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An obligor in good faith is liable only for the damages that were foreseeable at the time the contract was made, La. Civ. Code Ann. art. 1996. However, an obligor in bad faith is liable for all the damages, foreseeable or not, that are a direct consequence of his failure to perform, La. Civ. Code Ann. art. 1997.
Defendant purchasers agreed to buy the sellers' home "as is." One day prior to the closing, the purchasers breached the agreement based on alleged defects in the property. The sellers brought an action seeking specific performance. The property subsequently sold and the sellers converted their action into one for damages. The trial court rejected the sellers claim because a profit had been made on the subsequent sale. The sellers appealed.
Under the circumstances, were the sellers entitled to damages, notwithstanding the subsequent sale of the property?
The court reversed and awarded damages to the sellers. The court found that the purchasers had acted in bad faith and were therefore liable for all the damages, foreseeable or not, that were a direct consequence of their failure to perform, pursuant to La. Civ. Code Ann. art. 1997. The alleged defects were minor problems and did not provide sufficient cause to refuse to honor the agreement. Because the purchasers acted in bad faith, they were liable for all damages including the additional mortgage payments, the interest on an interim loan, additional repairs, and closing costs, less the profit from the subsequent sale.