to secure payment of the $155,000 note. The husband paid off the $155,000 note by borrowing other funds from the bank, which retained possession of the wife’s collateral mortgage note. When the bank attempted to recover the husband’s outstanding indebtedness by foreclosing on the wife’s collateral mortgage she resisted, claiming that the bank had no security interest in her property because the original obligation had been paid.

Sustaining the wife’s position, the court explained that the pledge provisions of the Civil Code determine whether a creditor in these circumstances is secured and that, while a collateral mortgage note may be pledged to secure future obligations, it may also be pledged to secure only a specific obligation. Since the pledge agreement in question plainly stated that it was to secure only the original $155,000 debt, this represented the intent of the parties. Therefore, once that obligation was liquidated the pledge fell, leaving the bank without a security interest either in the collateral mortgage note or collateral mortgage.

Adverting to the requirements listed in the New Orleans Silversmiths case, supra, for determining whether future loans are secured by a collateral mortgage note, I conclude upon examining this record that (1) the initial pledge was properly confect-ed; (2) the parties agreed in the Act of Pledge that it would secure the original $12,000 loan and debts thereafter arising to the limit of the pledge; (3) that the collateral mortgage note continuously remained in the hands of the pledgee, TPCA, and (4) the parties acted in good faith at all times.

The primary question posed by this litigation is: does Article 3158 require as held by Silversmiths, in addition to these listed conditions, that each succeeding loan be specifically secured by a pledge of the instrument evidencing that indebtedness?

Although the text of Article 3158 tends toward obfuscation, it does provide, when the act of pledge secures future debts and the pledged instrument remains in the hands of the pledgee, that:

“. . . the instrument or item may remain in pledge to the pledgee or, without withdrawal from the hands of the pledgee, be repledged to the pledgee to secure at any time any renewal or renewals of the original loan or any part thereof or any new or additional loans ...” (Emphasis added)

The import of this particular language seems to support the conclusion that a creditor who desires to avail himself of the ranking privilege afforded by Article 3158 must prove, by a legally acceptable method, that at the time of any subsequent loan the parties intended that it be secured by the prior executed act of pledge which, in effect, constitutes a “repledging to the pledgee” of the original collateral with the advantage of retroactive ranking.

The majority holds that, even if the second condition listed in Silversmiths can be derived from the language of Article 3158, that requirement was fulfilled by the terms of the pledge agreement which provided that it was intended to secure payment of future debts up to $12,000. This is, of course, the third condition set forth in Silversmiths. Therefore, the effect of the majority’s reasoning is to eliminate the second condition.

The assertion that proof of the intent of the parties with reference to the security for each future loan is supplied by the language of the act of pledge relating to those loans is untenable. It is readily conceivable that changing circumstances could persuade the parties that either no security was necessary for a subsequent loan or that the furnishing of other security would be more advisable (as was apparently done here).

Of course, the evidence to prove the intent of the parties in connection with a particular subsequent loan does not have to be in writing. Although it may be customary to execute a hand note to represent the principal obligation which is secured by the collateral mortgage package, that is not necessary. Further, since under Article 3158 a negotiable instrument may be pledged simply by delivery, no written act of pledge is required for the efficacy of this security device. It follows, therefore, that there is no requirement for a written connection between the subsequent loan and the collateral mortgage note.

In the cases under consideration the record reveals no evidence, either written or oral, offered by TPCA to establish that the parties intended for the promissory notes dated September 10,1975 and November 18, 1975 to be secured by the Act of Pledge dated November 13,1973. On the contrary, identification on their faces of those notes with a crop pledge and chattel mortgage indicated that these instruments were the only security for those promissory notes. In fact, assuming for the sake of argument that the language in the Act of Pledge pertaining to future loans establishes presumptive evidence of the parties’ intent at the time of each subsequent loan, that presumption would be rebutted here by the positive evidence of the furnishing of other collateral to secure these loans.

To summarize, I would hold that for a creditor to avail himself of the ranking privilege with reference to future loans provided for by Article 3158: (1) the initial pledge must be properly confected, with the parties mutually agreeing at the time that the pledge would secure obligations arising thereafter; (2) the collateral must continuously remain in the hands of the pledgee; (3) the pledgee must prove that at the time of the making of the subsequent loan or loans involved in the litigation it was the intent of the parties that the pledge of the original collateral secure that loan or loans; and (4) the parties acted in good faith at all times.

Since the appellant did not meet condition (3), I agree with the trial judge that Ruth P. Turner was entitled by preference and priority over TPCA to the funds held by the Sheriff of West Carroll Parish after the public sale of the immovable property covered by her vendor’s lien and mortgage.

