Code III - La. Security Interests

Question 1

What kind of obligation is a security right?

Answer 1

Obligor’s personal liability is the principal obligation, whiel any security right associated with the principal obligation is an accessory right or obligation.

Question 2

What are the two varieties of security rights?

Answer 2

1. Personal–security rights allowing a debt to be enforced against a person other than the obligor. Governed by the law of suretyship. 2. Real–security rights enforceable against property and come in three varieties: mortgages; privileges; security interests.

Question 3

What are the three distinct issues in security rights law?

Answer 3

1. Whether the security right is confected; 2. For a real secruity right, how is the right perfected/how is perfection maintained; and 3. What remedies does the secured creditor have if the obligor defaults.

Question 4

What is suretyship?

Answer 4

Conventional obligation by which a third person, called the surety or guarantor, binds himself to a creditor to fulfill one or more obligations of another principal obligor upon the failure of the principal obligor.

Question 5

Can any obligation be secured by a contract of suretyship?

Answer 5

Any principal obligation may be secured by a contract of suretyship; can alos include future obligations, usually described as continuing guarantees.

Question 6

What are the formal requirements of suretyship?

Answer 6

Arises only by contract, and the contract must be express, and it must be in writing. Writing must be signed by surety. With respect to the express requirement, the law reuqires that the surety’s rpomise be unambiguous with respect to the surety’s undertaking personal liability and the obligations for which the surety is undertaking that liability.

Question 7

Is parole evidence admissible to show suretyship?

Answer 7

No. Must be clear from the four corners of the suretyship contract.

Question 8

What is ostensible suretyship?

Answer 8

Party apparently acting as a co-obligor will instead be treated as a surety if two conditions are met: 1. Principal cause of the contract with the creditor is to simply guarantee the performance of such obligation and 2. The creditor clearly knows this. Substance overcomes form.

Question 9

What are the creditor’s rights in the suretyship contract?

Answer 9

Unless expressly agreed otherwise, the creditor may enforce its security rights and collect the principal obligor’s entire debt fromt eh surety or suretyies as soon as the debt is enforceable against the debtor.

Question 10

Does the creditor need ot make a demand against the principal obligor first?

Answer 10

No, a suretyship contracts create guarantees of payment. Creditor will be paid when the time comes, without regard to any required process of collection.

Question 11

Are multiple sureties solidarily liable?

Answer 11

Yes, defense of division is no longer available. Liability to creditor for 100% of the outstanding principal obligations when there are joint sureties.

Question 12

What are the surety’s defenses?

Answer 12

If not waived, a surety can assert four basic types of defenses against the creditor: 1. Any defenses available to the principal obligor except lack of capacity or discharge in bankruptcy; 2. Remission; 3. Modification of the obligtion; 4. Impairment of collateral.

Question 13

How are the defenses of the principal obligor raised?

Answer 13

A surety can assert the principal obligor’s defenses to enforcement of the principal obligation, such as duress and other vices of consent. Cannot assert lack of capacity or bankruptcy.

Question 14

How is the defense of remission raised?

Answer 14

1. Rlease of the principal obligor automatically releases all sureties. 2. If creditor has rmitted the obligtion, the obligation is extinguished and can no longer support an accessory suretyship obligation. 2. Release of co-surety operates as a release of that surety’s virile share of the guaranteed obligation. The virile share is the equal portion of the debt based the number of sureties.

Question 15

How is the defense of modification of the obligation raised?

Answer 15

If the creditor changes the terms of a specific principal obligation after the surety has guaranteed it, this might provide a defense to the surety. This can be raised depending on the nature of the suretyship contract. 1. Ordinary suretyship: totally extinguished by any material modification of impairment of collateral; 2. Commercial suretyship: Extinguished only to the extent that the modification has actually injured the surety.

Question 16

How is the defense impairment of collateral raised?

