Sales and Lease Flashcards
Sales - Introduction
- Sale: “A contract whereby a person transfers ownership of a thing to another for a price in money.” 3 Essential Elements:
(1) the thing (the object)
(2) the price
(3) the consent of the parties (the agreement)
Sales - Form Requirements
(1) Immovables: must be in writing and must be recorded to affect third persons
(2) Movables: can be sold orally (although delivery is required to affect third persons)
Consent (Agreement)
- A sale is established through offer and acceptance.
- Acceptance varying from offer:
(i) Immovables: the mirror image rule applies, meaning that the acceptance must fully mirror the offer for a contract to be formed.
(ii) Movables: acceptance forms a contract if there is agreement on thing and price, even with additional or different terms, which are treated as proposals for modification.
Conditional Acceptance: no contract of sale is formed if the acceptance is made conditional on the offeror’s acceptance of the additional or different terms.
Contract Formed Through Conduct:
(i) A contract of sale of movables may be established by the conduct of both parties recognizing the existence of a contract, even if their communications do not suffice to form a contract.
(ii) The contract consists of terms on which the parties’ communications agree, along with applicable provisions of the suppletive law.
Effect of Additional Terms
(1) Contracts Between Non-Merchants:
- Additional and different terms are considered proposals for modification and need to be accepted by the offeror to become part of the contract.
(2) Special Rules as Between Merchants:
- 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.
Object (Thing) - Items Capable of Sale
General Rule: all things, corporeal or incorporeal, that are susceptible of ownership may be sold, as long as they are not prohibited by law.
- Exceptions:
(i) Succession Rights: May not be sold before the death of the decedent. (Absolute Nullity)
(ii) Thing of Another: The sale does not convey ownership. The buyer may be entitled to damages if unaware that the thing belonged to another. (Sale valid but does not convey ownership)
Litigious Redemption: when a litigious right has been sold, the party against whom the right has been transferred may get released by paying the transferee the price the transferee paid.
- A right is litigious if a lawsuit is filed at the time of the transfer.
- Ex.: Jack owes Jill $100, and Jill sues Jack to collect. Jill sells the right to Joe for $50. Jack can redeem the debt by paying Joe $50.
Sale of Future Things and of a Hope:
- Future Thing: a thing not yet in existence may be sold. The coming into existence of the thing acts as a suspensive condition.
Hope: a hope may be sold, and the sale is aleatory (uncertain). The buyer assumes the risk that the thing will not materialize.
Price
2 Requirements:
(1) it must be in money (if not in money, the contract is not a sale but may be an exchange); and
(2) the price must be either certain or determinable through a method agreed upon by the parties
- 2 exceptions: the court will fix a price in these circumstances
(1) if the parties agree a 3P will fix a price, but he cannot or does not do so; or
(2) for movables only, if they are things of a type that the seller habitually sells, and parties do not agree on price, then price will be a “reasonable price” - Price must be serious, that is, it cannot be out of all proportion with the thing sold or else it may be a simulation.
- The parties must intend that a price be paid.
Perfection of a Sale - Risk of Loss & Ownership
- The thing, the price, and the consent of the parties are required for the perfection of a sale.
- Ownership: passes to the buyer upon perfection of the sale (consent - neither payment 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.
Special Problems in the Perfection of Some Sales
The Object:
- Goods by Weight, Count, or Measure: ownership passes when goods are weighed, counted, or measured.
- Goods Sold in a Lump: ownership passes when parties agree on thing and price - perfection.
Individualization (Appropriation): specifying goods being sold by setting them aside. Perfection occurs at least by delivery or when it would take significant effort to undo.
- Things in Transit:
(i) Ownership: determined by the form of the bill of lading when sent through a common carrier.
(ii) Risk of Loss:
- Shipment Contract (default): risk transfers to buyer upon delivery to the carrier.
- Destination Contract: risk transfers to buyer upon delivery to a specified destination.
The Agreement (not all agreements lead to a perfected sale):
- Sale on a Suspensive Condition: Title transfers only when the condition is fulfilled.
- Sale on View or Trial: Sale is perfected only after the buyer tests and accepts the goods.
- Buyer always has the right to inspect and reject non-conforming goods, but this does not establish the above rule.
- Sale of a Future Thing: Ownership passes when the thing comes into being.
- Promise or Contract to Sell: Title transfers at a later date as agreed by the parties.
