CODE III I. LIBERATIVE PRESCRIPTION A. The barring of an action because of the passage of time (look for dates in fact pattern). B. Computation 1. Starts to run the day a cause of action arises and judicial enforcement is possible. 2. For LP calculable in years (most of them) go year to year, i.e. June 3, 2013 to June 3, 2014. C. Contractual freedom to modify: 1. Parties cannot exclude, lengthen, or make prescription more onerous. D. Renunciation 1. Only the party in whose favor prescription has accrued may renounce it, and he must have the capacity to alienate no specific form requirement E. Time periods One-year LP Tort actions (one year from date injury or damage is sustained) o Damage to an immovable (one year from actual/constructive knowledge of damage) o o Claim against home inspector related to a faulty home inspection Lesion (PEREMPTIVE period) o Two-year LP: claim for damages for crimes of violence Three-year LP: Past due rent o Merchant’s open accounts o Money lent o Compensation for services rendered (includes wages/salaries) o o Action against attorney for return of papers Five-year LP Promissory notes (negotiable or not) o o Negotiable instruments o Reduce excessive donation Annul a testament o Rescind a partition o Spousal support/installment payments for claims of contribution to education o Actions against professional engineers, surveyors, interior designers, architects, and real estate o developers (PEREMPTIVE period) Actions to set aside documents or instruments on the grounds that the party executing ex ecuting them o under authority of power of attorney was without the authority to do so (begins (be gins to run from date the document was recorded) Ten-year LP o All personal actions not subject to a special rule (a lot of contract actions) o Actions against contractors or architects for defects in construction, renovation, or repair Thirty-year LP Inheritance/succession o F. Delaying prescription 1. Suspension: pauses prescription a. Legislative: special relationships between the parties b. Judicial: contra non valentum doctrine 2. Interruption: stops prescription and starts it over a. Acknowledgement of the right b. Filing suit
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G. Installments: When an obligor owes installment payments, the right of action on each installment prescribes five years after the installment is exigible (due). H. Conflict of laws: 1. If LA substantive law applies, use LA prescription law. 2. If other state’s substantive law applies, use LA prescription law and follow it unless the other state would do differently, or unless there are “compelling considerations of remedial justice” to keep the suit open (if it would be barred in LA). II. OBLIGATIONS
m ore persons an obligor (debtor) owes a performance in favor Obligation : a legal relationship between two or more of the obligee (creditor) and the performance/duty is legally enforceable. ob ligee from exercising a right with the primary intention of Abuse of right doctrine : invoked to prevent an obligee harming the obligor. COURTS RARELY FIND THIS i.e. lessor refuses lessee’s proposed assignment & court says it’s because he wants to negotiate for higher rent. ren t. dut y (i.e. a prescribed debt, obligation Natural Obligation : there is a moral, but not judicially enforceable duty incurred by one who lacks capacity) a NEW CONTRACT for the performance pe rformance of a moral obligation will be enforceable if it is express and (in the case of a prescribed debt) in writing Personal vs. Heritable Obligations o Heritable obligations are those that can be enforced by or against the successors succe ssors of the original obligor or obligee the general rule is that obligations are heritable A strictly personal obligation is one that can only be enforced by the original obligor/obligee o o Obligor: special skill/qualification Obligee: intended for his exclusive benefit o Conditional Obligation : obligation whose occurrence depends on whether or not an event will occur. o Resolutory: immediately enforceable, ends if the event occurs. oc curs. Suspensive: not enforceable until the event occurs. o Potestative Condition : a condition whose fulfillment is within a party’s power. Suspensive: are null if they depend solely solel y on the obligor’s whim. o Resolutory: are not null as long as they the y are exercised in good faith. o Obligation with a term : obligation whose occurrence depends on when an event occurs. Obligations without a term are presumed to have performance due immediately. Joint obligation: only one performance is owed Divisible: governed by rules of several obligations o Individisble: governed by rules of solidarity o
owed – same same legal effects as obligations incurred through different Several obligation: separate performances are owed – juridical acts Solidary obligation: Obligors: each owes the whole performance. Obligee may demand the whole performance from any of o them, but may also expressly renounce solidarity in favor of one or more obligors, o bligors, meaning that he will look to that obligor only for his share.
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Obligees: each is entitled to receive the whole performance. Obligor may extinguish by rendering performance to any of them. Remission: obligee can release one or more obligors; the others will still remain liable minus the virile portion attributed to the obligor whose debt was remitted (generally an even portion).
Conjunctive obligation: obligor is bound to render multiple performances each treated as a separate obligation (i.e. rent) Alternative obligation: Obligor must render one of two (or more) different performances If one performance becomes impossible/unlawful, the obligor must perform the other. If all become so o without the obligor’s fault, the obligation is extinguished. Assumption of an obligation : transfer of obligation to new obligor. If assumption is between obligee and third party, it must be in writing to be enforceable (i.e. Jill tells me o she’ll pay Jack’s debt). Subrogation : transfer of an obligation to new obligee Conventional: arises by agreement w/ obligor or obligee. Is effective without the consent of the other party. o If the agreement is with the obligor, it must be in writing and expressly state that the purpose of the loan is to repay the debt. Legal: arises in five situations: o One obligee pays another obligee with superior rights Purchaser of property uses the purchase money to pay a creditor w/ a real right to that property Obligor owes a debt with others, pays the debt, and has recourse against the others on account of the payment. Successor pays an estate debt w/ his own funds When the law provides for it
Proof of Obligation : The party demanding performance must prove the obligation’s existence. This depends on what form the o contract must be in – if it must be in writing, then it cannot be proved by testimony unless the instrument has been destroyed, lost, or stolen. o Writing requirement: Transfer of immovable Mandate authorizing transfer of immovable Promise to pay the debt of a third person Promise to pay a debt extinguished by prescription Compromise Suretyshit
Extinction of Obligations: Extinguished by performance, either to the obligee or to his agent. Can’t be rendered to a third person o unless the obligee expressly ratifies it. Imputation of payment: obligee who owes many debts can pay any one of them – presumed to be the one o he would most likely want paid. Also extinguished by impossibility of performance : obligor will not have to perform if impossibility is o caused by a fortuitous event that was not reasonably foreseeable at the time the contract was made. Exception: obligor will not be off the hook if he has assumed the risk or has been put in default before the fortuitous event occurs.
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Contract will be dissolved if the entire performance is impossible. If only part of the performance is impossible or if performance becomes impossible after partial performance, then the contract will be reduced/the obligee will still be bound.
Novation Extinction of an existing obligation with the substitution of a new one (simultaneous extinction and o substitution) Obligee’s intent to extinguish the original must be clear and unequivocal . o Two types: o Objective: substitution of new performance or new cause in place of old one (i.e. giving in payment). Subjective: substitution of new obligor in place of original one prior obligor must be discharged on account of the substitution. Don’t need the original obligor’s consent. o A novation will release solidary obligors unless they all consent to the new obligation.
Remission : extinction of an obligation because obligee voluntarily relinquishes his right to demand performance. Presumed if the document that evidences the obligation is surrendered. Not presumed in any other case. o o Effective when obligor receives communication from obligee his acceptance is required, but it is presumed unless he accepts w/in a reasonable time. Compensation Extinguishing two obligations simultaneously when obligor and obligee owe each other things, it o happens by operation of law and will extinguish both obligations to the extent of the lesser amount. Sums or qualities of money must be liquidated and presently due. o Confusion : merger qualities of obligee and obligor are united in the same person. Revocatory Action – A revocatory action allows an obligee to set aside the transaction of his obligor that causes or increases the obligor’s insolvency. To bring the action, the obligee must have a right which arose before the transaction sought to be set aside. III. CONTRACTS Contract Requirements (all four of these must be present) o Capacity Consent o Lawful cause o Lawful object o Types of Contract Unilateral & bilateral o For a bilateral contract, the obligations are correlative: both parties have bound themselves to receive performance from the other. Bilateral Promise of Sale – An agreement whereby one party promises to sell and the other party promises to buy a thing at a later time. A contract of a promise of sale must meet the requirements of a sale, agreement on object and price. When the contract to sell is subject to a condition that the potential buyer obtain financing, it is treated as a suspensive condition. The buyer must make a good faith effort to obtain the financing. If he does not, the condition is considered fulfilled. o Onerous (obligor binds himself to obtain a benefit for himself) & gratuitous (obligor binds himself to benefit someone else – obligee, third party).
