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SUPREME COURT OF LOUISIANA
No. 95-C-3058 SHIRLEY HARTMANN, Wife of/and RICHARD P. CARRIERE versus BANK OF LOUISIANA IN NEW ORLEANS ON WRIT OF CERTIORARI TO THE COURT OF APPEAL, FIFTH CIRCUIT, PARISH OF JEFFERSON ON REHEARING
KIMBALL, Justice.* ISSUE We granted the writ in this case to determine the respective rights and obligations of a lessor and the purchaser at a Sheriff's sale of the lessee's mortgaged "leasehold estate" and the improvements located thereon. Because we find the original lessee in mortgaging his "leasehold estate" mortgaged only his right of occupancy, use and enjoyment under the lease, as opposed to his entire interest in the lease, we hold that the purchaser owes no rent to the lessors under the lease. Furthermore, we find the lessors' claim for unjust enrichment is without merit (1) because there was justification under the law and under contract for the enrichment which inured to the benefit of the purchaser of the "leasehold estate" at the Sheriff's sale, and (2) because the lessors had available to them another remedy at law. Finally, because the "step in the shoes" provision in favor of the mortgagee in the lease is a separate, optional remedy for the mortgagee in the event of the lessee's default on the lease and the mortgagee herein elected to foreclose on the mortgaged collateral instead of availing itself of the "step in the shoes" provision, we hold the bank's use of the premises as a restaurant after acquiring the premises at the Sheriff's sale did not constitute a "step[ing] in[to] the shoes" of the lessee by the mortgagee under the lease. Instead, the bank's actions in operating the premises as a restaurant after acquiring the premises at the Sheriff's sale is a proper exercise of its right of occupancy, use and enjoyment under the lease. We therefore reverse the judgment of the court of appeal and dismiss plaintiffs'/lessors' case.

FACTS AND PROCEDURAL HISTORY
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Marcus, J., not on panel. See Rule IV, Part 2, Section 3.

On April 23, 1982, plaintiffs/lessors, Richard P. Carriere and his wife, Shirley Hartmann, (hereinafter "Carrieres") owners of a commercially zoned tract of land located at 2712 N. Arnoult Road in Metairie, Louisiana, entered into a five-year ground lease with Frank Occhipinti, Inc. (hereinafter "Occhipinti"). The lease between the Carrieres and Occhipinti specifically contemplated the development of a restaurant by Occhipinti on the Carriere's land. To this end, in addition to provisions concerning lease payments, liability for taxes, and insurance requirements, provisions concerning the construction of improvements on the land by the lessee and the lessee's ownership thereof,1 the lease contained an option in favor of the lessee to renew the lease for two consecutive five-year terms, the reversion of any improvements constructed by the lessee on the leased premises to the lessor upon termination of the lease,2
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The lease, in pertinent part, contained the following provisions regarding the lessee's construction and ownership of improvements on the leased land: 2. CONSTRUCTION OF IMPROVEMENTS: LESSEE anticipates constructing at its sole cost and expense, improvements to include a building, driveways and parking area (herein referred to as "Improvements") in accordance with the Plans and Specifications annexed hereto.... *** 8. RIGHT TO MAKE ALTERATIONS, TITLE TO AND REMOVAL OF IMPROVEMENTS: LESSEE may make or permit any Subleasee (sic) to make alterations, additions and improvements to the demised premises from time to time and all of such alterations, additions and improvements, including those which may be constructed by LESSEE in accordance with Paragraph 2 hereof, shall be and remain the property of the LESSEE or Sublessee, as the case may be, at all times during the term of this Lease and any extensions or renewals thereof.... The lease contained, in pertinent part, the following provisions concerning reversion of any improvements constructed by the lessee to the lessor upon termination of the lease: 5. LESSEE'S COVENANTS: The LESSEE covenants and agrees that during the term of this Lease and for such further time as the LESSEE, or any person claiming under it, shall hold the demised premises or any part thereof; *** (G) Upon termination of this Lease, either by lapse of time or otherwise, to surrender, yield and deliver up the demised premises in such condition as it shall then be, subject to the provisions of paragraph 8 hereof.... *** 8. RIGHT TO MAKE ALTERATIONS, TITLE TO AND REMOVAL OF IMPROVEMENTS:
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the right of the lessee to mortgage the leasehold estate,3 an option in favor of the lessor to sell the land to the lessee, an option in favor of the lessee to purchase the land from the lessor, and liability of assignees and/or successors of the lease.4 After entering into the lease, Occhipinti obtained financing for the construction of his restaurant from Gulf Federal Savings and Loan Association (hereinafter "Gulf Federal") by pledging both his "leasehold estate" and the improvements which would be built with the loan proceeds on the leased land. However, before Gulf Federal would actually commit to such financing, it demanded amendments to the lease to

