Wmc Mortgage Corporation v. Donna Louise Weatherly

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

07-0075

WMC MORTGAGE CORPORATION

VERSUS

RAYMOND EUGENE WEATHERLY AND
DONNA LOUISE WEATHERLY

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APPEAL FROM THE
FOURTEENTH JUDICIAL DISTRICT COURT,
PARISH OF CALCASIEU, NO. 2003-5474
HONORABLE G. MICHAEL CANADAY, DISTRICT JUDGE

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JIMMIE C. PETERS
JUDGE

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Court composed of Ulysses G. Thibodeaux, Chief Judge, Jimmie C. Peters, and
Elizabeth A. Pickett, Judges.

REVERSED.

Charles Schrumpf
Schrumpf & Schrumpf, PLC
3801 Maplewood Drive
Sulphur, LA 70663
(337) 625-9077
COUNSEL FOR PLAINTIFF/APPELLEE:
WMC Mortgage Corporation

Richard D. Moreno
E. R. Robinson, III
Robinson and Moreno, L.L.C.
One Lakeshore Drive, Suite 1135
Lake Charles, LA 70629
(337) 433-9535
COUNSEL FOR DEFENDANT/APPELLANT:
Donna Louise Weatherly

PETERS, J.

The defendant, Donna Louise Weatherly, appeals a trial court judgment

reforming a conventional mortgage and promissory note in favor of the plaintiff,

WMC Mortgage Corporation (WMC Mortgage), by judicially recognizing that her

separate property is encumbered by the conventional mortgage and that the

indebtedness evidenced thereby is a community debt even though she never executed

either instrument. For the following reasons, we reverse.

DISCUSSION OF THE RECORD

The facts surrounding the events leading up to this litigation are generally not

in dispute and begin with the marriage of Donna Louise Weatherly and Raymond

Eugene Weatherly on May 7, 1982. Almost twelve years later, on March 14, 1994,

Mrs. Weatherly acquired full ownership of a tract of immovable property located in

Section 27, Township 10 South, Range 9 West, in Calcasieu Parish, Louisiana. There

exists no dispute over the fact that the property is Mrs. Weatherly’s separate property.

Despite its separate status, Mr. and Mrs. Weatherly used the property as

security for a loan from Southern Mortgage Company (Southern Mortgage) in

October of 1996, when both executed a conventional mortgage and promissory note

in favor of Southern Mortgage. The transaction occurred on October 15, 1996, with

the property being used as security for a loan of $30,000.00.

On November 4, 1997, Mr. Weatherly executed a conventional mortgage and

promissory note in favor of WMC Mortgage using Mrs. Weatherly’s same separate

property. The difference between the WMC Mortgage transaction and the Southern

Mortgage transaction is that in the WMC Mortgage transaction, Mrs. Weatherly did

not sign the mortgage or the note. In exchange for Mr. Weatherly’s execution of the

conventional mortgage and note, WMC Mortgage loaned him $46,400.00, repayable

in monthly payments of $468.02. The Settlement Statement executed by Mr.

Weatherly reflects that after settlement charges totaling $6,811.80 were deducted

from the amount loaned, an additional $28,818.00 was disbursed to pay the holder of

the Southern Mortgage note.1 Other disbursements indicated by the Settlement

Statement included $3,243.00 to Bank One, $960.00 to Campo, $312.00 to K & B

Drugs, and $422.00 to an entity for child support. The remaining balance of

approximately $6,000.00 was disbursed directly to Mr. Weatherly.2 Mr. Weatherly

testified that he used the cash to pay Calcasieu Marine Bank the balance owned on

a loan which he had incurred to purchase a mobile home that he used as rental

property. According to Mr. Weatherly, the mobile home, which had been purchased

during his marriage to Mrs. Weatherly, burned and was not covered by insurance.

The Weatherlys initially made the monthly payments to WMC Mortgage as

required by the November 4, 1997 transaction, but discontinued payments sometime

in 2003.3 Coincidentally, the Weatherlys obtained a divorce on July 26, 2004.