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Principal & accessory Nominate & innominate Commutative : A contract when the performance of the obligation of each party is correlative to the performance of the other . Don’t confuse with bilateral, where the obligation of each party is correlative to the obligation of the other. Aleatory : A contract where performance of either party’s obligation, or the extent of the performance, depends on an uncertain event . Extent: elderly care contract Performance: insurance contract
Capacity Contract without capacity is relatively null may only be rescinded by the party lacking capacity. o Everyone has contractual capacity except: o Unemancipated minors o Minors can only enter into contracts for their support or education or a purpose related to their business. Additionally, a contract made by an unemancipated minor is not susceptible of rescission when the maker reasonably relies on the minor’s representations of majority. Interdicts o Persons deprived of reason at the time of contracting (alzheimer’s, dementia, mental illness, drunk, o high). Onerous contract with a non-interdicted person may only be attacked upon showing that the party knew or should have known of the incapacity. A party lacking capacity may rescind a gratuitous contract without showing the other party’s actual/constructive knowledge of the incapacity. If the PDR has died and was not interdicted, the contract may only be attacked if: Contract is gratuitous, Contract evidences lack of understanding, Contract was made w/in 30 days of death, OR An application for interdiction was filed before death.
Consent : evidenced by offer and acceptance. o No specific form requirements, just those prescribed by law for a contract (if any) or the form mandated by the agreement. o Offer: personal to offeree (not assignable), expires if either the offeror or the offeree dies or becomes incapacitated before acceptance. General rule is that they are revocable (revocable offer expires if not accepted within a reasonable time Offer is irrevocable if it gives a period of time or intends to do so. This kind of offer will expire if not accepted within the period of time given. Acceptance : o Revocable offer: effective upon transmission Irrevocable offer: effective when offeror receives it. Accepted by performance if the offeror invites this type of acceptance (duty of offeree to give prompt notice unless offeror has actual/constructive notice that the offeree has commenced performance) Completion of performance if offeree begins to perform, offeror cannot rescind the offer for a reasonable time necessary to complete the performance. Commencement of performance Acceptance by silence: offer is accepted by silence if silence leads the offeror to reasonably believe that the offer has been accepted 5
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Counteroffer : When a party makes an offer by proposing a contract, and other party makes adjustments to the contract, it is considered a counteroffer and must be accepted for a valid contract to exist. However, there is no requirement that the acceptance be made in the same form. It can be made in any manner and medium suggested by the offer or in a reasonable manner and by a reasonable medium. (exception for sales of movables). Offer of Reward made to the public is binding on the offeror even if the person who performs the requested act does not know of the offer.
Vices of Consent Fraud o Duress o o Error Fraud: o
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The elements of fraud that must be proven to rescind a contract are That the other party misrepresented or suppressed the truth; That the party’s intent in so doing was to obtain an unjust advantage or cause inconvenience to the injured party; and That the injured party’s error related to a circumstance that substantially influenced his consent to the contract. Silence amounts to fraud only when the law imposes a duty to disclose, such as when there is a fiduciary relationship. A party who could have ascertained the truth easily may not rescind, unless the parties had a relationship of confidence. The prescriptive period is five years.
Fraud Vitiates Consent – When the fraud is committed by a third person it vitiates consent if the party knew or should have known of the fraud. The error induced by fraud need not concern the principal cause, though it must concern a circumstance that has substantially influenced consent. A party has a duty to ascertain the truth unless a relationship of confidence existed. Fraud need only be proved by a preponderance of the evidence. Duress: party whose consent is vitiated was forced to consent knew the truth but agreed anyway (different from fraud and duress). Conduct constituting duress must have been: o Of such a nature as to cause a reasonable fear (must be accompanied by the apparent ability to o carry out the threat) Of unjust and considerable injury o To a party’s person, property, or reputation . o Recovery: damages, attorney’s fees. o Error o o
If both parties are in error, the contract is vitiated, or they may reform it. If only one arty is in error, an obligation may be rescinded if the party seeking rescission erred on a cause without which he would not have entered in the contract and that cause was known or should have been known to the other party. Where the cause changes after the contract, there is no error. Where a party alleges error as a vice of consent, the error must be an excusable one. Prescription is five years.
Cause: cause is the reason why a person obligates himself. For an obligation to exist, there must be either: o Lawful cause (one not prohibited by law or public policy) o Detrimental reliance: a person can be obligated by a promise if o 6
Promisee relied on the promise to her detriment; o Promisor knew or should have known that the promisee would so rely; and Promisee was reasonable in his reliance (this element will not be met if the promise was a o gratuitous one without the required formalities). Damages for detrimental reliance is discretionary with the court court can limit recovery to o either the expenses incurred or the damages suffered. Cause does not need to be expressed. A contract that the parties agree does not express their true intent is called a simulation . o Absolute simulation : parties do not intend the contract to produce any effects. o Relative simulation : parties intend the contract to produce a different effect than the one stated. o
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Object: an object is possible according to its nature a cause can be morally or physically impossible, but impossibility is not related to the parties’ ability to perform. Object must be determined (kind) and determinable (quantity). o A future thing is a valid object. o Promesse de porte-forte : a contract whose object is a thing done by a third party. Original obligor will be o bound by the obligation until the third party binds himself and will be responsible for damages if the third party does not bind himself or perform. Stipulation pour autrie : a contract where a party stipulates a benefit for a third person. o Interpretation of a contract is the determination of the common intent of the parties. Contracts are generally construed against the drafter and in favor of the obligor (this conflicts when the drafter is the obligor). The common intent of the parties should only be sought through evidence other than the contract if its terms are ambiguous . Absolutely vs. Relatively Null Contracts: Contacts are absolutely null when they violate rules of public order and only relatively null when they o instead violate rules intended for the protection of private parties. Absolutely null contracts have no legal effect; relatively null contracts prod uce legal effects until the o nullity is judicially declared. While relatively null contracts can be confirmed, absolutely null contracts can’t. o The court on its own motion or any party may raise an absolute nullity. Relative nullities may be invoked o only by the party the ground for nullity was designed to protect. Absolute nullities are imprescriptible, while relative nullities prescribe five years from the date on which o the ground for nullity ceased or was discovered. Damages for failure to perform: An obligor who fails to perform is liable to the aggrieved obligee for damages, including the loss su stained o and lost profits. The obligee is also entited to either: Specific performance (this is at the court’s discretion and the court won ’t grant it if it’s impracticable) Dissolution Extrajudicial: contract will be dissolved automatically if: Express dissolution clause for failure to perform the obligation. If the obligor fails to perform after notice to perform giving him a reasonable amount of time to do so. It is evident that the obligor will not perform or the delayed performance would be of no use to the obligee (i.e. contract for sale of Christmas decorations). Judicial: within court’s discretion court may grant the obligor extra time to perform. Dissolution will not be granted if:
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The obligor has rendered a substantial part of the performance; AND The unperformed part does not substantially impair the interests of the obli gee. An obligor in good faith is liable for foreseeable damages, where bad faith obligor is liable for any damages that are a direct consequence of his actions. Nonpecuniary damages (damages that are not granted for the loss of money) are available in two situations. First, where the obligor intentionally hurts the obligee’s feelings. Second, where the contract because of its nature is intended to gratify a nonpenuniary interest and the obligor knew or should have known that his failure to perform would cause this kind of loss. Parties may contractually limit liability for damages, but may not exclude/limit damages for intential or gross fault that caused damage to the other party, or for something that caused physical injury. Stipulated Damages : parties may stipulate damages in advance, meaning that the obligee will not have to prove damages. The obligor must be put in default before an obligee avails himself of a stipulated damages clause. A stipulated damages clause is rendered null if the principal obligation is null. The reverse is not true. An obligor whose failure to perform the principal obligation is justified by a valid excuse is relieved of liability under a stipulated damages clause. When parties agree to stipulated damages, the parties are limited to the agreed upon damages and courts cannot modify the amount unless it is so unreasonable as to violate public policy. Delay damages : are owed from the time an obligor is put in default. If the term for performance is fixed or can clearly be determined, the obligor is put in default by the arrival of the term. Otherwise, a party is put in default by: Written demand; Oral demand in front of two witnesses; Filing suit for specific performance; or By a special provision in the contract.