...Upon termination of the Lease, for any reasons whatsoever, LESSEE shall return to LESSOR, without cost to LESSOR, the leased ground with such improvements or structures that may have been erected thereon during the term of this Lease, by LESSEE and to convey and vest in LESSOR, title to such buildings, improvements or structures, free and clear of any liens, rights, title, interest, claim or demand whatsoever and to deliver to LESSOR such instrument of title or Deed which LESSOR may reasonably require conveying to LESSOR and vesting in LESSOR, title to such improvements, buildings or structures. The lease, in pertinent part, contained the following provisions concerning mortgaging of the leasehold estate by the lessee: 10. MORTGAGING OF LEASEHOLD ESTATE: In the event that LESSEE shall mortgage its leasehold estate and the mortgagee or holders of the indebtedness secured by the leasehold mortgage shall notify the LESSOR in the manner hereinafter provided for the giving of notice of the execution of such mortgage and name and place for service of notice upon such mortgagee or holder of indebtedness, or holders of indebtedness from time to time. *** (B) Such mortgagee or holder of indebtedness shall have the privilege of performing any of LESSEE's covenants hereunder or of curing any default by LESSEE hereunder or of exercising any election, option or privilege conferred upon LESSEE by the terms of this Lease. *** (E) No liability for the payment of the rental or the performance of any of LESSEE's covenants and agreements hereunder shall attach to or be imposed upon any mortgagee or holder of any indebtedness secured by any mortgagee upon the leasehold estate, all such liability being hereby expressly waived by LESSOR. The lease, in pertinent part, contained the following provision concerning successors and assigns of the lease: 26. BINDING ON SUCCESSORS OR ASSIGNS: The terms, conditions and covenants of this Lease shall be binding upon and shall inure to the benefit of each of the parties hereto, their heirs, personal representatives, successors, or assigns, and shall run with the land.... 3
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insure its position as mortgagee would be protected. The lease was therefore amended on January 10, 19835 to add Gulf Federal in its capacity as "LENDER" as an intervenor in the lease, stating "[t]he parties are desirous of amending said GROUND LEASE in order to induce LENDER to finance the project and its improvements by making a loan to the LESSEE." The amendment to the lease also added the lender as an additional insured for purposes of both liability and destruction of the premises and improvements, and also added, inter alia, provisions concerning the lender's ability to exercise the lessee's rights under the lease and limitations upon the lender's obligations under the lease,6 the lender's ability to exercise the lessee's option to purchase the land, subordination of any mortgage by the lessor of the land to the mortgage of the leasehold estate, and the continued existence of the lender's mortgage until satisfied regardless of termination of the lease or a change in ownership of any improvements constructed by the The lease was also amended on March 1, 1983 to correct a typographical error in the January 10, 1983 amendment to lease. The amendment to the lease, in pertinent part, added the following provisions concerning the lender's right to exercise the rights of the lessee under the lease and limits upon the liability of the lender under the lease: 5. LESSOR and LESSEE agree that the LENDER shall be permitted, at its option, to "stand in the shoes" of the LESSEE and to exercise, on behalf of the LESSEE or itself, all options and rights, and to fulfill all duties and requirements, and to pay any obligations, charges or expense encumbered upon LESSEE to pay. However, the exercising of these rights and meeting these obligations shall not be mandatory on the part of LENDER but shall be optional.
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15. Article 19 is amended as follows: *** The parties agree, however, that any leasehold mortgage to LENDER shall require the LESSEE pledge and mortgage all rights and title it may have to the premises and to its leasehold interest and allow said LENDER to exercise all of LESSEE's rights, to stand in LESSEE's place, and to take over from LESSEE in the event of either a default on said indebtedness or if in the opinion of LESSEE it must act to protect its interests in the leasehold. Nothing contained in this article or in any other part of the lease shall operate to prevent the LENDER from so exercising its right to protect its security interests in the premises. *** 19. The parties hereby agree to all of the above as witnesses (sic) by their signatures below and acknowledge that Gulf Federal Savings and Loan Association of Jefferson Parish, the LENDER herein appears only to enforce its rights and said LENDER shall have no obligation under this lease except as set out and limited above. 4

