Marsh Investment Corporation, Plaintiff, v. John A. Langford, et al., Defendantspontchartrain State Bank, Defendant/third-party Plaintiff/appellant, v. Eunice K. Langford, Third-party Defendant/appellee, 784 F.2d 184 (5th Cir. 1986)

The facts of this case are set out in detail at 721 F.2d 1011. In brief, the appellant challenges, on grounds of fraud, a settlement agreement that it entered into with one of the appellees. The question presented is whether the appellant has waived its claim for recission of the fraudulently-induced settlement agreement through its negligence.

Title XVII of Book III of the Louisiana Civil Code, "Of Transaction or Compromise," contains 13 articles that specifically govern settlement agreements. Article 3071 provides, in pertinent part, that

A transaction or compromise is an agreement between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their differences by mutual consent, in the manner which they agree on, and which every one of them prefers to the hope of gaining, balanced by the danger of losing. (emphasis in the original)

Two other articles in Title XVII are particularly pertinent:

Art. 3079. A transaction may be rescinded notwithstanding, whenever there exists an error in the person or on the matter in dispute. It may likewise be rescinded in cases where there exists fraud or violence.

Art. 3081. A compromise entered into on documents which have since been found false, is null in toto. (emphasis in the original).

Under the framework of the Civil Code, compromises are a species of contract, and the provisions of the Code governing contracts in general are thus also applicable. Cole v. Lumbermens Mutual Casualty Company, 160 So. 2d 785, 787-789 (La.App. 3d Cir. 1964) (Tate, J.).

Louisiana Civil Code Art. 1847 (1870)¹  provided in pertinent part:

Art. 1847. Fraud, as applied to contracts, is the cause of error bearing on a material part of the contract, created or contrived by artifice, with design to obtain some unjust advantages to the one party, or cause an inconvenience or loss to the other. From which definition are drawn the following rules:

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3. A false assertion as to the value of that which is the object of the contract, is not such an artifice as will invalidate the agreement, provided the object is such a nature and is in such a situation that he, who is induced to contract by means of the assertion, might with ordinary attention have detected the falsehood.... (emphasis added).

It is clear to us that the pre-1985 Louisiana Civil Code contemplated that contracts may be rescinded for fraud, but where the defrauded party might have detected the fraud but for his negligence, he is estopped from claiming recission. See also La Croix v. Recknagel, 230 La. 842, 89 So. 2d 363, 366-367 (La.1956).² 

The record amply supports the district court's finding, 620 F. Supp. 880, that the appellant was negligent in relying upon Langford's representations. Accordingly, the appellant is estopped from claiming recission of the settlement agreement. The district court's judgment is therefore

AFFIRMED.