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Revocatory action : obligee annulling the action or failure to act or an obligor that causes or increases his insolvency that occurred after the right of the obligee arose. One year prescriptive period from date of actual/constructive knowledge of the act; three year preemptive period. Oblique action : obligee may assert a heritable right that the obligor failed to exercise which caused or increased his insolvency, unless the right is strictly personal to the obligor. Choice of Law in Contracts : Generally the serious impairment test is used. Except for issues of form and capacity, parties are free to select the law that will govern their contract except to the extent that their chosen law violates a strong public policy of the lex causae (law that would have governed had they made no selection). o Form: the contract will be valid in form if it is made in conformity with either: The law of the state of making o The law of the state of performance o The law of the state of common domicile/place of business of the parties. o o The law governing the substance of the contract. Capacity: the party is capable of contracting if he is capable in either: o The state in which he was domiciled at the time he made the contract o o The state whose law is applicable to the contract. Delivery of a thing is essential to the effectiveness between the parties of a giving in payment. Not so in the sale or lease of a movable, contract of exchange, or security interest. Parol Evidence Rule – Testimonial or other evidence may not be admitted to negate or vary the written act, but is admissible to prove that the written act was modified by a subsequent and valid oral agreement. 8
Transactions or occurrences effective as to third parties absent recordation include a matter of capacity or authority, the occurrence of a suspensive or resolutory condition, the exercise of an option or right of first refusal, a termination of rights that depends upon the occurrence of a condition. IV. SALES Requirements of a Sales Contract – An agreement on an object and price. Object: Can be anything, corporeal or incorporeal, that is susceptible of ownership. o o A future thing or a hope may be the object of a contract of sale. Sale of a hope = aleatory. Buyer assumes the risk that the thing will not materialize (look at o language and price in the contract). Cannot sell a thing belonging to another if the buyer did not know, he may be entitled to damages. o Sale of litigious right gives rise to a right in the debtor to satisfy his duty by paying to the transferee the o price the transferee has paid. Example – A has suit against B for a $500 payment of promissory note. A sues B for payment of the note, than signs the note over to C for $400. B now has the right to satisfy his debt by paying C $400. Price: o o o o
Must be in money Trading stuff is not a sale, and sand dollars are not currency. Must be either certain or determinable through a method to which the parties have agreed. Price must be reasonable and must not be out of proportion to the value of the thing. Parties must intend that a price be paid otherwise the contract is a simulation.
Buyer Fails to Pay Price : When a buyer fails to perform, the seller has the right to demand either specific performance (payment) or dissolution. Perfecting a Sale : a sale is perfected once the three elements of a sale are satisfied. Ownership passes to the buyer upon perfection of the sale payment and delivery are not necessary. Special perfection of sale issues : For goods sold by weight, count, or measure, the sale will be perfected once the weighing, counting, or o measuring is complete. This is not the case for a lump sale of goods. For things in transit, ownership depends on the bill of lading. o Things deliverable to the buyer are owned by the buyer. o Things deliverable to the seller or his agent are owned by the seller. o For a sale made under a suspensive condition, the sale will be perfected until the condition is fulfilled. o For a sale on view or trial, the sale is perfected after the goods are checked. o For a sale of a future thing, ownership passes when the thing comes into being. o Parties can agree that title will not transfer until a later date. o Risk of loss : transfers to the buyer upon delivery . For a shipment contract (contract does not require the seller to deliver the things to any particular location), o risk of loss is transferred to the buyer upon delivery to the carrier. o For a destination contract, risk of loss is transferred to the buyer when the thing is duly tendered to the buyer at the place of destination.
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Transfer of Immovable: A transfer of immovable property is valid between the parties, even though the agreement of transfer is oral, if the property has been actually delivered and the transferor recognizes the transfer when interrogated under oath. Option: An option is a contract whereby one party gives to another the right to accept an offer to sell, or to buy, a thing within a stipulated time. An option must set forth the thing and the price, and meet the form requirements of the sale it o contemplates. o If the parties don’t set a price they can leave it to an appraiser to determine the price. If there is no term but the option is related to a lease, the term is for the term of the lease. o An option relating to immovable property may not last longer than 10 years, unless the option is part of a o contract involving continuous and periodic performance. In that case the term of the option may be for as long as is necessary to fulfill those periodic performances. If the parties set a term longer than 10 years, it will be reduced to 10 years. o In order to enforce the option against third parties it must be recorded. o If it is not, the aggrieved buyer can only seek damages against the seller. o Right of First Refusal: A right of first refusal is a contract where a seller allows a particular po tential buyer the first opportunity to accept an offer of sale. o Right holder has 10 days to exercise the right if it’s a movable, and 30 day for an immovable. If the seller makes an offer to the potential buyer and it is refused, the right of first refusal continues unless the property is sold within six months. o It may not be granted for a term of longer than 10 years, so if it’s granted for longer it is reduced to 10 years. If the right of first refusal is recorded it will bind third-party purchasers and the right-holder can get o specific performance. Contract to Sell : parties promise to enter into a sale at a later date. Agreement must satisfy all the elements of a sale. o o Earnest Money is used in a contract to sell. When a purchase agreement includes the payment of earnest money, neither specific performance nor the recovery of damages is available for breach of the agreement. If the seller backs out, he must pay the buyer double the earnest money. If the buyer backs out, the seller keeps it. Earnest money is never assumed, it must be an express provision. 5 year prescriptive period if the contract is one to sell an immovable. o Obligations of Seller Deliver the thing: general rule is that seller is supposed to deliver the full extent of the premises. o Exceptions include: Sale per aversionem : a sale of an immovable falls into this category when it is described as “a o certain and limited body or a distinct object” and is sold for a lump price. There will be no increase or decrease in price if the quantity of the premises differs from the amount specified in the sale. o Sale by measure : occurs when the price is fixed at a specific rate per measure. If the seller delivers an amount that is less than what is promised, the price will be reduced accordingly. If the seller delivers less than 5% more of what is promised, the price will be increased accordingly. If the seller delivers more than 5% more of what is promised, the buyer may recede from the contract or pay the increase. o Sale for lump price : lump price for the quantity If the seller delivers an amount that is more than 5% less of what is promised, the price will be reduced accordingly (no right to recede). 10
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If the seller delivers an amount that is less than 5% less of what is promised, there is no effect on the price. If the seller delivers an amount that is less than 5% more of what is promised, there is no effect. If the seller delivers more than 5% more of what is promised, the buyer may recede from the contract or pay the increase. One year PP from date of sale for actions based on the extent of the premises. o Warrant the thing against eviction and against redhibitory defects Assure that the thing is reasonably fit for its ordinary use
Seller’s Warranties – A seller owes a warranty against eviction, redhibition, and fitness. Warranty Against Redhibition: applies to every single sale. There are two types of redhibitory defects. First, a buyer may seek a remedy for a redhibitory defect if the defect renders the thing absolutely o worthless or so inconvenient that the buyer would not have purchased the thing had he known of the problem. Second, a buyer may seek a reduction in the price for a defect that diminishes the usefulness or o value of the thing such that it must be supposed that the buyer would have paid a lesser price. A redhibitory defect must not be known to the buyer at the time of sale and must not be apparent such that a reasonably prudent search would have discovered it. If the defect appears within 3 days of sale it is presumed to have been present on the date of the sale. The warranty against redhibition may be waived but only in clear and unambiguous terms brought to the buyer’s attention. A waiver is ineffective against a seller who has declared that the thing has a quality he knew it did not have. The scheme of redhibition is sometimes extended to cover non-defective products which lack qualities represented by their sellers, but only when sellers intentionally misrepresent the qualities of the thing sold. A seller is a good faith seller unless he knew of the defect. The buyer must give a good faith seller an opportunity to correct the defect before he can seek rescission. An aggrieved buyer is entitled to his purchase price plus reasonable expenses. A bad faith seller is also liable for damages and attorney’s fees. A court may require an aggrieved party to accept a price reduction rather than dissolution. A manufacturer is always in bad faith. Subrogation and reduction of price (quanti minoris) are also available. A buyer who seeks a reduction of price may not later seek dissolution. For a good faith seller, the buyer may seek remedies based on a redhibitory defect one year from the discovery of the defect or prior to 4 years from delivery of the thing, whichever is shorter. For a bad faith seller, the prescriptive period is one year from the discovery of defect. For a sale of residential or commercial immovable property, prescription is one year from delivery if seller did not know of the defect, and one year from the discovery if he did. Both bad faith and good faith sellers may seek a deduction for the value of the use of the thing derived by the buyer. A seller’s attempt to repair the problem interrupts liberative prescription.