lessee.7 After the above amendments to the lease were instituted, Gulf Federal issued the proceeds of the loan to Occhipinti and he thereafter constructed a building and parking lot on the leased premises and began operating the facility as a restaurant. In 1987 Occhipinti refinanced the loan from Gulf Federal with Bank of the South ("BOS"). As part of this refinancing, an additional amendment to the lease was made on June 26, 1987 to substitute BOS as the lender and to provide the lessee with an additional option to extend the lease for another five-year term beyond the two five-year options to extend which had been granted in the original lease. This "buyout" of Gulf Federal as the lender by BOS also explicitly incorporated all of the terms and conditions of the original lease and the prior amendments thereto. Therefore, while Occhipinti was, at the time of the refinancing, still in the last year of the original five-year term of the lease, he now had three successive options to extend the lease through October of 2002. By virtue of a subsequent merger between BOS and the Bank of Louisiana in New Orleans ("BOL"), BOL became the holder of the collateral mortgage and note given by Occhipinti and the successor in interest to BOS' position as lender under the lease.8 In 1988, Occhipinti filed for Chapter 11 bankruptcy, which was thereafter converted to a Chapter 7 bankruptcy proceeding on March 28, 1989. In January, 1989, Occhipinti ceased making rental payments due under the ground lease and also failed to pay the 1988 property taxes on either the land or the improvements, as required by the lease. Occhipinti also ceased making mortgage payments to BOL. In May, 1989, the trustee administering the Occhipinti bankruptcy estate rejected the ground lease and dismissed from the bankruptcy proceedings the leasehold improvements as assets of value to the bankruptcy estate. As a result of Occhipinti's failure to make the lease payments or pay the property taxes, the Carrieres issued a notice of default to Occhipinti on June 12, 1989, and, when the default was not

