LA BAR EXAM CODE III: SALES & LEASES Flashcards
I. What is a sale and what are the formal requirements?
A sale is a contract whereby a person transfers ownership of the thing to another for a price and money.
The thing, the price, and the consent of the parties are requirements for the perfection of a sale.
The requirements for a sale often must be discussed in essay answers on the Louisiana bar exam. Do not neglect this simple point.
Sales of immovables must be in writing and must be recorded to affect third persons, whereas movables can be sold orally (although delivery is required to affect third persons).
These requirements are discussed in more detail and the obligations and contracts outline.
II. What are the elements of a valid sale / perfection of a sale? Explain them.
The thing, the price, and the consent of the parties are requirements for the perfection of a sale.
Re: Consent –
A sale, like any other contract, is formed through the consent of the parties, established through offer and acceptance. In general, all of the rules governing offer and acceptance in the law of conventional obligations apply to sales.
However, an exception exists with respect to the rule governing counter offers. Whereas in sales of immovables, the general rule applies (that is, an acceptance not in accordance with the terms of the offers deemed to be a counteroffer), in sales of movables, an acceptance that varies from the offer may still form a contract according to the rules set forth below.
An acceptance forms a contract of sale of a movable if there is agreement on the thing and the price, even if the acceptance contains terms additional to or different from those contained in the offer. The additional or different terms are regarded as proposals for modification and must be accepted by the offer or to become a part of the contract.
Between merchants, the additional terms become part of the contract unless: (i) the terms materially alter the offer; (ii) the offer expressly limits acceptance to the terms of the offer; or (iii) the offeror objects within a reasonable time.
No contract of sales formed on the parties’ communications if the acceptance is made conditional on the offeror’s acceptance of the additional or different terms.
Re: The Object –
All things, corporeal or incorporeal, susceptible of ownership may be sold unless prohibited by law. However, succession rights may not be sold before the death of the decedent. And, not surprisingly, absent a mandate, a person cannot convey ownership of a thing owned by another, although the buyer in such a situation may be entitled to damages if he did not know that the thing belonged to another.
Litigious rights (i.e., rights under a lawsuit) may be sold. However, the party against whom the right has been transferred may get himself released by paying to the transferee the price the transferee has paid.
Future things and hopes may be sold. A future thing is a thing not yet in existence. Hope differs from a future thing and that hope is aleatory (i.e., uncertain). When a person buys a hope, he assumes the risk that the thing will not materialize. When a person buys a future thing, the coming into existence of the thing acts as a suspensive condition and the buyer does not assume the risk.
Re: The Price –
In a sale, the price must be in money. if the price is not in money, the contract is not a sale but maybe an exchange. The prize must be either certain or determinable through a method to which the parties have agreed, including determination by a third party. However, if the sale is for a movable of the kind that the seller habitually sells, and the parties have not agreed to a price, the price term will be implied – a reasonable price.
Broadly speaking, a simulation is an agreement in which the parties intend something different from the terms recited. There are two types of simulations absolute and relative . . .
II. How is a sale perfected?
Ownership passes to the buyer upon perfection of the sale. The thing, the price, and the consent of the parties are required for the perfection of a sale. Neither payment of the price nor delivery is essential to perfect a sale.
Risk of loss due to fortuitous events is transferred to the buyer when the thing is delivered. A fortuitous event is defined as an event that, at the time the contract was made, could not have been reasonably foreseen.
Not all agreements lead to a perfected sale. The following are agreements with perfection delayed: (i) sale on a suspensive condition (a sale made under a suspensive condition does not transfer ownership until the condition is fulfilled), (ii) sale of future thing (in the sale of a future thing, the coming into being of the thing acts as a suspensive condition – thus, ownership does not pass until the thing comes into being), and a (iii) promise or contract to sell (the parties can agree that ownership does not transfer until a later date).
IV. What are agreements preparatory to the sale? Define them.
Agreements preparatory to the sale are: (i) options, (ii) right of first refusal, (ii) and a contract to sell.
An option is a unilateral contract to sell or buy whereby the grantor of the option is bound to buy or sell if the grantee of the option accepts within the time stipulated. The option must specify the thing and the price, have a term, and be in writing for immovables. It has a term requirement. To be valid, an option contract must have a term. If the option is part of another contract (e.g., a lease), the option’s term is coextensive with the term of that other contract. If the other contract has an indefinite duration, however, an option coextensive with the contract is invalid for lack of a definite term.