Answer 16

If the creditor has undermined real security rights that the creditor had in addition to the personal security, this might provide a defense to the surety, e.g., failing to file the correct paperwork for mortgage/security interest in property. Depends on the suretyship contract. 1. Ordinary suretyship: totally extinguished by any material modification of impairment of collateral; 2. Commercial suretyship: Extinguished only to the extent that the modification has actually injured the surety.

Question 17

What is a commercial suretyship?

Answer 17

1. Surety is paid for undertaking the promise to pay; 2. Either the surety or the debto is a business entity; or 3. Either the principal obligation or the suretyship contract arises out of a commercial transaction. Construed like any other commercial agreement.

Question 18

What is an ordinary suretyship?

Answer 18

A suretyship is ordinary if it does not involve any elements of a commercial suretyship; e.g., a family member offering to guarantee. Construed in favor of the surety.

Question 19

What are the surety’s rights against the principal obligor?

Answer 19

1. Reimbursement; 2. Subrogation.

Question 20

What is the surety’s right of reimbursement?

Answer 20

Law gives the surety the right to seek payment from the principal obligor once the surety has been forced to pay the guaranteed obligation to the creditor. 1. Debt must have been exigible–actually due and owing.

Question 21

What is the surety’s right of subrogation?

Answer 21

When a surety pays the creditor on the principal obligor’s debt, the surety purchases the right to step into the creditor’s shoes with respect to the principal obligor’s debt. Surety can seek payment of the principal obligation from the principal obligor and the surety can enforce whatever rights the crditor whould have had to enforce the real security rights and derive value from the collateral property.

Question 22

Can the surety collect attorneys fees?

Answer 22

Surety is also subrogated to the creditor’s right to collect attorneys fees and interest on unpaid amounts if the surety has to sue the principal obligor to collect, thorugh only to the extent that the principal obligation allows for such.

Question 23

Can a surety have a right of partial subrogation?

Answer 23

If the surety pays only a part of the principal obligation, the surety’s right to subrogation is subordinated to the creditor’s right to collect the unapid remainder from the principal obligor/value of real security rights.

Question 24

What are the surety’s rights against co-sureties?

Answer 24

1. Like other solidary obligors, co-sureties have a right to collect contribution from their co-sureites to the extent that any one surety has paid more than his virile share. If one surety pays the entire obligation, she can demand that other sureties contribue.

Question 25

Can virile shares be modified by agreement?

Answer 25

By defalt, each surety agrees to contribue an equal share of the principal obligation. This can be modified by an explicit agreement; the agreement also controls the effect of the creditor’s release of any surety.

Question 26

What happens if one co-surety becomes insolvent?

Answer 26

The insolvent surety’s share is reallocated to the others; by default, evenly. Virile shares are reallocated to eliminate the share of the insolvent surety.

Question 27

How is suretyship terminated?

Answer 27

1. Surety provides notice to terminate her responsibility for future obligations. 2. Creditor receives notice of surety’s death, uncless succession confirms the ongoing suretyship; 2. However, only future obligations may be avoided by notice of termination.

Question 28

What is the nature of a mortgage?

Answer 28

The security right called a mortgage gives the creditor a contingent right in immovable property not yet in the creditor’s possession. If the principal obligor defaults on the secured obligation, the creditor-mortgagee can have the immovable property seized and sold. Mortgages are dependent on the principal obligation.

Question 29

Who is the mortgagor? What is the morgagee? What is an in rem mortgage?

Answer 29

1. The mortgagor is the person whose property rights are affected by a mortgage; 2. The creditor to whom the mortgagor grants security rights is called the mortgagee. The mortgage is called an in rem mortgage, as it is enforceable only agains the thing.

Question 30

What is a legal mortgage?

Answer 30

A legal mortgage arises as a matter of law in certain limited circumstances; e.g., protecting minors.

Question 31

What is a judicial mortgage?

Answer 31

A judicial mortgage arises when a party who has obtained a judgment for the payment of money (and only such a judgment) files a certified copy of the judgment in the mortgage records of any parish where the judgment debtor’s immovable property is located. A judicial mortgage automatically encumbers all the judgment debtor’s present and future rights in immovable property located in the parish of filing.

