Kitchens, Graydon K., Jr.

English

Louisiana State University: DigitalCommons @ LSU Law Center

Louisiana Law ReviewVolume 23 | Number 1Louisiana Legislation of 1962: A SymposiumDecember 1962Sales - Contracts To Sell - Damages for Failure toPerform Due To Vendor's Inability to Convey TitleGraydon K. Kitchens Jr.This Note is brought to you for free and open access by the Law Reviews and Journals at LSU Law Digital Commons. It has been accepted for inclusionin Louisiana Law Review by an authorized editor of LSU Law Digital Commons. For more information, please contact kreed25@lsu.edu.Repository CitationGraydon K. Kitchens Jr., Sales - Contracts To Sell - Damages for Failure to Perform Due To Vendor's Inability to Convey Title, 23 La. L. Rev.(1962)Available at: https://digitalcommons.law.lsu.edu/lalrev/vol23/iss1/15NOTESSALES - CONTRACTS TO SELL - DAMAGES FOR FAILURE ToPERFORM DUE TO VENDOR'S INABILITY To CONVEY TITLEDefendant contracted to sell immovable property to plaintiff,who deposited $1000 toward the purchase price. Upon defend-ant's inability to deliver title because he had previously sold theproperty to another, plaintiff sued for a return of double thedeposit.' The trial court allowed a return of the deposit, butrejected the claim for double the deposit. The court of appealaffirmed. Held, Civil Code Article 24632 requires a return ofdouble the deposit only when breach of the contract to sell isarbitrary; inability of the vendor to convey title because he haspreviously sold the property in question is not arbitrary. Allenv. Ponchatoula Beach Development Corporation, 137 So. 2d 649(La. App. 1st Cir. 1962).In Louisiana any money deposited on a contract to sell animmovable is presumed to be earnest money unless otherwisestipulated.3 Either party may recede from a contract upon whichearnest money has been deposited by suffering the penalty pro-vided by Civil Code Article 2463: the "buyer" by forfeiting thedeposit; the "seller" by returning double the deposit.4 The cases1. Plaintiff also sued the corporation of which defendant was the general man-ager. On trial of the case it was shown that defendant had sold the property inquestion to the corporation before he entered into the contract to sell to the plain-tiff. Plaintiff alleged that defendant entered into the contract as agent for thecorporation, and asked for specific performance of the contract. However, this.claim was abandoned by stipulation between the parties in the trial court.2. LA. CIVIL CODE art. 2463 (1870) : "But if the promise to sell has been madewith the giving of earnest, each of the contracting parties is at liberty to recedefrom the promise; to wit: he who has given the earnest, by forfeiting it; and hewho has received it, by returning the double."3. Haeuser v. Schiro, 235 La. 909, 106 So. 2d 306 (1958) ; Maloney v. Aschaf-fenburg, 143 La. 509, 78 So. 761 (1918) ; Smith v. Hussey, 119 La. 32, 43 So. 902(1907) ; Capo v. Bugdahl, 117 La. 992, 42 So. 478 (1906). For a discussion of'the French and Roman concepts of earnest money, see Hebert, The Function of'Earnest Money in the Civil Law of Sales, 11 LOYOLA L. REV. 121, 140 (1930) -3 OEUVRES DE POTHIER, TRAITI DE CONTRAT DE VENTE n- 496-509 (2d ed. 1861).4. LA. CIVIL CODE art. 2463 (1870). When earnest money is deposited with,a contract to sell an immovable, neither party is entitled to specific performance.Haeuser v. Schiro, 235 La. 909, 106 So. 2d 306 (1958). Thus if A contracts to.sell an immovable to B three months from the date of the contract, with a $100'deposit as earnest money, and before consummation of the sale the market valueis increased by $200, A can save $100 by receding from the contract and return-ing double the deposit. B's only recourse is to accept double the deposit, for hecannot get specific performance.Conversely, if the market value decreases by $200 before the sale is to be con-[133]LOUISIANA LAW REVIEW [Vol. XXIIIthat have considered whether recovery of double the depositshould be allowed when the seller is unable to deliver valid titlehave not been consistent. Early cases allowed a seller who wasunable to deliver valid title to recede from the contract only uponreturning double the deposit.5 Later jurisprudence, however,adopted the view that the seller had to return only the deposit,not its double, unless he arbitrarily violated