Attribution

Under certain tax laws, the stock owned by one individual or legal entity is considered to be owned by certain other individuals or entities.

Basis (Real Estate)

The original purchase price plus certain capital costs. See Adjusted Basis (Real Estate) and see Real Estate Investments references.

Book Value

Assets less liabilities, that is, the net worth of a business. Book value may be greater or less than the market value of assets. See Fair Market Value.

Building Restrictions (Restrictive Covenants or Title Restrictions) and Zoning

Charges or limitations imposed on real estate by the owner (for example a developer) or by all of the owners of the affected real estate or immovable property. For example, building restrictions may govern building standards and the use, height or location of buildings or fences on the affected real estate.

>>> Tip: Local governmental subdivisions may impose similar restrictions for zoning, land use and historic preservation.

>>> Tip: A variance from a zoning ordinance is a waiver of the applicability of an ordinance on the grounds of hardship or some special circumstance, for example in the case of off-street parking requirements or set back requirements.

>>> Tip: A nonconforming use is one that existed before the adoption of a zoning ordinance; if such a use is not continued, the nonconforming use right is lost and the real estate must be used in full compliance with the current zoning ordinance.

See Real Estate Investments references.

Business Deductions

>>> Tip: Professional excellence and experience along with trade journals or scholarly publications and speaking engagements are foremost methods of developing your reputation while patiently establishing and deepening customer or client relationships. It is therefore axiomatic that such business development does not always entail spending money. However, occasions arise when business development expenses will be incurred after prudent reflection.

>>> Tip: When such expenses become necessary, you should steer your expenses towards those reasonable and appropriate categories which make economic sense and which are fully deductible or have higher deductibility limits, subject, of course, to your business's approval processes, all business and federal tax documentation substantiation requirements, and any restrictions imposed by customers, clients, your business, or by law.

>>> Tip: The economic sense evaluation is easier said than done. For example, a small non-deductible expense may be more cost effective and preferable to a larger deductible expense; on the other hand, meals and entertainment which include spouses are more expensive and are subject to special restrictions, but are sometimes necessary or appropriate.

General Rule: In summary, business expenses must be ordinary, necessary, reasonable in amount, cost effective, and documented; they may not be lavish or extravagant.

Ordinary and Necessary: Business expenses incurred either by your business or incurred by individual authorized officers and employees and reimbursed by your business may generally be deducted from gross income to the extent that they are ordinary and necessary expenses of carrying on your business. An expense is ordinary if it is one that is common, accepted, customary or usual in your business. An expense is necessary if it if appropriate and helpful in developing and maintaining your business.

Entertainment Limitations: This includes any activity generally considered to be entertainment, amusement or recreation such as entertaining guests on vacations, at nightclubs, cocktail lounges, theaters, sporting events, and at entertainment facilities including country clubs, golf and athletic clubs, hunting and fishing lodges, and so forth. Generally the deduction for entertainment expenses may not exceed the portion that is related to business and if there are both business and non-business expenses, an allocation must be made, and only the business portion may be deducted or submitted to your business for reimbursement.

Home Entertainment Limitations: Expenses of entertaining clients or customers at your home must be ordinary and necessary and for a business purpose but only the extra expense incurred because clients or customers are present is deductible or reimbursable.

Who May Be Entertained: Those who may be entertained are persons with whom you could reasonably expect to engage or deal with in the active conduct of your business, whether already established or prospective.

Spouses: Your business can deduct the cost for entertaining your spouse or the spouses of a business customer or client and you can be reimbursed if you show a business purpose rather than a personal or social purpose for incurring each spouse's expense.

General Entertainment and Meals Rule: Costs incurred for entertainment and meals must meet strict tests in order to be deductible and a 50% rule limits otherwise-allowable deductions for meals and entertainment. Also strict substantiation requirements must be met and no deduction or reimbursement is allowed unless you can show that the entertainment expenses are (1) directly related to the active conduct of your business, or (2) associated with the active conduct of your business if the expense is for entertainment directly before or after a substantial and bona fide business discussion; however, expenses directly related to and necessary to attendance at a business meeting of a tax-exempt business league, real estate board, chamber of commerce, or board of trade are not subject to these restrictions although they may be subject to the 50% meal and entertainment limit rule discussed below.

