London Towne Condo. Ass'n v. London Towne

• Decision Date: 17 October 2006
• Docket Number: No. 2006-CC-401.,2006-CC-401.
• Citation: London Towne Condo. Ass'n v. London Towne, 939 So.2d 1227 (La. 2006)
• Parties: LONDON TOWNE CONDOMINIUM HOMEOWNER'S ASSOCIATION v. LONDON TOWNE COMPANY, et al.
• Court: Louisiana Supreme Court

939 So.2d 1227

LONDON TOWNE CONDOMINIUM HOMEOWNER'S ASSOCIATION v. LONDON TOWNE COMPANY, et al.

No. 2006-CC-401.

Supreme Court of Louisiana.

October 17, 2006.

COPYRIGHT MATERIAL OMITTED

The Steeg Law Firm, Charles L. Stern, Jr., Alan M. Cohen, New Orleans, for applicant.

Fred L. Herman, Thomas J. Barbera, Daniel W. Nodurft, New Orleans, for respondent.

VICTORY, J.

We granted this writ application to resolve a split among the circuits as to the correct interpretation of Louisiana Civil Code Article 2041, which provides the prescriptive and peremptive periods for bringing a revocatory action. After reviewing the record and the applicable law, we reverse the judgment of the court of appeal and hold that, where the obligee seeks to annul an act of the obligor, the relevant date for prescriptive purposes is the date the obligee knew or should have known of the act, and that the date of recordation of the act does not, standing alone, commence the running of prescription.

FACTS AND PROCEDURAL HISTORY

On August 28, 2001, the London Towne Homeowner's Association (the "Association") filed suit against the London Towne Condominiums (the "LTC") in the 24th Judicial District Court to collect amounts due for association dues and for defects in the condominiums (the "Lawsuit"). On May 24, 2004, the 24th Judicial District Court signed a judgment in favor of the Association and against LTC in the principal amount of $281,899.16, plus legal interest, expert witness fees and attorney's fees. LTC did not appeal the judgment, which has not been satisfied.

On August 19, 2000, LTC acquired Unit 9 of 1201 Chartres Street in New Orleans for $202,000.00. On February 1, 2002, after the Lawsuit was filed, but prior to the entry of judgment against LTC, LTC executed an Act of Sale by which it purportedly sold the property to Millennium Group I, LLC ("Millennium") for $202,000.00. The February 1, 2002, Act of Sale was recorded in the Orleans Parish conveyance records on February 19, 2002.

The Association alleges that shortly after obtaining its judgment against LTC, the Association learned of the 2002 transfer of the Chartres Street property. Believing that the transfer was part of a scheme to place LTC's assets out of the reach of its creditors, the Association filed a Petition for Declaratory Judgment in Orleans Parish on November 18, 2004, challenging the transfer under both the revocatory action and simulation articles of the Civil Code,¹ and seeking to have the transfer adjudged either an absolute or relative nullity. On June 2, 2005, Millennium filed peremptory exceptions of no cause of action and no right of action in response to the action in simulation and a peremptory exception of prescription in response to the revocatory action. Millennium argued that the Association's revocatory action was prescribed on its face under La. C.C. art.2041 because it was filed more than one year after the date the document evidencing the transfer was recorded.

By judgment dated July 13, 2005, the trial court denied Millennium's exceptions. LTC sought supervisory review of the denial of its exception of prescription. The court of appeal granted LTC's writ and reversed the judgment of the trial court, holding that "Millennium met its burden of proof to show that the Association's revocatory action had prescribed, since over a year has passed from the date on which the Association received constructive notice of the sale," which the court of appeal ruled was the date the Act of Sale was recorded. London Towne Condominium Homeowner's Association v. London Towne Company, et al., 05-1243 (La.App. 4 Cir. 1/18/06). We granted this writ application to resolve a split in the circuits as to commencement of prescription of a revocatory action under La. C.C. art.2041. London Towne Condominium Homeowner's Association v. London Towne Company, et al., 06-0401 (La.5/5/06), 927 So.2d 298.

DISCUSSION

Louisiana Civil Code articles 2036-2043 provide the rules applicable to the revocatory action, pursuant to which "[a]n obligee has a right to annul an act of the obligor, or the result of a failure to act of the obligor, made or effected after the right of the obligee arose, that causes or increases the obligor's insolvency²." La. C.C. art.2036. These code articles dictate the type of relief to which an obligee is entitled and the procedures which must be followed in a revocatory action.³ Civil Code article 2041 provides as follows:

The action of the obligee must be brought within one year from the time he learned or should have learned of the act, or the result of the failure to act,⁴ of the obligor that the obligee seeks to annul, but never after three years from the date of that act or result.

