UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 91-3394
OPAL MENNELLA, Plaintiff-Appellant Cross-Appellee,
versus
KURT E. SCHON E.A.I., LTD., ET AL., Defendants-Appellees Cross-Appellants.
_________________
No. 91-3747 _________________
OPAL MENNELLA, Plaintiff/Counterlaim Defendant-Appellee,
KURT E. SCHON E.A.I., LTD., ET AL., Defendants/Counterclaim Plaintiffs-Appellants.
No. 91-3857 _________________
OPAL MENNELLA, Plaintiff-Appellant,
KURT E. SCHON E.A.I., LTD., ET AL., Defendants-Appellees. Appeals from the United States District Court For the Eastern District of Louisiana
(December 2, 1992)
Before POLITZ, Chief Judge, SMITH and BARKSDALE, Circuit Judges.
POLITZ, Chief Judge:
In these consolidated appeals, the parties dispute the
ownership of a masterpiece painted by Sir Anthony Van Dyck. Mrs. Opal Mennella complains of the district court's summary judgment
dismissal of her claim of conversion and denial of sanctions; Kurt
E. Schon, E.A.I., Ltd., et al., complain of the court's award to
Mrs. Mennella of certain payments she made on the painting and of
the dismissal of their claim of defamation. Concluding that the
question of ownership is controlled by basic principles of property
and contract law as adopted and codified in the Louisiana Civil
Code, and concluding that Schon's defamation suit is without merit,
we affirm the district court except as relates to recovery of
interest by Mrs. Mennella.
Background
This mise en scene began in the Spring of 1988 when Mrs.
Mennella agreed to purchase a painting from Schon's New Orleans art
gallery. She previously had purchased two paintings from Schon and
had admired this piece on previous visits. The painting, entitled
"Princess Mary, Eldest Daughter of King Charles I, Mother of King
2 William III" by the Flemish Master Sir Anthony Van Dyck, was more
than 300 years old.1 Princess Mary married William of Orange; it
is their names which identify one of America's first and finest
colleges. The purchase price was $350,000. Motivated to purchase,
she paid Schon $50,000 with the $300,000 balance, according to the
invoice, to be paid on June 1, 1988.
The painting never left Schon's possession. Mrs. Mennella,
experiencing cash-flow problems, amicably secured an agreement to
pay the balance over a six-month period. By Christmas of 1988,
however, she had managed to pay only an additional $90,000. At
that point she demanded authentication of the painting to be used
to secure a loan to pay the balance of the purchase price. Schon
sent an expert's appraisal stating that the portrait was "one of
five copies by Sir Anthony Van Dyck."2 Concerned that the portrait
might be a counterfeit, Mrs. Mennella enlisted the aid of her
attorneys who moved to void the sale and recover the sum paid.
Acting through counsel, Mrs. Mennella repudiated the painting's
value, refused to make further payments, and demanded return of the
$140,000 paid.
Schon responded by letter on April 25, 1989, a full year after
the ostensible sale, that Mrs. Mennella should be satisfied with
1 Van Dyck is, after Rubens, the most prominent Flemish painter of the 17th Century. Under the appointment of King Charles I he served as "principal paynter in ordinary of their Majesties." It was during this period that Van Dyck was Knighted and presumably painted the portrait in question. 2 The appraisal was conducted in January of 1989. The conclusion was confirmed by a Dr. Erik Larsen in March and reduced to writing in April of 1989.
3 the authenticity of the painting after receiving a second
appraisal. In that letter Schon demanded performance within five
days, absent which he would be forced to place the painting back in
the active sale stock of the gallery. Mrs. Mennella made no
apparent effort to reply or to enforce her rights under the
contract. She did not make or tender the agreed price or object to
the time period in which Schon demanded payment. Instead, she and
her attorneys insisted on referring to the contract as "an
agreement to purchase" rather than as a sale, obviously seeking to
distance her from ownership and the obligation to pay the balance
of the purchase price.
On May 2, 1989, Schon wrote Mrs. Mennella, informing her that
he regarded her silence and inaction as a default and that he
considered the sale canceled. No money was refunded. Instead, in
September Schon offered to either refund $95,000, representing the
consideration paid less $45,000 for the cost of authentication and
commission paid to Schon's salesman, or to give Mrs. Mennella
$140,000 in store credit. Mrs. Mennella rejected both offers.