"Directly Related" Test: In order for entertainment expenses to satisfy the directly related test, you must have had more than a general expectation of deriving income or some other specific trade or business benefit at some indefinite future time. The entertainment must be directly related to the active conduct of business with the person being entertained. In addition, the active conduct of business must be the principal character or aspect of the combined business and entertainment.

"Associated With" Test: Entertainment expenses associated with the active conduct of your business are deductible if they directly precede or follow a bona fide substantial business discussion. This includes good will expenditures to obtain new business or to encourage the continuation of an existing business relationship.

Additional Restrictions on Meals: There are two overriding restrictions placed on the deduction of business expenses: (1) food and beverage expenses generally are not deductible or reimbursable if neither you nor a company employee is present at the furnishing of such food and beverage, and (2) a deduction and reimbursement will not be allowed for food and beverage if the expense is lavish or extravagant under the circumstances.

Meal and Entertainment Deduction Limits: The 50% Limitation Rule. The amount allowable as a deduction for food, beverage, and entertainment expenses is limited to 50% of such expenses, including food and beverage costs incurred in the course of travel.

Business Gifts: Deductions for business gifts made directly or indirectly are limited to $25 per recipient per year.

>>> Tip: Certain business gifts (such as King Cakes) may minimize the need to incur more expensive travel or entertainment costs. The need for holiday presents is minimized by the use of your business's greeting cards which at your option may include an insert card to the effect that a charitable donation has been made in the recipient's name. In view of the $25 per recipient per year limitation on business gifts, it may be advantageous to make such charitable contribution because cash gifts to charities are deductible up to 50% of adjusted gross income. See Charitable Deductions Limitations. Keep in mind that the officers and employees of many customers or clients are subject to legal restrictions on their acceptance of business gifts, meals and certain forms of entertainment.

Travel: While business travel costs when away from your company are deductible and reimbursable, they may not be lavish or extravagant; meals are subject to the 50% limitation and travel expenses may not include the expense of your own entertainment; travel expense deductions for meals and lodging are not allowed unless the trip takes you away from the company overnight. If you extend your stay for personal reasons, only the expenses that you would have incurred if the trip had been totally for business are deductible and reimbursable. Special restrictions apply to foreign travel and conventions, cruise ship conventions, and the expenses of a spouse or other individual accompanying you.

Advertising expenses: These are deductible if they are in a reasonable amount and are reasonably related to your business. Such expenses may be to develop good will rather than to generate immediate business. The cost of public service advertising may be deducted, but no deduction is allowed for expenses of advertising in political programs or for admission to political fund-raising functions and similar events.

Memberships: No business deductions are allowed for membership dues in any club organized for business, pleasure, recreation, sporting, or other social purpose including airline, hotel, golf, tennis, athletic or luncheon clubs; however, membership dues paid to professional organizations and trade associations and civil or public service organizations are deductible if paid for business reasons and if one of the organization's principal purposes is not to conduct entertainment activities for members or their guests.

Buy/Sell Life Insurance

Funds the purchase of an owner's interest in a business.

Bypass Trust

A trust which intentionally does not qualify for the unlimited estate tax marital deduction. See Trust. It is designed to take advantage of the $600,000 exemption equivalent resulting from the federal gifts estate tax unified credit of $220,550. See Unified Transfer Tax and Credit. The trust bypasses the taxable estate of the surviving spouse and is not subject to estate taxes. The surviving spouse is frequently named the income beneficiary with a right to receive some of the principal. Children and others may also be beneficiaries. See Marital Deduction. The trust is also called an exemption equivalent trust, a credit shelter trust, or a family trust.

Cafeteria Plan (Flexible Benefits Plan or Section 125 Plan)

Allows employees to choose between non-taxable qualified benefits or taxable cash. Plans offer a menu of items, such as child care, group term life insurance, medical expense insurance, dependent group term life insurance, and dental expense coverage. See Life Insurance.

Capital Gain

Upon the sale of property classified as a capital asset, any gain generally is considered a capital gain. Gain is the increase of the amount realized upon the sale over the acquisition basis adjusted downward for depreciation or upward for additions to the asset. Currently, adjusted net capital gain on assets held for more than 12 months is usually taxed at a maximum rate of only 20 percent. See Adjusted Basis (Real Estate) and see Real Estate Investments references.