When prescription is raised by peremptory exception, with evidence being introduced at the hearing on the exception, the trial court's findings of fact on the issue of prescription are subject to the manifest error-clearly wrong standard of review. Carter v. Haygood, 04-0646 (La.1/19/05), 892 So.2d 1261, 1267. Under the manifest error standard of review, a factual finding cannot be set aside unless the appellate courts finds that it is manifestly erroneous or clearly wrong. Smith v. Louisiana Dept. of Corrections, 93-1305 (La.2/28/94), 633 So.2d 129, 132; Stobart v. State through Dept. of Transp. and Development, 617 So.2d 880, 882 (La.1993); Rosell v. ESCO, 549 So.2d 840, 844 (La.1989). In order to reverse a fact finder's determination of fact, an appellate court must review the record in its entirety and (1) find that a reasonable factual basis does not exist for the finding, and (2) further determine that the record establishes that the fact finder is clearly wrong or manifestly erroneous. Id. The appellate court must not re-weigh the evidence or substitute its own factual findings because it would have decided the case differently. Id.; Pinsonneault v. Merchants & Farmers Bank & Trust Co., 01-2217 (La.4/3/02), 816 So.2d 270, 278-79. Where there are two permissible views of the evidence, the fact finder's choice between them cannot be manifestly erroneous or clearly wrong. Id.

In reversing the judgment of the trial court, the court of appeal relied on its prior holding in Allied Shipyard, Inc. v. Edgett, 03-1315 (La.App. 4 Cir. 2/11/04), 868 So.2d 189, writ granted, 04-0503 (La.4/23/04), 870 So.2d 281 (case settled after writ grant). Allied Shipyard held that prescription under La. C.C. art.2041 begins to run when the obligee-creditor knew or should have known of the donation which they alleged created or increased the insolvency of the debtor, which is when the donation sought to be set aside was recorded in the public record. 868 So.2d at 192. Based on Allied Shipyard, the court of appeal held:

La. C.C. art.2041 clearly provides for constructive notice to trigger the running of prescription based on its express provision that a revocatory action shall be brought within one year from the time the creditor learned or should have learned of the act. Although the Association argues and the trial court reasoned that prescription should not commence until the Association learned that it had been damaged by the transfer, we find nothing in the record supporting an alternative date from which the Association claims that prescription should have run. Millennium met its burden of proof to show that the Association's revocatory action had prescribed, since over a year has passed from the date on which the Association received constructive notice of the sale.

London Towne Condominium Homeowner's Ass'n, 95-1243, p. 3.

The court in Allied Shipyard made clear its disagreement with the view of the Third Circuit, which has held that prescription does not begin to run until the creditor has constructive knowledge of the damage caused by the act which increases the insolvency of the debtor, rather than the date of the act itself. First Federal Savings & Loan Ass'n of Lake Charles v. Jones, 620 So.2d 408 (La.App. 3 Cir.), writ denied, 629 So.2d 347 (La.1993); Jeme, Inc. v. Gold Coast Carpets, Inc., 94-182 (La.App. 3 Cir. 10/5/94), 643 So.2d 898. The Third Circuit reasoned in First Federal that "before First Federal could exercise its right to the revocatory action, it first had to be able to prove that it had been damaged by its debtor's actions." 620 So.2d at 411. Thus, "[t]he trial court's reliance on the recordation date of the trust instrument in the public records as the date prescription began to run was clearly misplaced." Id.

The First Circuit has reached yet another conclusion as to the interpretation of La. C.C. art.2041. In Parish Nat. Bank v. Wilks, 04-1439 (La.App. 1 Cir. 8/3/05), 923 So.2d 8, 15, a case with essentially the same facts for prescription purposes as the case sub judice, the court "decline[d] to find that the time of the filing of the act of donation in the conveyance records was the date when [the creditor] knew or should have known of the act of donation, so as to commence the prescriptive period on its revocatory action." In so holding, the First Circuit correctly relied on our holding in Phillips v. Parker, 483 So.2d 972 (La.1986), which explained the public records doctrine as follows:

The fundamental principle of the law of registry is that any sale, mortgage, privilege, contract or judgment affecting immovable property, which is required to be recorded, is utterly null and void as to third persons unless recorded. When the law of recordation applies, an interest in immovable property is effective against third persons only if it is recorded; if the interest is not recorded, it is not effective against third persons, even if the third person knows of the claim. . . .

Thus, the law of registry does not create rights in a positive sense, but rather has the negative effect of denying the effectiveness of certain rights unless they are recorded. The essence of the public records doctrine is that recordation is an essential element for...