Without Mrs. Mennella's knowledge, the painting was shipped to
Christie's in London where, in November 1989, it sold for more than
$1.4 million.
The following month, unaware of the London sale, Mrs. Mennella
filed the instant suit seeking recision of the sale and damages,
claiming that she only agreed to buy the painting upon "proper
authentication and verification." She complained that the painting
she agreed to purchase was a fraud and was worth far less than she
4 had agreed to pay.3 Schon answered and counterclaimed, alleging
defamation. Informed of the London sale, Mrs. Mennella's attitude
markedly changed. Her lawyers, presumably somewhat chagrined,
amended the complaint, claiming that the sale was complete from the
start and, as a result, the painting was Mrs. Mennella's and the
London sale constituted a conversion.4
Based on the pleadings, depositions, and affidavits, the
district court concluded that Mrs. Mennella, though entitled to her
payments and interest from the day of her demand, was not entitled
to the proceeds of the London sale. Schon's counterclaim for
defamation was rejected. Mrs. Mennella apparently thought this
claim to be frivolous and moved for sanctions against Schon for
presuming to advance it. The district court denied the motion for
sanctions. Both parties timely appealed.
Analysis
Sitting as an Erie court we are to apply the substantive law
of Louisiana. As an appellate court we exercise plenary review of
the application of that law.
The controlling principles of Louisiana law are neither
complex nor mysterious. This dispute is readily resolved by resort
to its chronology. That the parties formed some manner of contract
3 In her original complaint, Mrs. Mennella claimed that she "made verbal demands in early 1989 which were followed by written demand . . . for the return of [her $140,000]." 4 The amended complaint sought to "amend her [complaint] to state that: Plaintiff is and has been the owner of the [portrait]."
5 on April 5, 1988 is not disputed. Rather, the dispute concerns the
more remote question of whether the painting belonged to Mrs.
Mennella so as to lend credence to her claim that Schon's sale of
the painting constituted conversion.5 We must first decide whether
the contract supports her claim to ownership.6
1. The nature of the obligation
Whether the contract provided for a present transfer of title
depends on the objectively determined intentions of the parties.7
If the sale was intended to be contingent on adequate
authentication and verification, as Mrs. Mennella originally
claimed, or on the payment of the purchase price and tender of
delivery, as the district court determined, then the obligation
would have been "suspensive" under the Louisiana Civil Code. The
5 Conversion is a common-law tort recognized by Louisiana courts as a quasi-offense under Civil Code article 2315. See, e.g., Holley v. Singletary, 464 So.2d 410 (La. App. 1985). 6 Mrs. Mennella's claim to the proceeds flows from her right to the painting. That right is defined by the Civil Code and the contract. One must recall the boundaries of common-law conversion before applying it to the unique relation created by Civil Code sales. Conversion, as the action has evolved, is predicated on (1) the plaintiff's right to possession, and (2) the defendant's exercise of dominion or control over the goods which is in fact inconsistent with the plaintiff's rights. W. Page Keeton, et al., Prosser and Keeton on the Law of Torts, § 15, at 92, 104-05 (5th ed. 1984). If the April contract transferred title and Schon was not within his rights to sell the painting, only then would he be liable in damages under a conversion theory. The key is whether Schon, based on Mrs. Mennella's conduct, had the right to sell the painting. 7 La. Civ. Code art. 2045 (West 1987); M.O.N.T. Boat Rental Serv., Inc. v. Union Oil Co. of Cal., 613 F.2d 576 (5th Cir. 1980); Kuswa & Assoc., Inc. v. Thibaut Constr. Co., Inc., 463 So.2d 1264 (La. 1985).
6 Code defines a suspensive obligation as one which is "dependent on
an uncertain event."8 Article 2471 of the Code provides: "A sale,
made with a suspensive condition, does not transfer property to the
buyer, until the fulfillment of the condition." If, on the other
hand, the sale was not conditioned "on an uncertain event," then
title would pass under article 2456 of the Code which provides:
The sale is considered to be perfect between the parties, and the property is of right acquired to the purchaser with regard to the seller, as soon as there exists an agreement for the object and the price thereof, although the object has not yet been delivered, nor the price paid [emphasis added].