his promise.6 Onecase specifically held that inability to deliver a merchantabletitle was not an arbitrary breach and that the seller thus was notbound to return double the deposit.7The result is different if the contract to sell provides thatthe buyer may demand double the deposit or specific perform-ance. In this situation the courts hold the deposit not to beearnest money, and permit recovery of double the deposit evenif the seller is unable to deliver a valid title.8 The rationale ofthis conclusion has been said to be that earnest money is depos-ited to secure to the parties the privilege of withdrawing fromthe contract; since the parties reserved the right to demand spe-cific performance, they did not intend to reserve the right towithdraw, and thus did not intend the deposit to be earnestmoney.9 This jurisprudential distinction between earnest moneyand money deposited under a contract which provides for re-turn of double the deposit or specific performance seems unjusti-fied. Since both are essentially liquidated damages,' it wouldsummated, B can save $100 by receding from the contract and forfeiting the de-posit. A must accept the return of the deposit, for he has no right to specificperformance.5. Lyons v. Woman's League of New Orleans, 124 La. 222, 50 So. 18 (1909)Legier v. Braughn, 123 La. 463, 49 So. 22 (1909) ; Smith v. Hussey, 119 La. 32,43 So. 902 (1907).6. Morgan & Lindsey v. Ellis Variety Stores, 176 La. 198, 145 So. 514 (1933)Baton Rouge Investment & Realty Co. v. Bailey, 157 La. 838, 103 So. 184 (1925)Williams v. Meyer, 29 So. 2d 599 (La. App. Orl. Cir. 1947).7. Williams v. Meyer, 29 So. 2d 599 (La. App. Orl. Cir. 1947).8. Kinler v. Griffin, 251 F.2d 655 (5th Cir. 1958) ; Poche v. Ruiz, 239 La.573, 119 So. 2d 469 (1960) ; Caplan v. Airport Properties, 231 La. 1071, 93 So. 2d661 (1957) (transcript shows that contract provided for a double return of thedeposit, or specific performance) ; Ducuy v. Falgoust, 228 La. 533, 549, 83 So. 2d118, 123 (1955) (contract provided: "In the event . . . the vendor does notcomply with this agreement to sell within the time specified, purchaser shall havethe right either to demand the return of double the deposit, or specific perform-ance.") ; Williams v. Terese, 120 So. 2d 80 (La. .App. Orl. Cir. 1960).9. See Ducuy v. Falgoust, 228 La. 533, 83 So. 2d 118 (1955).10. Morgan & Lindsey v. Ellis Variety Stores, 176 La. 198, 218, 145 So. 514,520 (1932) : 'Me giving of earnest money . .. is like the posting of a forfeit,or liquidated damages . .. ."The contract provision in Ducuy v. Falgoust, 228 La. 533, 83 So. 2d 118(1955), providing for a double return of the deposit, or specific performance, wastreated as stipulated or liquidated damages.NOTESappear that the proper question in both cases is what should beconsidered an adequate defense to the buyer's demand for dam-ages. The contract is one to sell, and not a sale; thus, the CivilCode articles dealing with perfected sales seem inappropriate,and the articles dealing with conventional obligations shouldapply."The Civil Code provides that a promisor prevented from per-forming his obligation by an irresistible force or fortuitousevent is not required to pay damages. 12 An irresistible force orfortuitous event implies a supervening event beyond the controlof the promisor. 18 Thus it has been held a valid defense that per-formance became impossible because of a third person's actiontaken after the obligation was assumed. 14 Although no case wasfound squarely holding that impossibility of performance be-cause of prior sale of the property to a third person is not due toa fortuitous event, one case in which a contract reserving theright to specific performance was perfected at a time when theseller was unable to deliver valid title lends support to thisproposition. 