Thereafter, when Mrs. Weatherly refused to agree to recognize that her separate

property was properly pledged as security for the loan obtained by her former

husband, WMC Mortgage brought the instant action to reform the mortgage and note

signed by Mr. Weatherly on November 7, 1997, to reflect that Mrs. Weatherly was

a party to the transaction, that she understood that her separate property was to be

1
The check drawn on the escrow account of the closing attorney reflects that the amount paid
to the mortgage holder was $29,245.56. However, this discrepancy does not affect the analysis of
the transaction.
2
Mr. Weatherly testified that he received $6,088.00 at closing. If he received this amount,
the Settlement Statement is not totally accurate. However, this discrepancy does not affect the
analysis of the transaction.
3
All payments to WMC Mortgage were made with community funds.

2

used as security for the loan, and that the proceeds were used to extinguish

community debts.

WMC Mortgage filed suit against both Mr. and Mrs. Weatherly on October 13,

2003, and the matter was tried in stages over a period of over more than one year.4

Upon completion of the evidence, the trial court issued written reasons for judgment

granting WMC Mortgage the relief it requested. After the trial court denied Mrs.

Weatherly’s motion for new trial, she perfected this appeal,5 asserting two

assignments of error:

1. The trial court erred by rendering judgment ordering the equitable
“reformation” of a conventional mortgage to add an owner-
spouse as a new mortgagor where the original mortgage was
executed only by a non-owner spouse over the owner-spouse [sic]
objections and where the lender specifically rejected its counsel’s
advice to have the owner spouse execute the mortgage.

2. The trial court erred by rendering judgment ordering the equitable
“reformation” of the related promissory note to add an owner-
spouse as a co-obligor where the original mortgage note was
executed only by a non-owner spouse over the owner-spouse [sic]
objections and where the lender specifically rejected its counsel’s
advice to have the owner spouse execute the mortgage note.

OPINION

We first recognize that because the property was Mrs. Weatherly’s separate

property, and Mr. Weatherly had no interest in the property, Mr. Weatherly had no

right to mortgage the property. Louisiana Civil Code article 3290 provides that “[a]

4
The first hearing occurred February 3, 2005; after taking some evidence, the matter was then
left open. The evidentiary portion of the trial was completed on June 2, 2005, and a final hearing
on a motion for new trial was held on April 13, 2006. The delay in completing the record relates
primarily to efforts by Mr. and Mrs. Weatherly to seek relief in the United States Bankruptcy Court
for the Western District of Louisiana.
5
Before completion of the trial, Mr. Weatherly was successful in obtaining relief in the
United States Bankruptcy Court for the Western District of Louisiana. Therefore, the judgment of
the trial court was rendered against Mrs. Weatherly only and she is the only party-appellant now
before this court.

3

conventional mortgage may be established only by a person having the power to

alienate the property mortgaged.” One cannot validly mortgage another person’s

property. State, Through Dep’t. of Transp. & Dev. v. Wahlder, 94-761 (La.App. 3

Cir. 12/7/94), 647 So.2d 481.

While it is undisputed that Mrs. Weatherly did not sign the November 4, 1997

mortgage and note, she did participate to a limited extent in the transactions of that

date. The extent of her involvement in the November 4 transaction and the legal

effect of her limited participation are the issues now before us on appeal.

Reformation is an equitable remedy that is available to correct errors or

mistakes in written instruments only when the instruments as written do not reflect

the true intent of the parties. Agurs v. Holt, 95 So.2d 644 (La.1957). In a reformation

action the party seeking reformation bears the burden of establishing mutual error and

mistake by clear and convincing proof. Id.

A mutual mistake is a mistake shared by both parties to the instrument
at the time of reducing their agreement to writing, and the mistake is
mutual if the contract has been written in terms which violate the
understanding of both parties; that is, if it appears that both have done
what neither intended. The evidence of mutuality must relate to the time
of the execution of the instrument and show that the parties then
intended to say one thing and by mistake expressed another and different
thing.

Teche Realty & Inv. Co., Inc. v. Morrow, 95-1473, p. 4 (La. App. 3 Cir. 4/17/96), 673

So.2d 1145, 1147 (citation omitted).