After reviewing all relevant indicia of the parties' intentions, we
conclude that they did not intend to create a suspensive
obligation.
Because we do not have the luxury of a fully comprehensive
written contract9 we must glean the intention of the parties from
other sources. The Civil Code commands our consideration of the
"nature of the contract, equity, usages, the conduct of the parties
before and after the formation of the contract, and of other
contracts of a like nature between the same parties."10 We find the
conduct of both parties, before and after April 5, 1988, to be
instructive.
8 La. Civ. Code art. 1767. 9 A written contract is not required to accomplish a sale of a movable. La. Civ. Code art. 2441. Where the price or value exceeds $500, however, proof of the contract must be proved by at least one witness and other corroborating circumstances. La. Civ. Code art. 1846. The summary judgment record contains ample proof of the making of the contract. 10 La. Civ. Code. art. 2053.
7 It is clear that Schon regarded the transaction as a perfected
sale, one not contingent on authentication or anything else. The
day after Mrs. Mennella paid the gallery $50,000, Kurt Schon wrote
to congratulate her on the "purchase of the painting." Equally
telling, Schon immediately paid his salesman a substantial sales
commission.11 The invoice was straightforward; it described the
transaction as a sale without reference to any condition. There
was only the notation of the initial payment, amount and due date
of the balance, and identification of the portrait.
Similarly, Mrs. Mennella never made any claim to a right to
authentication until December, when she was facing financial
difficulties and already had paid $140,000 for the painting. We
are mindful of and consider significant the fact that the parties
had executed two similar contracts without any authentication
requirement. Though the present efforts to reverse an earlier
position may be the cause of uplifted eyebrows, it appears
consistent with the original understanding and prior dealings.
The district court found the sale to be conditioned on both
the delivery of the painting and the payment of the purchase price.
We find that this reading creates unnecessary tension with the
literal language of article 2456 and fails to comport with the
accepted civilian rubrics.
Article 1767 defines a conditional obligation as "one
dependent on an uncertain event." If the anticipated performance
11 Schon later sought to withhold this commission from the refund of Mrs. Mennella's payments.
8 were treated as an uncertain event virtually every bilateral
contract would be a conditional obligation and venerable article
2456 would be rendered meaningless. Indeed, if the performance was
so "uncertain" as to create a conditional obligation, it would be
nigh impossible to treat the exchange of promises as a contract.
Louisiana courts long have recognized that the Civil Code does not
allow the parties to condition the transfer of title on the payment
of the purchase price.12 Instead, in credit sales, Louisiana courts
consistently have held that when the parties consent and agree as
to the price and the thing, title passes instanter. So sayeth
article 2456.
Therefore we are compelled to hold that title to the painting
passed to Mrs. Mennella in April of 1988. We must now consider
whether that title was divested prior to the London sale.
2. The execution of the duties under the contract
In support of her claim of ownership of the painting, Mrs.
Mennella seizes upon the transfer of title and would ignore all of
her subsequent actions. Legal title is not so barren a concept.
The Civil Code clearly portends a transfer of title subject to the
execution of the contract. For example, the seller may wrongfully
sell and deliver the object to an innocent third party who would
acquire title, provided he has paid fair value.13 The seller
12 Haymon v. Holliday, 405 So.2d 1304 (La. App. 1981). 13 The Code explicitly accommodates such a result: "The sale is considered to be perfect and the property is of right acquired to the purchaser with regard to the seller. . . ." La. Civ. Code art.
9 retains a security interest in the property14 pending tender of the
purchase price and has the concomitant duty of due care towards the
object.15 The seller has the right to put the buyer in default and
to dissolve the contract upon the buyer's failure to perform, and
under certain conditions to simply regard the contract as
dissolved.16 That divestment is the principal issue presented by
this appeal.
