McKay v. Prevost - 563 So. 2d 1260 (La. Ct. App. 1990)

Rule:

An obligee may only be put in default when performance is due upon the arrival of the term of the obligation. Damages for delay are owed from the time the obligor is put in default, and when the term for performance of the obligation is fixed or clearly determinable by the circumstances, the arrival of that term places the obligor in default; otherwise, the obligor must be placed in default by the obligee. La. Civ. Code Ann. arts. 1989 and 1990.

Facts:

McKay and Prevost entered into an exchange of property and services. McKay owned a furniture store and interior design firm on Airline Highway, directly across the street from Prevost's car dealership. Prevost approached McKay concerning a possible sale of McKay's property to Prevost. After negotiations, a handwritten agreement was signed on November 9, 1985, effecting a lease of McKay's property to Prevost for two years and to culminate in the sale of the property to Prevost for $ 1,100,000.00. Subsequently, on December 19, 1985, a new agreement was reached which reduced the purchase price by $ 30,000 and which provided that Prevost would buy McKay's Airline Highway property at the same time that McKay's building on the Highland Road property owned by Prevost was completed. Two documents were executed to carry out this agreement: a Lease-Purchase Agreement in which McKay appeared as seller/lessor and which provided for the Airline Highway property's lease to Prevost and Prevost's purchase of that property at the time McKay's building on Highland Road was completed, and another Lease-Purchase Agreement in which Prevost appeared as seller/lessor and in which he and a corporation controlled by him agreed to sell the Highland Road property to McKay. It is the former document which is in dispute in the present appeal.

Pursuant to the Lease-Purchase Agreement at issue, Prevost took possession of McKay’s building on Airline Highway on April 15, 1986. Construction proceeded on the Highland Road property. Because the Lease-Purchase agreement provided that "The Act of Sale or Exchange is to be and shall be closed at the time that the building improvements to be constructed on Lots C-1 and C-2 [the Highland Road property] are completed," McKay’s lawyer wrote to defendant on August 22 enclosing the certificate of occupancy and stating, "It is now time to execute the exchange agreement, and we shall expect to complete and close this transaction as provided in the original agreement." No response was forthcoming to this letter, and on September 11, 1986 McKay’s lawyer notified Provost’s lawyer that Provost was in default. That letter went on to say that if Interplex and Prevost “do not make arrangements to close the exchange within ten days, they will be expected to surrender possession of the property located at 9585 Airline Highway” as well as to “pay any and all damages suffered by Mr. McKay, but in no event less than five times the rent per day plus attorney’s fees and costs." By a hand-delivered letter dated September 12, 1986, Provost’s lawyer notified McKay’s counsel that October 17 would be a good day to close the sale because McKay’s loan commitment expired on October 20. Although another letter was sent by McKay’s lawyer on September 23, it was not until September 30 that McKay’s lawyer again corresponded with Provost’s lawyer about the closing date. In that letter, McKay agreed to go through with the October 17 closing date, but reiterated his demand for stipulated damages as provided in the Lease-Purchase Agreement of $ 82,590.39, calculated at the rate of five times the rent per day dating from August 20, 1986 until October 15, 1986. Provost refused to pay the stipulated damages. The closing took place as proposed by Provost on October 17, 1986. On November 20, 1986, McKay filed suit for unpaid rent and penalties. The consolidated cases were tried before a judge. After hearing McKay’s evidence, the trial judge granted Provost’s motion for involuntary dismissal under LSA-C.C.P. art. 1672. 

Issue:

Should McKay be awarded reasonable damages for Provost’s delay and default?

Answer:

No.

Conclusion:

LSA-C.C. art. 1993 provides, "In case of reciprocal obligations, the obligor of one may not be put in default unless the obligor of the other has performed or is ready to perform his own obligations." As Prevost argues, McKay never provided a definite date of his own for the closing; his only demand was that defendant make arrangements within ten days to close. When Prevost proposed October 17 as the closing date, McKay responded more than two weeks later that he agreed with the date. McKay’s counsel at trial acknowledged that the closing could not be done the actual day the Highland Road building was completed. If not then, when? No other date was ever offered as an alternative to October 17, and the closing actually did take place on that day. McKay clearly was not ready to perform himself any earlier than October 17, and cannot be said to have placed Provost in default. Without doing so, he cannot recover delay damages.

The trial court relied upon LSA-C.C. art. 1778 to ascertain when the term for performance of the obligation to buy the Airline Highway property arrived. The trial court found that the term, specified in the Lease-Purchase Agreement as "at the time that the building improvements . . . are completed" was uncertain but determinable and therefore it applied a "reasonable time" test to find that defendant was not in default of the contract because he delayed two months after completion of the construction before closing the Act of Sale. McKay argues that the trial court should not have applied LSA-C.C. art. 1778, but rather the more specific articles on stipulated damages, to determine when performance was due. The court disagrees. The stipulated damages provision is a secondary obligation; first, a breach of the primary obligation must be found, and that determination is made by resorting to the general articles on obligations with a term.

McKay argues, however, that even if LSA-C.C. art. 1778 is applicable, the trial court erroneously applied the "reasonableness" standard, but instead should have looked to "intent of the parties." Whether "intent of the parties" or "reasonableness" is the correct standard to apply for this term, McKay cannot argue that Prevost was in default of an obligation which he himself was not ready to perform. The parties apparently intended to perform the obligation reciprocally at some point after the completion of the Highland Road building. Even if the term were determined to be at the time the Highland Road construction was concluded, McKay could not place Prevost in default at that time because he was not ready to close. If the term is construed to be at a "reasonable" time after the construction was concluded, the trial court's finding is correct that two months was probably reasonable under the circumstances. The transaction was quite complex, requiring the advice of lawyers and accountants, and involved a large sum of money. It cannot be said that under the circumstances two months was unreasonable.