Warranty Against Eviction : A seller warrants the buyer against the 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. This includes physical eviction and nonapparent conventional servitudes that have not been declared. The buyer does not have a duty to conduct a title search to discover such servitudes. If nothing is said about the warranty of eviction, it is a warranty sale, and an aggrieved buyer may recover his purchase price plus damages.
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If the seller renounces the warranty, it is a sale without warranty and the buyer may claim restitution if he was unaware of the danger of eviction. If the sale is a non-warranty sale with one of the following special elements, it is a sale at the buyer’s peril and risk , and the buyer will get nothing back in the event of eviction: Buyer was aware of the risk of eviction at the time of the sale o Buyer declared that he was buying the property at his peril and risk, regardless of his knowledge of o danger of eviction Seller’s obligation of returning the price was expressly excluded. o An aggrieved buyer can sue not only the seller, but his ancestors in title for a breach of warranty against eviction (subrogation). If the seller did not own the property at the time of sale but later acquires it, the after-acquired title doctrine vests ownership of the property to the buyer automatically, whether the seller desires it or not. If the buyer has not been disturbed in his physical possession, he can still claim breach of warranty of eviction for the danger of losing the thing. However, he can only succeed upon proving “perfect title” of the third party. A buyer who is partially evicted is entitled to a proportionate reduction of the price, or to get the sale cancelled if his principal cause for buying the property was to get the part on which eviction occurred (water pipe/house building example).
Warranty of Fitness: A seller warranties that the thing is fit for ordinary use, or specific use if the buyer had a specific use in mind, the seller knew or should have known this, and the seller knew or should have known that the buyer was relying on his skill and expertise in selecting the thing. A breach of this warranty is subject to the rules of contract. The buyer may seek damages for his loss by filing an action within 10 years of the sale. The warranty of fitness can also be waived, but the law is unclear as to whether it must be brought to the buyer’s attention, as with redhibitory defects.
Sale of Movables Acceptance can still form a contract even if it contains different terms than those contained in the offer. If the contract is between merchants, the different terms become part of the contract unless: They materially alter the offer; o o The offer expressly limits acceptance to the terms of the offer; OR The offeror objects within a reasonable time. o If the contract is between nonmerchants, the different terms are considered proposals for modification. No contract will be formed if the acceptance is made conditional to the offeror’s acceptance of the different terms. Seller must deliver conforming goods. o Buyer has a right to inspect. Buyer’s acceptance of nonconforming goods will be binding unless he accepted them on the o reasonable belief that the nonconformity would be cured. o If the buyer rejects the nonconforming goods, seller has a right to cure: If the time for performance has expired; or The seller reasonably believed that the nonconforming goods would be acceptable to the seller.
Lesion : The doctrine of lesion allows the seller of a corporeal immovable property to rescind the sale if he received less than one half of the fair market value of the thing. Buyer may either return the thing and get his money back or keep it and reimburse the seller the rest of the FMV. The value of the thing is determined at time of
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the contract, or if none at the date of sale. The claim is subject to a one-year preemptive period running from the date of sale. Quitclaim Deed : A quitclaim deed transfers any rights the seller has in property but do es not warrant that he actually has any. When another party owns the subject property the buyer is evicted, the transferor under a quitclaim deed owes nothing. Exchange: each party transfers to the other the ownership of a thing other than money. Giving in Payment – A giving in payment is a transaction between whereby the debtor give a thing to a creditor in lieu of paying him the sum borrowed. For movables, it is perfected upon delivery. Contract to Build: special type of contract where no special sales remedies (warranty against redhibition) apply. Recission is based on the breach of the warranty of workmanlike performance. Elements of a contract to build: Buyer has some control over the specifications of the object Negotiations take place before the object is constructed Contract contemplates that one party will supply the materials and also furnish skill and labor to build the thing.
V. LEASES Lease: a contract by which one party binds himself to give to the other party the use and enjoyment of a thing for a term in exchange for a payment of rent that the latter party binds himself to pay. Conveys possession, as opposed to ownership. Elements of Lease : Thing Rent: must be certain or determinable through a method agreed upon by the parties (or can be left to the determination of a designated third person if the price is not determinable or the method is unworkable, there is no lease). Consent
Types of leases : Residential Commercial Agricultural Consumer (thing is a movable intended for lessee’s personal or familial use outside of his trade or profession) Mineral
Form Requirements of a Lease: There are no specific form requirements. A lease agreement on an immovable may be valid even though it is oral. The only essential elements of a lease are agreement on the thing and the rent. Rent must be certain or determinable. An unrecorded lease will not be valid against third parties. A lease must have a term, but the law supplies one if the parties do not. Term of Lease When Not Specified : the term of a lease may not exceed 99 years and will be reduced accordingly if it does so. In the absence of a fixed term, an agricultural lease will be deemed year-to-year. Any non-agricultural lease of an immovable, or a residential lease of a movable, will be deemed month-tomonth.
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A non-residential lease of movables will be deemed day-to-day, unless the rent is fixed by shorter or longer periods, in which case the term shall be one such period not to exceed one month.
Tacit Reconduction : Tacit reconduction occurs when there is a fixed term lease and the lessee continues in possession and no steps are taken to terminate the lease for: o 30 days in agricultural lease; One week in non-agricultural lease with fixed term longer than a week; or o One day in leases with fixed terms of equal to or less than a week. o The lease will then continue as if it were an indeterminate term lease (see terms above). Reconduction of residential lease – When a residential lease expires it becomes month-to-month, and either party can terminate it with 10 days notice. Reconduction of Nonagricultural Lease – When the original term of a reconducted nonagricultural lease is a month or longer, the term of the reconduction is month to month. If the lease is shorter than a month the term is week to week.