A right of first refusal is a unilateral contract in which one party agrees that she will not sell a certain thing without first offering it to a certain person. The grantor of the right of first refusal may not sell to a third person without first offering to sell the thing to the holder of the right. The right of first refusal may be enforced by specific performance. Note that unlike an option, a right of first refusal need not contain a term to be valid. Also, a right of first refusal affecting immovable property must be made in writing.
A contract to sell is a bilateral agreement whereby the parties promise to enter into a sale at a later date. The agreement must satisfy all the requirements for a sale. If the contract is one to sell an immovable, an action for breach or other failure to perform is prescribed in five years.
What are the effects of agreements preparatory to the sale?
What is important to remember on the exam?
There are four important effects of agreements preparatory to the sale.
First, time limits exist for the exercise of a right of first refusal.
The holder of a right of first refusal has 10 days to exercise the right if the thing is movable and 30 days if the thing is immovable. If the holder does not decide to buy the thing, the right the first refusal remains in the holder unless the grantor concludes a final sale, or a contract to sell, with a third party within six months.
Important to recall for the exam: on your exam, be careful when applying these time periods to rights of first refusal. The 10-day and 30-day time periods are suppletive law and can be contracted around. Contracts extending these time periods are an exam favorite.
Second, different time limits exist for options and rights of first refusal on immovables.
An option or right of first refusal on an immovable generally cannot be granted for a term longer than 10 years period if a longer period is stipulated, it will be reduced to 10 years. However, if the option or right of first refusal is granted in connection with a contract giving rise to obligations of continuous or periodic performance, the duration of the option or right of first refusal may be the period of time required for performance of those obligations.
Important to recall for the exam: The 10-year durational limitation for options is often tested on the Louisiana bar exam.
Third, the agreements preparatory to the sale are effective against third persons.
Options, rights of first refusal, and bilateral contracts to sell affecting immovables are subject to the public records doctrine, and thus are binding against third parties when recorded. Options, rights of first refusal, and bilateral contracts to sell affecting movables are binding on 3rd persons who acquire conflicting rights with actual knowledge.
Important to recall for the exam: The concept that options, rights of first refusal, and contracts to sell and immovable are valid against third parties only if recorded is often tested on the Louisiana bar exam.
Fourth, the doctrine of the implied warranty of merchantability applies.
The doctrine of implied warranty of merchantability protects a buyer from being compelled to accept a flawed title. A seller must tender merchantable title (i.e., complete, valid, and unclouded title). The buyer may refuse to enter into the sale if the title is suggestive of serious litigation.
V. What are the obligations of the seller?
First, the seller must explain herself clearly in a contract. Any ambiguity will be construed against her.
The seller has two obligations: (i) delivering the thing; and (ii) warranting the thing: (a) against eviction; (b) against redhibitory defects; and (c) is reasonably fit for its ordinary or intended use.
The seller’s warranties, which apply automatically in a sale, and waiver of the warranties are often tested on the Louisiana bar exam.
What is important to know about the seller’s obligation to deliver the thing?
There are three main general rules for the seller’s obligation to deliver the thing: (i) if the seller remains in possession, (ii) if the seller does not timely deliver, (iii) if the buyer has not paid the price.
If the seller remains in possession of the thing sold, there is a presumption that the sale is a simulation.
If the seller does not deliver the thing at the agreed upon time, the buyer may demand dissolution of the sale or specific performance (i.e., to be put into possession). In either case, the seller is liable for damages.
The seller is not bound to deliver the thing if the buyer has not paid the price and the seller has not granted the buyer a term for payment. This is an example of the principle that a party in a commutative contract may refuse to perform if the other has failed to perform.
The seller has the warranty against eviction - What is its scope? What is the seller’s liability for breach of the warranty against eviction?
The seller warrants the buyer against eviction, which is the buyer’s loss of, or danger of losing, the whole or part of the thing sold because of a third person’s right that existed at the time of the sale. The scope of the warranty against eviction is that the warranty covers loss of or danger of losing the thing, the warranty covers undeclared non apparent conventional servitudes, the warranty is implied in every sale, and the warranty covers rights existing at the time of sale.
The liability of the seller when the warranty against eviction has been breached depends on the extent to which the parties have contractually modified the warranty. If the parties either do not address the matter of the warranty or they recite that the sale is a warranty sale, it is a warranty sale. In a warranty sale, eviction entitles the buyer to: (i) restitution of the price; (ii) restitution of fruits and revenues if the buyer is bound to return them to the owner who evicts him; (iii) all costs occasioned by the lawsuit(s) concerning the warranty and/or that suit resulting in eviction; and (iv) damages (excluding any increase in value of the thing lost), if the buyer did not know of the danger of the eviction.