For these reasons, I respectfully dissent from the majority opinion, and would affirm the judgment of the trial court.

      . We underline the provisions of this article which we think are pertinent:
      “.. . [T]his privilege [of the pledgee] shall take place against third persons only in case the pledge is proved by some written instrument ...
      “When a debtor wishes to pledge promissory notes, bills of exchange, bills of lading, stocks, bonds, policies of life insurance, or written obligations of any kind, he shall deliver to the creditor the notes, bills of exchange, bills of lading, stocks, bonds, policies of life insurance, or other written obligations, so pledged, and such pledge so made, except as hereinafter provided with regard to life insurance policies, shall without further formalities be valid as well against third persons as against the pledger thereof, if made in good faith, provided that where the pledge of instruments not negotiable, the debtor must be notified thereof, it being understood that no notification is required in the case of the pledge of certificates of corporation stock. All pledges may be made by private writing of any kind if only the intention to pledge be shown in writing, but all pledges, except of a life insurance policy in favor of the insurer, must be accompanied by actual delivery. The pledge of a life insurance policy must also be evidenced by a written assignment thereof as security to the pledgee and by delivery of the pledge or assignment to the insurer and, unless the beneficiary thereof may be changed upon the sole request of the insured, or unless pledge or assignment without the consent of the beneficiary be specifically provided for in the policy, must be accompanied by the consent of any named beneficiary who is not the insured or his estate; it is further provided that whenever a pledge of any instrument or item of the kind listed in this article is made to secure a particular loan or debt, or to' secure advances to be made up to a certain amount, and, if so desired or provided, to secure any other obligations or liabilities of the pledger to the pledgee, then existing or thereafter arising. up to the limit of the pledge, and the pledge instrument or item remains and has remained in the hands of the pledgee, the instrument or item may remain in pledge to the pledgee or, without withdrawal from the hands of the pledgee, be repledged to the pledgee to secure at any time any renewal or renewals of the original loan or any part thereof or any new or additional loans, even though the original loan has been reduced or paid, up to the total limit which it was agreed should be secured by the pledge, and, if so desired or provided, to secure any other obligations or liabilities of the pledger to the pledgee, then existing or thereafter arising, up to the limit of the pledge, without any added notification or other formality, and the pledge shall be valid as well against third persons as against the pledger thereof, if made in good faith: and such renewals, additional loans and advances or other obligations or liabilities shall be secured bv the collateral to the same extent as if they came into existence when the instrument or item was originally pledged and the pledge was made to secure them:*** "

      . Nathan and Marshall, The Collateral Mortgage, 33 La.L.Rev. 497 (1973); Work of Appellate Courts-1977-1978, 39 L.Rev. 721, 722.

      . Apparently this was the way that the authors in Nathan and Marshall, The Collateral Mortgage, 33 La.L.Rev. 457, at p. 523 construed the article. For example, they state:
      “The major objection to the retrospective ranking afforded by article 3158 is the possibility of abuse and injury to innocent third parties.... the specific criticism ignores the fact that several bases must be touched before the retrospective protection afforded by article 3158 even comes into play: ... (2) each succeeding loan must be specifically secured by a pledge of the original collateral; ...”


author: HALL, Judge.

text:
    SUCCESSION OF Roxie Ann Collins DARBY.
    No. 14329.
    Court of Appeal of Louisiana, Second Circuit.
    Dec. 2, 1980.
    Writ Refused Jan. 26, 1981.
    Love, Rigby, DeHan, Love & McDaniel by William G. Nader, Shreveport, for defendant-appellant, Walter Collins.
    Bethard & Davis by Henry W. Bethard, III, Coushatta, for plaintiff-appellee, Mary Cook Ashley.
    Stewart & Stewart by Jonathan M. Stewart, Arcadia, for defendants-appellees, (nonresident absentees) Daniel Henderson, et al.
    Before PRICE, HALL and MARVIN, JJ.
   HALL, Judge.

Defendant, a collateral relation of the decedent, Roxie Ann Collins Darby, appeals the judgment of the trial court sending plaintiff, Mary Cook Ashley, the illegitimate daughter of the decedent, into possession of decedent’s estate. The estate consists mainly of decedent’s undivided interest in a tract of land which belonged to her parents, John Collins, and Lizzie Strickland Collins. The trial court determined that, under the provisions of LSA-C.C. Art. 918 plaintiff was entitled to be put in possession of the estate of her mother to the exclusion of her mother’s collateral relations. We affirm.

