Dusting Off the Code: Using History to Find Equity in Louisiana Contract Law

• Author: Charles Tabor
• Position: Co-recipient of the Association Henri Capitant, Louisiana Chapter Award for best paper on a civil law topic or a compara
• Pages: 550-603

Page 550

Charles Tabor : I would like to give a heartfelt thank you to Professor J.-R. Trahan for all of his guidance. Without his help, this paper would have never been completed. I would also like to thank Professors John Church and Alain Levasseur for their helpful comments. Finally, I would like to thank Andrea Borroni, a friend who took the time to tweak some of my European references.

"Law is something pertaining to reason." ¹

I Introduction

Louisiana faces a dilemma. On one hand, it can continue following its current impossibility doctrine and thereby stay true to two hundred years of French influence. On the other hand, it can broaden its basis of excuse for non-performance, thereby bringing itself in line with many other legal systems. In either event, Louisiana will have to step back and evaluate how it approaches legal development, either through strict adherence to historical ideas or through progressive applications attempting to balance law and contemporary issues.

For hundreds of years, two separate ideals have battled to control the policy behind this area of the law; pacta sunt servanda,² which calls for the absolute adherence to terms in a contract, and rebus sic stantibus,³ which holds that when things change, those terms collapse. At various times throughout history, each of these ideals has ridden at the forefront of popular legal thought. While one was in the spotlight, the other would be cast aside. Thus, the two have been trapped in a proverbial tug of war, fighting for dominance as centuries slowly pass. Page 551

The purpose of this Comment is to inject a sense of equity into Louisiana law.⁴ That is not to say that Louisiana law does not currently contain equitable notions-it does; however, certain aspects of the law seem to be stuck in an archaic world that has long since passed. Imposing harsh laws on the public may make for easy legal analysis, but it does not always provide a fair result for the common citizen. The time has come for Louisiana to overlay its current articles on impossibility with a renewed sense of equity and good faith.

This Comment proposes a set of articles that would broaden Louisiana's basis of excuse for non-performance of a contractual obligation. First, it is necessary to evaluate how Louisiana's current law of impossibility came to be, as well as the alternative method utilized by numerous legal systems. Second, this Comment analyzes why the current Louisiana law is inadequate in dealing with contemporary problems and how recent events call for a new approach. Next, the proposed articles are introduced, with their application being compared to approaches taken in other legal systems. Finally, after a short discussion of economic implications, this Comment addresses a common argument against the proposed "more lenient" approach.

II Background

The following lays the foundation necessary to understand both the conflicts and purposes of the strict and relaxed views of excuse for contractual non-performance. Before seeing where we need to go, it is necessary to first see where we have been. The past is of no use if we do not learn from it. Page 552

A The Origins of Louisiana's Impossibility Excuse (Pacta Sunt Servanda)

Currently in Louisiana, impossibility of performance is contained in its own section of the Louisiana Civil Code in the chapter on "Extinction of Obligations."⁵ Pursuant to these articles, an obligor's failure to perform an obligation is excused only when:

(1) performance is absolutely impossible;⁶ (2) the impossibility is preceded by a fortuitous event;⁷ (3) the risk of this fortuitous event has not been assumed by the obligor;⁸ (4) the obligor is not in default when the fortuitous event occurs;⁹ and finally, (5) the obligor is free from fault.¹⁰ Thus, it is only when all of these requirements are met that an obligor may be excused for failing to perform an obligation.

Although impossibility covers all obligations in Louisiana, both scholars and lawyers have argued that courts should recognize an expanded view of excuse when dealing with contractual obligations.¹¹ Despite these attempts, Louisiana courts have refused to expand impossibility, even in situations where the obligor's performance has become exceedingly difficult after the contract's execution.¹² In effect, Louisiana has stayed true to the strict adherence to contractual terms inherited from its French ancestors.¹³ Page 553

This strict adherence to contractual terms is the product of centuries of legal development and is also called pacta sunt servanda ("contracts must be honored").¹⁴ Its origins can be traced to the Roman praetors' promise of pacta conventa servabo ("I will respect the agreement").¹⁵ It was the medieval canon lawyers (jus canonicus), however, who spurred the creation of the doctrine known today.¹⁶ Oddly enough, the development of this doctrine is not as clear cut as the rule it embodies.