The amendment to the lease, in pertinent part, added the following provision concerning continuation of the lender's mortgage: 8. Article 8 is hereby amended to include the following sentence: "Except that the said improvements shall remain subject to the LENDER's mortgage until said mortgage is fully paid." In refinancing the loan with the Bank of the South, Occhipinti had borrowed $1,200,000.00. The loan was secured by a collateral mortgage on Occhipinti's leasehold estate on the Carriere's land, and included all of the buildings and improvements located thereon. 5
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timely cured under the terms of the lease, a notice to vacate the premises on July 7, 1989. Copies of both of these notices were sent to BOL in accordance with the terms of the lease. Thereafter, on July 19, 1989, the Carrieres filed suit to terminate the lease and evict Occhipinti from the premises. Less than a week later, on July 25, 1989, BOL filed suit for executory process, foreclosing on the Occhipinti note and collateral mortgage. At a Sheriff's sale on September 20, 1989, BOL purchased the mortgaged property, i.e., the "leasehold estate" and the improvements. The Carrieres then amended their suit for eviction to add BOL as a defendant, demanding the lease be declared terminated and the premises vacated. On January 8, 1990, the district court rendered judgment in favor of the Carrieres, declaring the lease terminated and ordering BOL to vacate the premises. BOL appealed the judgment, claiming that as it was now the owner of the improvements constructed on the Carriere's land by Occhipinti by virtue of its purchase of the improvements at the Sheriff's sale, it could not be evicted from its own property. The court of appeal agreed and, finding the lease to still be in effect, reversed the judgment of the trial court: We hold that, as to the Bank of Louisiana, the Carrieres were not entitled to terminate the lease and evict it. However, with regard to Bank of Louisiana's argument that rejection of the lease by the trustee in bankruptcy had the effect of terminating the lease and, with it, the Carrieres' rights, we hold that the lease agreement continues in effect until it is terminated or expires.... We expressly do not rule on the ownership of the property. Disputes as to ownership of property must be adjudicated in an ordinary proceeding and not in a summary eviction proceeding. [Citation omitted]. Nor do we rule on Bank of Louisiana's mortgage rights, as evidence pertaining to that issue is not in the record. In addition, neither the right of the Carrieres to rental payments, if any, nor the right of Bank of Louisiana, if any, to exercise the option to extend the lease is before us. These are issues which must be resolved in other proceedings. Carriere v. Frank A. Occhipinti, Inc., 570 So.2d 43, 46 (La. App. 5th Cir. 1990). Though the Carrieres thereafter filed a writ application in this court, their application was denied. Carriere v. Occhipinti, 575 So.2d 392 (La. 1991). The Carrieres filed the instant suit on March 7, 1991, seeking rental payments and the payment of property taxes by BOL from the date of the foreclosure sale at which BOL had purchased Occhipinti's "leasehold estate" and the improvements. However, on BOL's motion, the trial court granted BOL summary judgment and dismissed the Carrieres' suit. On appeal by the Carrieres, the court of appeal vacated the judgment of the trial court and remanded for trial on the merits. Carriere v. Bank of 6

Louisiana, 602 So.2d 155 (La. App. 5th Cir. 1992). After a trial on the merits, the trial court entered judgment in favor of the Carrieres in the amount of $398,032.05, representing rents and property taxes from the date of BOL's purchase of the "leasehold estate" and improvements at the Sheriff's sale, and attorney fees in the amount of $55,000.00. BOL appealed the judgment of the trial court and, on appeal, the court of appeal concluded "that the bank, by purchasing the lease and the building, and by operating the property as a restaurant, exercised its option to `step into the shoes' of the lessee" and therefore became bound as the lessee and could "no longer take advantage of those articles in the lease governing the rights of the lender." Carriere v. Bank of Louisiana In New Orleans, 95-212, p.13 (La. App. 5th Cir. 9/26/95), 662 So.2d 491, 497. The court of appeal therefore affirmed the trial court award of damages for rents and property taxes. However, because BOL had not had an opportunity to contest the reasonableness of the attorney fees evidence, the court of appeal vacated that portion of the trial court award and remanded the matter to the trial court for consideration of the reasonableness of the attorney fees award. Id. at p.13, 497-98. On application by BOL, we granted the writ to consider the correctness of the court of appeal's decision. Shirley Hartmann, Wife of/and Richard P. Carriere v. Bank of Louisiana in New Orleans, 95-3058 (La. 5/10/96), 676 So.2d 99. Thereafter, this court rendered an opinion affirming the judgment of the court of appeal. Shirley Hartmann, Wife of/and Richard P. Carriere v. Bank of Louisiana in New Orleans, 95-3058 (La. 12/13/96), 684 So.2d 907. Upon application by BOL, we granted the instant rehearing to reexamine our initial resolution of this matter. Shirley Hartmann, Wife of/and Richard P. Carriere, 95-3058 (La. 3/07/97), ___ So.2d ___.

LAW In Louisiana, a lease is a synallagmatic contract by which one party ("lessor") binds himself to grant to the other party ("lessee") the enjoyment of a thing during a certain time, for a certain stipulated price which the other party binds himself to pay. La. C.C. arts. 2669, 2674; Potter v. First Federal S. & L., 615 So.2d 318, 323 (La. 1993). The lessor's and lessee's duties ex contractu are set forth in the parties' contract of lease; in Title IX of the Civil Code, Of Lease, art. 2669 et seq.; and in Title III of the Civil 7

