Hibernia Nat. Bank v. Continental Marble and Granite Co., Inc.
1993 WL 88199, 615 So. 2d 1109, 1993 La. App. LEXIS 1201 (1993)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A dation en paiement is effective between the parties at the moment of execution, not recordation. When a creditor acquires ownership of mortgaged property through such a dation, the creditor's pre-existing mortgages on that property are extinguished by confusion, even if a third-party lien attaches between the dation's execution and its recordation.
Facts:
- From 1982 to 1984, Hibernia National Bank (Hibernia) loaned money to Continental Marble and Granite Company, Inc. (Continental).
- As security for the loans, Continental granted Hibernia two collateral mortgages on its immovable property.
- In 1987, due to financial difficulties, Continental agreed to transfer the mortgaged property to Hibernia via a dation en paiement to partially satisfy the debt.
- The dation agreement stipulated that Hibernia would receive the property "free from any lien, mortgage or encumbrance whatsoever" other than its own mortgages.
- Hibernia and Continental executed the dation on August 3, 1987, at which time a title search showed no other encumbrances on the property.
- On August 5, 1987, at 10:01 a.m., Doyle Coulon recorded a civil judgment against Continental, creating a judicial mortgage on the same immovable property.
- On August 5, 1987, at 10:50 a.m., Hibernia recorded the dation en paiement in the public records.
- Neither Hibernia nor Continental was aware of Coulon's judgment when the dation was executed or recorded.
Procedural Posture:
- The underlying litigation originated in a Louisiana trial court.
- The trial court entered a judgment recognizing the validity of Doyle Coulon's judicial mortgage against the property transferred to Hibernia National Bank.
- Hibernia National Bank, the plaintiff, appealed the trial court's judgment to the Court of Appeal of Louisiana, Fifth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a third party's lien, recorded after the execution of a dation en paiement but before its recordation, invalidate the dation between the original parties or prevent the extinguishment of the creditor's own mortgages on the property through confusion?
Opinions:
Majority - Grisbaum, J.
No. A dation en paiement is valid between the parties upon execution, and the subsequent acquisition of ownership by the creditor extinguishes its own mortgages by confusion, notwithstanding an intervening lien recorded before the dation. Hibernia's claim that the dation should be voided for error fails because, under Louisiana law, the transfer of immovable property is effective between the parties at the moment of execution. At the time of execution on August 3, the property was, in fact, free of any encumbrances other than Hibernia's, so there was no error to vitiate consent. The dation's effectiveness against third parties is governed by the public records doctrine, which dictates that the first to record prevails. The 49-minute gap between Coulon's recordation and Hibernia's recordation, while potentially reasonable, created a window of risk that Hibernia assumed. Because the dation was valid upon execution, Hibernia became the owner of the property at that time. Consequently, under La. C.C. art. 1903 and 3411, the qualities of creditor and owner were united in Hibernia, extinguishing its two collateral mortgages by confusion. Hibernia, therefore, took ownership of the property subject to Coulon's valid, intervening judicial mortgage.
Analysis:
This decision rigorously enforces Louisiana's public records doctrine, emphasizing that timeliness in recording instruments of title is paramount to protecting rights against third parties. It clarifies that the legal effectiveness of a contract between its parties (at execution) is distinct from its enforceability against the rest of the world (at recordation). The ruling serves as a stark warning to purchasers and creditors that any delay in recordation, no matter how brief or seemingly reasonable, creates a risk of being primed by an intervening lien. Furthermore, it confirms that the doctrine of confusion operates automatically and is not defeated by the creditor's frustrated expectation of receiving unencumbered title.
