Ducuy v. Falgoust

On Rehearing

FOURNET, Chief Justice.

When this case was before us on original hearing, we reversed the judgment of the lower court ordering the defendant to specifically perform his offer (duly accepted) to purchase property belonging to the plaintiffs in accordance with the contract; dismissed the intervention of Zor, Inc.; and, under the decision of this court in Johnson v. Johnson, 213 La. 1092, 36 So.2d 396, and the authorities therein cited- — holding to the effect that unless a party arbitrarily refused to comply with such an agreement he is not liable for the stipulated damages — we rejected the defendant’s reconventional demand for double the deposit he made at the time his offer was accepted, and for all costs and fees, but we ordered the plaintiffs to return to him his deposit of $780.

However, on application for rehearing filed by the appellant, Falgoust, our attention was called, for the first time,1 to the fact that there is, in the jurisprudence, a line of authorities holding to the direct'contrary, i. e., that recovery may be had by the other party in case of failure to perform by either party for the amounts stipulated to be forfeited, plus fees and costs, as liquidated damages under the very terms of the contract, even though the failure was not due to arbitrariness or capriciousness.2

For this reason we granted a rehearing.

Inasmuch as the plaintiffs did not apply for a rehearing, that part of our judgment dismissing the intervention of Zor, Inc., and reversing the decision ordering the defendant to specifically perform the contract is now final. This leaves for our consideration the claims of the defendant under his reconventional demand, i. e., thq refund of the $780 deposited by him, plus a like amount, and $149 for the cost of examining the title and securing the necessary and the requisite certificates that wer.e preparatory to the passage .of the act of *543sale, and also for reasonable attorney fees incurred in connection with this suit, all with interest at the rate of 5% from judicial demand.

The plaintiffs, in seeking to maintain our previous judgment, contend that inasmuch as the provisions of the contract with respect to the amount on deposit tracks the earnest money provisions of our LSA-Civil Code, Article 2463, the jurisprudence thereunder 3 is controlling and, consequently, since they have not actively or intentionally “refused” to comply with the agreement, and are, in fact, seeking its judicial enforcement, their inability to perform being attributable to no fault of theirs but to an “inevitable accident, or irresistible force”, they are relieved of any penalty liability under Article 2120 of the LSA-Civil Code and the jurisprudence in connection therewith.4

It is apt to observe here that under the ancient classical Roman law earnest (arra or arrha of the Roman law and arrhes of the French civil law) served a well understood function for the reason that a sale was one of the consensual contracts; consequently, it was complete at the moment the parties agreed as to the thing and the price, even though the formal transfer was to occúr at a later date. Under this concept earnest was a token of some value or money that was given at the time the parties “struck an agreement” to signify its completion. It was also a pledge of its fulfillment. The sale was, from that moment, complete and irrevocable.

The confusion surrounding the exact function of earnest in sales that exists today wherever the civil law prevails stems from the disagreement among learned judges and legal scholars as to the effect of an enactment of Justinian — providing that if the parties agreed to reduce the contract to writing, its completion was suspended until the writing was duly executed, and if the agreement of sale was followed by the giving of earnest, it might be rescinded by the buyer forfeiting the earnest paid, or by the seller returning double the earnest received —i. e., whether the forfeiture of the earnest and the rescission of the contract applied only to completed contracts, — unwritten sales that were perfect when the thing and the price were agreed upon, or only to incomplete contracts, — those that were later to be reduced to writing.

These divergent views were carried into France, where the controversy was continued over the effect of similar provisions of the Code Napoleon,5 and despite the di*545vergence formerly prevailing, the modern French text writers were in accord in maintaining there was no distinction between a reciprocal promise of sale and the contract itself; consequently, when the promise of sale was accepted, the property was considered as having been at that moment transferred to the purchaser and to be, thereafter, at his risk. These writers also accorded in the view that the provisions of Article 1590 of the Code Napoleon governing earnest were applicable not only to the promise to sell, but also to the completed contracts of sale, provided the faculty of withdrawing was exercised within a certain time following the consensual agreement.

Earnest money under the French law thus came, in time, to have the effect of accomplishing any one of three things, dependent upon the intention of the parties: (1) It could be a deposit given to secure to both parties the privilege of withdrawing, (2) it could be a proof of the contract, or (3) it could be part payment of the purchase price. In the absence of evidence as to the role the earnest was intended by the parties to perform, it was presumed to be given to secure the privilege of withdrawing.6

