Hibernia National Bank v. Keith Taylor and Joanne Taylor

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

04-1668

HIBERNIA NATIONAL BANK

VERSUS

KEITH TAYLOR AND JOANNE TAYLOR

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APPEAL FROM THE
TWELFTH JUDICIAL DISTRICT COURT
PARISH OF AVOYELLES, NO. 2002-4177B
HONORABLE WILLIAM J. BENNETT, DISTRICT JUDGE

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J. DAVID PAINTER
JUDGE

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Court composed of Ulysses G. Thibodeaux, Chief Judge, J. David Painter, and James
T. Genovese, Judges.

REVERSED.

Rodney M. Rabalais
P.O. Box 447
Marksville, LA 71351
Counsel for Plaintiff-Appellee
Hibernia National Bank

Jerold Edward Knoll
P.O. Box 426
Marksville, LA 71351
Counsel for Defendants-Appellants
Keith Taylor and Joanne Taylor

PAINTER, Judge.

The Defendants, Keith and Joanne Taylor, appeal the trial court’s judgment

which ruled that they were indebted to the Plaintiff, Hibernia National Bank

(“Hibernia”) as the result of a payment made by Hibernia to the Farmers Home

Administration/Farm Service Agency (“FSA”). We reverse, finding that the Taylors’

debt to FSA was discharged in bankruptcy and that no valid reaffirmation agreement

was entered allowing Hibernia to pay the discharged debt.

FACTS

Keith and Joanne Taylor farmed and lived on property in Avoyelles Parish,

Louisiana. In 1990, they executed a Collateral Mortgage in favor of Hibernia

National Bank secured by more than twenty-six acres of property, and in 1996 they

executed a Multiple Indebtedness Mortgage in favor of Hibernia secured by more

than thirteen acres of property. Additionally, Hibernia held a first mortgage on some

farm equipment. FSA held a second mortgage on that same equipment. However,

FSA held the first mortgage on a John Deere tractor on which Hibernia held the

second mortgage. In March 2001, the Taylors sold the John Deere tractor for

$50,000.00. Because of FSA’s security interest, the check paying for the tractor was

made out to Keith Taylor and FSA. Taylor took the check to FSA where, apparently

believing that Hibernia held the first mortgage on the tractor as it did on the other

equipment, a representative of FSA endorsed the check without recourse and

instructed Taylor to take the check to Hibernia. He did so, and Hibernia credited his

account in that amount. On April 6, 2001, Hibernia wrote to the Taylors informing

them that the $50,000.00 payment should have been made to FSA, asking them to

come in and discuss that matter and stating: “If I do not hear from you within 10

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[days] from the date of this letter, or the 16th of April, 2001, I will have no alternative

but to pay Farm Service Agency as the legal records indicate their position on this

transaction.” This payment had not been made by August 6, 2001, when FSA wrote

to Hibernia asking that Hibernia reimburse the $50,000.00. On October 2, 2001, FSA

wrote to the Taylors demanding payment of the $50,000.00 or replacement of the

collateral.

The Taylors filed a petition for protection under Chapter 7 of the U.S.

Bankruptcy Code on November 19, 2001. In their schedules, they listed an unsecured

debt to FSA of $105,000.00 and debts to Hibernia including a secured debt of

$18,361.74. Also filed was a “Chapter 7 Individual Debtor’s Statement of Intention,”

which shows the debtors’ intention to reaffirm debts owed to Hibernia, including

those secured by the two mortgages, in return for retaining the collateral. The debt

to FSA is not included among those to be reaffirmed. At the hearing, Keith Taylor

testified that he reaffirmed certain debts to Hibernia; however, he denied reaffirming

a note for the $50,000.00. The record before us does not contain any documents

evidencing the reaffirmations. The record does not contain the proofs of claim filed

in the bankruptcy proceeding by Hibernia or FSA. On March 7, 2002, FSA again

demanded repayment of the $50,000.00 from Hibernia. On March 27, 2002, the

Taylors received their discharge in bankruptcy.

On June 5, 2002, Hibernia posted a $50,000.00 debit to the Taylors’ account

and the next day issued a check in that amount to FSA. On July 16, 2002, Hibernia

wrote to the Taylors’ attorney, as follows:

In connection with your clients the Taylors, there are several
problems with their bankruptcy. Although they filed a reaffirmation
agreement for the debt on their residence, the agreement was only signed
by Joanne and not by Keith. A copy of the defective reaff [sic] is

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attached.[1] Moreover, the mortgage securing the residence is a multiple
indebtedness mortgage, which secures all indebtedness of the debtors to
Hibernia. A copy of the mortgage is attached. Please refer to definition
of indebtedness.

In connection with their debt to Hibernia, in March 2001 the
Taylors sold a John Deere tractor and remitted the $50,000 proceeds to
Hibernia per Hibernia’s perfected security interest in the Taylor’s
equipment. See copy of UCC-1 and Commercial Security Agreement.
At the time of the payment, however, Hibernia had released this
particular piece of equipment from its security agreement. Accordingly,
the FSA had a first lien on the tractor. In March 2002, the FSA made
demand on Hibernia for a return of these funds. A copy of the FSA
letter is attached. In June 2002, after reviewing all the documents,
Hibernia returned the $50,000 to FSA Copy of check attached.

At this point it is Hibernia’s position that if the Taylors want to
keep their residence, they will have to include the $50,000 debt in their
mortgage debt. Please review this matter with your clients and advise
how you wish to proceed.

