Menella v. Schon
979 F.2d 357 (1993)
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Rule of Law:
Under the Louisiana Civil Code, title to a movable good passes to the buyer upon agreement as to the object and price, but the seller may extrajudicially dissolve the sale and reclaim title if the buyer repudiates the contract and fails to perform after receiving notice of default and a reasonable opportunity to cure.
Facts:
- In April 1988, Opal Mennella agreed to purchase a Van Dyck painting from Kurt E. Schon's gallery for $350,000, paying an initial $50,000.
- The painting remained in Schon's possession, and Mennella was granted a six-month extension to pay the remaining balance due to cash-flow problems.
- By December 1988, Mennella had paid a total of $140,000 but had not paid the full balance.
- Mennella then demanded authentication and, after receiving an appraisal she misinterpreted as suggesting the painting was a copy, repudiated the sale through her attorneys.
- Mennella refused to make further payments and demanded a full refund of the $140,000 she had paid.
- On April 25, 1989, Schon demanded by letter that Mennella complete the payment within five days or he would return the painting to his sales inventory.
- Mennella did not reply or tender payment, and on May 2, 1989, Schon sent a second letter informing her he considered the sale canceled.
- In November 1989, Schon sold the painting at a Christie's auction in London for over $1.4 million without Mennella's knowledge.
Procedural Posture:
- Opal Mennella filed suit against Kurt E. Schon in the U.S. District Court for the Eastern District of Louisiana, initially seeking rescission of the sale contract and damages.
- Schon filed a counterclaim against Mennella for defamation.
- After discovering the London sale, Mennella amended her complaint to claim ownership of the painting and alleged that Schon's resale constituted conversion.
- The district court granted summary judgment, dismissing Mennella's conversion claim but ordering Schon to return her $140,000 in payments.
- The district court also granted summary judgment in favor of Mennella on Schon's defamation counterclaim.
- The district court denied Mennella's motion for Rule 11 sanctions against Schon.
- Both parties appealed the district court's judgment to the United States Court of Appeals for the Fifth Circuit.
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Issue:
Under Louisiana law, does a buyer's repudiation of a sales contract and failure to pay the purchase price allow the seller to extrajudicially dissolve the sale and resell the property, thereby terminating the buyer's ownership rights?
Opinions:
Majority - Chief Judge Politz
Yes. A seller can validly dissolve a sales contract extrajudicially following a buyer's repudiation, thereby terminating the buyer's ownership rights and allowing the seller to resell the property. The court reasoned that under Louisiana Civil Code article 2456, title to the painting passed to Mennella as soon as the parties agreed on the object and price, creating a 'perfected' sale. However, this transfer of title was not absolute and was subject to Mennella's obligation to pay. When Mennella, through her counsel, unequivocally refused to pay and demanded a refund, she committed an anticipatory repudiation and defaulted on the contract. Schon properly exercised his right to an extrajudicial dissolution by putting Mennella in default with a written demand for performance within a specific, reasonable time. When she failed to perform, his subsequent notice of cancellation validly dissolved the contract and revested title in him. Therefore, Schon legally owned the painting at the time of the London sale, and his action did not constitute conversion. However, because Mennella's breach ultimately caused Schon no damages and resulted in a large profit, equitable principles require Schon to return the $140,000 in partial payments to Mennella.
Analysis:
This case provides a significant clarification of contract dissolution under the modern Louisiana Civil Code, particularly the seller's right to an 'extrajudicial' (non-court-ordered) dissolution. It reinforces the principle that title transfer under article 2456 is not irrevocable and is conditioned on the buyer's performance. The decision provides a clear, practical framework for sellers dealing with defaulting buyers, allowing them to reclaim and resell goods without resorting to litigation, provided they give proper notice. It also highlights the doctrine of estoppel, preventing a party who repudiates a contract from later attempting to enforce its benefits when the situation changes to their advantage.
