3.1 Louisiana Contract Requirements
Key Takeaways
- Louisiana contracts are governed by the Civil Code; the four requisites are capacity, consent, a lawful/possible object, and a lawful cause
- 'Cause' replaces common-law 'consideration'; immovable transfers must be in writing (an authentic act or act under private signature)
- The Act of Sale transfers ownership; Louisiana practice executes it before a notary with two witnesses (an authentic act)
- Lesion beyond moiety lets a seller of immovable property rescind if the price was below half the fair value, generally within one year
- Earnest-money deposits go into the broker's trust account; standard contingencies (financing, inspection, appraisal) control cancellation
Louisiana real estate contracts are governed by the Louisiana Civil Code, so the terminology and a few doctrines differ from common-law states.
Civil Law vs. Common Law
| Aspect | Louisiana (Civil Law) | Other States (Common Law) |
|---|---|---|
| Source | Louisiana Civil Code | Statute of Frauds + precedent |
| Real property | Immovable property | Real property |
| "Consideration" | Cause | Consideration |
| Final transfer | Act of Sale | Deed |
| Hidden defect | Redhibition | Breach of warranty |
The Four Requisites of a Valid Contract
Under the Civil Code, a valid contract requires:
| Requisite | Meaning |
|---|---|
| Capacity | Parties must be legally able to contract (18+, mentally competent) |
| Consent | Free, mutual agreement - not vitiated by error, fraud, or duress |
| Object | A determinate thing that is lawful and possible |
| Cause | The lawful reason each party obligates itself (civil-law analog of consideration) |
A contract to transfer an immovable must be in writing. It may take the form of an authentic act (executed before a notary and two witnesses) or an act under private signature (signed by the parties). The authentic act carries the strongest evidentiary weight and is the norm for closings.
Exam point: If a question asks for the civil-law word for "consideration," the answer is cause. If it asks what is needed for a valid contract, recite capacity, consent, object, cause.
The Act of Sale
In Louisiana, ownership of immovable property transfers by an Act of Sale, the functional equivalent of a deed. Louisiana practice executes it as an authentic act before a notary public with two witnesses, and the notary plays a central, statutorily significant role in the closing.
| Requirement | Detail |
|---|---|
| Written | Always required for immovables |
| Notary | A Louisiana notary executes/authenticates the Act of Sale |
| Witnesses | Typically two witnesses to the authentic act |
| Recording | Recorded in the parish conveyance records to affect third parties |
Civil-law note: The Louisiana notary has broader powers than a common-law notary - a Louisiana notary can draft and pass authentic acts. That is why "the notary" appears at Louisiana closings where other states use only an attorney or title company (many deals still also involve an attorney or title company).
Lesion Beyond Moiety (Seller Protection)
Lesion beyond moiety (Civil Code) lets a seller of an immovable rescind a sale when the price received was less than one-half (the "moiety") of the property's fair market value at the time of sale.
| Element | Detail |
|---|---|
| Who is protected | The seller of immovable property |
| Trigger | Price below 50% of fair value at sale |
| Time limit | Generally one year from the sale |
| Buyer's option | The buyer may keep the property by paying the difference to a fair price |
Example: A property worth $200,000 is sold for $90,000 (below the $100,000 half-value line). The seller may seek rescission for lesion; the buyer can defeat it by paying up to the fair value. Note that lesion protects sellers, not buyers, and applies to immovables.
Earnest Money and Common Contingencies
The standard purchase contract in Louisiana is the Louisiana Residential Agreement to Buy or Sell (widely used Louisiana REALTORS form). Earnest money / a deposit signals the buyer's commitment and is handled by the broker in the trust account - never by a salesperson and never in an operating account.
| Item | Rule |
|---|---|
| Where deposited | Broker's trust account |
| Timing | Promptly per the contract (commonly within a few days of acceptance) |
| Disputed deposit | Broker holds it until the parties agree in writing, interplead, or LREC/court directs release |
Contingencies that govern cancellation
| Contingency | Effect |
|---|---|
| Financing | Buyer may cancel and recover the deposit if financing is denied within the deadline |
| Inspection / due diligence | Buyer may negotiate repairs or cancel during the inspection period |
| Appraisal | Protects the buyer if value comes in below the price |
| Sale of buyer's property | Conditions the purchase on selling the buyer's current home |
How a contract ends
| Method | Description |
|---|---|
| Performance | Both parties complete obligations (closing) |
| Mutual consent | Parties agree in writing to cancel |
| Contingency failure | A condition is not met by its deadline |
| Default | One party breaches; remedies follow the contract |
| Rescission/dissolution | A court unwinds the contract (fraud, error, lesion) |
Trap: A salesperson must never take a deposit into a personal account or release disputed earnest money on one party's say-so.
Consent Defects: Error, Fraud, and Duress
Because consent is a requisite, Louisiana voids or unwinds contracts where consent was defective.
| Defect | Meaning | Effect |
|---|---|---|
| Error | A mistake about a fact that was the principal cause of the contract | May invalidate consent |
| Fraud | A misrepresentation or suppression of truth to gain an unjust advantage | Vitiates consent; damages possible |
| Duress | Consent extracted by unlawful threat or force | Vitiates consent |
A contract reached through fraud, serious error, or duress can be rescinded, and fraud can also generate damages.
Deadlines and Specific Performance
Most Louisiana purchase agreements make deadlines binding. Missing one can be a default that forfeits the deposit or lets the other party cancel. If a seller wrongfully refuses to close, the buyer may sue for specific performance (a court order to transfer the immovable, since each parcel is unique) or for damages.
Exam point: A buyer's default commonly forfeits earnest money to the seller; a seller's default lets the buyer recover the deposit and seek specific performance or damages.
In Louisiana civil law, what replaces the common-law concept of 'consideration'?
Lesion beyond moiety in Louisiana protects which party, and under what condition?
How is the Act of Sale typically executed in Louisiana?
Where must earnest-money deposits be held in a Louisiana transaction?