A Common Law Intrusion into the Civil Law: Carriere v. Bank of Louisiana

• Author: Marianne Rabalais

The author wishes to thank Warren L. Mengis, the Joe W. Sanders Professor of Law at Louisiana State University Law Center for the guidance he contributed in directing this casenote. Also, the author would like to thank Robert R. Rabalais, the author's brother-imitation is the most sincere form of flattery.

I Introduction

On April 23, 1982, Richard Carriere, owner of a commercially zoned tract of land in Metairie, Louisiana, entered into a five-year ground lease with Frank Occhipinti. Occhipinti was interested in building a restaurant on Carriere's land. To this end, the parties included a provision in the lease giving the lessee the right to mortgage the lease.¹ After obtaining the lease, Occhipinti built the restaurant with financing from a local bank.² As security for the mortgage, Occhipinti pledged his interest in the lease,³ the restaurant and the improvements located on Carriere's property.⁴

Occhipinti filed for bankruptcy in 1988.⁵ Occhipinti thereafter failed to pay rent to Carriere and failed to pay the 1988 property taxes he owed as stipulated in the lease. Further, Occhipinti ceased making mortgage payments to Bank of Louisiana (hereinafter referred to as "the bank"). Consequently, Carriere issued a notice of default to Occhipinti. When the default was not cured, Carriere served Occhipinti with a notice on July 7, 1989 to vacate the premises. Carriere provided the bank with a copy of each notice. Carriere then filed a petition for eviction on July 19, 1989. Days later, the bank filed a petition for executory process for the Occhipinti note and collateral mortgage.⁶ Before Carriere's eviction proceeding had been held, the bank purchased Occhipinti's rights in the lease at a sheriff's sale on September 20, 1989. The purchase included the building as well as the improvements located on Carriere's land. Subsequent to this acquisition, Carriere amended his eviction proceeding and named the bank as a defendant, demanding that the lease be terminated and the premises vacated.⁷ When the Louisiana Supreme Court finally heard the case, the bank had occupied Carriere's land for seven years without paying rent to Carriere, and had refused to pay taxes on the land in accordance with the lease.⁸

In the first Louisiana Supreme Court hearing, the court awarded Carriere damages for past rents and taxes as compensation for the use of his immovable property upon which the bank's separately owned restaurant was located.⁹ The court held that when the bank purchased Occhipinti's leasehold interest at the sheriff's sale, the bank purchased both the rights and the obligations under the lease, including the obligation to pay Carriere rent on the property.¹⁰ Moreover, the court held that the doctrine of "judicial control,"¹¹ which would prevent eviction, should be applied in this circumstance because the bank stood to lose its investment in the property.¹² Thus, although the court decided not to dissolve the lease, it did find that the bank owed Carriere past rents and taxes on the property.¹³

On rehearing, the court reexamined the rights and obligations of a purchaser of a lessee's mortgaged "leasehold estate." The Louisiana Supreme Court held that since the right of occupancy, use and enjoyment possessed by the lessee may be severed from the lessee's obligation to pay rents under the lease, the bank was not liable for rent payments to Carriere, even though the bank's tenant occupied the land and collected rents on the restaurant from a new lessee.¹⁴ The court justified its result by relying on two concepts. First, the court missapplied the principle set forth in Walker v. Dohan,¹⁵ which held that the right of occupancy could be severed from the obligation to pay rent, but only if the rents are paid in full. Second, the court assigned a meaning to the common law term "leasehold" that is not in the Louisiana Civil Code. Remarkably, the court did not alter its original ruling regarding its decision to exercise "judicial control" over the eviction proceedings nor its decision to not terminate the lease. By neglecting to alter its prior decision regarding these matters, the court allowed the bank to occupy the premises rent-free and to force Carriere to continue paying taxes on the property.¹⁶

