Judge MAX N. TOBIAS, JR.
The defendant, Regions Bank, appeals an adverse judgment rendered on 23 December 2013 in favor of the plaintiff, Nine-O-Five Royal Apartment Hotel, Inc., declaring the Regions Bank mortgage invalid and canceling the mortgage. For the following reasons, we affirm.
This matter involves the validity of a Multiple Indebtedness Mortgage and Security Agreement ("the Mortgage") executed on 10 December 2003 by Donna Morell Rotonti ("Donna") purportedly on behalf of Nine-O-Five Royal Apartment Hotel, Inc. ("Nine-O-Five") in favor of Regions Bank ("Regions"), the successor by merger to AmSouth Bank ("AmSouth"). Regions avers that the doctrines of apparent authority and agency by estoppel apply, clothing Donna with authority to execute the Mortgage on behalf of Nine-O-Five and that, in any event, Nine-O-Five later ratified the Mortgage. Conversely, Nine-O-Five contends that Donna lacked authority, either actual or apparent, to execute the Mortgage binding Nine-O-Five and, consequently, the Mortgage is invalid.
Nine-O-Five is a closely held corporation that was formed by members of the Morell family and incorporated in 1964, with the controlling interest in the corporation initially held by Marie S. Morell ("Marie"). Marie had three daughters, who are involved in the instant case: Jane Morell ("Jane"), Joyce Morell ("Joyce"), and Donna.
In the 1990's, following Marie's death, Nine-O-Five's stock was placed in a family trust, with the understanding that Jane and Joyce are to remain in the Property for their lifetime, after which those rights are to succeed to Donna's children, as successive beneficiaries. Since their mother's death, Jane and Joyce have been the sole
In February 2000, Nine-O-Five entered into a loan transaction with Whitney Bank ("Whitney") in order to fund needed renovations to the Property. The loan was secured with a mortgage on the Property. Appearing as president, Joyce signed the Whitney mortgage on behalf of Nine-O-Five, with her authority to do so confirmed by a corresponding corporate resolution signed by Jane as Nine-O-Five's secretary. Donna's name does not appear anywhere on the Whitney mortgage, either as an officer or director of Nine-O-Five, or otherwise.
Two months later, in April 2000, Nine-O-Five borrowed an additional $175,000 from AmSouth in order to complete the renovations to the Property. This time, Donna signed the AmSouth note as the corporate secretary of Nine-O-Five. The promissory note in favor of AmSouth contains the signatures of all three Morell sisters. Donna signed as secretary, Joyce as president, and Jane, individually, but not as an officer or director of Nine-O-Five. Additionally, the record contains a personal guarantee signed by Donna for the April 2000 AmSouth loan made to Nine-O-Five. Subsequent disbursement requests and authorizations made in connection with the AmSouth loan were also signed by all three sisters.
On 10 December 2003, AmSouth made a personal loan to Donna and her husband, John Rotonti, in the amount of $525,000.
On the same date that the loan transaction between the Rotontis and AmSouth took place, though Nine-O-Five was neither a maker nor a guarantor of the loan, Donna, purporting to act on behalf of Nine-O-Five, executed the Mortgage on the Property as security for the Rotontis' personal loan with AmSouth.
It is undisputed that Donna held no corporate office in Nine-O-Five at the time the Mortgage was executed in 2003, and had not held an office in the corporation for 19 years. At that time, the only officers and directors of the corporation were Jane and Joyce, who were solely responsible for the day-to-day operations of the hotel.
Subsequently, on 14 January 2009, Nine-O-Five filed a petition for mandamus seeking a declaration that the Mortgage was invalid and requesting that the Clerk of Court cancel the Mortgage inscription. In answer to Nine-O-Five's petition, Regions (as AmSouth's successor) affirmatively pled the defense of unjust enrichment
The matter came for a bench trial on 2 December 2013. After considering the law and evidence submitted, the trial court rendered judgment on 23 December 2013, issuing written reasons, in favor of Nine-O-Five and against Regions, declaring that the Mortgage was invalid. The judgment further ordered the Clerk of Court, in her capacity as Recorder of Mortgages, to cancel the Mortgage. From this judgment, Regions appealed.