Question 32

What is a conventional mortgagE?

Answer 32

Created by contract in which the mortgagor grants security rights in her specifically identified immovable property.

Question 33

What is the distinction between special and general mortgages?

Answer 33

1. Special mortgages–mortgages that confer rights in specifically identified immovable property. 2. General mortgages–confer rights in all of the mortgagor’s immovable proeprty rights, no mater location/presently existing.

Question 34

What are the four requirements for a conventional mortgage?

Answer 34

1. Needs to be evidenced by a writing that is an act under private signature (recommended authentic act to proceed through executory process); 2. Writing must be signed by the mortgagor; 3. Mortgage must state the amount of the secured obligation/maximum secured amount that may be outstanding at any given time. (Any non-monetary obligations must be monetized.)4. Describe the nature and situation of the immovable property affected.

Question 35

What kind of property is susceptible to mortgage? Can future property rights be mortgaged?

Answer 35

1. Lesser property rights such as usufruct/servitudes of right of use can also be mortgaged. 2. One can grant mortgage rights in specific property that the mortgagor does not currently own but expects to acquire in the future. 3. A mortgage on the proeprty automatically extends to component parts affixed to the property later.

Question 36

What is required to make the mortgage effective as to third parties?

Answer 36

To be effective against third parties, the mortgage must be filed for record in the proper public office to provide record notice to potential competing interest holders. 1. Basic rule is the public records doctrine–effective at exact moment at wich the document is filed for registry in the parish in whcih the immovable property is located; 2. First in time, first in right. 3. Acts of mortgage must be filed in the mortgage records, otherwise it will not be effective. 4. Entire act of mortgage must be filed. 5. Time of filing establishes the exact moment of effectiveness. 6. If a mortgage has been filed, it is effective against all third parties, regardless of whether it has been conveniently filed.

Question 37

What is the duration of effectiveness of an initial filing in the mortgage records?

Answer 37

1. Any mortgage is effective on the public records at least ten years after the date set on the act of mortgage, not the date of filing. 2

Question 38

When is a mortgage effective for longer than ten years?

Answer 38

1. The mortgage describes the maturity date of the secured debt; and 2. The maturity date is nine years or longer after the date of the act of mortgage. If the mortgage meets these two requirements, the mortgage if effective on the records for six years after the maturity date of the debt described in the mortgage.

Question 39

Do filed amendments change the effectiveness period for a mortgage?

Answer 39

If a mortgage is amended and refiled, the effective period of the mortgage is recalculated according to the new terms.

Question 40

What is reincription?

Answer 40

To maintain the effectiveness of a recorded mortgage, before lapse the mortgagee must simply sign and file a notice of reinscription. Notice extends the effectiveness of the mortgage for 10 more years from the date of filing of the notice.

Question 41

What guidelines govern the effectiveness of judicial mortgages?

Answer 41

1. All judicial mortgages are effective against third parties for ten years from the date of the judgment, and the judgment creditor must file a notice of reinscription to contnue that effectiveness beyond the initial 10 years. (however, money prescribes 10 years after the date on which it was renderd, so it must be revived in a separate proceeding.)

Question 42

What happens if the secured principal obligation is transferred to another party?

Answer 42

If the original creditor-mortgagee transfers to another party the right to enforce an obligation secured by a mortgage, the new creditor automatically acquires all of the original creditor’s rights under the mortgage also. Mortgage always follows the principal obligation that it secures.

Question 43

When happens if the original creditor only transfers part of the obligation secured by the mortgage?

Answer 43

The original mortgagee-creditor and the new mortgagee-transferee rank equally (pro rata) in the proceeds if the mortgage is enorced.

Question 44

What is a third possessor?

Answer 44

The new owner, who has not formally assumed liability on the principal obligation but whose proeprty is subject to the creditor’s mortgage rights, is called a third possessor.

Question 45

What is a third possessor’s liability to the mortgagee for damage?