If the seller specifically renounces the warranty, the sale is without warranty. In that case, eviction entitles the buyer to restitution of the price – but only if the buyer did not know of the danger of the eviction.
If the sale is at the buyer’s peril and risk, the buyer gets nothing back in the event of eviction. A sale at the buyer’s peril and risk is a non-warranty sale with one of the following additional elements: (i) the buyer was aware at the time of the sale of the danger of the eviction; (ii) regardless of the buyer’s knowledge, the buyer declared that he was buying the property at his peril or risk; or (iii) the seller’s obligation of returning the price has been expressly excluded.
A quitclaim deed to land probably is not a sale of a corporeal and movable but rather an assignment of a right. In a quitclaim deed, the transferor conveys to the transferee whatever interest (if any) the transferor may have and the property without warranting the existence of such rights. If the transferee is evicted, the transferor owes nothing.
If there is a partial eviction, the general rule is that the buyer is entitled to a proportionate reduction of the price. If the buyer’s principal cause was to get the part on which eviction occurred, the buyer has the option to have the sale cancelled. tested in the form of a pipeline servitude
The seller has the warranty against redhibition - what are the essential elements of a redhibitory defect? What is the effect of breach, the burden of proof? What is the liability of the seller?
The seller warrants the buyer against redhibitory defects, or vices, in the thing sold.
There are essential elements of a redhibitory defect. For a defect to be redhibitory, it must have all of the following qualities: (i) it must either – (a) render the thing useless, or its use so inconvenient that it must be presumed that a buyer would not have bought the thing had he known of the defect; or (b) not render the thing totally useless, but diminish its usefulness or value so that it must be presumed that a buyer still would have bought it but for a lesser price; (ii) it must not be apparent, i.e., it must not be known to the buyer at the time of the sale or discoverable by a reasonably prudent buyer of such things. This requirement imposes on the byer a duty to inspect the thing sold; (iii) it must have existed at the time of delivery. If the defect appears within three days of delivery comment is presumed that the defect existed at the time of delivery. Similarly, if the defect appears soon after the thing is placed into use, the inference is that the defect existed at the time of the sale.
The effect of breach: if the defect renders the thing useless or so inconvenient that the buyer would not have bought it, the buyer is entitled to rescission of the sale. If the things usefulness or value is merely diminished by the defect, the buyer is entitled to a reduction in the price.
The burden of proving that the thing had a redhibitory defect at the time of the delivery is on the buyer. However, while the buyer must prove the existence of the defect, there is no requirement that the buyer prove the cause of the defect.
The liability of the seller for a redhibitory defect depends on whether the seller is in good faith.
The liability of a good faith seller is to restore the purchase price and the buyer’s reasonable expenses of the sale. This remedy applies only where the defect is one rendering the thing either totally useless or so inconvenient that it must be presumed the buyer would not have bought the thing. The buyer’s remedy for lesser defects is a reduction of the price. But, a good faith seller is entitled to an opportunity to repair, remedy, or correct the defect before the buyer can dissolve the sale. Liberative prescription for the good faith seller generally is the shorter of two years from the date the thing was delivered, or one year from the date the buyer discovered the defect, whichever occurs first.
The liability of a bad faith seller is that about face seller must restore the purchase price and the buyer’s expenses of the sale, and in addition must pay damages and attorney’s fees. Again, this remedy applies only where the defect is one rendering the thing either totally useless or so inconvenient that it must be presumed the buyer would not have bought the thing. The buyer’s remedy for lesser defects is a reduction of the price. The bad faith seller is not entitled to an opportunity to repair. Liberative prescription for the bad faith seller is one year from the discovery of the defect, or 10 years from the date of the perfection of the sale, whichever occurs first.
The buyer must give the seller notice of the defect and suffers a diminution of the warranty to the extent that his failure to give timely notice made repair impossible or more burdensome. Notice is not necessary when the seller has actual notice of the defect. A buyer may seek rescission as his remedy for redhibition even after the thing has been destroyed, so long as its destruction is due to its redhibitory defect. As with the warranty against eviction, in redhibiton the buyer is subrogated to the seller’s rights against all others. Thus, the buyer has recourse not only against his seller but against his seller’s seller, all the way back to the manufacturer. The buyer can choose to sue his seller or can bypass his seller and sue the manufacturer directly.