The sole issue before this court is whether the trial court was manifestly erroneous or clearly wrong in declaring the Mortgage to be invalid and, consequently, erred in ordering the Clerk of Court, in her capacity as Recorder of Mortgages, to cancel and erase all inscriptions and re-inscriptions of the Mortgage from the mortgage records of Orleans Parish.
Regions argues that the Morell sisters expressly held Donna out as Nine-O-Five's corporate secretary in connection with a prior loan it obtained from AmSouth, suggesting that she had the apparent authority to execute the Mortgage. Alternatively, Regions avers that Nine-O-Five ratified the unauthorized Mortgage by failing to repudiate it "within a reasonable time" and in accepting benefits of the Mortgage after learning of its existence.
Conversely, Nine-O-Five contends that Donna lacked authority, either actual or apparent, to execute the Mortgage on behalf of the corporation and, consequently, that the Mortgage is invalid. Nine-O-Five further argues that Regions failed to carry its burden of proof in establishing Nine-O-Five's ratification of the unauthorized act.
Regions seeks a de novo review of the record averring that because the trial judge failed to consider the doctrine of apparent authority/agency by estoppel and misapplied the law on ratification, this court must review the entire record and render judgment on the merits, without according any weight to the trial court's decision. La. Const. art. V, § 10(B); Chambers v. Village of Moreauville, 11-0898, p. 4 (La.1/24/12), 85 So.3d 593, 597. We disagree. Having determined that the court properly applied the law to the facts, we conclude that the manifest error/clearly wrong standard is the appropriate standard of review to be applied in this case. Under this standard, a court of appeal may not set aside a trial court's finding of fact in the absence of "manifest error" or unless it is clearly wrong. Touchard v. Slemco Elec. Foundation, 99-3577, p. 5 (La.10/17/00), 769 So.2d 1200, 1204. When a conflict in the testimony exists, reasonable evaluations of credibility and reasonable inferences of fact should not be disturbed upon review, even though the appellate court may feel that its own evaluations and inferences are reasonable. Lirette v. State Farm Ins. Co., 563 So.2d 850, 852 (La.1990); Rosell v. ESCO, 549 So.2d 840, 844 (La.1989). Therefore, the issue for the reviewing court is not whether the trier of fact was wrong, but whether the factfinder's conclusions were reasonable under the evidence presented. Rosell, 549 So.2d at 844-45. When a fact-finder's determination is based on its decision to credit the testimony of one of two or more witnesses, that finding can virtually never be manifestly erroneous or clearly wrong. Id. Applying the "manifest error" standard of review to the instant case, we find the trial court did not err in determining that the Mortgage was invalid or in canceling the Mortgage.
A mortgage is a nonpossessory right created over property to secure the performance of an obligation. La. C.C. art. 3278. A mortgage is accessory to the obligation that it secures and can only be enforced, except as otherwise provided by law, to the extent of the obligation it secures. La. C.C. art. 3282. Mortgages are of three types: conventional, legal and judicial. La. C.C. arts. 3283, 3284. Within the area of conventional mortgages, three different forms of mortgages are recognized by the Louisiana statutes and jurisprudence: an "ordinary mortgage" (La. C.C. arts. 3287, 3290-3295); a mortgage to secure future advances (La.C.C. art. 3298); and a collateral mortgage.
The trial court held that the Mortgage executed by Donna is invalid and neither legally binds Nine-O-Five nor bears on the Property because (1) Donna did not have express or written authority to execute the Mortgage on the corporation's behalf and (2) Nine-O-Five did not ratify Donna's unauthorized acts. We agree.
Regarding Donna's authority to execute the Mortgage, we quote approvingly the trial judge's reasons for judgment on this issue:
On appeal, Regions does not dispute that Donna did not have express or written authority to execute the Mortgage, but rather, argues that the trial court erred in failing to consider and apply the doctrines of agency by estoppel or apparent authority, and by failing to hold Nine-O-Five bound by Donna's execution of the Mortgage on its behalf.
In Tedesco v. Gentry Dev. Inc., 540 So.2d 960, 961 (La.1989), the Louisiana Supreme Court addressed the issue of whether the doctrines of apparent authority and agency by estoppel
Relying on Tedesco, Regions avers that the trial evidence established that, by their previous representations, Jane and Joyce gave AmSouth every reason to believe that Donna was Nine-O-Five's agent and vested with full authority to enter into the loan transactions on its behalf, and that Regions changed its position in reliance on those previous representations.