5 That decision, allowing return of double the de-posit to the aggrieved buyer, seems tantamount to a recognitionthat impossibility due to inability of the seller to convey title isnot a defense against damages if the inability existed at the timethe contract was entered.Still another defense against a claim for damages for non-performance of an obligation is error of fact or law 6 if the errorrelates to the "principle cause" of the obligation.'7 In such a11. Smith, Recovery of Damages for Non-Delivery and Eviction in Louisiana-A Comparison, 17 LA. L. REV. 253, 254 (1957).12. LA. CIVIL CODE art. 1933(2) (1870). The irresistible force or fortuitousevent must make performance impossible rather than only more burdensome. Jungv. Gwinn, 174 La. 111, 139 So. 774 (1932) ; Cook & Laurie Contracting Co. v.Dennis, 124 La. 161, 49 So. 1014 (1909) ; Forsman v. Mace, 111 La. 28, 35 So.372 (1903). Two exceptions provided in the article are the seller's expressly orimpliedly assuming the risk of the force or event, and the force or event beingpreceded by some fault of the promisor. LA. CIVIL CODE art. 1933(3) (1870).13. LA. CIVIL CODE art. 3556(15) (1870).14. Bauman v. Michel, 190 La. 1, 181 So. 549 (1938) (wife recorded declara-tion that the property constituted the family home and refused to join in con-veyance) ; Cabral v. Barkerding, 50 So. 2d 516 (La. App. Orl. Cir. 1951) (same) ;Webb v. Gee, 128 So. 2d 449 (La. App. 4th Cir. 1961) (non-cancellation of amortgage note due to dereliction of a notary public).15. Ducuy v. Falgoust, 228 La. 533, 83 So. 2d 118 (1955), in which the vendorwas unable to deliver a valid title. It must be noted that this case dealt with acontract which preserved the right to specific performance, whereas that in theinstant case did not. However, as has been pointed out, this distinction shouldnot dictate a different result in the case of nonperformance. See note 10 supra.16. LA. CIVIL CODE art. 1819 (1870).17. Id. art. 1823.19621LOUISIANA LAW REVIEWcase the engagement is voidable by the party who contractedunder the error.' The principal cause, or motive, of the seller'sobligation in a contract to sell is to obtain the purchase price,while that of the buyer is to obtain ownership of the object tobe sold. 19 Invalidity of the seller's title thus destroys the prin-ciple cause of the buyer's obligation, but not of the seller's. Con-sequently, the buyer may avoid the contract because of sucherror, but the seller may not.20 Although a seller may obligatehimself to deliver a valid title in the belief that he can do so, thisbelief constitutes a secondary cause or motive, and error in itwill constitute a defense for him only if the parties expressly soprovide.2' Similarly, a buyer's mistaken belief that he can fur-nish the purchase price should be no defense to his failure tofulfil his obligation to buy.The court in the instant case did not discuss the defensesavailable to one who has invalid title to property he has con-tracted to sell.22 Although it cited three early cases as holdingthat the seller's inability to deliver valid title was not an arbi-trary breach, 23 it gave no reasons for holding that the breach bythe seller must be arbitrary for Civil Code Article 2463 to apply.It did not discuss those cases in which the parties had contrac-tually reserved the right to specific performance and the buyerwas granted return of double the deposit upon the seller's inabil-ity to perform.2 418. Id. art. 1881.19. See Smith, A Refresher Course in Cause, 12 LA. L. REV. 2 (1951).20. LA. CIVIL CODE art. 1881 (1870).21. 3 TOULLIER, LE DROIT CIVIL FRANOAIS no 39 (1846).22. Neither error nor impossibility was raised by counsel for the parties as apossible defense to the buyer's claim.23. Botto v. Berges, 47 La. Ann. 959, 17 So. 428 (1895) ; Williams v. Meyer,29 So. 2d 599 (La. App. Orl. Cir. 1947) ; Meade v. Viguerie, 11 La. App. 585,123 So. 378 (Orl. Cir. 1929). Two of these cases may be distingished, however.In the Botto case the plaintiff sued "to recover $200 deposited by plaintiff asearnest of her promise to buy, should the title prove satisfactory." 47 La. Ann.at 959, 17 So. at 429. Defendant was unable to convey a valid title. The courtsaid: "The promise to transfer property for cash, under a title in every respectlegal, was a condition not complied with by the defendants, and it, in consequence,justifies the plaintiffs in praying that the written agreement of promise to buybe declared no longer of any effect." Id. at 962, 17 So. at 430. Thus, it seemsthat the contract was resolved for failure of a resolutory condition. In the Meadecase the plaintiff hired an agent to buy property for him, and the agent offeredthe wife of the property owner $550 and the wife accepted. Plaintiff put up a$55 deposit, but the property owner refused to ratify the acceptance of his wife.The court granted only a return of the deposit. It appears, however, that nocontract ever came into existence, because there was no acceptance of the plaintiff'soffer by the property owner.24. Kinler v. Griffin, 251 F.2d 655 (5th Cir. 1958) ; Poche v. Ruiz, 239 La.573, 119 So. 2d 469 (1960); Ducuy v. Falgoust, 228 La. 533, 83 So. 2d 118(1955) ; Williams v. Terese, 120 So. 2d 80 (La. App. Orl. Cir. 1960).