On July 26, 2002, Hibernia made formal demand on FSA for return of the

$50,000.00. Finally, in November 2002, Hibernia filed an “In Rem Petition for

Executory Process” and attempted to seize and sell the property described in the

Collateral Mortgage and the Multiple Indebtedness Mortgage. The Taylors answered

contesting the amounts owed. They further reconvened for wrongful seizure. A

hearing was held to determine the amounts owed, and the court rendered judgment

setting out the amounts owed to Hibernia by the Taylors and, in particular, found that

the Taylors owed Hibernia the $50,000.00 that Hibernia paid to FSA. The Taylors

appeal only the ruling with regard to the $50,000.00.

DISCUSSION

The pivotal events in this matter are the bankruptcy proceeding filed by the

Taylors and the discharge subsequently received by them. A discharge in bankruptcy

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No copy of this reaffirmation was attached to the letter made part of the record.

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“discharges the debtor from all debts that arose before the date of the order for relief.”

11 U.S.C. § 727. See also 11 U.S.C. § 523.

There is no question that, at the time they filed for bankruptcy, the Taylors still

owed the contested $50,000.00 to FSA. Hibernia received the proceeds of the sale

of the tractor, and the Taylors did not receive credit for that amount from FSA. The

documents and testimony before us lead us to conclude that the $50,000.00 at issue

was included in the amount listed in the schedules as owed to FSA. At the time of the

filing, this matter was, essentially, a problem between the two creditors as to the

proper distribution of the proceeds of the sale of the tractor. Both Hibernia and FSA

were aware of the problem before the bankruptcy filing, during the proceedings in the

bankruptcy court and prior to discharge. Both had the means and the opportunity to

bring the matter to the attention of the bankruptcy court, where it could have been

appropriately resolved. The record does not contain a proof of claim or other

proceeding of the bankruptcy court which would lead us to believe that the matter

was brought to the attention of the bankruptcy court. Further, there is no suggestion

that the debt to FSA was reaffirmed. Therefore, it appears that the Taylors’ debt to

FSA was discharged.

While Keith Taylor testified that he had reaffirmed certain debts, he denied

having reaffirmed the note onto which the $50,000.00 was added by Hibernia after

they sent that amount back to FSA. He testified that the account had a zero balance

at the time of the discharge. This is supported by the transcript of that account

introduced into evidence at trial. It showed a zero balance on August 13, 2001, and

it was not until June 6, 2002, that a new amount of $50,000.00 was charged to the

account. This new charge was not made until over two months after the Taylors’

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discharge in bankruptcy. Taylor also testified that he never authorized Hibernia to

pay the $50,000.00 to FSA and that he never asked for a loan to make that payment.

Even if Taylor had signed a reaffirmation at the time Hibernia sent payment to

FSA, it could not be given effect. Under 11 U.S.C. § 524(c) agreements for

reaffirmation must be made prior to discharge. The court in Bankr. Receivables

Mgmt. v. Lopez (In re Lopez), 345 F.3d 701 (9th Cir. 2003), cert. denied, 124 S. Ct.

2015,___ U.S. ___ (2004), discussed a situation where a secured debt was assigned

to a third party during a bankruptcy proceeding. The debtors secured a discharge

without reaffirming the debt. After discharge, the assignees of the debt contacted the

debtors and demanded either the return of the collateral or that the debtors pay the

debt back in installments. The court in that case explained:

In [Renwick v.] Bennett, [(In re Bennett), 298 F.3d 1059, 1067-68 (9th
Cir. 2002)] former law partners sued each other over the proper
interpretation of a post-discharge settlement agreement, where the
parties agreed to pay a debt discharged in bankruptcy in exchange for a
release of one partner’s claims against the other. Id. at 1063. The court
observed that Congress amended the Bankruptcy Code in 1978 by
adding § § 524(c) and (d) to address the problem of post-bankruptcy
attempts to enforce pre-bankruptcy obligations in non-bankruptcy
forums using non-bankruptcy law. Id. at 1066. The court held that a
post-petition agreement to repay a discharged debt is not a valid
reaffirmation agreement under § 524(c) if the consideration offered by
the debtor is the repayment of the discharged debt. Id. at 1067. Since
the consideration for the release was repayment of the discharged debt,
the agreement amounted to an attempted reaffirmation. Id. The fact that
one partner allegedly offered new consideration was inconsequential.
Id. Consequently, the contract claim was barred under §524(a). Id. at
1068.

Id. at 708-09

As in the case sub judice, the creditor in Lopez sought to argue that their claim

was enforceable as they were seeking to enforce it only in rem. The court rejected

that argument saying:

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BRM seeks to distinguish Bennett, which involved an unsecured
debt, by arguing that the consideration here was not based "in part" on
the discharged debt, but rather on BRM's in rem rights in the collateral.
The same might be said of every secured reaffirmation agreement. Any
creditor could claim in rem rights in the collateralization and thereby
vitiate the protections of § 524(c).

Id.

We find Hibernia’s argument in this regard similarly unpersuasive.

In the absence of a valid reaffirmation providing for payment of the debt, we

surmise that the reaffirmation, if any, contained no language allowing Hibernia to

include the debt in its post-discharge collection proceedings. As in Lopez, “[t]he

agreement was not ‘made before the granting of the discharge,’ pursuant to § 524(c),

and therefore is unenforceable, with or without new consideration.” Id. at 710.

Accordingly, we find that Hibernia has no right against the Taylors for the $50,000.00

which it paid to FSA.

Accordingly, the judgment of the trial court in this regard is reversed. Costs

of this appeal are to be paid by Hibernia.

REVERSED.

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