Roxie Ann Collins Darby died intestate on June 25, 1977. She was one of nine children born of the marriage between John and Lizzie Collins. Lizzie Collins predeceased her husband, who died in 1905. Neither John’s nor Lizzie’s succession was ever opened, but decedent, along with some of her brothers and sisters, took possession of and made use of the family home and the land which had belonged to her parents. Because two of decedent’s siblings died without leaving descendants, decedent was the owner by inheritance of an undivided Vi interest in the tract of land and family home.

Plaintiff, Mary Cook Ashley, was born in 1907. Testimony at trial established that she is the illegitimate daughter of decedent and Suddie Cook. Decedent was later married to Sam Darby, her only husband, but no children were born of this marriage. The testimony of record also establishes that decedent supported plaintiff as a child, that plaintiff was recognized in the community as the child of decedent, and that the decedent acknowledged that plaintiff was her child. Plaintiff proved her maternal filiation and established that she is the acknowledged illegitimate daughter of the decedent.

Defendant argues on appeal that LSA-C.C. Art. 921 prohibits plaintiff from inheriting the property in question. That article reads as follows:

“The law does not grant any right of inheritance to illegitimate children to the estate of the legitimate relations of their father or mother.”

Defendant’s argument is without merit. Plaintiff in this suit is not claiming a right of inheritance to the estate of her grandparents; rather, she is claiming her right to inherit from her natural mother, a right granted to her by LSA-C.C. Art. 918:

“Illegitimate children are called to the legal succession of their mother, when they have been duly acknowledged by her, if she has left no lawful children or descendants, to the exclusion of her father and mother and other ascendants or collaterals of lawful kindred.. . . ”

Decedent in this suit left no lawful children or descendants; therefore, plaintiff, decedent’s acknowledged illegitimate child, preempts her mother’s collateral relations in the succession of her mother.

Roxie Ann Collins Darby succeeded to John Collins and Lizzie Collins from the instant of their deaths; she manifested her acceptance of their successions by taking actual possession of the estate property. LSA-C.C. Arts. 940 et seq. Upon Roxie’s death, her right to share in her parents’ estate was transmitted to her heir, the plaintiff. LSA-C.C. Art. 944. LSA-C.C. Art. 921 does not prohibit plaintiff from inheriting her mother’s interest in the estate of her mother’s parents. The fact that the successions of John Collins and Lizzie Collins have never been judicially opened does not affect the applicability of these principles established by the Civil Code.

For the reason stated above, the judgment placing plaintiff in possession of her mother’s estate is affirmed. Costs of this proceeding are assessed to the defendant-appellant.

Affirmed.


author: FRED W. JONES, Judge.

text:
    Richard R. AILLET and Diane S. Aillet, Plaintiffs-Appellees, v. CENTURY FINANCE COMPANY of Louisiana, Defendant-Appellant.
    No. 14335.
    Court of Appeal of Louisiana, Second Circuit.
    Dec. 2, 1980.

      Touchstone & Wilson by David M. Touchstone, Shreveport, for defendant-appellant.
    Cook, Yancey, King & Galloway by Albert M. Hand, Jr., Shreveport, for plaintiffs-appellees.
    Before HALL, JASPER E. JONES and FRED W. JONES, JJ.
   FRED W. JONES, Judge.

The finance company holder of a consumer credit contract appeals a city court judgment in favor of the purchasers of services under the contract for recovery of monies paid to the holder. Appellant contends that the trial judge erred in (1) finding that inclusion of a “preservation of defenses” clause in the contract, rendered the finance company personally liable for failure of assignor to perform services under the contract; (2) concluding that the finance company was a “holder” of the contract despite the fact that the promissory note evidencing the debt was not filed in evidence; and (3) ruling that evidence, which was offered by the finance company to the effect that it could arrange through other parties to provide the services promised by the assignor, was inadmissible. We affirm.

According to the record, in 1979 the American Guild Furniture Buyers Club (“American Guild”), with outlets in various cities, was contracting with manufacturers and dealers to purchase merchandise, including furniture and appliances, in large quantities at discount prices. The general public, enticed by the lure of bargain prices, was permitted to purchase membership in the club through the medium of installment contracts which were customarily sold by American Guild to finance companies.

Plaintiffs, husband and wife, residents of Shreveport, Louisiana, joined the American Guild through their local outlet in July, 1979 for a period of two years for a stipulated membership fee of $595. They paid $45 in cash and financed the $550 balance by executing a 24 month financing package which included a promissory note and an instrument styled “Credit Sale, Chattel Mortgage (non-auto) and Truth in Lending Disclosure Statement”. The latter statement informed plaintiffs that their contract would be assigned to Century Finance Company (“Century”). The instrument also contained in bold print the following clause:

NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

American Guild sold the contract to Century. Plaintiffs made two monthly payments to Century and then, in October, 1979, prepaid the entire remaining balance.

