Fraud, Peremption & the Revocatory Action

Posted on: February 10, 2014 | Posted in: News

Fraud, Peremption & the Revocatory Action

By Albert J. Derbes, IV
Chair, NOBA Bankruptcy & Debtor/Creditors' Rights Committee

 

The Louisiana Legislature’s recent amendment to La.C.C. art. 2041 should bring joy to creditors, bankruptcy trustees and their counsel, yet consternation to debtors and (perhaps) their counsel.  The act eliminates the three year peremptive period in cases of "fraud." As amended by 2013 Acts, No. 88, §1, La.C.C. art. 2041 states:

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, of the obligor that the obligee seeks to annul, but never after three years from the date of that act or result.

The three year period provided in this Article shall not apply in cases of fraud.

(emphasis supplied; emphasis reflects the amendment).

                The 2013 act reintroduces the concept of fraud into revocatory actions - - albeit only in connection with the peremptive period. In studying the jurisprudence on the relationship of fraud to revocatory actions, one should be careful to note that “[p]rior to January 1, 1985, fraud was the underlying cause which allowed acts affecting property to be revoked.” Thomassie v. Savoie, 581 So.2d 1031, 1033 (La. App. 1st Cir. 1991). Since January 1, 1985, revocatory actions are based in the more objective criteria of whether an “[a]ct of the obligor … causes or increases his insolvency.” La.C.C. art. 2036; see also 1984 Revision Comments (a) & (b). Thus, while the Louisiana Legislature has kept objective the analysis as to whether a revocatory action exists under La.C.C. art 2036, et seq., introduction of intent is now relevant to the peremptive period.

 Practioners should take care to observe that no Revision Comment is supplied in connection with the 2013 amendment to La.C.C. art. 2041. Confusedly, the out of date 1984 Revision Comment to La.C.C. art. 2041 incorrectly reads:

to protect the security of transactions, the revocatory action may not be brought after three years from the date of the act or the result of the failure to act of the obligor.

1984 Revision Comment (a) to La.C.C. art. 2041 [sic].

                Finally, all counsel, whether representing debtors, creditors or bankruptcy trustees, should consider the issue of retroactive application of the recent amendment. The Thomassie court’s analysis of the retroactivity of the 1984 amendments would be an appropriate starting point for the analysis. See Thomassie at 1033-35.

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About the Author

Albert J. Derbes, IV chairs the Bankruptcy Committee of the New Orleans Bar Association. He is a founding member of the ten attorney Derbes Law Firm, LLC. He practices in the areas of bankruptcy, commercial litigation, entity law and contracts.

*Note this article was originally published in the Winter 2014 issue of Briefly Speaking titled incorrectly. We regret the error.