Case Name: Andrew PAYTON v. Wendell COLAR, et al.
Court: Louisiana Court of Appeal
Jurisdiction: Louisiana
Decision Date: 1987-12-15
Citations: 518 So. 2d 1104
Docket Number: No. CA-7200
Parties: Andrew PAYTON v. Wendell COLAR, et al.
Judges: Before GULOTTA, C.J., and GARRISON and WARD, JJ.
Reporter: Southern Reporter, Second Series
Volume: 518
Pages: 1104–1111

Head Matter:
Andrew PAYTON v. Wendell COLAR, et al.
No. CA-7200.
Court of Appeal of Louisiana, Fourth Circuit.
Dec. 15, 1987.
Rehearing Denied Jan. 14, 1988.
William W. Rosen, Levy, Marx, Lucas & Rosen, New Orleans, for appellant.
Roch P. Poelman, Hebert, Mouledoux & Bland, New Orleans, for appellees.
Before GULOTTA, C.J., and GARRISON and WARD, JJ.

Opinion:
GULOTTA, Chief Judge.
Plaintiff appeals from a judgment dismissing his rule to calculate and compel the payment of the remaining balance due on a partially paid personal injury judgment. The issue to be decided is whether funds deposited as partial payment by a judgment debtor are to be first applied to principal or interest. Because LSA-C.C. Art. 1866 provides that, in the absence of the obligee's consent, the obligor of an interest bearing debt may not impute payment to the principal when interest is due, we conclude that partial payments by the judgment debtor must be applied first to reduce outstanding judicial interest before they can reduce the principal amount of the judgment.
In October, 1984, plaintiff recovered a personal injury judgment against Wendell A. Colar, New 77 Club, Inc., and Insurors Indemnity and Insurance Company, in soli-do, in the sum of $711,000.00 plus costs and interest from date of judicial demand (February 21, 1979). On February 4, 1985, the defendant insurer delivered to plaintiff's attorney a check for $305,610.00. This check was offered under the terms of "payment in full" and represented the insurance policy limits plus post judgment interest on the total judgment. Plaintiff's attorney rejected the amount as full settlement and returned the check. On March 1, 1985, defendant deposited $305,610.00 in the registry of the court. On April 9, 1985, plaintiff filed a "Motion to Withdraw the Funds from the Registry of the Court", stating that there was a substantial dispute about other funds being due in excess of the amount deposited. Pursuant to an order on April 12, 1985, plaintiff withdrew the funds.
On May 12,1986, in Payton v. Colar, 488 So.2d 1271 (La.App. 4th Cir.1986), writ denied 494 So.2d 332 (La.1986), this court held that Insurors Indemnity was liable in solido with other defendants to the plaintiff for the full amount of the judgment of $711,-000.00, plus interest from the date of the judicial demand and all costs. After writs were denied by the Supreme Court, the defendant insurer tendered $931,586.30 to plaintiff, who refused to accept this amount as full satisfaction. On October 15, 1986, defendant filed a motion to deposit the funds in the registry of the court, and on that same day plaintiff withdrew the funds.
On October 28, 1986, plaintiff filed a "Rule to Compel Satisfaction of Judgment and Calculate and Assess Interest". In this rule, plaintiff disputed the "calculation and application of funds" paid by the insurer, and asked for the principal amount of $56,735.93, plus interest, which plaintiff contended was the remaining balance still unpaid. Without written reasons, the trial judge dismissed the rule with prejudice.
Appealing, plaintiff contends that under LSA-C.C. Art. 1866 all payments made to an interest bearing debt must first be applied to interest unless otherwise agreed to by the obligee. According to plaintiff, when defendant deposited the $305,610.00 into the registry of the court on March 1, 1985, the amount of judicial interest due at that time was $444,335.98. Plaintiff argues that the $305,610.00 payment should have first been applied to satisfy the interest, leaving $138,725.89 in interest and the entire $711,000.00 principal still unpaid after the partial payment. As a result, plaintiff contends that until defendant deposited $931,586.30 in the court registry, interest continued to be calculated on the $711,-000.00 judgment. Furthermore, according to plaintiff, after the $931,586.30 payment was made, the full amount of interest owed at the time of payment was satisfied, and the principal was reduced to $56,735.93.
Plaintiff thus argues that defendant still owes that judgment balance plus interest from date of judicial demand, costs, and attorney's fees.
On the other hand, defendant contends that when a debtor makes a good faith tender of an undisputed portion of a judgment to a plaintiff, the plaintiff is not entitled to recover legal interest on the amount tendered after it has been either presented to plaintiff or deposited in the court's registry. Because the insurer never disputed that it was liable for at least $300,000.00 of the judgment principal, plus post judgment interest, defendant argues that its initial tender of $305,610.00 was in good faith, and that the deposit of that amount in the court registry reduced the judgment principal to $411,000.00 and the interest by $5,610.00. Defendant contends that after the March 1, 1985 deposit, interest is calculated on $411,000.00 of the judgment principal. According to defendant, the subsequent payment of $931,586.30 fully satisfied all outstanding principal and interest, and the trial judge properly dismissed plaintiff's rule for additional interest. We disagree.