The seller has the “warranty” of fitness for ordinary use - what is it?
What’s the special rule you should know for the exam?
In addition to warranting against eviction and redhibitory defects, the seller warns that the thing is reasonably fit for its ordinary use. The buyer’s remedies under the warranty of fitness are governed by the general law of contracts.
The seller’s warranty of fitness for ordinary use is limited to the ordinary uses made of such things, unless: (i) the buyer has some particular use in mind for the thing, (ii) the seller knows or should know the buyer’s particular purpose, and (iii) the seller knows or should know that the buyer is relying on the seller’s skill and judgment in selecting the thing.
On the exam, after considering whether the seller has breached the warranty against eviction, against redhibitory defects, or for fitness for ordinary use, it is often appropriate to consider other contracts issues (discussed in the Obligations & Contracts outlines), such as fraud, misrepresentation, or error.
Liberative prescription is the shorter of: (i) two years from the date that thing was delivered, or (ii) one year from the date the buyer discovered the unfitness, whichever occurs first.
VI. What are the obligations of the buyer?
The buyer is obligated to: (i) pay the price, and (ii) take delivery of the thing.
On the buyer’s failure to pay the price, the seller can choose between: (i) dissolving the sale, or (ii) seeking enforcement of the sale (through a suit for specific performance).
A buyer who fails to take delivery is liable to the seller for those damages the seller sustains and those expenses incurred for preservation of the thing. When the buyer breaches the contract of sale, the seller is entitled to damages in the amount of the difference between the contract price and the market price on the date of the breach. If a buyer breaches a contract to buy movable things, the seller has the right to sell to a third party, and the buyer is held responsible for any loss realized in the resale.
If a buyer breaches a contract to buy movable things, the seller has the right to sell to a third party, and the buyer is held responsible for any loss realized in the resale.
VII. What is lesion beyond moiety? What are its requirements and what are its effects?
In some sales, the seller is granted an additional, exceptional remedy for lesion beyond moiety, i.e., when the seller has received less than half of the things value from the sale.
Because lesion beyond moiety is a distinctive civil law institution, it is a favorite of the bar examiners. The following requirements all must be satisfied to bring an action for lesion: (i) contract must be a sale of a corporeal immovable; (ii) the action must be brought by the vendor; and (iii) the lesion must be beyond ½; i.e., the price is less than 1/2 the value of the thing as of the time of the sale.
The effects of lesion beyond moiety are as follows: the general rule is that the buyer is given a choice, but there exists a special rule if the buyer has sold the thing. if a sale is legionary, the buyer can either: (i) return the thing (and get his price back), or (ii) keep the thing and give the seller a supplement equal to the difference between the price paid by the buyer and its fair market value.
If the buyer has sold the thing to a third party, the action for lesion is available against the original buyer only, and recovery is limited to the profit made by the buyer on the resale. Peremption on an action for lesion is one year from the date of sale.
VIII. What is a sale with right of redemption?
The right of redemption is the right to take back the thing from the buyer. The right of redemption cannot be reserved for more than ten years if the thing is immovable in five years if the thing is movable. If a longer period is specified, it will be reduced accordingly. If the thing is immovable, the right of redemption is effective when the sale is recorded. If the thing is movable, the right of redemption is effective against third persons who bought the thing with actual knowledge of the right of redemption.
IX. What is an exchange? What is the effect? What are the rights and duties of parties to an exchange?
In the contract of exchange, each party transfers to the other the ownership of a thing other than money.
The Louisiana rules governing sales also govern exchanges, except to the extent specific exchange rules provided below differ from the sales rules.
The effect of an exchange contract is that agreement on things transfers ownership even if no delivery has been made. If the parties agree that the transfer of ownership will not occur until some later time, that is a contract to exchange.
The rules of sales apply to governing the rights and duties of both the buyer and seller in an exchange.
A person evicted from a thing received in exchange may demand the value of the thing from which he was evicted or return the thing he gave. In either case, he may also seek damages.
A party giving a corporeal immovable in exchange for property worth less than 1/2 of the fair market value of the immovable given by him may claim rescission on grounds of lesion.
X. What is the concept of giving in payment (dation en paiement)?
In a giving in payment, the debtor gives a thing to a creditor as payment of a sum that is due. Unlike a sale, giving in payment is perfected by delivery. The giving in payment is otherwise subject to the rules of sale.
