Court: Louisiana Court of Appeal; August 17, 1988; Louisiana; State Appellate Court
Both Charles Stanfield (plaintiff) and Warren S. White (defendant) are appealing a trial court judgment favoring the plaintiff in a promissory note case. The note, executed by the defendant for $12,000, was dated October 6, 1979, and due on February 15, 1980. It stipulated an interest rate of 8% per annum post-maturity, with attorney's fees of 20% in case of default. The plaintiff made handwritten modifications to the note indicating a 15% interest rate and collateralized it with "22 head Registered Simmental Cattle." The defendant contested the note's enforceability, claiming no presentment was made, the alterations were unauthorized and material, there was no valid consideration, and that the interest was usurious.
The trial court ruled that consideration existed, the plaintiff had properly demanded payment, and while the alterations were unauthorized, they were not material to the note's terms. Judgment was entered for the plaintiff for $12,000 plus 8% interest from February 15, 1980, and $2,000 in attorney's fees. On appeal, the defendant argued the handwritten changes were fraudulent and discharged him from liability, while the plaintiff sought 15% interest and higher attorney's fees. Testimony regarding the note's execution was inconsistent, but it was established that the defendant was attempting to start a cold storage business, which involved purchasing property and securing an SBA loan. The plaintiff claimed to have provided consulting services for a fee that included the disputed financial arrangements.
The plaintiff acknowledged receipt of $14,000 in cash from the defendant and indicated he gave the defendant $3,000, leaving a balance of $5,000 owed. To settle this debt, the defendant allegedly offered 22 head of cattle, which the plaintiff claims the defendant later repurchased in October 1979 without payment, promising $12,000 within 90 days. When that deadline passed without payment, a meeting occurred on February 15, 1980, where the plaintiff asserts the defendant executed a note, although the note is dated October 6, 1979, which the plaintiff argues only marks when the defendant took possession of the cattle. The plaintiff noted interest and mortgage terms were recorded in the defendant’s presence, and the note was reportedly signed in Gerald Taylor’s presence, who testified he witnessed the execution but denied notarizing it, and the note lacks a notary seal.
The defendant, countering the plaintiff's claims, insists he executed the note on October 6, 1979, not February 15, 1980, and denies selling the cattle, stating they were given as security for the plaintiff's demands. He claims the cattle were returned upon issuing the note and disputes the plaintiff's alterations to the note, which increased the interest rate from eight percent to fifteen percent. The defendant argues that this handwritten change constitutes a fraudulent material alteration that invalidates the obligation. The trial court found that the plaintiff made the alterations without the defendant’s consent, a conclusion supported by the evidence. The primary legal issue focuses on the alleged fraudulent alteration of the note.
Disagreement exists regarding the legal implications of a change to a contract under LSA-R.S. 10:3-407. The statute states that any alteration that materially changes a contract is significant. Specifically, an alteration by the holder that is both fraudulent and material discharges any party unless they consent or are barred from asserting the defense. Louisiana's adoption of this provision requires that material alterations also be fraudulent to discharge obligations, a shift from previous law. Altering the interest rate is considered a material alteration under both old and new laws. However, alterations made with benevolent intent, while material, do not discharge obligations under current law. The burden of explaining an alteration lies with the party relying on it. Filling in blanks is seen as a question of authority rather than alteration, while strikeovers and substitutions are classified as alterations. The plaintiff has attempted to unilaterally change the contract by seeking a higher interest rate, which is deemed legally fraudulent. The core issue remains whether this marginal notation constitutes an alteration under LSA-R.S. 10:3-407. Previous Louisiana cases provide limited guidance, with some ruling against defendants for not pleading material alteration and others affirming that changes made with authority do not affect all parties involved.
The statute LSA-R.S. 10:3-407(1)(c) defines an alteration as any addition to or removal from a signed writing. A comment on the statute clarifies that non-material additions or deletions, which do not affect prior signers' contracts, are permissible. The American Jurisprudence states that a notation or addition does not constitute an alteration unless it is intended to change the instrument's effect. If such intent exists, even a marginal notation can be considered an alteration. Additionally, changes made under the belief that they are authorized, particularly if favorable to the obligor, do not result in discharge unless fraudulent intent is present. In this case, the trial court found a unilateral change in the interest rate made without the defendant’s consent, which was determined to be fraudulent and material. Consequently, this change is classified as an alteration, leading to the discharge of the obligation. The trial court's judgment is reversed, favoring the defendant, Warren S. White, and rejecting the plaintiff's claims. The exact amounts owed by the defendant remain unclear, as discrepancies exist between the plaintiff's testimony and the trial court's findings regarding the indebtedness.