The Church's involvement with the doctrine was mainly concerned with sin.¹⁷ According to the Church, a promise was binding before God regardless of its formalities.¹⁸ Therefore, a breach of an oral promise was no less sinful than a breach of an oath or contract.¹⁹ In order to harmonize the law with this view, it became necessary to give all informal promises the binding effect of a formal oath.²⁰ This idea was subsequently included in both the Decretum Gratiani (Gratian's Decretum) and the Decretals of Gregory IX.²¹ Page 554

Expounding on this Church-based idea, the natural lawyers provided the analytical leap necessary to form the current view of pacta sunt servanda.²² They took the canonist view one step farther by finding that since fides (faith) is the foundation of justice, all promises must be binding "under all circumstances."²³Thus, it was this mutation that formed the foundation for the "classical" theory of contract.²⁴

Nevertheless, this strict adherence to contractual terms has never been an absolute rule. Even in the Roman law, pacta sunt servanda was not without exceptions.²⁵ As the law developed, the excuse of impossibility was seen as one of those exceptions.²⁶This excuse became recognized in France and was included in the Code Napoléon, where it was then transferred to Louisiana.²⁷ Page 555

Thus, Louisiana's current law of impossibility is the culmination of a long history of legal development, the origins of which predate Justinian's Digest.

B The Foundation for Expanding Louisiana's Excuse (Rebus Sic Stantibus)

Like Louisiana's impossibility excuse, the expansion argument can also boast of a rich legal pedigree. Known today as rebus sic stantibus ("provided circumstances remain unchanged"), the foundations of this idea can be traced to Plato during the time of the Roman Republic.²⁸ It was the Moral Philosophers, however, who prompted its legal use.

St. Augustine took up Cicero's example of "a sword which does not have to be returned to a depositor who has become insane" and included it in his teachings.²⁹ This idea of a changed circumstance was then included in Gratian's Decretum, a gloss of which provided the spark for the modern rebus sic stantibus doctrine.³⁰ After affirmation by St. Thomas Aquinas, the natural Page 556 lawyers picked up the idea and began to expand it.³¹ This expansion resulted in the Romanist writers seeing rebus sic stantibus as an implied condition in every contract.³²

From the Roman Empire to present, public opinion, and therefore popularity, of the doctrine has been subject to a rollercoaster effect. The doctrine's highpoint for popular opinion occurred during the seventeenth century.³³ It was during this period that rebus sic stantibus made its furthest inroads into the private law, becoming "part and parcel of the usus modernus" (modern use).³⁴ This popularity was short lived; however, due to Page 557 the rise of the theories of capitalism and liberalism during the eighteenth century, both of which were particularly hostile to this equitable notion.³⁵ Eventually, the changing legal scene led to the disappearance of the doctrine altogether.³⁶

With the rise of the World Wars in the early part of the twentieth century, rebus sic stantibus re-emerged as a workable theory in many jurisdictions. The Italians have codified the idea in their civil code.³⁷ Both Germany's BGB and Greece's Civil Code contain a provision based on the doctrine.³⁸ Russia, Uzbekistan, and Turkmenistan have followed the trend by codifying the doctrine.³⁹ Spain and Poland have allowed the theory jurisprudentially.⁴⁰ Puerto Rico found that the doctrine was embodied under its existing code article on good faith.⁴¹ France has accepted the idea in its public law.⁴² Perhaps most profoundly, Page 558 large projects such as the Unidroit Principles of International Commercial Contracts, the Principles of European Contract Law (PECL), the Restatement (Second) of Contracts, and the...