Terminating a Lease – A lease with an indeterminate term must be terminated by written notice if it is for an immovable or a residential lease of a movable. Otherwise it can be oral. Notice must be given 30 days before the period in a lease longer than a month, 10 days if term is month-to-month, 5 if its between a week and a month, and any prior to the expiration of the period if its shorter than a week. Obligations of Lessor : Deliver the thing at the agreed upon time in good condition o Maintain the thing in a condition suitable for the purpose for which it was leased. o He is liable for making repairs, except ones that were caused by the fault of the lessee or persons o who were on the premises with his consent, and repairs needed because of deterioration due to the lessee’s use that exceed normal wear and tear. It is within the courts discretion to dissolve a lease for breach of a maintenance obligation. If the lessor refuses to make necessary repairs, the lessee may make the repairs and demand o immediate reimbursement or deduction from the cost of the rent. Protect the lessee’s peaceful possession of the thing. o Warrant against vices o Lessor’s Warranty of Peaceful Possession : The lessor is liable if the lessee’s possession is disturbed by any person claiming a right in the leased thing. The warranty includes disturbances by persons with access to thing with the lessor’s consent or who occupy adjacent property. This warranty can be modified by contract. The warranty does not include barking dogs. Lessor’s responsibility for vices and defects : lessor is liable for all vices and defects that prevent the leased thing from being used for its intended purpose. Does not matter if the lessor knew about it when the contract was made, nor does it matter when the vice arose. This warranty may be waived by clear and unambiguous language that is brought to the attention of the o lessee, but this waiver will not apply to o Vices or defects that the lessee didn’t know about but the lessee knew or should have known about. Intentional acts/gross fault/acts causing physical injuries (obligations rules) o The lessor can also modify the warranty rules by having the lessee assume responsibility for the condition o of the premises, and the lessee can assume responsibility for injuries due to defects in the premises, if: The person injured derived his right to be on the premises from the lessee ; and o The lessor did not know or should have known of the defect. o
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Lessee’s rights and obligations : o Obligations: pay rent, use the thing as a prudent administrator, return the thing at the end of the lease in the same condition, excepting normal wear and tear. The lessee will be liable if he uses the thing for a purpose other than that for which it was originally o leased. o When rent is not paid timely, the lessor is entitled to d issolve the lease and regain possession of the premises. The lessor must give the lessee at least 5 days notice. When the lessee abandons the premises, the lessor has the right to retake possession and relet the o premises, acting as a mandatary for the lessee. In this case, the lease is not terminated and the lessee is not relieved of his obligations to the lessor. If the lessor’s arrangement with the third party is incompatible with the original lease, the court may find that the lessor was not merely acting as a mandatary (i.e. remodeling job, using it for a different purpose, etc) and terminate the lease. o Subletting – A lessee has the right to sublease the leased thing unless prohibited by contract. He may also assign his interest. Sublease: transfer of the right of occupancy lessee is still the one paying rent o Assignment: transfer of the contract assignee will be the one paying rent o o Lessee’s Duty to Remove Improvements – A lessee has the right to remove all improvements he makes to the leased property. When a lessor demands the lessee remove improvements within a reasonable time and the lessee fails to comply, the lessor may appropriate ownership of the improvements without owing any reimbursement to the lessee. However, the lessor must give additional notice of the appropriation by certified mail after the reasonable time given to remove. Once the notice is sent, the appropriation is complete. Lessor’s Privilege in Movables – A lessor has a privilege in the movables found in the leased property to secure the payment of rent. The lessor may lawfully seize those movables while they are on the leased premises. The right is a right to collect a debt in preference and priority to other creditors. It doesn’t allow the lessor to simply help himself to the property. Lease Effective Against 3rd Parties – A lease must be recorded to be enforced against a third party that purchased the property from the lessor, even when the purchaser knows about the lease. VI. CIVIL LAW SECURITY RIGHTS Security right : a legal mechanism to help a creditor collect an obligation (usually a debt of money arising from a loan). 4 kinds: Suretyship o Mortgage o Privilege o Chapter 9 security interest o Suretyship : the surety binds himself to a creditor to fulfill the obligation of another if that person fails to do so. Surety promises to pay one or more of that person’s debts if that person does not pay. Suretyship is an accessorial obligation and as such, a surety’s role is accessory to someone else being a o principal obligor (when a person binds himself as a principal obligor by promising that a third person will incur an obligation or render a performance, this is NOT solidary suretyship, it is a promesse de port-fort). Any obligation can be secured by suretyship (generally, the bar exam will just have some sort of loan, like o a business loan or car loan). Suretyship Agreement : A suretyship agreement allows a creditor to take action against someone personally if a debtor fails to perform. All that is required is that it be express and in writing . o Express about the surety’s promise to pay AND about exactly which obligation . 15
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Parol evidence is not admissible to establish the promise.
Obstensible suretyship : recharacterization of a contract where it looks like the surety is a principal obligor but they are actually a surety (i.e. a parent co-signs a car note so their child can buy a car). The surety will be treated as one if the following two conditions are met: o The principal cause of the contract with the creditor is to guarantee performance of the obligation; and The creditor clearly knows this. o Types of Suretyship Contracts 1. Legal Suretyship : A legal suretyship is one created by law (pursuant to legislation, court order, etc.) i.e. bail bondsman. 2. Commercial suretyship : involves one of the three following elements: o Surety is paid for promising to pay the debt. The surety is a business entity. o The debtor is a business entity. o The principal obligation or the suretyship contract itself arises out of a commercial transaction o (business deal). 3. Ordinary suretyship : remainder class neither legal nor commercial suretyship. Interpretation of contract: o Ordinary suretyship is strictly construed in favor of the surety. In contrast, commercial suretyship contracts are construed just like any oth er commercial contracts. o Surety’s Defenses – A surety may avail himself of any defense the principal obligor has (i.e. vices of consent, illegality), except for discharge in bankruptcy and lack of capacity . He also has defenses of his own: o Material modification of the obligation : creditor changes the terms of the specific principal obligation after the surety has guaranteed it surety has a legal right to not be subject to after-the-fact modifications of the obligation to which he has not consented. o Ordinary suretyship will be extinguished . Commercial suretyship will be extinguished only to the extent that the modification actually o injures the surety (burden is on creditor to show that the modification did not injure the surety). o Impairment of Collateral : creditor has undermined real security rights that he had in addition to the personal security of the suretyship contract (i.e. failed to perfect a mortgage or security interest). This injures the surety by depriving him of the value of the real security. o Ordinary suretyship will be extinguished . o Commercial suretyship will be extinguished only to the extent that the modification actually injures the surety (burden is on creditor to show that the modification did not injure the surety). o Remission of principal obligor : if the creditor releases (remits) the principal obligor from his debt, the suretyship will be extinguished because it is an accessory contract. Remission of a co-surety: this will remit that surety’s virile share only, other sureties will still be on o the hook for their virile shares. These four defenses can be waived by the surety. o Surety’s rights against principal obligor : o Reimbursement : surety has basically paid the principal obligor’s debts, so the law gives the surety a right to seek reimbursement from the debtor. This is only true if the debt was actually due and owing (exigible; i.e. an obligor will not have to pay back a prescribed debt paid by the surety). o Subrogation : once a surety pays a creditor the principal obligor’s debt, he basically gets the right to step into the creditor’s shoes and assert any other rights that creditor may hav e (i.e. the creditor has both a guarantee from surety and a mortgage against the principal obligor’s immovable property. If he chooses to enforce the guarantee, the surety may then enforce the mortgage to secure the obligor’s repayment of the money surety paid to creditor to pay the obligor’s debt). 16
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Can also recover attorney’s fees and accrued interest on paid amounts if the principal obligation allows for such. If the surety only pays part of the debt, his right to subrogate is preceeded by the creditor’s right to collect the unpaid remainder from the principal obligor.