LSA-C.C. Art. 1866, relied on by plaintiff, provides as follows:
An obligor of a debt that bears interest may not, without the obligee's consent, impute a payment to principal when interest is due.
A payment made on principal and interest must be imputed first to interest.
This article is found in Title III of Book III of the Civil Code, which is entitled "Obligations in General". LSA-C.C. Art. 1757, which is also included in Title III, provides that obligations can arise from contracts as well as from the law, as in instances of wrongful acts. Thus, an offense or quasi offense under LSA-C.C. Arts. 2315 et seq. creates an obligation on the part of the wrongdoer in favor of the injured party.
It is well settled that an obligation, when reduced to judgment, is merged therein and no longer exists as a distinct obligation, but it is deemed as having acquired the status of the thing adjudged. Sailing Wiping Cloth Co. v. Sewell, Inc., 419 So.2d 112 (La.App. 2nd Cir.1982); Glazer Steel Corp. v. LaRose Shipyard, Inc., 372 So.2d 250 (La.App. 1st Cir.1979); Agricultural Enterprises, Inc. v. Morgan, 147 So.2d 40 (La.App. 2nd Cir.1962); Mackee v. Cairnes, 2 Mart., M.S. 599 (1824); Abat v. Buisson, 9 La. 417 (1836); West Feliciana Railroad Co. v. Thornton, 12 La.Ann. 736 (1857); The Citizens Bank of Louisiana v. Hancock, 35 La.Ann. 41 (1883); Lalanne v. Payne, 42 La.Ann. 152, 7 So. 481 (1890); Cassiere v. Cuban Coffee Mills, 225 La. 1003, 74 So.2d 193, (1954). Likewise, a debt reduced to a judgment also acquires the status of the thing adjudged. Cassiere v. Cuban Coffee Mills, supra; Mackee v. Caimes, supra; Abat v. Buisson, supra; West Feliciana R. Co. v. Thornton, supra; Citizens Bank of Louisiana v. Hancock, supra; Lalanne v. Payne, supra. LSA-C. C. Art. 2924, which is also found in Book III of the Civil Code, defines "judicial interest" as legal interest on a sum that is the object of a judicial demand.
Reading these codal provisions in pari materia, we conclude that a tort judgment bearing judicial interest is a "debt that bears interest" within the meaning of LSA-C.C. Art. 1866 and that a judgment debtor may not, without the obligee's consent, impute a payment to principal when interest is due. Thus, a partial payment on a tort judgment must be imputed first to judicial interest before it can be applied to reduce the principal amount of the judgment.
In Lambert v. Cronvich, 373 So.2d 554 (La.App. 4th Cir.1979), writ denied 376 So. 2d 960 (La.1979), we applied former LSA-C.C. Art. 2164, the precursor to present LSA-C.C. Art. 1866, to a money judgment rendered on promissory notes that contained specific provisions for interest and attorney's fees. In Lambert, the trial judge applied partial credits to reduce the principal amount of the judgment. Although we agreed with the application of certain credits, we amended the judgment after concluding that the credits should be applied in accordance with LSA-C.C. Art. 2164, i.e., if the payment does not extinguish both interest and principal, it should be applied to the interest first. Thus implicit in Lambert was a conclusion that a money judgment containing interest is a debt bearing interest within the meaning of the codal article. Applying the Lambert rationale, we conclude that LSA-C.C. Art. 1866 applies to the money judgment in our case, even though we are dealing with a tort judgment rather than a judgment on a promissory note.
Having determined that LSA-C.C. Art. 1866 applies in the instant case, we conclude that the payment made by defendant on March 1, 1985 should have first been applied to satisfy the interest owed, and the remainder, if any, applied to reduce the principal. According to our calculations set out below, the $305,610.00 did not reduce the principal but merely reduced the interest owed on March 1, 1985. Consequently, Insurors Indemnity still owes plaintiff the remaining judgment principal of $57,538.60 plus judicial interest until paid. Our calculations are as follows:
Interest at 7%
February 21, 1979-September 11, $ 77,588,84
1980
569 Days
Interest at 10%
September 12, 1980-September 10, 70,903.66
1981
364 Days
Interest at 12%
September 11, 1981-March 1, 1985 296,395.00
1,268 Days
INTEREST DUE AS OF MARCH $444,887.40 1, 1985
Payment by defendant to Registry of the Civil District Court, March 1,
1985 (305,610.00)
Interest at 12% (continued)
March 2, 1985-October 16, 1986 138,847.50
594 Days
TOTAL INTEREST DUE AS OF $278,124.90 OCTOBER 16, 1986
Plus Principal $711,000.00
SUB TOTAL $989,124.90
Paid to Registry, Civil District Court [applied to interest first — LSA-C.C. ($931,586.30)
1866]
BALANCE OF PRINCIPAL DUE $ 57,538.60
Although the cases relied on by defendant do apparently stand for the proposition that judicial interest ceases to run upon an amount tendered in partial payment of a judgment, none of the cited opinions discusses LSA-C.C. Art. 1866 or its precursor, former LSA-C.C. Art. 2164, which specifically provides that a partial payment must be credited first to interest before it can be applied to reduce the principal.