Agreements Preparatory to the Sale
(1) Options
(2) Rights of First Refusal
(3) Contract to Sell
Options
A unilateral contract to sell or buy, where the grantor is bound to buy or sell if the grantee accepts within the stipulated time.
- Requirements: the option must
(i) Specify the thing and the price
(ii) Contain a term
(iii) Be in the form required for the sale contemplated (i.e., in writing for immovable)
- Exception: If part of another contract, the option’s term matches the other contract’s term. If the other contract is indefinite, the option is invalid for lack of a definite term.
Rights of First Refusal
A unilateral contract where one party agrees not to sell a certain thing without first offering it to a specific person (grantee).
- Requirements: the right of first refusal must
(i) Specify the thing (price not required)
(ii) Be in the form required for the sale contemplated (i.e., in writing for immovable)
Enforcement: May be enforced by specific performance.
Contract to Sell
A bilateral agreement where parties promise to enter into a sale at a later date or upon certain conditions.
- Requirements: the contract to sell must
(i) Specify the thing and price
(ii) Be in the form required for the sale contemplated (i.e., in writing for immovable)
Earnest Money: secures interests in case of breach. Must be expressly stipulated.
- Effects:
(i) If the buyer recedes, they forfeit the earnest money.
(ii) If the seller recedes, they return the earnest money and pay an equal amount to the buyer.
Prescription: Action for breach prescribes in 5 years.
Effects of Agreements Preparatory to the Sale
Acceptance Periods: can be contracted around.
(i) Movables: Holder of the Right of First Refusal (ROFR) has 10 days to accept an offer to sell.
(ii) Immovables: Holder of the ROFR has 30 days to accept an offer to sell.
- Post-Refusal: if the holder of the ROFR declines the offer, the seller has 6 months to sell the property to a third party on the same terms. If not sold within 6 months, the ROFR remains with the grantee.
Duration Limits:
- An option or ROFR on an immovable generally cannot exceed 10 years.
- Exception: If tied to a contract with continuous or periodic performance obligations, the duration can match the performance period.
Public Records Doctrine:
- Options, ROFRs, and contracts to sell immovables are binding against third parties when recorded.
- For movables, these are binding on third persons with conflicting rights if they have actual knowledge.
Indivisibility:
- The right to exercise an option or ROFR is indivisible. If held by multiple persons, all must exercise the right together.
Implied Warranty of Merchantability:
- Protects buyers from accepting flawed titles.
- Sellers must tender merchantable (complete, valid, and unclouded) title.
- Buyers may refuse to enter into the sale if the title suggests serious litigation.
Obligations of Seller ***
Seller’s Main Obligations:
(1) Delivering the thing
(2) Warranting against eviction
(3) Warranting against redhibitory defects
(4) Warranting fitness for use
Delivery - General Rules
- 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. In either the case, the buyer is entitled to damages.
Extent of Delivery - Immovables
- General Rule: the seller is supposed to deliver the full extent of the premises. However, the seller’s duty in depends on which of the 3 following categories of sales the transaction falls into.
(1) Indication of Extent - Price per Measure:
- sale where the price is fixed at a rate per measure (e.g., $X per acre).
(i) If less than promised: Buyer gets a reduction in price based on the per unit price.
(ii) If more than promised: Seller gets an increase in price based on the per unit price.
(iii) If more than 5% over promised: Buyer can back out (recede from the contract).
(2) Indication of Extent - Lump Price:
- sale where the price is a single amount for the full extent sold.
(i) If over 5% less than promised: Buyer gets a reduction only if the shortfall is more than 5% of the promised amount.
(ii) If over 5% more than promised: Seller gets an increase only if the excess is more than 5% of the promised amount.
(iii) Buyer retains the right to recede from the contract.
(3) Certain and Limited Body - Sale Per Aversionem:
- sale of a specific, distinct object for a lump price.
(i) No increase or decrease in price.
- Characteristic: property often has a proper name or described boundaries.
Liberative Prescription: the prescriptive period for actions based on the extent of the premises is 1 year from the date of the sale.
Sale of Movables - Conforming Goods
Seller’s Obligation:
- The seller must deliver conforming goods (i.e., of the agreed kind, quality, and quantity).
Buyer’s Rights and Responsibilities:
- The buyer has the right to inspect the goods to determine if they conform.
- The buyer must reject nonconforming goods within a reasonable time. A buyer who knowingly accepts nonconforming goods may not later reject them, unless they believed the nonconformity would be cured.
Warranty Against Eviction
- The seller warrants the buyer against eviction, which is the buyer’s loss or danger of losing the whole or part of the thing sold due to a third person’s right that existed at the time of the sale.