Surety’s rights against co-sureties : If a surety pays more than his or her virile share, he has the right to collect the excess from the others o (however, virile shares can be modified by agreement between the sureties, which affects what happens when a creditor releases one of them). Reallocation due to insolvency: if a surety becomes insolvent, the virile shares will be changed to reflect o the insolvency (basically, it will be like that person was never a co-surety). If the surety becomes insolvent after the creditor releases a different surety, the insolvent surety’s share will be reallocated to the remaining sureties AND to the creditor. Can NOT collect attorney’s fees or interest. o Termination of suretyship : If the surety has promised to pay general future indebtedness, he may terminate the suretyship by giving o notice to the creditor. o Notice of death of surety will terminate a suretyship (unless the universal successor confirms the suretyship obligation orally or in writing) Only future obligations may be obligated by notice of termination the surety will remain on the hook for o obligations incurred before the creditor received notice of obligation. Compensation can neither take place nor be renounced to the prejudice of rights previously acquired by third parties. Mortgage: a real accessory right in immovable property that secures the performance of an obligation and allows the mortgagee (the person who has the right) to have the mortgagor’s (the person whose property is under the mortgage) seized and sold to pay the debt in preference to other claims. o A mortgages attaches automatically to all future component parts (buildings, crops, fixtures) of the mortgaged property. Types of mortgages Legal: arise as a matter of law in certain limited circumstances (i.e. a tutor’s immovable property in favor o of the minor) Judicial: arises when a party who has obtained a judgment for the payment of money files a certified copy o of the judgment in the mortgage records of any parish where the debtor’s immovable property is located. This type of mortgage will automatically encumber ALL of the present and future rights in immovable property located in the parish of filing. Must be re-established every 10 years. Conventional: created by contract where the mortgagor grants security rights in his specifically identified o immovable property. (Legal & judicial mortgages are general, conventional mortgages are special) Requirements for a valid conventional mortgage: Must be in writing; o Authentic act is not required but is recommended. o o In order to enforce the mortgage through executory process, it must be in authentic form. Otherwise it can only be enforced through ordinary process. o Signed by the mortgagor or someone with authority to bind the mortgagor ; A mandatary must be given express authority to enter into a mortgage. o Paraph no longer required o 17
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Describe the secured obligation ; and o Must state the amount of the secured obligation or at least the maximum secured amount that may be outstanding at any given time. Many mortgages simply state the amount borrowed plus the rate of accruing interest. o Describe the nature and situation of the immovable property with a certain level of specificity (reference to subdivision or plat map on public file is OK, street address insufficient). Future property can be mortgaged as long as its specifically described. o Lesser property rights that do not rise to the level of full ownership may also be mortgaged. o
Making a mortgage effective against third parties – In order to be effective against third parties, the entire mortgage must be recorded in the mortgage records of the parish where the immovable is located . It is effective from the exact moment it is filed , so the first to file wins if multiple people are claiming rights over the same immovable property. The effect of the mortgage’s inscription on the public records lapses after a certain period unless it is o “reinscribed” by filing a notice of reinscription in the mortgage records, identifying the mortgagor, the file number or other information describing the original inscription, and declaring the mortgage reinscribed. This will extend the mortgage for ten more years from the date the reinscription is filed. Must be filed BEFORE the mortgage lapses. Reinscription will extend the mortgage for 10 more years from the date of the filing of the notice. o A mortgage inscription lapses 10 years after the date of the Act of Mortgage unless the secured obligation is described in the mortgage as having a maturity date beyond 9 years after the date of the act, in which case it lapses 6 years after maturity (maturity date = how long you have to pay it). If a mortgage is amended, a new stated maturity date can change the effectiveness period. There is no restriction on reinscription of immovables before some future d ate. o When Mortgaged Property Sold – A properly executed mortgage follows the property. Even where the creditor consents to a sale of the property, it may still enforce the mortgage if there is a default on the mortgage. A possessor of property subject to a recorded mortgage who has not assumed liability on the principal o obligation is called a third possessor. o Third possessor will be liable to the mortgagee for damage to the property caused by his negligence or intentional misconduct. If the third possessor spends money to improve the mortgaged property and the creditor later forecloses o and sells the property, the third possessor may recover the costs of improvements to the extent that the improvements increased the value of the property. Transfer : selling your right to collect on a mortgage Transfer of the secured note automatically transfers the mortgage
Multiple Indebtedness Mortgage – A multiple indebtedness mortgage allows a mortagee to secure fluctuating future advances, so long as the mortgage states the maximum amount of secured debt that can be outstanding at any given time. If the mortgage states that it is “for all present and future obligations” it is a MIM even if it is given to secure a specific debt. The priority date is on the day it’s filed. It remains valid against the mortgagor even if the borrow repays all the outstanding loans and remains effective if properly reinscribed. Effect of Extinction of Principal on Security – The extinction of the principal obligation extinguishes all security devices (mortgage, suretyship, etc.), with the notable ex ception of Multiple Indebtedness Mortgages (MIM). Extinction of mortgage occurs with the extinction or destruction of the thing mortgaged, confusion as a result of the obligee’s acquiring ownership of the thing mortgaged, prescription of all the obligations that the mortgage
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secures, and consent of the mortgage. The mortgagor’s tender of substitute collateral for the secured obligation does NOT extinguish. Privileges arise by operation of law whenever certain acts identified by law occur, which give rise to payment obligations that are secured by the privilege. Vendor’s Privilege – The vendor’s privilege provides the seller automatic security rights in any movable or immovable sold on credit . It benefits the only the credit seller and only while the immediate buyer has possession. For immovables, the act of sale must be recorded in the mortgage records to preserve the privilege. For movables, the privilege applies only when the property is in the buyer’s possession. The privilege in movables has priority over all general privileges but is subordinate to a Chapter 9 security interests (whether perfected or not) and lessor’s privileges. For immovables the privilege has priority over a filed mortgage as long as the act of credit sale is recorded in the parish mortgage records where the immovable is situated before the mortgage or within 7 days of the act of sale (or within 15 days if recorded in a different parish than the one where the act of credit sale was executed). The privilege can be enforced only after the vendor obtains judgment on the unpaid obligation and seeks to enforce the judgment against the property through ordinary process. Repairperson’s Privilege (artisans, mechanics): securing payment for repair services – parts and labor. Exists while repairperson is in possession of the goods , or if not, for 120 days from last day on which materials and/or labor were supplied .
Lessor’s Privilege : privilege on all of the lessee’s movable property located anywhere on the leased immovable property to secure the rental price and any other obligations under the lease. Law extends the privilege for 15 days after the lessee removes any movable property if the lessor did not consent to the removal of the property and if the movables can still be identified as the lessee’s property.
Ranking the privileges Repairperson’s privilege > security interest, lessor Lessor > vendor Vendor > repairperson Security interest (perfected or not) > lessor, vendor
VII. CHAPTER 9 SECURITY INTERESTS Collateral : property, movable or immovable, that secures the payment of a debt. Tangible movable things o Inventory : tangible movables held by the debtor’s business for sale/lease and any raw or consumable materials (stuff with a short shelf life, like flour, sugar, chemicals, etc) o Equipment : any tangible movable owned by a business not within another category (i.e. parrot mascot, large display, etc) o Farm products : livestock and unmanufactured farm goods (eggs, grain, apples, honey, etc) Processed farm products are inventory Consumer goods o Tangible movables used or bought for use primarily for personal, family, or household use primary intended use either at present or at puchase Things related to immovable property Fixtures : any movable thing that is so incorporated into an immovable that it becomes a component o part.