Answer 45

To protect the mortgagee’s interests after the third possessor realizes her predicament, mortgage law requires third possessors to indemnify the mortgagee for any damage to the proeprty caused by the third possessor’s negligence or intentional misconduct.

Question 46

What is the mortgagee’s liability to a third possessor for improvement?

Answer 46

The third possessor may recover the costs of improvements from a foreclosure sale, but only to the extent that these improvements increased the value of the property.

Question 47

How does a mortgage become extinguished?

Answer 47

1. A mortgage cannot exist separately from the immovable property against which it was originally valid. If the collateral is destroyed, the mortgage is extinguished. 2. If the mortgagee becomes the owner of the collateral, the rights become confused in one person and the lesser interest of the mortgage is extinguished. 3. If the principal obligation is exitnguished, the mortgage is extinguished also. 4. Terminated by written notice (flucuating line of credit mortgage)

Question 48

Can a conventional mortgage secure flucuating future advances?

Answer 48

Yes, so long as the mortgage states the maximum amount of secured debt that can be outstanding at any time. Multiple indebtedness mortgage. Effective on the date it is filed.

Question 49

What are the nature of privileges?

Answer 49

A privilege gives a creditor a right in identified proeprty to serve as a source of value if the obligor fails to fulfill an obligation. Defined by law, and not agreement.

Question 50

How are privileges to be construed?

Answer 50

Privilege law is to be construed restrictively. Only if the exact requirements of the law are met does a privilege arise. Likewise, its priority is generally established by law, not a filing or creditor action.

Question 51

What are the two types of privileges?

Answer 51

1. General privileges create rights in all of the identified obligor’s property; 2. Special privileges create rights only in the specific property identified by the law. Special privileges are generally more valuable to the creditor. Usuually, general privileges rank below special privileges.

Question 52

What is the rank of general privileges that attach to movable and immovable property of the person to whom the goods/services have been supplied on credit?

Answer 52

1. Funderal charges up to $500, but only the costs of burial; 2. Law Charges, but only the winning litigant’s right to collect court-rdered costs; 3. Expenses of last sickness prior to one year preceeding their death; 4. Wages of servants/salaries of clerks for up to two years; 5. Open Account Credit for retail provisions–keepers of boarding houses and tavenrs/retail suppliers such as butchers/bakers/grocers; 6. Spouse or children in necessitous circumstances.

Question 53

What are special privileges?

Answer 53

Generally affect only the property described in the law. Often conflict with other privileges and security interests.

Question 54

What is the artisans/repairperson’s privilege?

Answer 54

1. A special privilege. 2. Offers security rights in the movable thing repaires or made to secure the unpaid price of labor, but only the price of her labor and only so long as the thing remains in the artist’s possession. (Civil Code) 3. Secures labor + maerials expenses, remains for 120 days from the last day on whcih the materials/labor were supplied. (Revised Statute). The limit civil code privilege has top priority, even over a perfected chapter 9 security interest. The revised statute has priority over all security interests other than perfected ch. 9 perfected security interests.

Question 55

What is the lessor’s privilege?

Answer 55

Offers security rights to landowners who lease their farmland and buildings. Affects all of the lessee’s movable property located on the leased immovable property. If the lessee removes the movable property, the privilege persists for 15 days, so long as the lessor can id the property.

Question 56

What happens if a third party’s movable property is seized with respect to the lessor’s privilege?

Answer 56

If the lessor inadvertently seizes a third party’s movable property in or upon the leased property, and the third party fals to assert ownership, the third party’s property is deemed to have belonged to the lessee as a matter of law.

Question 57

Does the lessor’s privilege extend to the movable property of a sublessee?

Answer 57

Yes, also extends to the movable property of a sublessee, but only to the extent that the sublessee is indebted to the principal lessee and has no 15-day right of pursuit with respect to the sublessee proeprty.

Question 58

What is the priority of the lessor’s privilege?