Despite this crystallization of the jurisprudence under these two articles of the Code Napoleon, and despite the fact they were, in almost identical language, incorporated in our codes of 1808, 1825, and 1870,7 we find, in our jurisprudence, much of the same confusion that existed in Rome and France as to the exact function of earnest in the contract of sale, the cases frequently being diametrically opposite. Although Article 9 of the Civil Code of 1808 provided (Article 2462 of the Code of 1870) that “A promise to sell amounts to a sale when there exists a reciprocal consent of both parties, as to the thing and the price”, this court refused to consider such an agreement the equivalent of a sale, but did hold it gave rise to a right to specific *547performance.8 This jurisprudence became so firmly imbedded the legislature, in 1920 by Act 27, redrafted the article to conform therewith.9 On the other hand, the jurisprudence as it developed under the companion article, Article 2463, established that all deposits were presumed to be earnest in the absence of a contrary intention,10 entitling the parties to withdraw from the agreement,11 and that where earnest was given, the parties had no right to demand Specific performance, being relegated entirely to the forfeiture of the deposit or its double.12

Obviously, Article 2463, to be found in the subdivision of the code dealing with the special subject of sales, was incorporated for the specific purpose of mitigating the consequences of those articles to be found under the general rules dealing with obligations, which are to the effect that where the obligation is breached the obligee, in an ordinary case, is entitled to only such damages as have accrued, and when these are inadequate, then to specific performance, at his option, provided it is within the power of the obligee to perform,13 and is a means whereby the parties relinquish their right to *549compel specific performance, reserving to themselves the right to recede from the contract, in which case they, by their own covenant, stipulate as liquidated damages, the amount that is recoverable for their failure to comply, i. e., the vendee by forfeiting the amount deposited and the vendor by returning the amount deposited with a like amount.

In the instant case the parties have stipulated by their agreement that “In the event * * * the vendor does not comply with this agreement to sell within the time specified, purchaser shall have the right either to demand the return of double the deposit, or specific performance.”14 Thus it may be seen that the parties did not intend the deposit as earnest. It was not given for the purpose of securing to the parties the privilege of withdrawing from the contract, for neither was free to withdraw. Both specifically reserved to themselves the right to demand specific performance, at their option. The parties have thus contracted in clear and explicit language that leads to no absurd consequences and as there is no suggestion that it is contrary to good morals or public policy, it is the law between them and the court is bound to give legal effect thereto. Article 1945 of the LSA-Civil Code. Consequently, inasmuch as the plaintiffs cannot specifically comply with the agreement they entered into, being without a valid and merchantable title to convey, the defendant is entitled to the return of the $780 deposited by him, plus an equal amount as stipulated damages.

This conclusion necessarily disposes of the contentions of the plaintiffs and we will not, therefore, follow the holding in, the case of Johnson v. Johnson, supra.

It is interesting to note that the holding in the Johnson case was not followed by this court in two subsequent cases where identical contractual provisions were involved, i. e., Nelson v. Holden, 219 La. 37, 52 So.2d 240, and Samuelson v. Bosk, 219 La. 477, 53 So.2d 239. Instead, under the very terms of the contract the prospective purchaser in the Holden case was permitted to recover double the deposit and in the Bosk case was held to have forfeited the deposit, no reference being made to, or cognizance taken of, the prior holding in the Johnson case.

Moreover, a study and analysis of the case of Baton Rouge Investment & Realty Co. v. Bailey, 157 La. 838, 103 So. 184, and of Morgan & Lindsey v. Ellis Variety Stores, 176 La. 198, 145 So. 514, will show that they are not authority for the holding *551in the Johnson case, in which they are cited, but, rather, are consonant with the subsequent holdings of this court in the Bosk and Bidden cases. Both the Baton Rouge case and the Morgan & Lindsey case were decided squarely on the terms of the particular contracts there involved. Neither had a clause reserving to the respective parties -the rights to specific performance.

In the Baton Rouge Investment case the contract provided that if the vendor “refuses to make said sale he shall pay to the” purchaser “the sum of Three Thousand ($3,000) Dollars and return the deposit of Three Thousand ($3,000) Dollars herein stipulated.” 15 The court, interpreting this provision in the light of the fact that the vendor was unable to tender a good title because he failed to timely clear up encumbrances, concluded [157 La. 838, 103 So. 186] “The stipulation in the contract was that in case the defendant refused to make the sale he was to pay plaintiff $3,000 and return the amount of the deposit. Under the circumstances stated we do not think the defendant liable for the additional penalty.” (Emphasis supplied.)