As a general rule, whether there is a mutual error is mainly a question of fact,

and the trial court’s factual finding cannot be disturbed on appeal unless it is clearly

wrong. Succession of Jones v. Jones, 486 So.2d 1124 (La.App. 2 Cir.), writ denied,

489 So.2d 249 (La.1986). The manifest error or clearly wrong standard demands

great deference for the trier of fact’s findings. Theriot v. Lasseigne, 93-2661 (La.

4

7/5/94), 640 So.2d 1305. Where different, yet permissible, views of the evidence

exist, the factfinder’s choice from among the different permissible views cannot be

manifestly erroneous or clearly wrong. Stobart v. State, Through Dep’t. of Transp.

& Dev., 617 So.2d 880 (La.1993). “[T]he issue to be resolved by a reviewing court

is not whether the trier of fact was right or wrong, but whether the factfinder’s

conclusion was a reasonable one.” Id. at 882.

In its written reasons for judgment, the trial court specifically recognized that

Mr. Weatherly had no legal authority to mortgage his wife’s separate property, but

granted the requested reformation to the mortgage and the promissory note. The trial

court in effect concluded that Mrs. Weatherly was a party to the underlying agreement

to borrow the money and mortgage the property, making the following factual

findings:

The Plaintiff has met its’[sic] burden of proving mutual error by the
clear and convincing evidence necessary for the Court [to] order a
reformation of a contract. There was clear evidence that Mrs. Weatherly
knew of the mortgage and intended on being a signatory. After being
erroneously told she was not needed, she did not sign the document.
While the marriage was ongoing payments were made from community
funds to satisfy the obligation. It is only after domestic issues arose and
the Husband and Wife separated that the mortgage issues arose.
Evidence was presented proving Mrs. Weatherly was a part of the
antecedent agreement and then somehow regrettably left off of the
mortgage documents.
....

There is no question that the funds described in the promissory note
were received by the Plaintiffs. The parties stipulated that the funds
secured were used by the Defendants to pay community debts. Because
of this, the funds in controversy should undoubtedly be considered a
community obligation because the funds were incurred for the “common
interest of the spouses.” The basis of these funds were the mortgaged
property.

The trial court’s factual finding that Mrs. Weatherly intended to sign the mortgage

was not based on any evidence presented at trial.

5

In support of its claim for reformation of the mortgage and promissory note,

WMC Mortgage offered the testimony of Eva Townsend, a loan closing secretary for

the law firm that closed the November 4, 1997 loan. According to Ms. Townsend,

both Mr. and Mrs. Weatherly were present at the loan closing, as was Robert Cupid,

a loan officer representing WMC Mortgage. Ms. Townsend recalled going over the

entire loan closing package with both Mr. and Mrs. Weatherly, including the

proposed disbursements evidenced on the Settlement Statement. When she was

informed that only Mr. Weatherly was to sign the conventional mortgage and note,

Ms. Townsend immediately advised Mr. Cupid that Mrs. Weatherly’s signature was

necessary. However, her testimony does not clarify why she volunteered that advice

to Mr. Cupid.6 According to Ms. Townsend, Mr. Cupid “protested that no, they did

not want her signature on any documents whatsoever” because of “credit reasons.”

Although Mrs. Weatherly did not sign the loan instruments, Ms. Townsend recalled

that at no time did Mrs. Weatherly protest the use of her separate property as security

during the loan closing proceedings.

Mrs. Weatherly testified on her on behalf. She acknowledged that she and her

husband had used her separate property as security in securing the loan from Southern

Mortgage, that the Southern Mortgage loan was a community obligation, and that the

proceeds of the WMC Mortgage loan were used to pay that obligation as well as other

community debts.7 Additionally, she acknowledged that she was present when the

November 4, 1997 mortgage and note were executed by her former husband. But she

6
Ms. Townsend is not an attorney and certainly could not give Mr. Cupid legal advice.
However, we are left only to speculate whether Ms. Townsend recognized the separate nature of the
property or had other reasons for suggesting that Mrs. Weatherly should sign the document.
7
The only disbursement from the November 4, 1997 transaction which seems to be
questionable as to whether it is a community debt is the $422.00 child support payment. The record
does not establish the exact nature of that obligation or even to whom it was paid.