In Schmidt v. Holmes, 487 So.2d 577 (La.App. 4th Cir.1986), one of two solidary judgment debtors forwarded a check for his one half virile share of the tort judgment including interest and costs. The plaintiffs in Schmidt refused to accept the payment on the grounds that they were entitled to full satisfaction of the judgment from either or both of the solidary judgment debtors and that the acceptance would prejudice their rights to the full satisfaction of the judgment. The debtor then sent a letter to the plaintiff stating that it was not its intention that plaintiffs should waive any rights to ultimately collect the full judgment against them in the event the other debtor would not be able to pay. Two months later, after the second solidary debtor tendered its one-half of the total judgment principal plus costs and interest, the plaintiffs then accepted the earlier tender by the first obligor. Because the first debtor's tender did not include the interest accrued from the original date of that tender to the date of the second debt- or's tender, plaintiffs thereafter filed a "Rule to Compel Satisfaction of Judgment and To Assess Interest against Defendant". The trial court in Schmidt dismissed plaintiffs' claims for the additional interest, and we affirmed the trial court's decision.
By allowing a solidary debtor to pay less than the full amount of a judgment and thereby interrupt the accrual of interest on the amount paid, Schmidt and the cases there directly conflict with our interpretation and application of LSA-C.C. Art. 1866 in the instant case. The Schmidt opinion is silent as to LSA-C.C. Art. 1866, however, and an argument based on this codal article was apparently not presented to the court. Nonetheless, to the extent that our earlier opinion conflicts with our reasoning in the instant case, we hereby overrule Schmidt.
CLAIM FOR PENALTY AND ATTORNEY'S FEES ,
Plaintiff further contends that the defendant insurer should be required to pay a 10% penalty of the total judgment and reasonable attorney's fees under LSA-R.S. 22:658, because it did not tender the full interest "undisputably due". In support of his contention, plaintiff argues that the insurer has acted in bad faith in violation of a State policy that interest is due from the date of judicial demand.
LSA-R.S. 22:658(A) provides:
All insurers issuing any type of contract, other than those specified in R.S. 22:656 and R.S. 22:657, shall pay the amount of any claim due any insured, including any employee under Chapter 10 of Title 23 of the Revised Statutes of 1950, within sixty days after receipt of satisfactory proofs of loss from the insured, employee, or any party in interest.
Insofar as the above statute refers only to a claim between an insured and his own insurer, it does not apply in the instant case between an injured plaintiff and the defendant tortfeasor's liability insurer. We therefore deny plaintiff's request for additional penalties and attorney's fees.
Accordingly, the judgment is reversed and set aside. Judgment is now rendered ordering defendant, Insurers Indemnity and Insurance Company, to pay plaintiff the sum of $57,538.60, plus interest from date of judicial demand (February 21, 1979), and all costs.
REVERSED AND RENDERED.
BARRY, J., concurs and would distinguish Schmidt v. Holmes from Payton v. Colar.
KLEES, J., dissents in part from the Court's En Banc decision to overrule the Schmidt opinion.
LOBRANO, J., dissents in part for the reasons expressed by KLEES, J.
. LSA-C.C. Art. 1757 provides:
Obligations arise from contracts and other declarations of will. They also arise directly from the law, regardless of a declaration of will, in instances such as wrongful acts, the management of the affairs of another, unjust enrichment and other acts or facts.
. LSA-C.C. Art. 2924 provides, in pertinent part:
A. Interest is either legal or conventional.
B. (1) Legal interest is fixed at the following rates, to wit:
(a)At twelve percent per annum on all sums which are the object of a judicial demand, whence this is called judicial interest; and
(2) The rate of judicial interest resulting from a lawsuit pending or filed during the indicated periods shall be as follows:
(a) Prior to September 12, 1980, the rate shall be seven percent per annum.
(b) On and after September 12, 1980, until September 11, 1981, the rate shall be ten percent per annum.
(c) On and after September 11, 1981, the rate shall be twelve percent per annum.
. LSA-C.C. Art. 2164 provides that:
"The debtor of a debt, which bears interest or produces rents, cannot, without the consent of the creditor, impute to the reduction of the capital any payment he may make, when there is interest or rent due.
"Every payment which does not distinguish both the principle and the interest must be imputed first to the payment of the interest."
. Schmidt v. Holmes, 487 So.2d 577 (La.App. 4th Cir. 1986); Williams v. Hanover Insurance Company of New York, 351 So.2d 858 (La.App. 2nd Cir. 1977); Boudreaux v. Riley Buick, Inc., 415 So.2d 970 (La.App. 2nd Cir. 1982); Carlyon v. Aetna Casualty and Surety Company, 413 So.2d 1355 (La.App. 3rd Cir. 1982), and Mamou Farm Service, Inc. v. Hudson Insurance Company, 488 So.2d 259 (La.App. 3rd Cir.1986).
. In accordance with our internal rules, our opinion in the instant case has been submitted to all judges of this court, and a majority of them have voted to overrule the Schmidt decision.