"Cashing Out" Assets

See Accelerated Death Benefits, Home Equity Loans, Life Insurance, Reverse Mortgage, Sale and Purchase of a Business, Sale of Residence, and Viatical Settlements.

Charitable Deductions Limitations

Cash gifts to charities are deductible up to 50% of adjusted gross income; excess amounts can be carried forward up to five years.

The gift of property that, if sold, would not result in capital gain is subject to similar limitations; the deduction is limited to the donor's cost basis and so any appreciation is not deductible.

Long-term capital gain assets (for example, real estate, stock and investments owned for more than one year) are deductible at the fair market value, and so any appreciation is deductible; these assets are deductible up to 30% of the adjusted gross income and excess amounts can be carried forward up to five years.

Gifts to charities of tangible personal property (for example, art works, and so forth) are deductible up to 30% of adjusted gross income (like long-term capital gain assets). The property must be related to the purpose of the charity; otherwise the deduction is limited to the donor's cost basis rather than the fair market value.

>>> Tip: An example of the advantage to gifting long-term capital gain property to a charity is as follows: a taxpayer owns stock with a current value of $10,000 which the taxpayer bought for $1,000 several years ago. If the taxpayer donates the stock to a charity, the taxpayer can deduct $10,000 as a charitable contribution without paying any capital gain on the appreciated value of the shares. This will result in a tax benefit of $3,100 if the taxpayer is in a 31% tax bracket. This is a much greater tax benefit than if the taxpayer sold the stock and gave $10,000 to the charity.

Charitable Gifts of Life Insurance

The donor may make a charitable deduction of the value of the insurance for all future payments for income, gift, and estate tax deduction purposes.

>>> Tip: These deductions may not be taken if the donor retains the right to change the beneficiary, retains cash values, and so forth, or does not donate the entire interest.

A surviving income plan which keeps benefits out of an employee's taxable estate and thereby avoids federal estate taxes. In view of the unlimited marital deduction, however, there is no estate tax unless benefits are payable to children or other heirs other than their surviving spouse. With typical survivor income plans, the present value of the survivor income payments is part of the employee's taxable estate. See Controlling Shareholder.

>>> Tip: Transferring ownership of a paid-up but unneeded life insurance policy to a charity gives you a tax deduction based on the value of the policy at the time of the gift, and therefore may be more beneficial to you tax-wise than a cash gift and it can free up cash (because the deduction reduces your taxes), which can then be invested. Similarly, transferring ownership of a policy that is not paid up to a charity may be beneficial to you and you can deduct the annual premium as a charitable contribution.

Charitable Lead Trust

Allow you to place funds in trust with an annuity or unitrust interest going to a charitable beneficiary and the remainder interest being returned to you or a noncharitable beneficiaries including your family.

>>> Tip: Although you continue to be taxed on a trust income, you are entitled to an income tax deduction at the time of the gift equal to the present value of the charity's interest. See Qualified Personal Residence Trust and Trust.

Charitable Remainder Annuity Trust (CRAT)

A trust under which a certain fixed amount of the initial fair market value of trust assets (not to exceed 50% of the asset's value but not less than 5%) is paid annually to a noncharitable beneficiary. The amount of the grantor's tax deduction is the present value of the charity's interest at the time an asset is given to the trust. See Trust.

Charitable Remainder Unitrust (CRUT)

A trust under which a fixed percentage of the net fair market annual value of the trust (not to exceed 50% of the asset's value but not less than 5%) is paid annually (or more frequently) to a noncharitable beneficiary. See Trust.

COBRA (Consolidated Omnibus Budget Reconciliation Act)

Beneficiaries of certain employer provided health plans must be allowed to continue coverage for 18 to 36 months if they would lose coverage as a result of qualifying events such as death of the employee's spouse, divorce, or separation, voluntary or involuntary termination, no longer being a dependent of an employee, retirement, and so forth. A retired person's coverage ends when the retiree becomes eligible for Medicare.

College Expenses

See Education Funding.

Community Property

Essentially means in Louisiana that each spouse owns an undivided one-half interest in property acquired during marriage in the absence of a matrimonial agreement.