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As-extracted collateral : rights in oil and gas and other minerals that have been reserved before extraction , so that the security interest will attach to the oil, etc. as soon as it is extracted (as well as accounts from the sale of such collateral at the wellhead). Intangible rights o Account: right to payment for goods, services, real property, use of a credit card, or lottery winnings that is not evidenced by an instrument or chattel paper Any time something is sold or leased in exchange for a promise to pay in the future, an account is created Right to payment o Deposit account : accounts maintained with a bank, such as savings or passbook accounts (technically, your right to collect on the bank’s promise to give you back the money you put on deposit) o Documents of title : represent a right to a good from someone (warehouse, shipper, etc) bill of lading, warehouse receipt (farmer harvests crops and takes them to a warehouse for storage), air bill (load something onto a plane for shipping) Instrument : promise to pay memorialized in a note or certificate of deposit o Promissory note o Chattel paper: papers representing both a promise to pay and a property right (i.e. debtor who is a car dealer) Lease of a thing (right to collect future rent + reversionary right) Reail installment sale agreement (promissory note + security agreement) o Investment property : stocks, bonds, mutual funds, brokerage accounts. Excludes collateral mortgage note. o General intangibles : other intangible rights not otherwise categorized, including rights in intellectual property (copyrights, trademarks, patents) and business goodwill o
Creating rights that are valid against the debtor Attachment Attachment under Chapter 9 is the process by which a security interest is created ; that is, made enforceable against the debtor, by “attaching” to the collateral. Attachment occurs when the last of these three requirements has occurred o Value has been given (past loan, present loan, binding promise of future loan) The debtor has rights in the collateral; and o The debtor has authenticated (signed) a security agreement that adequately describes the collateral o (must be somewhat specific) Authenticated = signed, indicated assent in a perceivable form (email voicemail), oral agreement if debot agreed to put the collateral in the creditor’s possession or control Description of collateral = reasonably identify using the above categories “all assets” is too vague After-acquired collateral is generally okay Consumer transactions: descriptions must be more specific (not using the broad catego ries) and after-acquired collateral clauses only apply if the property is acquired w/in 10 days of the secured value being given Future loans: future obligations can be secured “all indebtedness” Proceeds : a security interest attaches automatically to whatever the debtor receives for or on account of the collateral (its proceeds) as long as the proceeds are somehow “identifiable” as linked to original collateral . Security interest follows property into the hands of other people who acquire the collateral from the debtor unless the creditor consents to a release of the security interest when a debtor sells collateral, the creditor’s collateral quite often doubles.
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Perfection: making a security interest enforceable against third parties . Can be done after attachment has occurred . 1. File a UCC-1 financing statement in the UCC records of any parish Clerk of Court’s Office (as long as the debtor is a Louisiana domiciliary). The statement must include o Full, accurate legal name of the debtor If a misspelled or wrong name isn’t found by searching the correct full name, the statement is “seriously misleading,” ineffective, and security interest will not be perfected. If debtor’s name changes to make the financing statement seriously misleading, there is no effect on existing collateral, but the financing statement is ineffective to perfect a security interest in any new collateral acquired 4 months after the name change (generally after incorporation of a sole proprietorship or merger) Secured creditor’s name Description of the collateral: A generic description of collateral (“all assets”) is acceptable, but if the financing statement describes the collateral more broadly than the security agreement does, it is unauthorized, and therefore ineffective (although a court might allow it up to the amount described in the security agreement). If the collateral is related to land ( fixtures, as-extracted collateral ), then a fixture filing must be o filed File in any parish clerk of court’s office Must contain additional information : Description of the immovable property w/ sufficient detail to support a mortgage State that it covers fixtures (checking a box) Identify the owner of the immovable if other than the owner of the fixture MUST BE MADE BEFORE THE COMPONENT PART BECOMES AFFIXED OR THRERE IS NO SECURITY INTEREST. Chapter 9 security interest does not apply to consumer goods fixtures . Cars and other vehicles covered by a certificate of title: must contain more specific descriptive o information on the car (make, model, VIN) and be filed in the Office of Motor Vehicles Titled boats valued at over $2500: must also contain more descriptive information, and UCC-1 o should be filed with the Department of Wildlife and Fisheries o New or used cars/boats in a dealer’s inventory treated as inventory, regular UCC-1 will suffice A properly filed UCC-1 statement will perfect any security interest in described collateral in any secured loan between creditor and debtor Lasts for 5 years after filing . If not continued (by filing continuation), will lapse as thou gh it was never filed Continuation statement: must be filed in same office where the original UCC -1 was filed during the 6 month period before expiration Interstate transactions: the law governing perfection (regardless of where the collateral is) is the law of the jurisdiction where the debtor is Individuals are located in their principal place of residence Registered organization: state of registry Organizations that are not registered (general partnerships): where their office or, or if it’s in more than one state, where their chief executive office is It debtor moves to a new state: creditor has 4 months to discover the move and re-file in the new state’s Secretary of State’s office. Otherwise, the UCC-1 filed in the previous state is retroactively ineffective as to other secured creditors (retroactive unperfection) 2. Possession ; another way to perfect a security interest The creditor takes physical possession of the collateral. Only way to perfect a security interest in money or a collateral mortgage note
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Superior means of perfection in an instrument or tangible chattel paper. Possession is an alternative method for corporeal movables, such as equipment. Satisfies both the writing requirement for attachment and the perfection step. 3. Automatic perfection ; Third way to perfect a security interest the security interest is perfected automatically upon attachment. The most prominent type is a PMSI in consumer goods. PMSI: Purchase-money security interest in consumer goods a security interest that secures repayment of whatever portion of a loan (usually 100%) was actually used to purchase the collateral. Consumer goods are those bought primarily for personal, family, or household use. Two scenarios: o Bank creditor lends money to allow debtor to buy the collateral Seller of the collateral extends credit to allow the debtor to buy the collateral. PMSI can be created in favor of either a credit seller or lender making a loan actually used to buy the collateral, and it must be specifically created by authentic agreement. If the PMSI is for inventory the creditor must file a financing statement and provide notice to other creditors. If it is for “consumer goods”, in other words, goods for personal, family, or household use, it perfects automatically and a filed financing statement is only necessary to secure the good if it is transferred from the original buyer. A perfected PMSI generally remains effective and enforceable against the collateral even if the original buyer sells or otherwise disposes of the collateral. A PMSI can be enforced against the property immediately upon the debtor’s default. A PMSI perfected within 20 days of delivery of the collateral to the debtor takes priority over virtually any other interest. When no PMSI exists, the creditor still has a vendor’s privilege. 4. Control: a term of art that is established in different ways for different collateral. Control is the exclusive method for perfecting an interest in a deposit account and is usually established by obtaining a “control agreement” from the bank. Superior method for perfecting an interest in investment property. Control of life insurance policies : one of two ways Secured creditor is the insurance company that issued the policy; or o The insurance company “authenticates a record ” acknowledging the grant of a security interest to o the secured party in the policy Control of deposit accounts Secured creditor is the bank where the account is held o Control agreement : the bank agrees to follow the secured creditor’s instructions w/ respect to the o money in the account Creditor can become the bank’s customer with respect to the deposit account by adding the o creditor’s name to the account Control of investment property Certificated securities : if an individual’s stock or bond holding is represented by a paper o certificate – transfer of possession of the certificate to the creditor, and eithe r indorsement or reregistration in the creditor’s name on the company’s books. Undercertificated securities – “delivery” official transfer on issuer’s books into the creditor’s o name o Indirect holdings – securities accounts and security entitlements securities held through a broker (Charles Schwab or AG Edwards) in securities account. Control just like control over deposit account. Broker holding the entitlement or account automatically has control Control agreement broker agrees to follow creditor’s orders Creditor listed as securities account holder on the books or the broker
