Court Opinion

ID: 8408066
Source: CourtListenerOpinion
Date Created: 2022-11-02 16:38:29.498666+00
Date Added: 2024-06-11T16:47:32.259446
License: Public Domain

EMILIO M. GARZA, Circuit Judge,
specially concurring:
I agree with the majority opinion that the district court’s dismissal of Advanta’s conversion claim on the basis of the vendor’s right of dissolution was erroneous. However, I cannot agree with the majority opinion that, to resolve this matter, we need only look to the Louisiana Civil Code (the “Civil Code”). On the contrary, Chapter 9 of the Louisiana Commercial Laws (“Chapter 9”), Louisiana’s version of UCC Article 9, controls the outcome of this case. Accordingly, I concur in the judgment only.
The majority opinion attempts to avoid the question at hand — whether Sugar-land’s rights under Articles 2013, 2016, and 2549 of the Civil Code, providing that a seller may, on its own initiative and without judicial authorization, deem a contract *526dissolved if the buyer fails to pay the agreed-upon purchase price,1 conflict with Advanta’s rights as a good faith purchaser of chattel paper under the particular provisions of Chapter 9 dealing with sales of chattel paper and the priority of a chattel paper purchaser. To avoid answering this question, the majority opinion reasons that, under Article 2021 of the Civil Code, Advanta retains the rights in the RICs it acquired from Argo even if Sugarland was entitled to regard the assignment agreement between Sugarland and Argo as dissolved. The problem with this reasoning is that Article 2021 simply cannot apply where, as here, the contract at issue was never dissolved. Article 2021 provides that “[dissolution of a contract does not impair the rights acquired through an onerous contract by a third party in good faith.” La. Civ.Code Art.2021 (emphasis added). From its plain text it is clear that, for Article 2021 to apply, there must first be a dissolved contract.2 However, contrary to Sugarland’s contention, the assignment agreement at issue in this case— a credit sale between Sugarland and Argo — was never dissolved. Even though Articles 2013, 2016, and 2549 of the Civil Code generally permit a seller (such as Sugarland), on its own initiative and without judicial authorization, to deem a contract dissolved if a buyer (such as Argo) fails to pay the agreed-upon purchase price, the specific provisions of Chapter 9 dealing with sales of chattel paper and the priority of a chattel paper purchaser (discussed below) precluded Sugarland from unilaterally and extrajudicially dissolving the assignment agreement between it and Argo once Advanta had already purchased the RICs from Argo in good faith.
In the context of this case, the specific provisions of Chapter 9 not only protect Advanta’s ownership interest in the RICs against the competing claims of Argo’s creditors, including Sugarland, but also displace the more general Civil Code provisions, found at Articles 2013, 2016, and 2549, addressing a seller’s ability to unilaterally and extrajudicially deem a contract dissolved if the buyer fails to pay the agreed-upon purchase price. Under Chapter 9, the assignment agreement between Sugarland and Argo was a “true sale” of chattel paper, passing title in the RICs to Argo. See La. R.S. 10:9 — 109(e) (providing that the parties’ characterization of a transaction as a sale of chattel paper is conclusive that the transaction is a “true sale” and that title has passed to the party characterized as the purchaser, regardless of any other term of the parties’ agreement); La. R.S. 10:9-318(a) (providing that a seller of chattel paper retains no legal or equitable interest in the chattel paper sold).3 And, by paying for and taking possession of the RICs from Argo, *527Advanta perfected a Chapter 9 security interest in the RICs, thereby protecting its rights in the chattel paper from the competing rights of Argo’s creditors, including Sugarland.4 Even assuming, arguendo, that Sugarland acquired a security interest in the RICs,5 Sugarland failed to perfect its security interest by retaining possession of the RICs pending Argo’s payment or by filing a UCC-1 financing statement. See La. R.S. 10:9-313(a) (“possession” perfection of a security interest in chattel paper); La. R.S. 10:9-312(a) (“filing” perfection of a security interest in chattel paper). Thus, Advanta’s perfected security interest in the RICs trumps any unperfected security interest Sugarland might have acquired. See La. R.S. 10:9-322(a)(2) (perfected security interest has priority over an unperfected security interest of a competing creditor).6 Because these particular provisions of Chapter 9 specifically address the sale of chattel paper and the priority of a good faith purchaser’s rights in the purchased chattel paper over the competing claims of the seller’s creditors, they displace — in this context — the more general provisions of the Civil Code, found at Articles 2013, 2016, and 2549, providing *528that a seller may, on its own initiative and without judicial authorization, deem a contract dissolved if the buyer fails to pay the agreed-upon purchase price. See La. R.S. 10:1-103 (“Unless displaced by the particular provisions of this Title, the other laws of Louisiana shall apply.”); La. R.S. 9:3192 (providing that, “[i]n the case of conflict between the provisions of Title VII of Book III of the Civil Code, governing sales and any provisions of any special legislation, such as those contained in Titles 9 and 10 [the Louisiana UCC] of the Louisiana Revised Statutes of 1950 ... the latter shall prevail with regard to transactions subject thereto.”).7 Thus, Sugarland can not now claim that, even though Advanta purchased the RICs from Argo in good faith, Sugarland was entitled to unilaterally and extrajudicially deem the assignment agreement between it and Argo to be dissolved simply because Argo failed to pay it the agreed-upon purchase price.8
For the foregoing reasons, I cannot agree with the majority opinion that, under Article 2021 of the Civil Code, Advanta retains the rights in the RICs that it acquired from Argo even if Sugarland was entitled to regard the assignment agreement between it and Argo as dissolved. Chapter 9 governs whether the assignment of RICs between Sugarland and Argo was effectual, and its specific provisions dealing with sales of chattel paper and the priority of a chattel paper purchaser precluded Sugarland from extrajudicially and unilaterally dissolving the assignment agreement between it and Argo once Advanta had already purchased the RICs from Argo in good faith.