Consequently, Regions avers that because the trial evidence established both its reasonable reliance on Nine-O-Five's representations and its change of position, to allow Nine-O-Five to deny the agency in order to avoid the obligation to repay the funds that refinanced and cancelled the prior loans that were used to renovate the Property would be unjust. We disagree.
We first note that, while Regions did affirmatively plead the defenses of unjust enrichment and fraud, it is undisputed that Regions did not expressly plead the affirmative defense of apparent authority or agency by estoppel, which is required.
Our review of the trial exhibits confirms that at no time did Nine-O-Five, Jane or Joyce represent or manifest to AmSouth (or Regions) that Donna was authorized to execute the Mortgage binding Nine-O-Five's single asset. Moreover, we find
Based on this evidence, we find that, even if the pleadings were expanded to conform to evidence presented at trial relating to the affirmative defenses of apparent authority and/or agency by estoppel, Regions did not carry its burden of establishing that Nine-O-Five represented to AmSouth that Donna was authorized to unilaterally act on its behalf in executing the Mortgage binding the Property, or that the bank reasonably relied on anything said or done by Nine-O-Five.
Accordingly, we find the trial court did not err by failing to apply the doctrine of apparent authority and/or agency by estoppel in this case or in determining the Mortgage to be invalid. Ultimately, the bank's failure to exercise due diligence to confirm whether the Mortgage it took was valid is fatal to their defense.
Regions avers that the trial court misapplied the law on ratification, and should have found that, even if the Mortgage was unauthorized, Nine-O-Five ratified the Mortgage by failing to repudiate it "within a reasonable time" and in continuing to accept the benefits of the Mortgage even after learning of its existence.
La. C.C. art. 1843 defines ratification as follows:
On the issue of ratification, the trial judge found in favor of Nine-O-Five for the following reasons, which we find from our review of the record not to be manifestly erroneous or clearly wrong:
First, Regions argues that Nine-O-Five ratified the Mortgage because it failed to repudiate the Mortgage within a reasonable period of time. Regions avers that the trial court should have applied the following law relative to ratification:
While we agree with Regions, in part, that this is a correct statement of the law, we would also add that the party seeking ratification bears the burden of proving "a clear and absolute intent to ratify the previously unauthorized act." Our review of the evidence and testimony presented at trial leads us to conclude that Regions did not meet its burden of establishing that Nine-O-Five's actions evidenced a clear intent to ratify the Mortgage.
In its brief on appeal, Regions repeatedly states, as if it is an established fact, that Nine-O-Five acquired knowledge of the Mortgage at least "three years" prior to taking any action to repudiate it, and contends that this "three to four year" delay was unreasonable. The evidence, however, does not support Regions' contention. All we know from the record is that at some point in time following Hurricane Katrina, which struck New Orleans on 29 August 2005, Nine-O-Five received a telephone call from Regions advising that a mortgage loan on the Property was delinquent. Neither Jane nor Joyce could state exactly when that call from the bank was received; however, they both testified unequivocally that, until receiving that call, they knew nothing about the Mortgage. And, according to Donna, she herself continued paying the Mortgage loan until "way past Katrina," so we can only assume that the call from Regions likewise did not take place until "way past Katrina." We find it hard to fathom that Regions, as the corporate lender servicing the loan and Mortgage, did not have records on file from which it could establish the exact date the Mortgage went into default and when the call was made to Nine-O-Five advising of the delinquency. The fact that Regions did not put forth such evidence is curious and, further, defeats their ability to prove ratification in this case. Without a specific time line of events, we find that Regions failed to put on sufficient evidence to prove that Nine-O-Five, once receiving notice of the Mortgage, failed to take action to repudiate it within a reasonable time.
Next, Regions contends that, after acquiring knowledge of the Mortgage, Nine-O-Five continued to accept the benefits of the Mortgage, and therefore it should be deemed to have ratified the unauthorized Mortgage. Again, the facts do not support Regions' position.