Plaintiffs learned in January, 1980, that American Guild had rather abruptly closed its Shreveport outlet, without giving any notice to its customers. Consequently, demand was made upon Century as the holder of plaintiffs’ contract for the return of monies paid to it. Upon rejection of the demand this litigation ensued.

Century filed in sequence the following pleadings in Shreveport City Court: exception of nonjoinder of an indispensable party (American Guild), which was overruled; answer and exception of no cause of action; and an amending and supplemental answer alleging that Century could arrange for the performance of American Guild’s obligations under the contract by other parties.

During the course of the trial, the judge ruled that evidence offered by Century relating to its attempted performance of the contract was inadmissible because the pleading asserting this defense was not timely filed under La.C.C.P. Art. 4912. Century then made a proffer of this evidence.

After trial, judgment was rendered in favor of plaintiffs for $505.92, representing the amount paid by them to Century less a pro rata charge for their four months effective membership in the buyer’s club.

Acting pursuant to statutory authorization, the Federal Trade Commission requires the inclusion in all consumer credit contracts of the “preservation of defenses” clause which is contained in the contract under consideration. See 16 C.F.R. 433.1. The legal import of this language was considered in GMAC v. Daniels, 377 So.2d 346 (La.1979), which noted:

“The consumer is protected by the notice on the credit contract which makes the holder of the paper subject to all the claims and defenses which the debtor may assert against the seller of the goods . .. the FTC rule places the creditor in the shoes of the vendor with respect to the purchaser/debtor.... ”

In the recent case of Jefferson Bank & Trust Co. v. Stamatiou, 384 So.2d 388 (La.1980), the debtor had purchased a truck and in connection with the transaction executed a promissory note, act of sale and chattel mortgage. The instrument contained a “preservation of defenses” clause identical to that involved in our case. The bank to which the contract was assigned sued the debtor for the unpaid balance on the note and the defendant reconvened for rescission of the sale because of redhibitory vices. Ruling in favor of the debtor, the Louisiana Supreme Court held:

“The express purpose of the FTC regulation is to prevent the seller, in a consumer credit transaction, from separating the buyer’s duty to pay from the seller’s duty to perform as promised, by the seller’s assigning the buyer’s promissory note to a financing institution, as against whom, because of holder status, defenses would otherwise not be available.”

Consistent with the cited jurisprudence, we find that the “preservation of defenses” clause contained in the consumer credit contract assigned to Century clearly warned the holder that it was purchasing the contract subject to any claims or defenses that plaintiffs might have against the assignor. Since the promissory note evidencing the principal obligation was apparently lost, under the best evidence rule oral testimony was admissible to establish the terms of that note (which was referred to in the security instrument). In fact, Century’s manager testified concerning the existence of the note and its provisions. Be that as it may, the consumer credit contract consisted of a package, which included the lost promissory note. The written notice sent by Century to plaintiffs after its acquisition of the contract stated that Century had “purchased your contract.” Therefore, the trial judge correctly held that Century was the “holder” of plaintiffs’ contract.

Appellant appears to concede that if plaintiffs had not prepaid their contractual obligation and Century had been compelled to sue them for past-due installments, plaintiffs could have raised as a defense the failure of American Guild to perform its obligations under the contract. There also seems to be no question but that if American Guild had not sold the contract, plaintiffs could have sued it for non-performance of those obligations. Since the effect of the “preservation of defenses” clause is to place the holder in the shoes of the assignor, logic compels the conclusion that plaintiffs may exercise their claim against Century because of American Guild’s nonperformance. For this reason we agree with the trial judge’s construction of the legal effect of the clause in question which issued in the judgment appealed.

On the incidental evidentiary question, the record shows that, although the trial judge ruled inadmissible the evidence offered by Century to show the possibility of its arranging with another party to perform the services promised by American Guild, after the proffer the lower court deemed the evidence irrelevant because under the contract plaintiffs could not have been required by American Guild “to deal with some other company,” and Century stood in the place of American Guild. We agree that the evidence was inadmissible on this basis.

For these reasons, we affirm the judgment of the lower court at appellant’s cost.

      . This article provides in pertinent part:
      “A defendant shall include in his answer, whether oral or in writing, all of the exceptions upon which he intends to rely.”

      . Having disposed of the evidentiary question on this ground, we do not reach the issue of whether the court in Commercial Securities Co., Inc. v. Moye, 270 So.2d 881 (La.App. 4th Cir. 1972) correctly construed La.C.C. Art. 4912, but find the rationale of that case highly questionable.