6

disputed Ms. Townsend’s testimony that she participated in the review of the loan

documents. According to Mrs. Weatherly, she came to the closing to explain to the

closing attorney that she did not want to mortgage her home.8 She emphatically

denied that she ever gave her husband permission to use her separate property as

security for the loan, but did acknowledge that she and her husband had discussed the

need to borrow the money. Still, she witnessed her husband signing the mortgage and

note, and acknowledged that she knew that day that a mortgage had been taken out

on her separate property.

Mr. Weatherly testified that while he and his former wife had discussed the

loan, she expressed her opposition to it. However, he completed the transaction

because he thought it was their best financial alternative and “as her husband [he] did

it.” He denied knowing that, because it was her separate property, he had no legal

right to encumber it.

The only evidence that could be construed to support the trial court’s factual

finding that Mrs. Weatherly intended to sign the mortgage is Ms. Townsend’s

testimony that Mrs. Weatherly did not make an active protest when her separate

property was mortgaged. Because there was no evidence other than Mrs. Weatherly’s

silence to support its factual findings, the trial court was clearly wrong in finding that

Mrs. Weatherly intended to sign the mortgage. And based on the evidence presented

at trial, it would not be reasonable to conclude that Mrs. Weatherly was a party to the

underlying agreement to borrow the money and mortgage the property.

By adding Mrs. Weatherly to the mortgage and the promissory note, the trial

court made a new contract, different from the one agreed to by Mr. Weatherly and

8
Mrs. Weatherly admitted that she never spoke to the closing attorney, but testified that she
expressed her concerns to the receptionist and Ms. Townsend.

7

WMC Mortgage. See In re Tutorship of Witt, 99-646 (La.App. 3 Cir. 11/3/99), 747

So.2d 1142, writ denied, 99-3426 (La. 2/4/00), 754 So.2d 238. But a reformation can

only be made to reflect the actual intention or agreement of the parties to the

instrument at the time of its execution. Accordingly, the trial court erred in reforming

the mortgage and the promissory note to add Mrs. Weatherly onto the documents

when she was not a party to either the instruments or the underlying agreement. See

Chanrai Inv., Inc. v. Clement, 566 So.2d 838 (Fla.App. 5 Dist., 1990), review denied,

576 So.2d 285 (Fla. 1991) and Lusher v. Sparks, 146 W.Va. 795, 122 S.E.2d 609

(1961).

WMC Mortgage argues that even if Mrs. Weatherly is not a party to the

instruments or the underlying agreement, equitable reformation is also allowed as to

the privies of the original parties, citing to Placid Ref. Co. v. Privette, 523 So.2d 865

(La.App. 1 Cir.), writ denied, 524 So.2d 748 (La.1988), and First State Bank & Trust

Co. of East Baton Rouge Parish v. Seven Gables, Inc., 501 So.2d 280 (La.App. 1 Cir.

1986), writ denied, 502 So.2d 103 (La.1987). Even assuming that an instrument may

be reformed as to those who are privy to the original parties, WMC Mortgage’s

argument fails because Mrs. Weatherly is not a privy to Mr. Weatherly or WMC

Mortgage. “A ‘privy’ is one who has succeeded to some right or obligation which

one of the parties to the act derived through the act or incurred under it.” Commercial

Germania Trust & Savings Bank v. White, 81 So. 753, 755 (La.1919). Mrs.

Weatherly has not succeeded to any right or obligation under the mortgage or the

note, nor does she have any interest in them. Thus, she is not a privy within the

meaning of the cases that WMC Mortgage cites.

8

DISPOSITION

For the foregoing reasons we reverse the judgment of the trial court reforming

the mortgage and the promissory note. We tax all costs to the plaintiff, WMC

Mortgage Corporation.

REVERSED.

9