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5. Perfection as a matter of law in proceeds : automatic attachment to proceeds of collateral (and proceeds’ proceeds, etc). If the interest in the original collateral is perfected, the automatic interest in proceeds is also perfected automatically 20-day grace period . After that, perfection continues in 3 ways without further action (filing a new UCC-1) by the creditor. Original financing statement might describe the proceeds (i.e. b y category, NOT by the word “proceeds” because this is not a collateral description) If the proceeds are identifiable cash proceeds , there is continuous automatic perfection: “money, checks, deposit accounts, or the like” cash and cash equivalents Perfection as a matter of law 3 part test: o Original security interest was perfected by filing o Proceeds are a type of collateral in which a security interest can be perfected by filing in the same office as the original filing; and Proceeds were not acquired with cash proceeds o
Securing Interest in Movable Property – In order to obtain rights in movables sold on credit, the creditor should attach and perfect a security interest in the property. The creditor should obtain a written security agreement authenticated by someone with authority. If the property is being sold to a juridical entity, the creditor should get a representative’s mandate authority express and in writing. The security agreement should describe the collateral broadly but with some specificity. In order to perfect, the creditor should file a UCC-1 financing statement in any parish clerk of court’s office. This is appr opriate as long as the juridical entity is registered in Louisiana. The financing statement should identify the debtor by its full legal name, as listed on its organizational documents, identify the creditor, and describe the collateral just as it is described in the security agreement. In order to achieve PMSI super-priority over a prior- perfected creditor’s rights, the creditor must (1) perfect its security interest and (2) send any other creditor with a perfected security interest in the property a written notice, explaining that the creditor intends to deliver the property to the debtor on credit and take a PMSI in the property. Priority battles: who wins? (if multiple people have a security interest and the value won’t satisfy all of them) General rule: first to file Secured creditors: first creditor to have filed a UCC-1 wins (except control of investment property or possession of notes or chattel paper, which will beat any other perfection method) Lien creditors (creditors who acquire rights through the judicial process): Secured creditor will have priority if his security interest was perfected before the lien arose . Buyers in Ordinary Course: A perfected security interest will follow collateral into the hands of a buyer (but buyers who pay for collateral before perfection are unaffected by the security interest). Exception: inventory sold in the ordinary course of the debtor’s business is generally not subject to o the debtor lender’s security inter est. PMSI exceptions: o Non-inventory collateral: for most collateral, PMSI perfected within 20 days of the debtor’s receiving delivery of collateral beats all other secured creditors and lien creditors (both in the PMSI collateral and in any eventual proceeds of that collateral) if these conditions not met, first to file rule still applies Inventory collateral super priority: PMSI creditor must do 2 things before the collateral is o delivered to the debtor : 1) perfect the PMSI , and 2) notify any secured creditor with a filedperfected competing interest in after acquired inventory in writing that the PMSI/creditor has or expects to have PMSI priority in the described inventory . For proceeds of inventory: PMSI super-priority only for instruments, chattel paper, and identifiable cash proceeds received on or before delivery to the buyers of the inventory. When inventory is sold on credit, in exchange for a promise to pay later (account), the PMSI super-priority in the account and its proceeds is cut off.
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Enforcement of Security interests : Default (gateway to enforcement): defined by agreement Repossession: o No self-help in LA (against public policy, so would probably apply to out of state creditors enforcing out-of-state agreements) o Send out the sheriff to repossess the property and sell it at public auction Collecting accounts: debtor’s right to collect money owed b y other people (accounts) can be o repossessed by telling account debtors (debtor’s debtors) to pay to creditor. Payment to the debtor is no longer effective to discharge the account debtor’s debt account debtor can assert any defenses to payment and demand proof of assignment Strict foreclosure: creditor negotiates to buy collateral from the debtor dation en payment Proposal: creditor sends debtor (and other parties) a proposal to keep the collateral in exchange for o forgiveness of some or all of the debt o Notice: creditor must notice other creditors whom the creditor actually or constructively (through UCC-1 filing) knows have interests in the collateral (along with secondary o bligors for partial satisfaction proposals). o Assent: proposal is accepted if debtor fails to make written objection w/in 20 days and no other party objects if proposal is only for partial satisfaction, debtor must send a record of assent. Consumer exceptions Collateral cannot be in debtor’s possession at time of proposal o o No strict foreclosure for consumer goods if the debtor has paid 60% of the principal amount of the secured loan (debtor can waive this restriction after default)
UCC Choice of Law – The law of the debtor’s jurisdiction governs perfection and priority of non-fixture security interests. IV. MISCELLANEOUS CODE III TOPICS Mandate: Contract between the principal and the mandatary giving the mandatary the authority to transact on the principal’s behalf. Express authority is needed for a mandatary to o (1) acquire, alienate, encumber or lease property; (2) make an inter vivos donation; (3) accept or renounce a succession; (4) contract a loan, or acknowledge or remit a debt; (5) become a surety; (6) make or indorse a promissory note or negotiable instrument; (7) enter into a compromise or agree to arbitration; and (8) make health care decisions. o Mandatary’s Ability to bind Principal – A principal is bound to third parties only for contracts made by the mandatary within the limits of his authority. However, where the principal causes a third party in good faith to believe that the mandatary is acting within the limits of his authority, the principal is bound to that third party. o Equal Dignity Doctrine – When a contract requires a writing, a mandate to enter into that contract must also be in writing. When immovable property is sold, chances are incidental contracts must also be in writing. o Duties of Mandatary : act with prudence and diligence, give information to the principal, and deliver property to the principal. If a mandatary exceeds his authority, he is answerable to the principal for resulting loss that the principal sustains.
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Relationship between mandatary, principal, and third parties : If there’s a fully disclosed mandate, the mandatary will not be personally bound to the third person, but the principal will be. If there is a fully undisclosed mandate, the mandatary will be personally bound to the third party. If there is a disclosed mandate but undisclosed principal, the mandatary is personally bound to the third party until the principal’s identity is disclosed. A mandatary who exceeds his authority will be personally bound to the third party, unless the third party knew that the mandatary was exceeding his authority, or the principal ratified the action. Termination of Mandate: Death or interdiction of either party. No termination for lesser grounds such as incapacity or disability. Notice of termination by either party: principal will be bound by good faith acts performed before the mandatary learns of the termination, and will be bound to a third party who did not yet learn of the termination.
Management of affairs is subject to the rules of mandate to the extent that those rules are compatible with management of affairs. Deposit : A contract where the depositor delivers a consumable movable to the depositary and leaves it with him for a time (this can be gratuitous or onerous). A depositary is bound to return the precise thing that he received in deposit, as well as any fruits or value o he received from it. o He will be liable if he violates his duty of care, which is a higher standard if he is an onerous depositary. He may not use the deposited thing without express or implied permission from the depositor. o Special rules for innkeepers: o o Innkeeper who accepts guests’ personal items for deposit is treated as an o nerous depositary (must act with diligence and prudence). Innkeeper who places a safe in a guest’s room is not treated as a depositary. o Innkeeper’s liability for lost/stolen items is limited to $500 as long as he provided a safe deposit o box and made guests aware of it. Loan o
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Loan for use: gratuitous contract where a lender delivers a nonconsumable thing to the borrower, who must return it after he finishes using it. Loan for consumption: contract where the lender delivers fungible and consumable things to the borrower, who is permitted to consume them and replace them with things of the same kind/quality.
Compromise: A compromise is a settlement contract. It must be in writing or recited in open court and capable of being transcribed, unless it is an accord and o satisfaction, which is when the claimant of a disputed or unliquidated claim accepts a payment tendered by the other with the clearly expressed written condition that acceptance of the payment will extinguish the obligation. It may be annulled for vices of consent, except lesion or error of law. o o Is not the same thing as a novation: if a compomise is not performed, the other party may seek the enforce it or dissolve it and enforce his original claim.
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