Note that there are two discussions here, about separate points in the same case.

Daily Development Tuesday, October 9, 2001

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

ESTATES IN LAND; CONDITIONAL ESTATES: Louisiana court will enforce a condition that title reverts to grantor should grantee "ever cease to permanently occupy the property."

LeBlanc v. Romero, 783 So.2d 419 (La. App. 2001)

The court characterizes the transferor of the interest in question here as a "vendor." It states that the vendor entered into a "cash sale" whereby he sold one acre of land to Defendant Romero for $2000. The court says that the parties entered into an "act of sale," and does not mention whether a deed passed. Nevertheless, it appears that Romero paid the entire $2000 and that he took possession of the property. Sounds like the passage of title.

The "act of sale" contained the following provision:

"Vendor hereby retains a right of reversion in that should Vendee ever cease to permanently occupy the property sold herein, then title to the property sold herein shall immediately revert back to Vendor."

Romero lived on the property for over three years. Near the end of that time, Romero mortgaged the property to Bank. A few months later, Romero commenced living in a nearby town and leased the home on the property to a nephew. Romero stored tools on the property and kept sheep there.

Vendor returned the $2000 that Romero had paid and asserted that he had exercised the reversion and demanded possession of the property.

The trial court granted Vendor's claim and the appeals court here affirmed.

The court noted that the creation of a "right of redemption" in an "act of sale" is recognized by the Louisiana Civil Code, which permits such rights to operate for up to ten years from sale. Because the Bank's mortgage attached to an interest that was subject to a recorded right of redemption, the Bank interest was subject to the redemption exercised by Vendor, and the mortgage no longer attached to the property. (The court does not indicate whether the Bank had an equitable claim to the $2000 - one assumes that it would have such a claim.)

Comment 1: Would a common law court find that this condition operates as a restraint on alienation? Note that the vendor has to refund the money, but of course the value of the property could have increased considerably, so there is the danger of forfeiture, similar to a fixed price option. Since it would appear that the redemption right could be exercised under the statute at the unfettered discretion of the vendor, the fact that it is based here on the vendee's failure to occupy the property would not seem to be all that significant. Note that the limit of ten years might save the condition even in a common law court.

Comment 2: Is the arrangement similar to an equitable mortgage, in which the vendor acts as a mortgagor and the vendee as the "lender"/mortgagee? Sure looks like it. Such a characterization wouldn't change the outcome in this case, but the sale with an option back for a fixed price often will be scrutinized for other characteristics of a debtor/creditor relationship. In Louisiana, since the statute approves it, it's probably OK.

WORDS AND PHRASES; "OCCUPY:" In the context of a condition on ownership in which a party retains a right of reversion if the owner of the property should "cease to permanently occupy" the property, the term "occupy" means to reside.

LeBlanc v. Romero, 783 So.2d 419 (La. App. 2001) (discussed under the heading: "Estates in Land; Reversion."

Hence, the fact that the owner of the property retained such ownership and continued to control the property by leasing it to another and even kept tools and raised sheep on the property did not constitute "occupancy." The owner maintained his residence elsewhere, and thus the reversion could be invoked.

The court acknowledged that the term could have various meanings in various contexts, although it cited to language in Louisiana's homestead law that used "occupy to mean "reside." It noted that there was evidence in this case that the motive of the grantor who retained the reversion was to see to it that his daughter, who lived with the grantee/purchaser, would reside near to him. The court noted that this evidence was not admissible to vary the terms of the contract, it was admissible to show consideration.

Comment 1: Although the evidence of the grantor's intent might be admissible to show consideration, it is unclear why consideration would be relevant in this case. The court undoubtedly used the outside evidence to assist in interpretation, and there is little doubt that it was presented for this purpose. The concurrence would have denied the admission of this evidence, but would have interpreted the clause the same way.

Comment 2: The reversionary device used by the grantor was approved by statute, but nevertheless one would expect a court to read a forfeiture clause as narrowly as possible, and there certainly were other constructions of the word "occupy."

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