Code, Obligations in General, art. 1756 et seq. Potter, supra at 323. The Civil Code, however, while defining and governing the relationship of the parties to a lease, still leaves the parties free to contractually agree to alter or deviate from all but the most fundamental provisions of the Code which govern their lease relationship: However, the codal articles and statutes defining the rights and obligations of lessors and lessees are not prohibitory laws which are unalterable by contractual agreement, but are simply intended to regulate the relationship between the lessor and lessee when there is no contractual stipulation imposed in the lease. *** Our jurisprudence is that the usual warranties and obligations imposed under the codal articles and statutes dealing with lease may be waived or otherwise provided for by contractual agreement of the parties as long as such waiver or renunciation does not affect the rights of others and is not contrary to the public good. Tassin v. Slidell Mini-Storage, Inc., 396 So.2d 1261, 1264 (La. 1981); see also T.D. Bickham Corp. v. Hebert, 432 So.2d 228 (La. 1983)(upholding lessee's subordination of statutory right to maintain lease on premises after sale of land by lessor). In other words, the lease contract itself is the law between the parties; it defines their respective rights and obligations so long as the agreement does not affect the rights of others and is not contrary to the public good. La. C.C. art. 1983; Frey v. Amoco Production Co., 603 So.2d 166, 172 (La. 1992); Tassin, 396 So.2d at 1264. Along these lines, it has also been long established in Louisiana that the right of occupancy, use and enjoyment possessed by a lessee by virtue of a lease may be severed from the lessee's obligation to pay rents under the lease. See, e.g., Ranson v. Voiron, 176 La. 78, 146 So. 681 (1933); Walker v. Dohan, 39 La. Ann. 743, 2 So. 381 (1887); Hollier v. Boustany, 180 So.2d 591 (La. App. 3rd Cir. 1965), writ denied, 182 So.2d 662 (La. 1966); Morrison v. Faulk, 158 So.2d 837 (La. App. 4th Cir. 1963), writ denied, 160 So.2d 229 (La. 1964). Finally, where the parties to a lease intend to agree that one of the parties shall subordinate one or more of his codal rights to the rights or interests of the other party, such subordination must be specific and unambiguous. T.D. Bickham, 432 So.2d at 230. Though the right to possess, occupy or use the land of another may exist by virtue of agreement or by operation of law, it is axiomatic that one possessing, occupying or using the land of another must have 8

a legal right of one type or the other to such possession, occupation or use. See Title II of the Civil Code, Ownership, art. 477 et seq. In this regard, though the Civil Code explicitly provides that buildings and other constructions permanently attached to the ground may belong to a person other than the owner of the ground, see La. C.C. arts. 491 and 493, the Code further provides that when such an owner no longer has the right to keep them on the land of another he must, upon written demand of the owner of the ground, remove them within 90 days after such written demand. La. C.C. art. 493. If the owner of such buildings or other constructions fails to timely remove them, the owner of the ground acquires ownership of such buildings or other constructions with no obligation to compensate the former owner. Id. Applying the above precepts, a lessee who has availed himself of his statutory right9 to mortgage his interests in his lease may mortgage either: (1) his entire lease, which includes all of the lessee's rights, duties and obligations under the lease, including the obligation to pay rents; or (2) only his right of occupancy, use and enjoyment under the lease. If the lessee mortgages his entire lease, defaults on the mortgage, and the mortgagee forecloses, the purchaser at the Sheriff's sale becomes the owner of the lease, i.e., the lessee, and acquires all of the lessee's rights, duties and obligations under the lease, including the obligation to pay rent. As such, absent a specific and unambiguous subordination by the lessor, he acquires the original lessee's obligation to pay rents and he also acquires, in addition to the original lessee's right of

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La. C.C. art. 3286, in pertinent part, provides: The only things susceptible of mortgage are: *** (4) The lessee's rights in a lease of an immovable with his rights in the buildings and other constructions on the immovable.

This provision, derived from former La. R.S. 9:5102, was added to La. C.C. art. 3286 in 1991. See Acts 1991, No. 652,

Download 95-C-3058 SHIRLEY HARTMAN, WIFE OF/AND RICHARD P. CARRIERE v. BANK OF LOUISIANA

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