II Evaluation

A Right of Occupancy versus Obligation to Pay Rent

1. When is it Proper to Separate the Right from its Obligation?

A lease is defined by the Louisiana Civil Code as "a synallagamatic contract, to which consent alone is sufficient, and by which one party gives to another the enjoyment of a thing... at a fixed price."¹⁷ A lease contemplates "reciprocal rights and obligations-the right of enjoyment, and the obligation of paying the rent-which, so far as governed by the contract alone, co-exist and adhere to each other."¹⁸ As such, the lessor's obligations and rights in a lease cannot be separated.¹⁹ However, one commentator noted:

What forbids the severance of a right from its correlative obligation, and the transfer of the one without the other? The lessee's right is to occupy the premises; his obligation, to pay the rent. Can he not make a sale or donation of the right, retaining himself the obligation to pay the rent?²⁰

After examining these comments, Louisiana courts have conceded that the severance of the obligation to pay rent and the right of occupancy is legal and possible.²¹ However, they were still faced with the question: Under what circumstances could the obligation to pay rent and the right of occupancy be separated?

Louisiana courts first recognized the ability to sever the right of occupancy from the obligation to pay rent in Walker v. Dohan.²² In that case, the court held that the sale of the unexpired term of a lease involved the sale of the obligations and the rights. However, the court acknowledged that the right of occupancy may be severed from the obligation to pay the rent and that the former could be sold alone only in certain circumstances.²³ In Walker, a men's clothing store became insolvent and its "right of occupancy" in the leased premises was auctioned for fifty dollars to the new lessee. The clothing store's obligation to pay rent had been secured by certain movables in the leased premises, which had been sold and the proceeds of which were used to pay the yearly rent. The court held that where the rent had been paid to the lessor in full, the right of occupancy could be severed from the obligation to pay the rent.²⁴ Therefore, the new lessee purchased only the right of occupancy because the rent had been satisfied by the lessor's sale of the secured movables. If the court had held otherwise, the result would have been inequitable because the lessor would have been compensated for the rent twice.

Similarly, in D'Aquin v. Armant,²⁵ the lessor of a bakery auctioned and sold his lease for the sum of forty-five thousand dollars.²⁶ The purchaser soon thereafter defaulted on the rent payments and the lessor sued for the past and future rent payments. The purchaser argued that he never agreed to pay the rent on the lease but had only agreed to pay the purchase price. The D'Aquin court held that where the rent had not been satisfied, the purchaser at an auction-sale of a lease must pay the subsequent rent to the lessor according to the lease.²⁷ The court also explained that the bid, or the amount that the purchaser pays for the lease, is a premium or a bonus for the lease, so that the lessor enjoys the purchase price and the rent payments from the purchaser.²⁸ The lessee cannot "sever his rights from his obligations, and transfer one without the other."²⁹

Likewise, in Brinton, Syndic v. Datas,³⁰ the lessor sold the unexpired term of a lease to a third party who paid only the purchase price to the lessor, but did not pay the rent. The third party argued that the price paid for the lease was for the occupancy of the premises during the term of the lease yet to run, and not as a provision for the lease. The court held that where the rents have not been paid, the sale of the lessee's rights in a lease to a third party imposes upon the buyer the obligation to pay the lessor the rents accruing after the sale.³¹

As these cases show, Louisiana courts have repeatedly held that the right of enjoyment and the obligation to pay the rent can be severed only after the rents have been paid in full.³² Accordingly, Louisiana courts have formed an exception to the general rule that the right of enjoyment and the obligation to pay the rent cannot be severed. Considering the concepts behind Walker and its progeny, the Carriere court incorrectly found that the bank had severed the right of occupancy from the obligation to pay rent, because the rent on the property had not been paid in full. Even though it is possible to separate the right of occupancy from the obligation to pay the rent, "that right is lost when the underlying rent obligation is unfulfilled."³³ The naked right of occupancy in a "leasehold" setting cannot survive without satisfaction of the underlying rental obligation.³⁴

2. What is a "Leasehold" in Louisiana?

In Carriere, the court justified its decision to let the bank occupy the land rent- free by allowing the severance of the right of occupancy from the obligation to pay rents. Under the language of the mortgage, Occhipinti mortgaged the "Leasehold Estate," rather than the "Ground Lease." The court reasoned that since Occhipinti used the terms "that Leasehold Estate," and not "the Ground Lease," Occhipinti...