Mrs. Mennella was obliged to carry her end of the bargain,
timely payment, just as Schon was obliged to care for and
ultimately deliver the painting. Mrs. Mennella's erroneous
conclusion that the painting was not authentic caused her to
repudiate the transaction, demand a return of her partial payment,
and refuse to pay the balance due. This is a course of action she
would have been entitled to follow had she been correct in her
assumption.17 That assumption was not correct, however. Indeed,
2456. See also La. Civ. Code art. 518 ("when possession has not been delivered, a subsequent transferee to whom possession is delivered acquires ownership provided he is in good faith"); Yiannopoulos, 2 Louisiana Civil Law Treatise § 354 (1991). 14 La. Civ. Code art. 3227; C & A Tractor Co. v. Holland American Ins. Co., 445 So.2d 1286 (La. App.), cert denied, 449 So.2d 1348 (La. 1984). 15 La. Civ. Code art. 2468. 16 La. Civ. Code art. 2013. See e.g., Texala Oil & Gas Co. v. Caddo Mineral Lands Co., 152 La. 549, 93 So. 788 (1922); Hay v. Bush, 110 La. 575, 34 So. 692 (1903). Comment (a) of the 1984 addition of article 2013 cites both opinions. 17 When both parties to a contract share a mistake of fact involving the essence of a party's consent "the granting of relief presents no problem." La. Civ. Code art. 1949, cmt. (d); see generally, La. Civ. Code arts. 1948-50.
10 in forming her belief that the painting was a fraud she relied on
an appraisal which clearly indicated that the painting was executed
by Van Dyck. She received repeated assurances from the seller that
he would perform, accompanied by repeated demands for her
performance. Further, from January to May she made no effort
whatever to authenticate the painting or to investigate the
credentials of the experts from whom she had received appraisals.
Instead, through counsel, Mrs. Mennella made manifest that she had
no intention of performing18 and demanded a return of her money,
refusing a "net" refund or a full store credit.
Whether she claims to have been exercising her right to
receive adequate authentication under the contract, or an effort to
18 Counsel for Mrs. Mennella concedes that this is the weakest part of their argument: "that it appears as though she didn't want it."
11 enforce a warranty, there is no excusing Mrs. Mennella's express
repudiation and continued refusal to perform after receiving two
appraisals. Mrs. Mennella comes before the courts burdened with
the troublesome albatross of her repudiation. We may not ignore
it.
Mrs. Mennella now offers a somewhat tortured explanation of
the legal significance of her failure to perform. Essentially, the
argument turns on what she characterizes as Schon's failure to
formally accept her offer to rescind the contract. Such
obfuscation need not long detain us. That argument ignores the
fact that Mrs. Mennella was in default by January of 1989, at the
very latest, when the voluntary extension expired. The
communication from counsel refusing to proceed and demanding a
refund cannot be construed as anything but a definitive refusal to
perform. The lamb of her so-called "offer to rescind" cannot lie
peacefully beside the lion of her refusal to perform. The fact
that she may have based her actions on a mistaken belief that the
painting was not genuine19 does not change the character of her
actions; failure to perform does not presuppose a fraudulent
intent, only an inexcusable failure to do that which was promised.20
If accepted at face value, the argument by counsel for
Mrs. Mennella would stand the law of contracts on its ear.
Contracts bind persons to the assigned risks and benefits. Mrs.
19 Neither may her failure to receive what, by her estimation, was sufficient evidence of authentication -- a right she did not have -- serve as an adequate excuse for her failure to perform. 20 See generally, Robertson v. Buoni, 504 So.2d 860 (La. 1987).
12 Mennella would blithely shift the benefits and the corresponding
burdens as best suits her most immediate interests. She may not do
so.21
We conclude that Mrs. Mennella's written communication through
counsel refusing to perform may justly be treated as an
anticipatory repudiation22 and that her failure to pay the balance
in the extended period allowed for same constituted an active
repudiation of the contract.
3. Dissolution
Dissolution of the contract would terminate Mrs. Mennella's
property rights in the painting. Indeed, this was the prayer of
Mrs. Mennella's initial lawsuit. The final question before us is
whether Schon secured a dissolution before the London sale.
When faced with Mrs. Mennella's refusal to perform Schon had
three choices. He could: (1) sue to enforce performance or to
secure a judicial dissolution; (2) continue to seek performance
albeit in an untimely manner; and/or (3) put Mrs. Mennella in
default and, if she failed to correct same, regard the contract as
21 La. Civ. Code art. 2055; see also Douglas Oil Tools, Inc. v. Demesnil, 552 So.2d 77 (La. App. 1989) (representations which are relied upon to a party's detriment give rise to estoppel). See also Ranger Nationwide Ins. v. American Cas. Co., 658 F. Supp. 103, 108 (D. Del. 1987) ("A party who breaches a contract may not rely on the benefits of that same contract."), aff'd, 833 F.2d 306, 307 (3d Cir. 1987). 22 Litvinoff, Law of Obligations in the Louisiana Jurisprudence, 371 (2d ed. 1985) ("[A] situation that could be characterized as an anticipatory breach at common law can be regarded as an active violation of the contract in Louisiana.").
