Bond v. Broadway
1992 WL 310021, 607 So. 2d 865 (1992)
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Rule of Law:
When a buyer breaches a purchase agreement in bad faith, the seller is entitled to recover all direct damages, foreseeable or not, caused by the breach. Any profit realized by the seller from a subsequent sale of the property does not bar recovery but is instead deducted from the total damages owed by the breaching party.
Facts:
- Bruce and Pamela Bond entered into a purchase agreement to sell their home to Freddie Broadway for $85,988 on July 11, 1989.
- The agreement stipulated the sale was 'as is,' subject to the buyer's final inspection, and included a $30,000 cash payment.
- Relying on this agreement, the Bonds entered into a separate contract to purchase a new home, intending to use the $30,000 as a down payment.
- The day before the scheduled closing on August 11, 1989, Broadway notified the Bonds he would not purchase the property, citing several minor, easily discoverable defects.
- Due to Broadway's breach, the Bonds were forced to obtain a second mortgage on their old home to secure the $30,000 down payment for their new home.
- Approximately eight months after the breach, the Bonds sold the home to a third party, Carolyn Augustine, for $89,900.
Procedural Posture:
- Bruce and Pamela Bond filed suit against Freddie Broadway in a Louisiana trial court, initially seeking specific performance of the purchase agreement.
- During the pendency of the suit, the Bonds sold the home to a third party and amended their petition to seek damages.
- The trial court found that Broadway had breached the agreement but awarded no damages, ruling that any loss was offset by the profit from the subsequent sale and Broadway's deposit.
- The trial court also refused to admit evidence of damages related to the Bonds' purchase of a new home.
- The Bonds, as appellants, appealed the trial court's judgment on damages to the Court of Appeal of Louisiana, Second Circuit.
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Issue:
Does a seller's profit from a subsequent sale of a home preclude the recovery of damages incurred as a direct result of a buyer's bad faith breach of the initial purchase agreement?
Opinions:
Majority - Victory, Judge
No. A seller's profit from a subsequent sale does not preclude recovery for damages resulting from a buyer's bad faith breach; rather, the profit is treated as a credit against the total damages. The court found Broadway acted in bad faith because the defects he cited were minor, easily discoverable, and insufficient to vitiate the 'as is' contract, making them a mere pretext to escape his contractual obligations. Under Louisiana Civil Code Art. 1997, a party in bad faith is liable for all direct damages, foreseeable or not, that result from the breach. Therefore, the Bonds were entitled to recover for costs they would not have incurred but for the breach, including extra mortgage payments, interest on the second loan they had to secure, and costs related to the subsequent sale. The correct measure of damages is the sum of these costs, less the profit from the second sale and Broadway's initial deposit.
Analysis:
This case clarifies the calculation of damages for a bad faith breach of a real estate contract in Louisiana, particularly when the non-breaching party mitigates damages by reselling the property at a profit. The court establishes that a subsequent profit does not negate the existence of damages but instead serves as an offset against the total harm caused. By holding the bad faith breacher liable for all direct consequences, including unforeseeable costs like financing for a subsequent home purchase, the decision disincentivizes buyers from using pretextual reasons to escape valid contracts. This reinforces the principle that a bad faith breach exposes the breaching party to a much broader scope of liability than a good faith breach.
