Case Name: Joseph H. KAVANAUGH, et al. v. Marian Mayer BERKETT, et al.
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1981-06-22
Citations: 407 So. 2d 645
Docket Number: No. 80-C-1526
Parties: Joseph H. KAVANAUGH, et al. v. Marian Mayer BERKETT, et al.
Judges: CALOGERO, J., dissents and assigns reasons.
Reporter: Southern Reporter, Second Series
Volume: 407
Pages: 645–651

Head Matter:
Joseph H. KAVANAUGH, et al. v. Marian Mayer BERKETT, et al.
No. 80-C-1526.
Supreme Court of Louisiana.
June 22, 1981.
Order for Motion to Dismiss Aug. 24, 1981.
John Dale Powers, Michael H. Rubin, of Sanders, Downing, Kean & Cazedessus, Baton Rouge, for plaintiff-applicant.
Ralph I. Kaskell, Jr., of Deutsch, Kerri-gan & Stiles, New Orleans, for defendant-respondent.

Opinion:
MARCUS, Justice.
In 1967, Joseph H. Kavanaugh and Bil-wood Smith began negotiating with Mrs. Marian Mayer Berkett to lease a certain thirteen-acre tract of unimproved land fronting on the South Acadian Thruway adjacent to Interstate-10 in East Baton Rouge Parish. Mrs. Berkett, a New Orleans attorney, owned the land with other members of her family, namely, Maurice J. Mayer, Jr., Rhea Mayer Cohn and Lois Brier Mayer and her two minor children, Charles Denis Mayer and Margaret Mayer. Mrs. Berkett prepared the lease in which the lessors agreed to permit the lessees "to mortgage" the leased property for the financing of the physical improvements placed on the property provided the mortgage required no personal liability on the part of the lessors and the lessees deposited with an escrow agent a certain amount of government bonds as security. On January 12,1968, Lois Brier Mayer, natural tutrix of her minor children, obtained a court order authorizing her to lease the minors' interest in said property under the terms and conditions set forth in the attached lease and naming Mrs. Berkett as her agent-in-fact with authority to execute "all documents and papers necessary to effect the lease." The lease was signed on April 29, 1968. Bilwood Smith's interest was subsequently assigned to Robert B. Tudor, Jr.
Shell and Gulf service stations and a Sambo's restaurant were constructed on the property without the need of a mortgage; however, the financing for the construction of a Smuggler's Inn restaurant required the mortgage of the land for the proposed restaurant. A series of negotiations between lessees and Mrs. Berkett were held to formulate a mortgage that would satisfy both Mrs. Berkett and the lender. A stalemate was reached as Mrs. Berkett made it clear that the lessors would not execute any mortgage containing a confession of judgment and waiver of notice and appraisement.
Lessees then brought this action against lessors seeking a declaratory judgment interpreting the lease to require the lessors to sign a "commercially acceptable in rem mortgage" on the leased property and specifically to require them to sign the mortgage submitted by lessees "under the Savings Life Insurance Company commitment." Lessees further prayed for damages for anticipatory breach of the contract. At trial, it was established that after much delay caused by the lessors' refusal to sign a mortgage in favor of Savings Life Insurance Company to finance construction of the Smuggler's Inn, the lessees obtained financing through another lender under more onerous terms. The lessors had refused to sign the mortgage because it contained a confession of judgment and waiver of notice and appraisement.
The trial judge rendered judgment in favor of lessees and against the lessors, interpreting the words "to mortgage" as set forth in the lease agreement to mean a "commercially feasible mortgage" and awarding damages in the amount of $147,-000 for the lessors' failure to execute such a mortgage. Lessors appealed.
The court of appeal reversed, holding that because minors were involved, the execution of the lease, on behalf of the minors and by the majors, required only the execu tion of a "simple mortgage" by the lessors, that is, one not containing a confession of judgment and waiver of notice and ap-praisement. Therefore, since the lessors were not obligated to execute a mortgage containing a confession of judgment and waiver of notice and appraisement, lessors could not be held liable in damages for failure to execute the mortgage in favor of Savings Life Insurance Company which contained those clauses. On lessees' application, we granted certiorari to review the correctness of that decision.