Tacit ratification requires that the principal first acquire knowledge and then accept the benefit of the unauthorized act. La. C.C. art. 1843. It is established that Jane and Joyce did not gain knowledge of the Mortgage on the Property until some point in time "way past Katrina," when they received the telephone call from Regions that the loan was in default. In its brief on appeal, Regions acknowledges that "[t]he direct, immediate benefit of the Mortgage to Nine-O-Five was to refinance the earlier Whitney Bank and AmSouth loans." [Emphasis supplied.] As evidenced by the HUD I settlement statement
Nonetheless, Regions contends that the testimony of Jane and Joyce shows that after Nine-O-Five was contacted by Regions and advised of the Mortgage on the Property, Nine-O-Five did, in fact, accept a benefit of the unauthorized Mortgage because it allowed Donna to continue to make payments to service the Mortgage debt on its behalf in order for Nine-O-Five's hotel business to survive.
Again, we find the evidence does not comport with Regions' assertions. First, it is important to note that the loan on which Donna was making payments was a personal loan made by Donna and John Rotonti, which debt was secured by the Mortgage on the Property. It is not surprising that Joyce (and Jane) would not have a problem with Donna paying off her own personal debt. Next, we do not find that Joyce's testimony supports Regions' purported timetable of events, such that (1) Donna stopped paying on the loan; (2) Regions made an "initial" telephone call to Jane and Joyce advising them of the Mortgage, which was in default; (3) the sisters spoke with Donna about the Mortgage who said that she would take care of it; (4) instead of taking any action to repudiate the Mortgage, Nine-O-Five allowed Donna to resume making payments for a period of time until way past Katrina (for approximately three years) when she could no longer make them, causing the loan to again become delinquent; (5) a second telephone call was made by Regions to Nine-O-Five notifying Jane and Joyce of the second default; and (6) though Nine-O-Five had knowledge of the Mortgage, it took steps to repudiate the Mortgage only after receiving the benefit of Donna's resumed payments for a time on its behalf. Nowhere in the testimony, or elsewhere in the record, is there evidence establishing that Regions made more than one telephone call to Nine-O-Five or that Donna actually made additional loan payments after she assured her sisters that she would "take care of it." While Joyce admitted that once she was made aware of the Mortgage, she was okay with Donna making
Regions bore the burden at trial to prove its ratification defense. In this regard, we find that Regions fell substantially short. As noted previously, Regions most certainly possessed records that could prove or, at the very least, infer how many (if more than one) telephone calls Regions actually made to Nine-O-Five concerning Donna and John's loan and the Mortgage on the Property, exactly when the call(s) took place, and whether Donna actually made payments on her loan subsequent to Nine-O-Five acquiring knowledge of the Mortgage via the telephone call from Regions. Regions introduced no evidence or testimony proving these facts and, consequently, fell short of carrying its burden of proof establishing Nine-O-Five's ratification of the unauthorized Mortgage based on its having received a benefit of the Mortgage after receiving notice of it.
Regions further advances that Nine-O-Five benefitted from the Mortgage because, at the time the loan monies were dispersed at the December 2003 closing, over $130,000 was dispersed to Nine-O-Five as additional working capital. We find that Regions failed to prove this contention at trial. The testimony of both Jane and Joyce was that they knew nothing about the 2003 AmSouth loan or Mortgage, which would arguably include a lack of knowledge as to how the loan proceeds were dispersed. In evidence is a check made payable to Nine-O-Five in the amount of $130,015.57, but the back of the check shows endorsement of the check into an AmSouth account. Regions presented no evidence identifying that account as being associated in any way with Nine-O-Five. In fact, the evidence presented at trial suggests that Nine-O-Five's corporate accounts were at Whitney, not AmSouth.
The trial court, citing First National Bank v. Crawford, supra, stated, "[t]hat Donna may have used some of the money she and John borrowed to pay off a prior mortgage does not validate the 2003 mortgage." Regions avers the Crawford case is distinguishable from the Mortgage at issue herein and that the trial court erred in applying its reasoning to the instant case. We disagree.
In Crawford, the bank sued to collect on a promissory note and for recognition of a mortgage. Mrs. Crawford owned an undivided one-half interest in 640 acres. Mrs. Crawford gave to her daughter, Mrs. Howe, a full and general power of attorney over her affairs.
