McKay v. Prevost
1990 La. App. LEXIS 1656, 563 So. 2d 1260, 1990 WL 88919 (1990)
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Rule of Law:
Under Louisiana law, a party cannot recover stipulated damages intended to enforce a primary obligation if they have already obtained specific performance of that obligation, unless the damages were stipulated for mere delay. Furthermore, a party to a reciprocal contract cannot recover delay damages if they were not ready to perform their own obligation at the time they demanded performance from the other party.
Facts:
- On November 9, 1985, McKay and Prevost signed a handwritten agreement for Prevost to lease and ultimately purchase McKay's commercial property.
- On December 19, 1985, they executed a formal Lease-Purchase Agreement stipulating that the sale would close 'at the time that the building improvements' on a separate property being built for McKay were completed.
- Prevost took possession of McKay's property under the lease on April 15, 1986.
- The new building for McKay was certified as complete and ready for occupancy on August 19, 1986.
- On August 22, 1986, McKay's attorney notified Prevost that it was time to close the sale, but Prevost did not respond.
- On September 11, McKay's attorney declared Prevost in default and demanded he arrange to close within ten days or vacate the property and face penalties.
- On September 12, Prevost's attorney proposed an October 17 closing date, which McKay's attorney accepted on September 30 while also demanding stipulated damages for the delay.
- Prevost refused to pay the damages, but the sale was completed on the proposed date of October 17, 1986.
Procedural Posture:
- McKay (plaintiff) filed suit against Prevost (defendant) in the trial court, seeking unpaid rent and stipulated damages.
- The case was tried before a judge.
- At the close of the plaintiff's case, the trial judge granted the defendant's motion for an involuntary dismissal.
- McKay (plaintiff-appellant) appealed the trial court's judgment to the Louisiana Court of Appeal, First Circuit.
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Issue:
Is a seller entitled to recover stipulated or delay damages for a buyer's two-month delay in closing a property sale when the seller has already obtained specific performance of the sale and was not himself ready to close on the date performance was allegedly due?
Opinions:
Majority - Lewis S. Doherty, III, Judge Pro Tem.
No, a seller is not entitled to recover such damages. Under LSA-C.C. art. 2007, an obligee may demand either stipulated damages or performance of the principal obligation, but not both, unless the damages were stipulated for 'mere delay.' The court found the penalty clause in this contract was tied to the purchaser's failure to vacate the premises upon default, not to a delay in closing. Since McKay obtained specific performance of the primary obligation (the sale of the property), he cannot also recover the stipulated damages. Furthermore, to recover any delay damages, McKay was required to put Prevost in default. However, under LSA-C.C. art. 1993, an obligor in a reciprocal contract cannot be put in default unless the other party is ready to perform their own obligation. McKay admitted he was not ready to close the sale on August 19, the date the building was completed, and he never proposed an alternative date before agreeing to Prevost's October 17 suggestion. Because McKay was not ready to perform, he could not place Prevost in default and is therefore barred from recovering delay damages.
Analysis:
This decision reinforces a critical distinction in Louisiana contract law between stipulated damages for non-performance and penalties for mere delay. It clarifies that if a penalty clause is designed to enforce the main obligation (e.g., by penalizing failure to vacate), a party who receives specific performance cannot also claim the penalty. The case also underscores the 'ready, willing, and able' doctrine in reciprocal obligations, establishing that a party's failure to be prepared to perform their own duties is a fatal flaw in a claim for delay damages against the other party. This provides a clear warning to contract drafters to explicitly label penalties for lateness as being for 'mere delay' and advises litigators that they must prove their client's readiness to perform to sustain a claim for breach based on delay.
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