The ninth article of the lease stated in pertinent part:
(A) LESSEE shall not place any mortgage, lien, privilege, or encumbrance on or against the leased property or permit any of its creditors to do so without LESSOR'S prior written consent.
(B) Upon request and during the primary term (first twenty years) of this lease, LESSOR agrees to permit LESSEE to mortgage the leased property or a portion thereof for the purpose of providing initial interim or initial permanent financing of the cost of physical improvements placed or to be placed on the property covered by the mortgage, provided the LESSEE first satisfies the following terms and conditions:
1 — The mortgage shall involve and shall require no personal or direct obligation on the part of the LESSOR and shall bear only against LESSOR'S land and more specifically, against that portion of the leased property specifically mortgaged.
2 — Before any mortgage is placed on any of the leased property for initial interim or initial permanent financing for the purposes described above, LESSEE shall deposit with an escrow agent, fulfilling the requirements set forth in Sub-paragraph 3 of this Article, negotiable United States Bonds having a market value at the time of the deposit in escrow equal to or in excess of an amount referred to in this lease as the Security Amount, and the Security Amount shall be determined in the following manner:
Although the lessors' prior written consent is needed before the lessees can place a mortgage on the property in question, the lease requires the lessors to permit the lessees "to mortgage" the leased property for financing the cost of physical improvements placed on the property provided the mortgage is an in rem mortgage, that is, one that bears only against that portion of lessors' land specifically mortgaged and involves no personal obligation on the part of the lessors, and the lessees deposit with an escrow agent a certain amount of government bonds as security.
Lessees contend the term "to mortgage" as used in this lease means a "commercially acceptable in rem mortgage" whereas lessors contend the term means only a "simple mortgage," that is, one not requiring a confession of judgment and waiver of notice and appraisement. Therein lies the controversy.
Joseph H. Kavanaugh testified that the sole purpose he and Bilwood Smith leased the property was to develop it commercially. To do this, it was necessary to be able to mortgage the property as security for loans. He stated that Mrs. Berkett was fully aware of their intended use of the property and knew the loans would be made by commercial lenders. Mrs. Berkett testified that she was aware that the property was going to be developed commercially but insisted that the right "to mortgage" given in the lease was intended to be very restrictive and that she had agreed only to permit a "simple mortgage" as provided by the civil code. Mr. Kavanaugh testified that they never would have signed the lease had Mrs. Berkett indicated that the lessors would not allow a mortgage containing a confession of judgment and waiver of notice and appraisement because only a mortgage containing those clauses would be acceptable to commercial lenders. Mrs. Berk-ett stated that she was never asked to con fess judgment or waive any rights. She further stated that she would never have allowed the lease to contain the words "commercially acceptable in rem mortgage" and did not "agree to give them whatever any lender would demand[,] . give carte blanche [or] . write out a blank check." Mr. Kavanaugh testified that Mrs. Berk-ett's actions, conversation and correspondence made it clear that she did not intend to allow a mortgage under any circumstances. He further stated that he had made arrangements with a bank to transfer a certificate of deposit into an escrow account immediately upon the execution of a mortgage.
Four attorneys were qualified by the court as experts in the field of real estate mortgages. All testified to the effect that commercial lenders require certain usual and customary clauses in mortgages, including a confession of judgment, pact de non alienando and waiver of appraisal, in order to permit executory process and that failure to include these clauses would render a mortgage unacceptable to them. They further testified that lawyers using the term "mortgage" consider it to include all the usual and customary security clauses, including a confession of judgment, pact de non alienando and waiver of appraisal.
Agreements legally entered into have the effect of laws on those who formed them and must be performed with good faith. La.Civ.Code art. 1901. Courts are bound to give legal effect to all such contracts according to the true intent of the parties. La.Civ.Code art. 1945. Terms of art or technical phrases are to be interpreted according to their received meaning with those who profess the art or profession to which they belong. La.Civ.Code art. 1947. All clauses of agreements are interpreted the one by the other, giving to each the sense that results from the entire act. La. Civ.Code art. 1955.