13 dissolved.
Initially, Schon opted for the second choice; he invited
untimely performance. Seeking to accomodate Mrs. Mennella's
cash-flow problems, he agreed to a modification of the contract,
extending the $300,000 payment from June until the following
January. He then provided two appraisals to assuage her voiced
concerns regarding the painting's origin.23 Schon informed Mrs.
Mennella she had five additional days to perform; otherwise he
would have to consider the sale dissolved. Finally, when Mrs.
Mennella made clear that she would not perform, Schon gave her
notice that he was treating the sale as canceled and was returning
the painting to the active stock for sale.
Recently, revisions to the Civil Code formally adopted a
practice the Louisiana courts have long recognized: extrajudicial
dissolution.24 Schon's letters were sufficient to put Mrs. Mennella
in default, a prerequisite to dissolution by notice.25 We find them
23 There is some dispute as to when the Larsen appraisal was sent. It is clear, however, that it was sent by April when Schon still demanded performance. Mrs. Mennella complains that this communication by Schon included a demand for two different prices, one which included interest and one for the contract price. In either event she refused to perform at any price and then waited, saying nothing after receiving Schon's next letter which informed her that the sale was dissolved; indeed, she was still seeking dissolution and disavowing ownership, as late as March, 1990. 24 Mrs. Mennella cites cases from the 1940s and 1950s suggesting that judicial dissolution was Schon's exclusive remedy. In light of much earlier precedents and the recent amendments to the Civil Code, we can hardly view those decisions as persuasive. See n.16, supra. 25 La. Civ. Code art. 1991. "An obligee may put the obligor in default by a written request of performance . . . or by filing suit for performance. . . ."
14 sufficient, under the circumstances, to dissolve the contract.
The Civil Code provides that the obligee has a right, in
certain cases, to treat the contract as dissolved.26 The
"unilateral, non-judicial dissolution provided for in the revised
articles is not a novelty."27 Under the civilian tradition, the
obligor must be notified of his default, given a certain time to
perform, and warned that the contract will be considered dissolved
if performance is not rendered.28 The time set must be reasonable
according to the circumstances,29 and the breach must be substantial
to justify the dissolution.30
The Civil Code is not exhaustive in its description of the
circumstances that will entitle the obligee "to regard the contract
as dissolved" without litigation. Because the pertinent articles
are relatively new, the Louisiana courts have not yet expounded on
the issue. Whether a repudiation is sufficiently clear to allow
dissolution without litigation undoubtedly will pose a difficult
question in some cases. Fortunately for this Erie court, this is
not one of those cases. Schon prudently waited until Mrs. Mennella
unequivocally refused to perform and demanded the return of her
26 La. Civ. Code art. 2013. 27 Litvinoff, supra, at 389. 28 Id. 29 La. Civ. Code art. 2015. 30 La. Civ. Code art. 2014.
15 money before notifying her of the default and dissolution.31
Article 2013, when read in harmony with related articles, such as
articles 201432 and 2018,33 allows extrajudicial dissolution where
the obligee has received partial payment. The Code makes clear,
however, that the obligee is liable for the return of any partial
payments unless he has a right to retain them.34
Schon's notice is not rendered ineffective by his failure to
simultaneously return the partial payments. Article 2018 provides
the obligor in default with an action to recover partial payments
to the extent they exceed the damages incurred. Article 201335
states that the obligee who regards the contract as dissolved has
the right to pursue a remedy in damages. The comments to article
2015 (non-judicial dissolution by notice) likewise state that
"[a]fter such notice is given, the obligor will be liable for any
delay damages that accrue." At the same time, the obligee is duty
31 If extra-judicial dissolution were not appropriate in this case we have difficulty conceiving of a case in which it would be. Such a result would be intolerable as litigation would have to result from every failed sales agreement to clear title. 32 The article allows dissolution where the obligor has partially performed but the part not rendered substantially impairs the obligee's interest. 33 That article provides: "If partial performance has been rendered and that performance is of value to the party seeking to dissolve . . ., the dissolution does not preclude recovery for that performance, whether in contract or quasi-contract." 34 See, e.g., La. Civ. Code art. 2018. 35 "In either case [judicial or non-judicial dissolution] the obligee may recover damages." La. Civ. Code art. 2013.
