Case Name: TALLULAH PRODUCTION CREDIT ASSOCIATION, Appellant, v. J. C. TURNER, Appellee; Ruth P. TURNER, Appellee, v. Jimmie C. TURNER et ux., Appellee
Court: Louisiana Court of Appeal
Jurisdiction: Louisiana
Decision Date: 1980-12-02
Citations: 391 So. 2d 885
Docket Number: Nos. 14294, 14295
Parties: TALLULAH PRODUCTION CREDIT ASSOCIATION, Appellant, v. J. C. TURNER, Appellee. Ruth P. TURNER, Appellee, v. Jimmie C. TURNER et ux., Appellee.
Judges: Before PRICE, HALL, MARVIN, JASPER E. JONES and FRED W. JONES, Jr., JJ.
Reporter: Southern Reporter, Second Series
Volume: 391
Pages: 885–894

Head Matter:
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.

Opinion:
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.
. 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:*** "