Electrodata Mfg. Corp. v. Domed Stadium Hotel, Inc.
1978 La. App. LEXIS 2994, 362 So. 2d 1122 (1978)
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Rule of Law:
When an obligee's action is a condition for the obligor's performance, the obligor must formally put the obligee in default for failing to fulfill the condition before seeking damages for delay. Furthermore, a seller's claim for damages may be defeated if the seller resells the subject goods at a commercially unreasonable price without providing notice to the original buyer.
Facts:
- On January 14, 1974, The Domed Stadium Hotel, Inc. (Hotel) contracted with Electrodata Manufacturing Corporation (Electrodata) for the supply and installation of a hotel 'room status system' for $11,900.
- Although the written contract did not specify a performance date, the parties had an oral understanding that installation would be completed by Mardi Gras, February 26, 1974.
- The contract stipulated that payment was due 30 days after installation was complete.
- Electrodata completed fabrication of the system's components in March 1974, but the Hotel's building was not ready for installation due to construction delays following a major fire.
- The Hotel's completion date was repeatedly postponed from February until at least September 1974.
- In January 1975, the Hotel notified Electrodata that its building was ready and requested delivery and installation of the system.
- Electrodata refused to proceed unless the Hotel provided written assurance of payment upon the installation crew's arrival and agreed to pay an additional $2,800 for increased labor costs.
- Nine months after initiating a lawsuit, Electrodata sold the system, which it had valued at $9,716.72, to another hotel for $400 as 'junk' without notifying the Hotel.
Procedural Posture:
- Electrodata Manufacturing Corporation sued The Domed Stadium Hotel, Inc., and others in a Louisiana trial court for payment on the contract.
- The trial court entered a judgment in favor of Electrodata for $10,610.10.
- The Domed Stadium Hotel, Inc., Rault Petroleum Corporation, and Joseph M. Rault, Jr. appealed the judgment to the Court of Appeal of Louisiana, Fourth Circuit.
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Issue:
Does a seller's failure to formally put a buyer in default for not having its premises ready for installation, coupled with the seller's subsequent resale of the custom-made goods at a commercially unreasonable price without notice, preclude the seller from recovering the contract price?
Opinions:
Majority - Redmann, J.
No. A seller cannot recover the contract price when it fails to put the buyer in default for a delay in fulfilling a condition precedent and subsequently resells the goods unreasonably without notice. The Hotel's act of readying its building was a suspensive condition for Electrodata's obligation to install the system. Under the Louisiana Civil Code, Electrodata was required to formally put the Hotel in default for its delay in fulfilling this condition before it could claim damages. Electrodata failed to do this; its inquiries about payment were not a formal demand for performance. Furthermore, even if the Hotel had been properly put in default, Electrodata's resale of the nearly $10,000 system for only $400 was commercially unreasonable and conducted without notice to the Hotel. By selling the system, Electrodata made its own performance impossible and could no longer tender performance, which is a prerequisite for putting the other party in default, thereby defeating its claim for damages.
Concurring - Lemmon, J.
No. While the result is correct, the reasoning differs slightly. Electrodata's letter of November 27, 1974, demanding payment for the manufactured system due to installation delays, was sufficient to put the Hotel in default. However, when the Hotel was eventually ready for installation, Electrodata's subsequent actions were fatal to its claim. By making performance impossible through the sale of the equipment as 'junk' without notifying the Hotel, Electrodata engaged in a willful wasting of the assets. This act relieved the Hotel of any obligation to pay for the system, leaving Electrodata without a remedy for the Hotel's initial breach.
Analysis:
This case illustrates the critical importance of Louisiana's formal 'putting in default' requirement as a prerequisite to recovering damages for a breach of contract involving delay. It establishes that a party's failure to follow this procedural step can be fatal to its claim. Additionally, the ruling underscores the principle of mitigation of damages, demonstrating that a party's efforts to mitigate must be commercially reasonable. A seller cannot dispose of goods in a manner that constitutes 'willful wasting' and still expect to recover the contract price, as this would unfairly penalize the breaching party beyond the actual damages sustained.
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