Community property law applies automatically to persons who marry in or move to Louisiana unless there is a valid matrimonial agreement (that is, a "marriage contract") to the contrary.

Matrimonial agreements can eliminate community property prospectively and can be executed after marriage only with court approval. Community property already owned is unaffected by a matrimonial agreement but the parties may voluntarily partition or divide it by agreement.

A decedent's one-half share of community property is inherited as follows if a person dies without a valid will at the time of death (that is, intestate) (and is either domiciled in Louisiana or owns immovable property in the state): (1) Children and grandchildren, and so forth inherit naked ownership of property subject to a usufruct in favor of the surviving spouse until the earlier of the death of the surviving spouse or the remarriage of the surviving spouse.

The usufruct is essentially the right to use another's property and the income from it and the naked ownership is ownership of the property without the right to use the property and the income from it during the term of the usufruct; (2) If there are no children or grandchildren, and so forth then the surviving spouse inherits the property in full ownership. See Matrimonial Agreement, Separate Property, and Usufruct.

>>> Tip: A spouse who is non-participant (non-employee) cannot leave his or her interest in a qualified retirement plan (such as a 401(k) plan) to someone other than the plan participant (employee). This rule should not apply to IRAs. The non-participant (non-employee) can only acquire an interest in a qualified retirement plan pursuant to a court's Qualified Domestic Relations Order (QDRO) in a separation or divorce proceeding.

Compound Interest

Interest paid not only on principal, but also on interest earned previously.

Contracts

>>> Tip: Contracts often do not have a severance clause, that is, a provision addressing the issue of what happens if a particular contract provision should be invalid, illegal, and so forth. Accordingly, the following Louisiana law may apply by default: nullity of a provision does not render the whole contract null unless, from the nature of the provision or the intention of the parties, it can be presumed that the contract would not have been made without the null provision.

>>> Tip: During any negotiations among the parties to a contract, it is wise to review a number of Louisiana codal articles, court decisions, and so forth which (1) fill in gaps when the contract is silent (for example, good faith obligations); (2) limit contract provisions (for example, attempts to limit the liability of one party for the party's intentional or gross fault); or (3) provide remedies which should be considered in negotiating the contract (for example, stipulated damages).

>>> Tip: Keep in mind that special rules apply to certain contracts such as lease, sale, loan, or insurance.

First, note a few definitions which are necessary because Louisiana contract law uses these terms even when a written contract possibly does not.

1. Definitions - A contract in Louisiana is a legal relationship or agreement whereby one or more persons are bound to render a performance in favor of one or more others; the performance may consist of giving, doing, or not doing something; obligations may be created, modified, or extinguished.

An obligor is one who is bound to render a performance in favor of another, called the obligee. In the case of reciprocal obligations, such as those arising from a bilateral contract, the parties are reciprocally obligors and obligees.

2. Good Faith - Good faith governs the conduct of the obligor and the obligee in whatever pertains to the obligation. Contracts must be performed in good faith. See bad faith. A resolutory condition that depends solely on the will of the obligor must be fulfilled in good faith. A condition is resolutory if the obligation may be immediately enforced but will come to an end when the uncertain event occurs.

3. Impossibility of Performance - An obligor is not liable for the obligor's failure to perform when it caused by a fortuitous event that makes performance impossible unless the obligor has assumed the risk of such a fortuitous event. Furthermore, an obligor is liable when the fortuitous event occurred after the obligor has been put in default, and when the fortuitous event that caused the obligor's failure to perform has been preceded by the obligor's fault, without which the failure would not have occurred. An obligor's assumption of risk may be express or implied. A fortuitous event is often the functional equivalent of force majeure or an act of God. A fortuitous event is one that, at the time the contract was made, could not have been reasonable foreseen. The fact that an event is foreseeable does not preclude a conclusion that the parties could not have reasonable foreseen it, since they may not have thought it sufficiently important a risk to have made it the subject of a clause in the contract.

When a fortuitous event has made a party's performance impossible in part, the court may reduce the other party's counter performance proportionately, or, according to the circumstances, may declare the contract dissolved. The court may uphold the contract if the partial performance by one party will still be of value to the other after a proportional reduction of the latter's counter performance.