At trial, the bank argued that Mrs. Howe had authority under the general power of attorney to execute the mortgage and that her mother had ratified the mortgage. To the contrary, the court determined that while the power of attorney granted Mrs. Howe the authority to mortgage Mrs. Crawford's property for the account of Mrs. Crawford, it did not purport to authorize Mrs. Howe to mortgage her mother's property to secure a personal loan made to Mrs. Howe and her husband. Crawford, 455 So.2d at 1213.
Similarly, in the instant case, the Mortgage binding Nine-O-Five was used to secure the 2003 AmSouth loan, which was a personal loan made to Donna and John Rotonti, not Nine-O-Five. Unlike each of the other documents put into evidence by Regions where all three Morell sisters signed binding the corporation, only Donna, individually, signed the Mortgage securing her personal loan. The resolution purportedly clothing Donna with authority to execute the Mortgage and bind Nine-O-Five was also signed only by her. Arguably, these facts should have raised some questions for AmSouth concerning the Mortgage; however, most likely because the Mortgage was actually additional security for the personal loan made to Donna and John Rotonti, given that the Rotontis had over $2 million in certificates of deposit at the bank, AmSouth did not "cross its Is and dot its Ts" regarding the Mortgage. AmSouth's failure to do so was to its detriment.
Regions attempts to distinguish Crawford on the basis that Mrs. Crawford did not receive any benefit from her daughter's loan, the proceeds of which went to rescue the daughter's own failing business in which Mrs. Crawford played no part and derived no benefit, whereas Nine-O-Five directly benefitted from Donna's personal loan, at least to the extent the hotel's prior indebtedness was satisfied, allowing the hotel to complete renovations and continue operations. Moreover, Regions argues that the Crawford court rejected the bank's ratification defense on the basis that the bank failed to show that Mrs. Crawford knew anything about the mortgage encumbering her property until the
Alternatively, Regions posits an equitable argument that, even if Nine-O-Five did not directly receive any proceeds (i.e., the $130,015.57) from the Mortgage, this court should reverse the trial court and issue a judgment that the Mortgage is valid and enforceable to the extent the Mortgage proceeds were used to pay off the previous debt owed by Nine-O-Five to Whitney and AmSouth, or up to $379,764.63. According to Regions, because Nine-O-Five has not contested its liability for those earlier debts, and does not dispute that it benefited from the use of those funds to renovate the hotel and keep it operational, Nine-O-Five should not be allowed to reap the benefit from Regions' payment of those loans while inequitably depriving Regions of the security it bargained for in exchange for the payment of Nine-O-Five's debts.
In response to what amounts to be a claim by Regions to validate the invalid mortgage on the basis of unjust enrichment, we note that the law does not provide such a remedy. La. C.C. art. 3281 provides that a "[m]ortgage may be established only as authorized by legislation." [Emphasis supplied.] La. C.C. arts. 3283 and 3284 provide only three modes of establishing a mortgage: a conventional mortgage (established by contract); a legal mortgage (established by operation of law); and, a judicial mortgage (established by law to secure a judgment). Mortgages, like liens, are stricti juris, and cannot be created by equitable considerations. State of Louisiana v. Atlas Pipeline Corp., 33 F.Supp. 160, 167 (W.D.La.1940); see also Security Homestead Ass'n v. Schnell, 232 So.2d 898, 900 (La.App. 4th Cir.1970). Moreover, pursuant to La. C.C. art. 4, only "[w]hen no rule for a particular situation can be derived from legislation or custom," must the court resort to proceeding "according to equity." In the instant case, the Civil Code specifically provides for the manner in which mortgages may be established. No codal provision or statute contemplates the creation of a mortgage utilizing equitable principles such as unjust enrichment. Because Regions' claim for a limited mortgage on the Property is not provided for by law, it must fail.
For the foregoing reasons, we affirm the trial court's judgment invalidating the Mortgage on the Property and ordering that it be erased.
According to Donna, she paid and serviced the 2003 AmSouth loan with her own personal funds, and she continued to pay the Mortgage as long as she could up until sometime "way past Katrina" when her own personal financial situation changed. Donna further contends that, while Nine-O-Five may have made payments from time to time on the previous Whitney and AmSouth loans, no payments towards the December 2003 loan were ever made by Jane, Joyce or Nine-O-Five.