.See La. Civ.Code Art. 2013 ("When the obligor fails to perform, the obligee has a right to the judicial dissolution of the contract or, according to the circumstances, to regard the contract as dissolved. In either case, the obligee may recover damages. In an action involving judicial dissolution, the obligor who failed to perform may be granted, according to the circumstances, an additional time to perform.”); La. Civ.Code Art. 2016 ("When a delayed performance would no longer be of value to the obligee or when it is evident that the obligor will not perform, the obligee may regard the contract as dissolved without any notice to the obligor.”); La. Civ.Code Art. 2549 ("The buyer is bound to pay the price and to take delivery of the thing.”).

. As the majority opinion correctly acknowledges, Article 2021 "assumes the dissolution and addresses its consequences.”

. Both parties agree that the RICs in question are "chattel paper” under Chapter 9 of the Louisiana UCC. See La. R.S. 10:9-102(a)(ll) (defining "chattel paper” as "a record or records that evidence both a monetary obligation and a security interest in specific goods....”).

. Sugarland became Argo’s creditor by virtue of its agreement to assign the RICs to Argo on a deferred payment basis, a transaction that is treated as a completed credit sale under Louisiana law. See Succession of Dunham, 408 So.2d 888, 896-97 (La.1981) (explaining that, under Louisiana law, a conditional sale is treated as a completed credit sale, "in which ownership of the object of the sale passes at the time the contract is entered into”); see also In re Wallace Lincoln-Mercury, 469 F.2d 396, 402 (5th Cir.1972) (" '[Ujnder Lousiana law, a conditional sale whereby title is retained in the vendor is legally impossible, so the courts respect the contract but ignore the provision retaining title in the vendor.' ”) (quoting Morelock v. Morgan & Bird Gravel Co., 174 La. 658, 141 So. 368, 374 (1932)). As a result of this credit sale, Argo acquired rights in the RICs that are enforceable under Chapter 9 of the Louisiana UCC. See La. R.S. 10:9-109(e); La. R.S. 10:9-318(a). Likewise, when Advanta purchased the RICs from Argo, Advanta acquired rights in the RICs that are enforceable under Chapter 9. See La. R.S. 10:9-109(e); La. R.S. 10:9-318(a). As a good faith purchaser of the RICs, Advanta perfected its security interest in the RICs by taking possession of the signed originals, which were delivered to Advanta by Argo. See La. R.S. 10:9-313(a) (providing for "possession” perfection of a security interest in chattel paper).