4. Damages for Delay - Damages for the delay in the performance of obligations are owed from the time the obligor is put in default and other damages are owed from the time the obligor has failed to perform. An obligee is required to put the obligee's obligor in default only when the obligee seeks damages for delay, or moratory damages. Moratory damages presupposes a performance actually rendered, although delayed. In such a case, the object of the obligee's recovery is compensation for the injury the obligee's interest has sustained because of the obligor's untimeliness in performing. Compensatory damages presuppose, instead, total or partial nonperformance, or defective performance by the obligor.

Nevertheless, some damages which an obligee may sustain as a result of the untimely satisfaction of his expectations, though grounded on the passage of time, are compensatory rather than moratory. Thus, if an obligor abandons the construction of a building and the obligee must secure completion by another, the obligee, besides other items of recovery, is entitled to recover damages sustained by reason of any delay thus caused, such as rent paid for another building. In that case, the damages for the delay should be regarded as compensatory rather than moratory. The same solution is obtained even if the obligor's breach is anticipatory.

Recovery of damages for delay does not preclude recovery of other damages such as damages for defective performance.

5. Reciprocal Obligations - In the case of reciprocal obligations, the obligor may not be put in default unless the obligor of the other has performed or is ready to perform the obligee's own obligation. Reciprocal obligations are those that arise from bilateral (or synallagmatic) contracts. That an obligee who intends to put the obligor in default must be ready to accept the performance he requests is a consequence of the overriding principle of good faith.

6. Damages - An obligor is liable for the damages caused by the obligor's failure to perform a conventional obligation. A failure to perform results from nonperformance, defective performance, or delay in performance. The phrase failure to perform means essentially the same as the word breach.

Damages are measured by the loss sustained by the obligee and the profit of which the obligee has been deprived. However future profits may not be recovered if they are deemed speculative.

An obligor in good faith is liable only for the damages that were foreseeable at the time the contract was made. Foreseeable damages are such damages as may fall within the foresight of a "reasonable person". In distinguishing foreseeable from unforeseeable damages, the court will consider the nature of the contract, the nature of the parties' business, their prior dealings, and all other circumstances relating to the contract and known to the obligor. Any special circumstances made known to the obligor by the obligee will also be taken into account.

An obligor in bad faith is liable for all the damages, foreseeable or not, that are a direct consequence of the obligor's failure to perform. An obligor is in bad faith if the obligor intentionally and maliciously fails to perform the obligor's obligation. Bad faith need not rise to the level of fraud (that is, a stratagem or machination to take unfair advantage of another party). When the obligor is in bad faith, the obligor may in addition to damages be entitled to recover reasonable attorneys fees.

When damages are insusceptible of precise measurement, much discretion is left to the court for the reasonable assessment of these damages. The court in its discretion may assess damages in more than a mere nominal amount.

An obligee must make reasonable efforts to mitigate the damage caused by the obligor's failure to perform. When a obligee fails to make these efforts, the obligor may demand that the damages be accordingly reduced. If an obligee neglects to mitigate the obligee's damages, the obligee's recovery must be reduced according both to the extent of the obligee's negligence and of its consequences. Reasonable efforts are such efforts as do not place an excessive burden on the obligee.

An obligee may not recover damages when the obligee's own bad faith has caused the obligor's failure to perform or when, at the time of the contract, the obligee has concealed from the obligor facts that he knew or should have known would cause a failure. If the obligee's negligence contributes to the obligor's failure to perform, the damages are reduced in proportion to that negligence. If negligence on the part of the obligee has played a part in causing the obligor's failure to perform, without constituting its sole cause, the obligee's recovery may be reduced accordingly.

7. Limitations on Liability - Any clause is null if it in advance excludes or limits the liability of one party for intentional or gross fault that causes damage to the other party. A clause relieving a party from liability for damages caused by delay is valid. A clause relieving a party from liability for damage to property caused through slight fault (mere negligence as opposed to gross negligence) is valid.

8. Stipulated Damages - The parties may stipulate the damages to be recovered in the case of non-performance, defective performance, or delay in performance of an obligation. In effect stipulated damages are similar to penal clauses and liquidated damage clauses.

An obligee may demand either the stipulated damage or performance of the principal obligation, but the obligee may not demand both unless the damages have been stipulated for mere delay.

