Recent Development by Jason R. Johanson
Delores Benoit executed two collateral mortgage packages on May 7, 1993. The first, in favor of Morgan City Bank and Trust (MC Bank), consisted of a collateral mortgage, or ne varietur, note for $350,000 on Benoit's 410.92-acre tract of land in Acadia Parish, and a pledge of the collateral mortgage note to secure a $350,000 MC Bank hand note executed the same day by her friend, William Davenport. The second collateral mortgage package, consisting of similar collateral mortgage documents on the same property, was pledged to secure a second $300,000 hand note executed by Davenport in favor of Diamond Services Corporation. Benoit did not sign either of the hand notes guaranteed by Davenport.
Davenport eventually defaulted on both hand notes, and MC Bank filed for executory process against Benoit in Acadia Parish in an attempt to collect on its $350,000 collateral mortgage note. In May 1997, MC Bank assigned to Diamond Services all of its rights in the MC Bank hand note, its collateral mortgage note, and its petition for executory process against Benoit. Diamond Services then seized and sold Benoit's 410.92-acre tract of land, netting $116,157.28, and filed a supplemental petition against Benoit for a deficiency judgment on the MC Bank collateral mortgage note.
Diamond Services and Benoit both filed motions for summary judgment. The trial court granted Benoit's motion for summary judgment, finding that there was mutual error and that the intent of all parties was that Benoit would not be personally liable for the debts secured by the collateral mortgage packages. The Louisiana Third Circuit Court of Appeal affirmed in part, reversed in part, and remanded, finding that Benoit was personally liable for the debt of Davenport, and that her personal liability was “limited to the lesser of the face amount of the collateral mortgage note and the amount owed in connection with the hand note.” In reversing the court of appeal, the Louisiana Supreme Court held that absent some additional agreement, the maker of a collateral mortgage note is not personally liable beyond the value of the mortgaged property when the collateral mortgage note is pledged to secure the debt of a third party. Diamond Services Corp. v. Benoit, 780 So. 2d 367, 381 (La. 2001).
About the Author
Jason R. Johanson.
Citation
76 Tul. L. Rev. 819 (2002)