[Vol. XXIII1962] NOTESRather than deciding whether or not the seller's breach isarbitrary, it is submitted that the proper approach is to deter-mine whether the articles of the Civil Code dealing with errorand impossibility of performance afford relief to a seller unableto deliver title to property he has contracted to sell.2 5 Impossi-bility of performance because the seller has previously sold theproperty to another should not be considered a defense to thebuyer's claim for damages, because the inability to deliver validtitle is not caused by an irresistible force or fortuitious eventwhich occurs after the obligation is assumed. Neither shoulderror as to his ability to deliver valid title constitute a defense,because this error relates to an accessory cause, the belief thathe can deliver valid title - rather than to the principal cause, toobtain the price. 26  It would be preferable to allow the buyerdamages when the seller is unable to deliver a valid title at thetime he contracted to sell2 7 whether or not the breach is arbi-trary.28 This principle should apply both when there is earnestmoney and when the contract stipulates that the buyer maychoose specific performance or forfeiture of double the deposit.Graydon K. Kitchens, Jr.25. The recovery of damages for breach of contract is based on the notion offault, but a finding of fault does not depend upon a finding of .bad faith. 3 TOUL-LIER, LE DROIT CIVIL FRANQAIS n* 230 (1846). Every contravention of an engage-ment, every failure or omission which is the result of negligence, or lack of care,or ignorance with regard to things which one can or should know is a fault undercivilian theory. A good faith breach of contract requires the assessment of dam-ages unless the obligor has been prevented from fulfilling his obligation by anevent which he could neither foresee nor prevent, i.e., by a fortuitous event orforce majeure. Ibid.26. One French case indicates that the judge does not have to allow damagesif he finds that the vendor was in good faith and that his error was justifiable.S.1929.1.86; D.H.1928.591. However, the court seems to have treated the trans-action as a completed sale rather than a promise of sale. FRENCII CIVIL CODEart. 1599 (LA. CIVIL CODE art. 2452 (1870)) was used as authority.27. Although the court found that the seller did not own the property whenhe contracted to sell it, the opinion does not reveal whether he was in good orbad faith. This determination is useful only to determine the amount of damagesdue the buyer. If the seller is in bad faith, the buyer is entitled to all damagesthat are the direct consequence of the breach. LA. CivIL CODE art. 1934(2)(1870). If the seller is in good faith, the buyer is entitled only to the damageswithin the contemplation of the parties at the time of the contract. Id. art.1934(1). When the buyer deposits earnest money, it appears that the amountof the deposit is the amount of damages contemplated by the parties; it wouldseem that in the instant case this amount equalled all damages consequent fromthe breach, thus pretermitting the necessity of determining whether defendant wasin good or bad faith.28. A consideration which may favor the decision in the instant case is thatthe Louisiana Supreme Court has decided that an evicted vendee may only recoverthe purchase price; he is not entitled to damages. Burrows v. Peirce, 6 La. Ann.297 (1851). Thus if the suggested decision were followed, one who contractedto sell property and later discovered that his title was invalid could escape damages

Sales - Contracts To Sell - Damages for Failure to Perform Due To Vendor\u27s Inability to Convey Title

https://digitalcommons.law.lsu.edu/cgi/viewcontent.cgi?article=3119&context=lalrev

Sales - Contracts To Sell - Damages for Failure to Perform Due To Vendor\u27s Inability to Convey Title

Abstract

Similar works

Full text

Available Versions

Louisiana State University: DigitalCommons @ LSU Law Center