An obligor whose failure to perform the principal obligation is justified by a valid excuse is also relieved of liability for stipulated damages. Impossibility of performance is a valid excuse that may relieve an obligor from liability for the obligor's nonperformance, and also from liability for stipulated damages.

Obligees who avail themselves of a stipulated damages clause need not prove the actual damage caused by the obligor's nonperformance, defective performance, or delayed performance. This does not prevent a defendant from proving that plaintiffs who seek to avail themselves of a stipulated damages provision actually have sustained no loss. It merely shifts the burden of proof on the issue of damages from the plaintiff to the defendant.

Stipulated damages for nonperformance may be reduced in proportion to the benefit derived by the obligee from any partial performance rendered by the obligor.

Stipulated damages may not be modified by the court unless they are so manifestly unreasonable as to be contrary to public policy.

9. Dissolution and Substantial Performance - When the obligor fails to perform, an obligee has the right to the dissolution of the contract and to recover damages. In an action involving judicial dissolution, the obligor who failed to perform may be granted, according to circumstances, an additional time to perform. A party's right to dissolution because of the other party's failure to perform arises from the contract itself, and to that extent it can be said to be implied, although not in the form of a resolutory condition. Whether to grant additional time for an obligor to perform is a matter for the court to determine in light of the circumstances of the individual case, including the good faith or not of the obligor, and whether the obligor has a valid excuse for failure.

A contract may not be dissolved when the obligor has rendered a substantial part of the performance and the part not rendered does not substantially impair the interest of the obligee. Although the law prevents a party from receding from a contract on a mere excuse, it does not prevent the recovery of damages by a party who has not received a full or perfect performance. For a court to refuse dissolution, the obligor must have rendered a substantial part of the performance and the unperformed part of the obligation must not impair the interest of the obligee. This double test protects the interests of both parties.

The parties may expressly agree that the contract shall be dissolved for the failure to perform a particular obligation. In that case, the contract is deemed dissolved at the time it provides for or, in the absence of such a provision, at the time the obligees give notice to the obligor that the obligees avail themselves of the dissolution clause.

Upon dissolution of a contract, the parties shall be restored to the situation that existed before the contract was made. If restoration in kind is impossible or impractical, the court may award damages. If partial performance has been rendered and that performance is of value to the party seeking to dissolve the contract, the dissolution does not preclude recovery for that performance, whether in contract or in quasi-contract. If an obligor can no longer perform after rendering a substantial part of the performance, the obligor is entitled to recover for that performance according to the terms of the contract, and the other party is entitled to damages for the unperformed part. If dissolution takes place after less than a substantial part of the performance has been rendered, the obligor, if that performance is of value to the obligee, is entitled to recover the equivalent of the obligee's enrichment. If dissolution takes place after the obligor has rendered a part of the performance which is of no value to the obligee, the obligor is entitled to no recovery. This contemplates a situation involving the partial dissolution of a contract.

In contracts providing for continuous or periodic performance, the effect of the dissolution shall not be extended to any performance already rendered. A contract that can be performed only through an uninterrupted series of acts or performance, such as a lease, is a "contract providing for continuous performance". A contract that is performed through acts that take place at stated intervals, or otherwise intermittently, such as a requirement or output contract, is a contract for periodic performance.

Either party to certain contract may refuse to perform an obligation if the other has failed to perform or does not offer to perform the other party's own at the same time, if the performances are due simultaneously. This applies only where the performances of the parties are to be rendered simultaneously, either because the contract so provides, or because the contract by its nature demands simultaneous performances. It does not apply where the performances are not to be rendered simultaneously as in the case of a lease.

10. Security for Performance - If the situation of a party, financial or otherwise, has become such as to clearly endanger the party's ability to perform an obligation, the other party may demand in writing that adequate security be given and, upon failure to give that security, that party may withhold or discontinue the party's own performance. Either party may withhold performance of an obligation when there is danger that the other party may not be able to perform, regardless of the kind, nature, or object of the contract.

A party's ability to perform an obligation may be endangered by a change in the party's financial situation, as in the case of a buyer whose resources have so diminished as to clearly indicate that the party will not be able to pay the price; or by a change in the party's personal situation, as in the case of an obligor of a personal obligation whose physical or psychological condition has so deteriorated as to indicate that such party will not be able to render the promised performance at the agreed time.