Answer 58

Enjoys priority over the vendor’s privilege (Except in farm equipment) and all general privileges except funeral charges All lessor’s privilegs except crops are subordinate to Chapter 9 security interest, regardless of perfection.

Question 59

What is the special filing rule for farm leases?

Answer 59

In order to preserve the priority of a farm lessor’s privilege in crops, the farm lessor should file in the centrla agriculatural lien registry to perfect the privilege.

Question 60

What is the vendor’s privilege?

Answer 60

Provides the seller automatic security rights in any movable or immovable property sold on credit. 1. Act of immovable credit sale must be recorded in the mortgage records. 2. Movables must remain in the ubyer’s possession, if it is a credit sale of movable property.

Question 61

What is the priority of the vendor’s privilege?

Answer 61

The vendor’s privilege in movable property has priority over al general privileges but it is subordinate to all Chapter 9 security interests (whether or not perfected) and lessor’s privileges (except in farm implements0. A vendor’s privilege in immovable property has priority over a filed mortgage only if the act of credit sale is properly recorded before the mortgage or within 7 days of the date of the act of credit sael.

Question 62

What is the warehouse keeper’s privilege?

Answer 62

Enjoys a privilege in any items stored to secure the depositor’s payment of any expenses incurred to hold or preserve the thing. This privilege covers only the depositary’s expenses in holding the item, not the full contract price for storage. Generally has top priority over any other privilege or security interest.

Question 63

What is the depositor’s privilege?

Answer 63

Person depositing movables in a warehouse enjoys a privilege on any stored item to secure its returnor on the proceeds of a sale of the thing.

Question 64

What is the carrier’s privilege?

Answer 64

This privilege creates security rights in favor of haulers and other carriers in any thing transported to secure payment of transport charges. 1. Civil code–only when the transported thing remains in the carrier’s possession, takes priority over any privilege; 2. Revised statutes–privilege extended for 180 days after transportation is accomplished, subordinate only to a vendor’s privilege/perfected ch. 9 security nterest/bona fide purchasor.

Question 65

What is the attorney’s privilege (charging lien)?

Answer 65

The law provides an attorney a privilege in the money/other property received for his fees and expenses incurred in the litigation. Contingency fee contrct is similar to this privilege, and allows the privilege to attach to recovery by settlement. This privilege is superior to all other privileges and Chapter 9 security interests.

Question 66

What is the trauma care providers’ privilege?

Answer 66

Health care provider/ambulance service must assert privilege on judgment/settlement proceeds from traumatic injury. Subordinate only to the lawyer’s privilege. The provider must demand payment by written notice to the injured person. Enforceable against anyone who disburses the proceeds of a judgment/settlement to anyone but the privileged creditor after having received notice.

Question 67

Wat is the farm laborers’ privilege in unharvested crops?

Answer 67

1. Farm laboreres enjoy a top priority super-privilege on any unharevents crops that ranks prior to any other crop privilege. Laborers also have a privilege in all other movables which serve to the working of the farm, such as farm equipment. 2. Farm lenders and overseers enjoy a privilege in the current year’s crops and their proceeds to secure anyd ebt arising from credit sales of supplies/money lent and used to finance farm operations.

Question 68

How are the agricultural laborers’ rights in crops perfected?

Answer 68

1. Privilege of farm laboreres in crops in automatically perfected. 2. Privilege in other movables, and all other security rights must be perfected by a special document filing describing the farm/other ag. Products in the cetral registry of agricultural liens.

Question 69

What is the order of priority for farm laborers’ interests in crops?

Answer 69

Generally, all privileges and security interests in crops have priority over every mortgage tha tmight affect crops, regardless of the time of filing or non-filing. 1. A perfected lessor’s privilege in crops has second priority to that of farm laborers. 2. Perfected prileges and security interests in crops has third priority. Unperfected crop privileges of lessors has fourth priority, followed by all other unperfected privileges/security interests in crops.

Question 70

What is the Private Works Act?