16 bound to mitigate his damages.36 We conclude that article 2013,
when read in pari materia with other articles,37 allows the seller
to regard the contract as dissolved and temporarily retain partial
payments when the buyer is in breach. The seller, of course, is
limited in his actions by operation of article 1759, which provides
that "Good faith shall govern the conduct of the obligor or obligee
in whatever pertains to their obligation."38 Thus he may hold only
the funds necessary to compensate for the loss he reasonably
believes he will suffer. Under the prevailing circumstances, we
conclude that Schon's actions were reasonable and that they were
executed in good faith.
We hold that Schon validly dissolved the contract by notice of
default after it became obvious that Mrs. Mennella would not
perform. Consistent therewith, we therefore hold that Schon had
legal title to the painting when it was sold in London.
4. Schon's retention of the payments after the auction
Next we must consider whether the district court erred in
concluding that Mrs. Mennella was entitled to the return of her
payments. Schon contends that the contract was merely an agreement
to sell and that the presumption is therefore that the money
advanced regardless of the timing, is forfeitable as earnest money.
We have concluded that the contract was a perfected sale, thus
36 La. Civ. Code art. 2002. 37 La. Civ. Code art. 13. 38 See also La. Civ. Code. art. 1983.
17 Schon is only entitled to the money if he can prove injury from the
breach.
Equitable principles enshrined in the Civil Code will not
allow Schon to retain the funds paid by Mrs. Mennella and yet
resell the painting for a quadrupled sum.39 Mrs. Mennella is liable
to Schon only for the damages she caused him; nothing more.40 Mrs.
Mennella did not cause Schon any damages whatever; in fact, her
failure to perform resulted in a magnificent legitimate windfall
for Schon.41 Schon's argument that he could have profited further
from holding the painting is pure speculation and is unworthy.
Indeed, it is equally possible that the sale at Christie's resulted
in a higher price than Schon ever could have received in his
gallery in New Orleans. We therefore conclude that Mrs. Mennella
is entitled to the full return of her payments with legal interest
from the date of the London sale of the portrait.
5. The remaining claims
Finally, there is the matter of Schon's claim for defamation
and Mrs. Mennella's corresponding motion for Rule 11 sanctions.
Under Louisiana law, a successful defamation claim requires: (1)
defamatory words; (2) publication to someone other than the one
defamed; (3) falsity; (4) malice, actual or implied; and (5)
39 See La. Civ. Code art. 2018 (allowing recovery after dissolution where partial performance leaves the obligee unjustly enriched). 40 La. Civ. Code art. 1994. 41 Cf. La. Civ. Code art. 1995.
18 injury.42 The summary judgment record richly supports the district
court's conclusion: there is no indication that Mrs. Mennella spoke
the allegedly defamatory words;43 that Mrs. Mennella published the
statements, if any, to a third party; that Mrs. Mennella did so
with malice, express or implied; or that Schon suffered any injury.
We therefore agree with the district court that the action, while
not so meritless as to be sanctionable,44 is without merit.
For the reasons assigned we AFFIRM in part and VACATE and
REMAND in part for judgment assessing legal interest as set forth
herein.
42 Borne v. New Orleans Health Care, Inc., 580 So.2d 1070 (La. App.), writ denied. 586 So.2d 533 (La. 1991). 43 Schon fails to bring to our attention any Louisiana case allowing the statements of an attorney to be attributed to his client for this purpose. 44 Of course the district court's decision not to impose sanctions is accorded great deference. See Sam D. Johnson, et al., The Proposed Amendments to Rule 11: Urgent Problems and Suggested Solutions, 43 Baylor L. Rev. 647, 661-63 (1991) (discussing Cotter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S. Ct. 2447, 110 L.Ed.2d 359 (1990) (requiring abuse of discretion review)). We find no reason to disturb the district court's exercise of discretion in this case.