Security may include not only real or personal property, but also an assurance that the obligor has secured, or will secure, the means of performance. Thus, when raw materials needed to make a thing that the obligor has been obligated to fabricate become scarce, and it is clear that the obligor has not taken steps to secure such materials, the obligee may request in writing an assurance that the obligor has or will have those materials available in time to perform.

11. Interpretation of Contracts - In case of doubt that cannot be otherwise resolved, the contract must be interpreted against the obligee and in favor of the obligor in a particular obligation, but if the doubt arises from lack of necessary explanation that one party should have given, or for negligence or fault of one party, the contract must be interpreted in a manner favorable to the other party whether obligee or obligor. Contracts with ambiguous terms generally will be interpreted in favor of the party who did not write the contract.

12. Extension of Contract Terms - When an obligation is such that its performance requires the solvency of the obligor, the term (that is, the period of time allowed for the performance of an obligation) is regarded as non-existent if the obligor is found to be insolvent. If an obligor must be solvent in order to perform, as is the case if the obligation is to pay a sum or money or to transfer property which forms a part of the obligor's assets, the term of the contract is regarded as non-existent if the obligor's liabilities exceed its assets. On the other hand, the term may not be so regarded when the contemplated performance does not require solvency, as in the case of an obligation to render services. The obligor's insolvency must be judicially declared for this to take effect. The so-called insolvency in fact (that is, a momentary or short-term imbalance of accounts) would not mature debts subject to a term.

It has been held that judicially declared insolvency means cession or relinquishment of property, such as where a corporation is being liquidated and its affairs closed by a receiver; mere insolvency as a condition where liabilities exceed assets is not sufficient to mature debts under Louisiana law. Louisiana law could well be governed exclusively by federal bankruptcy law, under which the effect of insolvency on debts not yet matured is essentially the same as under Louisiana law.

It should be noted that under Louisiana law, rather than forfeiting a term because of the debtor's insolvency, a debtor who faces difficulties that may lead to a declared insolvency may obtain from the debtor's creditors a term or delay to perform the debtor's obligation, which may not exceed three years. Respite is defined as an act by which a debtor, who is unable to satisfy the debtor's debts at the moment, "transacts" with the debtor's creditors and obtains from them time or delay for the payment of the sums which he owes to them. A forced respite is one where some of the creditors refuse to accept the debtor's proposal, and the debtor is obliged to compel them by judicial authority to consent to what the others have determined. Of course, as a practical matter, the Louisiana respite system may often be preempted by federal bankruptcy law.

13. Fraud - The Louisiana Civil Code defines fraud as a misrepresentation or a suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other. Fraud may also result from silence or inaction.

Fraud may give rise to a damage action in tort. Louisiana law generally treats fraud as a ground for rescission of contract. Fraud is a vice of consent. An action for annulment of a relatively null contract prescribes in five years. (See rescission below for further discussion and reference to remedies.)

14. Duress - The Louisiana concept of duress is a contract-invalidating vice of consent. Like fraud, duress gives rise to a relative nullity, that is, nullity (rescission) must be sought (as distinguished from an absolute nullity).

Contract-invalidating duress proceeds only from fear of force or violence, not economic coercion.

15. Rescission - Rescission is generally available due to a vice in consent meaning that consent was not freely given. See below. Louisiana recognizes three vices of consent: error, fraud, and duress.

16. Error - Contract-invalidating error must concern a cause without which the obligation would not have been incurred provided that cause is known to the other party. This is a flexible concept.

Error may be unilateral. If so, and if the error is not induced by fraud, a party seeking rescission on this ground may be liable for the loss sustained by the other party unless the latter knew or should have known of the error. And, in such a case, rescission may be denied when the effective protection of the other party's interest requires that the contract be upheld.

17. Rescission - Louisiana law provides that in case of rescission, the contract is deemed never to have existed. The parties must be restored to the situation that existed before the contract was made. If it is impossible or impracticable to make restoration in kind, it may be made through an award of damages. These rules create obvious case-specific difficulties for parties and courts.

18. Breach of Contract - See Contract Breaches and Enforcements.