Applying these principles of interpretation to the lease in question, we conclude that the term "to mortgage" means a mortgage containing the usual and customary security clauses such as a confession of judgment and waiver of notice and ap-praisement. It is clear from the lease itself, as well as the testimony of Mr. Kavanaugh and Mrs. Berkett, that the lessees intended to develop the property commercially and that the lessors were aware of this. All four experts testified that lawyers using the term "mortgage" consider it to include the usual and customary security clauses. Furthermore, this court has observed that "undoubtedly the prevailing custom in the execution of conventional mortgages in this state is to include therein the pact de non alienando, confession of judgment, and waiver of appraisement." Gumpert v. Signal, 180 La. 59, 156 So. 174 (1934). While we agree with the lessors that they are not required to accept any mortgage submitted by any commercial lender, we hold that under the lease, they are obligated to permit the lessees to mortgage the property with an in rem mortgage containing the usual and customary security clauses such as a confession of judgment and waiver of notice and appraisement.
The court of appeal held that because minors were involved at the time the lease was signed, the lessors were required only to execute a "simple mortgage." This decision was based on jurisprudence that authority to execute a "mortgage" where minors and interdicts are involved confers only the authority to execute a mortgage not containing a confession of judgment and waiver of notice and appraisement. See Kling Mortgage Investment Co. v. Donovan, 178 La. 119,150 So. 850 (1938); Scottish-American Mortgage Co. v. Ogden, 49 La.Ann. 8, 21 So. 116 (1896); Hendry v. Nicoiosi, 126 So. 21, 71 (La.App. 1st Cir. 1961). In the cited cases, the tutor or curator received a general court order authorizing him to borrow money and execute a mortgage on behalf of minors and interdicts. These cases held that the court order did not authorize the execution of a mortgage containing a confession of judgment, pact de non alienando and waiver of appraisal and accordingly held such provisions unenforceable.
The instant case is clearly distinguishable. In her petition for authority, Lois Brier Mayer, natural tutrix of the minors, stated that each minor owned an undivided one-sixth interest in the property and that she believed it would be "to the minors' advantage to enter into both the option to lease and the lease under terms and conditions offered and . that the adults who are co-owners in indivisión with the minors and who had a larger interest in the property, believe that both agreements are highly advantageous to all concerned." A copy of the lease was attached to the petition as an exhibit. The ninth article of the lease makes it clear that should the property be mortgaged, the minors, as lessors, would incur no personal liability. Additionally, the minors' interest in the property itself would be protected by the deposit of government bonds in an escrow account as security. The court order signed pursuant to the petition for authority specifically authorized the tutrix to lease the minors' interest in the property under the "terms and conditions set forth in the petition and exhibits attached." The lease, attached as an exhibit, included the provision in which the lessors agreed to permit the lessees "to mortgage" the leased property. The order further named Mrs. Berkett as her attorney-in-fact with authority to execute "all documents and papers necessary to effect the lease."
In view of the above facts, we conclude that the judge's order authorized not only the signing of the lease but also the mortgaging of the property with the usual and customary security clauses, including a confession of judgment and waiver of notice and appraisement. The court of appeal erred in holding otherwise.
Moreover, the two lessors who were minors at the time the lease was executed have accepted rental payments under the lease since reaching majority. Their acceptance of rent has clearly validated the lease in its entirety, including the mortgage provisions, by ratification. La.Civ.Code arts. 1785, 2228.
In conclusion, we hold that the lessors were obligated to permit the lessees to mortgage the property with an in rem mortgage containing the usual and customary security clauses such as a confession of judgment and waiver of notice and ap-praisement. By refusing to do so, the lessors breached the lease agreement and are liable in damages. Since the court of appeal concluded that the lessors were not obligated to execute such a mortgage and were therefore not liable in damages for their failure to do so, the court did not reach the issue of damages. We therefore consider it more appropriate to remand the case to the court of appeal to review the trial court's award of damages.
DECREE
For the reasons assigned, the judgment of the court of appeal is reversed and the case is remanded to the court of appeal for further proceedings consistent with the views herein expressed.
CALOGERO, J., dissents and assigns reasons.
LEMMON, J., dissents.
. 387 So.2d 1270 (La.App. 1st Cir. 1980).
. 390 So.2d 1344 (La.1980).