A mere perusal of the decision in Morgan & Lindsey v. Ellis Variety Stores, 176 La. 198, 145 So. 514, shows that it is inapposite from a legal or factual standpoint. The suit was instituted by Morgan & Lindsey for the recovery of $5,00016 deposited with the First National Bank of Lake Providence together with the original contract between the parties whereby this company agreed'to purchase from the defendant four “stores,” the instruction to the bank being that it was to hold the deposit and the contract until May 17, 1927, subject to.the joint orders of the parties, on which date, upon failure to receive such notice, the contract, together with the deposit, was to be turned over to the defendant.17 While the opinion is lengthy and confusing, when it is read in the light of the decision at the time the case was previously before the court, 168 La. 1073, 123 So. 717, it will be readily seen that although the deposit was labelled in the contract “earnest,” the decision did not turn on that law. The court reasoned that inasmuch as it had been given to guarantee the plaintiff would accept the transfer of the property from the defendant and would pay the price subject to the amount on deposit, the plaintiff was entitled to recover the deposit for the reason that the defendant did not timely perform *553its obligations under the contract, among which was the obligation to secure the subrogation of its store leases in favor of the plaintiff, a prerequisite to the consummation of the agreement; consequently that plaintiff’s obligation to pay the purchase price never, arose.18

The other authority relied on for the holding in Johnson v. Johnson, i. e., Williams v. Meyers, La.App., 29 So.2d 599, 601, handed down by the Court of Appeal for the Parish of Orleans, does not add. strength to the decision, as it was based on the Morgan & Lindsey case, just analyzed, and on two unreported cases from the same appellate court—Puyoulet v. Gherke, Orleans No. 7132, See Louisiana and Southern Digest, and Connor v. Rawlins, Orleans No. 8263, See Louisiana and Southern Digest. In neither of these cases was the right to specific performance reserved by the parties. In the latter case the deposit Was made in connection with a bid of property at public auction with which the bidder later refused to comply, and there was, therefore, no specific written contract' between the parties. The court, in the former case, instead of deciding the matter in the light of the jurisprudence under Article 2463, .which is to the contrary, relegated the ‘ prospective purchaser to a suit for the specific damages suffered by reason of the vendor’s failure to tender a merchantable title.

We now pass to the defendant’s claim for fees and costs, including attorney fees connected with this suit. Under the express provisions of the contract “either party * * * who fails to .comply- with-the terms of this offer * * * is obligated to pay the Agent’s Commission and all fees and costs incurred in enforcing collection and damages.” Both parties, by their .pleadings, have construed this provision to cover attorney fees incurred in the instant suit, as both seek such recovery here. However, inasmuch as this was a matter not passed on by the lower court in view of the court’s conclusion that the plaintiffs were entitled to specific performance, and there is no probative evidence in the record on which a conclusion could be based as to the value of the services rendered by the attorney for the defendant, the case will have to be remanded for the fixing .of this amount.

However, the defendant did, by competent evidence, establish his right to recover the amount of $149 claimed to be due as the cost of examining the title and securing the requisite certificates preparatory to the passage of the act of sale.

*555For the reasons assigned, the judgment of the lower court rejecting the reconventional demand of the defendant, Mark J. Falgoust, is annulled and set aside, and it is now ordered, adjudged, and decreed that the defendant do have and recover judgment in reconvention against the plaintiffs, Mrs. Estella Ducuy, wife of and Murphy Barzart, for double the amount of the deposit of $780, plus the added sum of $149, all with interest at 5% from judicial demand. It is further ordered that the case be remanded to the lower court for the purpose of fixing the attorney fee of counsel for the defendant. All costs are to be borne by the plaintiff-appellees. The right to apply for a rehearing is reserved to the plaintiffs.

. In fairness to the author of the original opinion, it should be pointed out that when the ease was originally before us, counsel for defendant, without briefing the reconventional demand, merely asserted plaintiffs’ failure to take the necessary action to clear the title tendered the defendant rendered them responsible “for double the amount of his deposit as provided in the agreement; for all costs * * * incurred in the preparation for the sale,” for attorney fees arising from the defense of the suit, and for all costs in the lower and appellate courts. The only case that counsel for plaintiffs cited was Oubre v. Stassi, La.App., 56 So.2d 598.

. Smith v. Hussey, 119 La. 32, 43 So. 902; Legier v. Braughn, 123 La. 463, 49 So. 22; Lyons v. Woman’s League of New Orleans, 124 La. 222, 50 So. 18; Nelson v. Holden, 219 La. 37, 52 So.2d 240; and Samuelson v. Bosk, 219 La. 477, 53 So.2d 239.

. Johnson v. Johnson, 213 La. 1092, 36 So.2d 396, and the authorities therein ' cited.

.Williams v. Hunter, 13 La.Ann. 476; Heeb v. Codifer & Bonnabel, 162 La. 139, 110 So. 178; Ekman v. Vallery, 185 La. 488, 169 So. 521; Niblett Farms, Inc., v. Marldey-Bankhead, Inc., 202 La. 982, 983, 13 So.2d 287.

. Article 1589 provided: “The promise of sale amounts to a sale when there exists a reciprocal consent of both parties as to the thing and the price thereof.” Article 1590 provided: If the promise *545to sell has been made with the giving of earnest, each of the contracting parties is at liberty to recede from said promise; he who has given said earnest, by forfeiting it, and he who has received it, by returning the double.”