Answer 70

Creates a privilege in any immovable proeprty in favor of contractors and suppliers who provide labor and supplies on credit in the improvement (usually construction) of the property. Extends to the entirety of the property, regardless of the particular contribution of the particular claimant. (serves to protect subcontractors)

Question 71

What are the two rights secured by the PWA?

Answer 71

1. Allows trafe dirms/laborers and suppliers to assert a direct claim against the owner (but not the co-owner, and their interest is not affected by the privilege); 2. Secures these claims with a privilege on the immovable.

Question 72

How can the owners avoid personal liability to PWA claimants and the attachment of PWA’s privileges to their property?

Answer 72

Ensuring that a notice of contract AND a sufficient bond are filed before work begins on a construction project. Notice of contract describes the location/nature of the project and must be signed by both the owner and the general contract. If both requirements are satisifed, the owner can force all PWA claimants to assert their claims against the bond, and not against the owner of the property.

Question 73

How do PWA claimants establish their claims?

Answer 73

1. File a statement of claim identifying the immovable by legal description with dollar amount claims/description of work in the mortgage records of the parish where the immovable is located.

Question 74

What are the time limits for filing a PWA claim?

Answer 74

1. Claimants must generally file no later than 30 or 60 days after some event that marks the completion of the building project. Time is from completion of the tnire project, not just any individual claimant’s task.

Question 75

When is an improvement or other building project substantially complete?

Answer 75

1. When the last work is performed or materials delivered to the project site; or 2. When the owner accepts the improvement or occupies the premises.

Question 76

Why might an owner file a notice of termination?

Answer 76

After a project is substantially complete, an owner may but need not file a notice of termination, which will shorten the time during which statements of claim may be filed.

Question 77

When does the 30-day period apply for PWA INDIRECT claimants?

Answer 77

If a notice of contract was timely filed and a notice of termination was filed, claimants who did not contract directly with the owner must file their statements of claim no later than 30 days after the filing of the notice of termination.

Question 78

When does the 60-day period apply for PWA DIRECT claimants?

Answer 78

If either a notice of contract or a notice of termination was not filed, claimants who did not contract diectly with the owner must file no later than 60 days after termination or substantial completion.

Question 79

When does the 60-day filing deadline for DIRECT claimants apply?

Answer 79

Companies, laborers and suppliers who contracted directly with the owner always have 60 days from the filing of a notice of termination or if no notice is filed, substantial completion to file their statements of claim.

Question 80

When do PWA residential suppliers enjoy a 70-day filing deadline?

Answer 80

If notice of contract was not filed, suppleirs of movables can file withing 70 days after substantial completion/notice of termination if they deliver notice of nonpayment to the owner at lease 10 days before filing a statement of claim and no later than 75 days after the last day of the month when their movables were delivered.

Question 81

When must a PWA action be filed by?

Answer 81

1. Ordinary action must be commenced within one year of the expiration of the time for filing the particular claimant’s statement of claim. 2. PWA claimant must also file a notice of lis pendens in the mortgage records of the parish one more than one year after filing the satement of claim.

Question 82

What is the priority of different PWA privileges?

Answer 82

PWA statute determines priority. 1. Laborers generally take top priority; 2. Other PWA privileges, mortgages, and vendor’s privileges–first in time has priority. Timing of mortgage/vendor’s privilege is measured from the date of filing in the registry in the mortgage records.

Question 83

What constitutes the beginning of the project?

Answer 83

1. If notice of contract was timely filed, the project is deemed to have begun upon filing of the notice. A notice of contract is timely filed if filed bofre work begins on a project. 2. Work begins on a project when materials worth more than $100 are delivered to the worksite or other work begins. Dirt work is not considered other work, however.

Question 84

What is a no-work affidavit?

Answer 84

Mortgagee can ensure it will have priority over any non-laborer PWA privilege claimant if it obtains a no-wrk affidavit from an engineer/etc. stating that no work had began. If you filed the affidavit in the mortgage records within four business days of its execution, allows a mortgage filed within four days after the affidavit if filed to take priority over competing PWA claimants.