Applicability:
- Legal Right: When a third person has a legal right in the property.
- Perfect Title: When a third person has perfect title to the property.
- Undeclared Servitude: When there is an undeclared non-apparent servitude over the property.
Implied Warranty:
- The warranty against eviction is implied in every sale, existing even if not mentioned by the parties.
It can be modified or excluded by agreement, but the seller always remains liable for their own actions.
Extent of Warranty:
- The warranty generally covers rights existing at the time of the sale.
- The seller is always liable for the results of their own actions, regardless of timing.
Seller’s Liability for Breach of Warranty Against Eviction
(1) Warranty Sale: sale where the warranty is either not addressed or explicitly stated.
- Remedies for Eviction:
(i) Restitution of the price.
(ii) Restitution of fruits and revenues if the buyer must return them to the evicting owner.
(iii) All lawsuit costs concerning the warranty or resulting in eviction.
(iv) Damages if the buyer did not know of the eviction danger. If the buyer knew of the danger, only restitution is available, no damages.
(2) Non-Warranty Sale: sale where the seller renounces the warranty.
- Remedies for Eviction:
(i) Restitution of the price if the buyer did not know of the eviction danger. If the buyer knew, the sale is at the buyer’s peril and risk with no recovery.
(3) Peril and Risk Sale: a non-warranty sale with additional conditions.
- Conditions:
(i) Buyer was aware of eviction danger at the time of sale.
(ii) Buyer declared the purchase was at their peril and risk.
(iii) Seller’s obligation to return the price is expressly excluded.
- Remedy: No recovery in the event of eviction.
Partial Eviction
- General Rule: buyer is entitled to a proportionate reduction of the price for partial eviction.
- Exception: if the buyer’s principal cause was the part evicted, they can choose to cancel the sale.
Additional Rights and Duties of Buyer
(1) Call in Warranty
- If the buyer is threatened with eviction, they must timely notify the seller, preferably by calling the seller in warranty to defend the suit.
- Failure to notify the seller timely results in the buyer losing warranty rights to the extent the seller could have defended the action.
(2) Suspension of Payment of Price
- The buyer may suspend payment of the price if evicted or if there is a reasonable fear of eviction.
- Payment suspension continues unless the seller provides security.
(3) Subrogation Rights
- Even if the warranty is excluded, the buyer is subrogated to the seller’s actions in warranty against all others.
- The buyer can sue their seller’s seller, and further up the chain, for breach of warranty.
(4) After-Acquired Title Doctrine
- If the seller gains title to the property after the sale, the title automatically vests in the buyer to cure the breach of warranty against eviction.
- The doctrine applies regardless of the seller’s intentions and even against their will.
- If the buyer has already filed a lawsuit for breach of warranty, they may continue the suit and are not compelled to accept the after-acquired title.
- Note: This doctrine does not apply if no warranty was given at the time of sale, such as with a true quitclaim deed.
Warranty Against Redhibition
The seller warrants the buyer against hidden redhibitory defects, or vices, in the thing sold. A defect is redhibitory when:
(1) It renders 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
(2) It diminishes its usefulness or value so that it must be presumed that a buyer still would have bought it but for a lesser price.
The defect must also meet the following criteria:
(1) The buyer must not have knowledge of the defect;
(2) The defect must not be apparent, which means the defect cannot be obvious or discoverable, AND
- Imposes a duty on buyer to be a reasonably prudent person (more than casual observaiton).
- The reasonableness of inspection is measured in light of (i) the buyer’s knowledge and expertise; (ii) the opportunity for inspection; and (iii) assurances made by the seller.
(3) The defect must have existed at the time of delivery.
- If the defect appears within three days of delivery, it is presumed that the defect existed at the time of delivery.
Effect of Breach Against Redhibition
(1) When a defect renders the thing useless or so inconvenient that the buyer would not have bought it, the buyer is entitled to recission.
(2) When the thing’s usefulness or value is merely diminished by the defect, the buyer is entitled to reduction in price (quanti minoris – use this term).
Burden of Proof of Redhibitory Defect
- The buyer has the burden of proving that the thing had a redhibitory defect at the time of the delivery.
- However, the buyer is not required to prove the exact cause of the malfunction.
Intentional Misrepresentation by Seller
If the seller says a thing has a quality he knows it does not have (intentionally misrepresents), then the buyer’s rights are governed by redhibition even though the thing sold is not defective.