. On this entire subject, see the excellent article by Dr. Paul M. Hebert on “The Function of Earnest Money in the Civil Law of Sales,” 11 Loyola Law Journal 121.

. Article 9 of the Civil Code of 1808 provided: “A promise to sell amounts to a sale when there exists a reciprocal consent of both parties, as to the thing and the price thereof; but to have its effect either between the contracting parties or with regard to other persons, the promise to sell must be vested with the same formalities as are above prescribed * * * in all cases where the law directs that the sale be committed to writing.” Article 2437 of the code of 1825 and Article 2462 of the code of 1870 are in substantially the same language.

Article 10 of the Civil Code of 1808 provided: “But if the promise to sell has been made with the giving of earnest, each of the contracting parties is at liberty to recede from said promise, to wit: he who has given said earnest by forfeiting it, and he who has received it by returning the same.” Articles 2438 of the code of 1825 and 2463 of the Code of 1870 are substantially the same.

. McDonald v. Aubert, 17 La. 448, 449; Peck v. Bemiss, 10 La.Ann. 160; and Girault v. Feucht, 117 La. 276, 41 So. 572.

. Article 2462, as amended and in so far as here pertinent, now reads: “A promise to sell, when there exists a reciprocal consent of both parties as to the thing, the price and terms, and which, if it relates to immovables, is in writing, so far amounts to a sale, as to give either party the right to enforce specific performance of same.”

. Collins v. Desmaret, 45 La.Ann. 108, 12 So. 121; Capo v. Bugdahl, 117 La. 992, 42 So. 478; Smith v. Hussey, 119 La. 32, 43 So. 902; Legier v. Braughn, 123 La. 463, 49 So. 22; Maloney v. Aschaffenburg, 143 La. 509, 78 So.2d 761; Terrebonne v. Cheramie, 151 La. 929, 92 So. 388; Bermuda Stock Farms Co. v. Gilliland Oil Co., 155 La. 949, 99 So. 708; Breaux v. Burkenstock, 165 La. 266, 115 So. 482; Buckman v. Stafford, Derbes & Roy, 167 La. 540, 119 So. 701; Livingston v. Southport Mills, 173 La. 120, 136 So. 289. The only authorities to the contrary are Provenzano v. Glaesser, 122 La. 378, 47 So. 688, and Nosacka v. McKenzie, 127 La. 1063, 54 So. 351, based on the Provenzano holding, but the Provenzano case was specifically overruled in Maloney v. Aschaffenburg, supra.

. Terrebonne v. Cheramie, 151 La. 929, 92 So. 388; Bermuda Stock Farms Co. v. Gilliland Oil Co., 155 La. 949, 99 So. 708; Breaux v. Burkenstock, 165 La. 266, 115 So. 482; Buckman v. Stafford, Derbes & Roy, 167 La. 540, 119 So. 701.

. Terrebonne v. Cheramie, 151 La. 929, 92 So. 388, and Breaux v. Burkenstock, 165 La. 266, 115 So. 482.

. Article 1926 provides: “On the breach of any obligation to do, or not to do, the obligee is entitled either to damages, or, in cases which permit it, to a specific performance of the contract, at his option, or he may require the dissolution of the contract, and in all these cases damages may be given where they have accrued, according to the rules established in the following section.”

Article 1927 provides: “In ordinary cases, the breach of such a contract entitles the party aggrieved only to damages, but where this would be an inadequate compensation, and the party has the power of performing the contract, he may be constrained to a specific performance by means prescribed in the laws which regulate the practice of the courts.”

. A reciprocal right was reserved by the vendor: “In the event * * * purchaser fails to comply with this agreement within the time specified, the vendor shall have the right, either to declare the deposit, ipso facto, forfeited, without formality and without placing purchaser in default, or the vendor may demand specific performance.”

. A reciprocal provision declared the deposit was made to evidence the good faith of the purchaser and in the event of his failure to comply it was to be forfeited, “as liquidated damages’’. (Emphasis supplied.)

. It is to be noted that the suit was riot only not predicated on a contract in which the right to specific performance was reserved to the parties, but neither was it a suit for the return of the deposit plus an equal amount for failure to perform by the vendor under Article 2468 of the code.

.Despite notice from the plaintiff that the contract had not been consummated, the bank turned the contract and the $5,-000 deposit over to the defendant.

. One of the conditions in the contract was that the sale was to be passed under the Bulk Sales Law, LSA-R.S. 9:2961 et seq., and, consequently, that an inventory was to be taken within 10 days thereof. The defendant contended the inventory was. not taken because of the plaintiff's fault, but the court found this ’ was only one of the conditions of the contract, . and had not, been, in fact, due to fault of either party, but, instead, to a flood. ..