. Arguably, the understanding between Sugarland and Argo, which made the initial sale of the RICs contingent upon Argo’s payment of the purchase price, amounts to Argo's grant to Sugarland of a UCC security interest in the purchased RICs. Under La. R.S. 10:1-201(37), a seller's reservation of title to, or rights in, the purchased personal (movable) property, conditioned on the buyer's payment of the purchase price, may amount to the grant of an Chapter 9 security interest. However, as explained above, the transaction at issue was a "true sale” of chattel paper transferring title in the RICs to Argo under La. R.S. 10:9-109(e).

.According to Sugarland, the enforceability of Advanta’s security interest in the RICs depends on the enforceability of the underlying principal obligation, since a security interest is generally considered to be an "accessory” obligation under the Louisiana Civil Code. On the contrary, the security interest of a chattel paper purchaser is not an "accessory” obligation, since it does not secure a debt or performance obligation. See La. Civ.Code. art. 1913 ("A contract is accessory when it is made to provide security for the performance of an obligation. Suretyship, mortgage, pledge, and other types of security agreements are examples of such a contract.”). Rather than securing a debt or performance obligation, a sale of chattel paper transfers title and ownership from the seller to the purchaser. See La. R.S. 10:9-109(e). Thus, Advanta's ownership interest in the RICs is not a secured interest in the traditional sense. See id. To conclude otherwise is to overlook that the Louisiana UCC draws a distinction between a chattel paper purchaser’s security interest and a traditional security interest in personal properly securing payment or performance of an obligation. See La. R.S. 10:1-201(37).

. The majority opinion notes, in a footnote, that "the district court's conclusion that the vendor’s right of dissolution does not conflict with any specific provision of Chapter 9 finds support in the writings of Louisiana's leading property law scholar.” On the contrary, the section of the property law treatise cited by the majority opinion addresses only an unpaid vendor’s right to demand judicial dissolution of a contract under Article 2561. See A.N. Yiannopoulos, Property § 233 n. 5 in La. Civ. Law Treatise (4th ed. 2001)(making clear that the "vendor's right of dissolution” discussed in § 233 is the right to seek judicial dissolution, governed by La. Civ.Code. arts. 2561-2564). The majority opinion cites to no authority or case addressing an unpaid vendor’s right to extrajudicially and unilaterally dissolve a contract under Articles 2013, 2016, and 2549 of the Civil Code, the articles which were cited by the district court as its basis for its summary-judgment dismissal of Advanta’s tort claim against Sugarland.

. Sugarland also contends that, under § 9-404(a) of the Louisiana UCC, Advanta’s rights in the RICs are subject to any defense or claim arising from the transactions giving rise to the RICs, including Sugarland's defense that its assignments to Argo are dissolved because of Argo’s failure to pay the purchase prices for each. See La. R.S. 10:9-404(a). Sugarland's reliance on § 9-404(a) is in error. That section provides that "an assignee generally takes an assignment subject to the defenses and claims of an account debtor.” La. R.S. 10:9-404 cmt. 2. In other words, § 9-404(a) applies to claims and defenses an account debtor (the party obligated under an account or chattel paper) can assert against an assignee (the purchaser of accounts and chattel paper). See id. Here, Sugarland is not an account debtor; the Payment Obligors are the only account debtors. Therefore, § 9-404(a) of the Louisiana UCC has no application to Sugarland’s rights vis-a-vis Advanta, the second purchaser of the RICs.