Default Remedies - What Happens if it All Goes Wrong?
Louisiana REALTORS • March 16, 2020
DEFAULT REMEDIES IN THE
LOUISIANA RESIDENTIAL AGREEMENT TO BUY OR SELL
WHAT HAPPENS IF IT ALL GOES WRONG?
By: Patricia B. McMurray, JD and Melissa Grand, JD
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
450 Laurel Street, Chase Tower North, 21st Floor
Baton Rouge, Louisiana 70801
Consider this scenario: Buyer Boudreaux finds the house of his dreams. The house is owned by Seller Sabine. After negotiations, Boudreaux and Sabine sign the Louisiana Residential Agreement to Buy or Sell (the “Agreement”). Then it all goes wrong. Sabine defaults under the Agreement. What can Boudreaux do now?
The Agreement has several available remedies for the buyer and seller in the event of default. The options include (1) declaring the Agreement null and void, (2) termination of the Agreement, (3) specific performance, and (4) stipulated damages. Other potential remedies include return of the deposit, and recovery of broker fees, attorney’s fees and costs.
DECLARE THE AGREEMENT NULL AND VOID
In the event of default, a buyer or seller may declare the Agreement null and void. The Agreement provides in Lines 258-260:
Further, the Agreement provides in Lines 268-270
This means that, in our scenario, Boudreaux can declare the Agreement null and void. Boudreaux and Sabine would both walk away from the sale.
TERMINATION OF THE AGREEMENT
In the event of default, a buyer or seller may seek to simply terminate the Agreement.[1] The Agreement provides in line 262:
Further, the Agreement provides in Line 270:
In our scenario, Boudreaux can file a lawsuit and request an order from the Court terminating the Agreement.
SPECIFIC PERFORMANCE
Upon default, a buyer or seller may also require specific performance under the Agreement. The Agreement provides in Line 262:
Further, the Agreement provides in Lines 270-271:
Specific performance is a Court ordered remedy with the goal being to put the damaged party back into a position as if the breach in contract never occurred.[2] This means that a buyer or seller may seek specific performance of completion of the home sale. So, Boudreaux can file a lawsuit requesting the Court to order Sabine to sell the home to Boudreaux.
If a Court determines that specific performance is not practical under the circumstances, a Court may alternatively award money damages.[3] In our scenario, if the Court finds that ordering Sabine to sell the home to Boudreaux is not practical, the Court may alternatively award Boudreaux money damages.
STIPULATED DAMAGES
The Agreement contains a stipulated damages clause.[4] The Agreement provides in Lines 262-263:
The Agreement provides in Lines 271-272:
The stipulated damages provision is provided in part to eliminate the need for a calculation of damages if the seller or buyer defaults; however, some courts have required a seller or buyer to provide proof of damage. Stipulated damage clauses are designed to both fix the amount of the damages caused by nonperformance of an obligation and to encourage performance of the obligation.[5]
A stipulated damages clause is for recovery of damages to compensate the wronged party for his or her loss. Stipulated damages are not punitive damages or damages intended to “punish” the defaulting party.
The Agreement provides that a buyer or seller may demand and/or sue to terminate the Agreement and for 10% of the Sale Price as stipulated damages. However, if the clause is challenged, the Court must determine the reasonableness of the amount stipulated in the contract by asking whether the parties attempted to approximate actual damages when they agreed to the stipulated damages provision of the Agreement.[6]
In our scenario, Boudreaux can file a lawsuit requesting the Court to order Sabine to pay 10% of the Sale Price to Boudreaux. If Sabine contests the stipulated damages clause, the Court will examine the reasonableness of the stipulated amount in making an award. This means the Court may award less than 10% of the Sale Price to Boudreaux.
DEPOSIT
The wronged party may also seek a return of the Deposit (in the case of the seller’s default) or to retain the Deposit (in the case of the buyer’s default).[7] The Agreement provides in Line 264:
The Agreement provides in Line 274:
Boudreaux’s lawsuit can ask the Court to order Sabine to return his deposit to Boudreaux.
BROKER FEES
The Agreement specifically provides that the seller or buyer may seek recovery of his or her Broker fees.[8] The Agreement provides in Lines 265-266:
Further, the Agreement provides in Lines 275-276:
So, Boudreaux may ask the Court to order Sabine to pay Boudreaux’s Broker fees.
A court has discretion in awarding Broker fees to the prevailing party,[9] so Boudreaux is not guaranteed to be successful in his request.
ATTORNEY FEES AND COSTS
In Louisiana, a party may recover attorney’s fees from an opposing party only in two specific instances: (1) where there is a contract between the disputing parties that explicitly provides for payment of the attorney’s fees incurred by the opposing party, or (2) where a specific Louisiana statute requires the payment of the opposing party’s attorney’s fees.[10]
The Agreement specifies that the prevailing party in litigation to enforce any provision of the Agreement “shall” be awarded their attorney’s fees and costs.[11] The Agreement provides in Line 265:
Also, the Agreement provides in Line 275:
In our scenario, Boudreaux hired a lawyer to file his lawsuit against Sabine. In the lawsuit, Boudreaux can request that the Court order Sabine to pay Boudreaux’s attorney’s fees and costs.
DISCLAIMER
These materials are to be used for informational purposes and should not be construed as specific legal advice. These materials are not designed to cover every aspect of a legal situation for every factual circumstance that may arise regarding the subject matter included.
This publication is for reference purposes only and association members or other readers are responsible for contacting their own attorneys or other professional advisors for legal or contract advice. The comments provided herein solely represent the opinions of the authors and is not a guarantee of interpretation of the law or contracts by any court or by the Louisiana Real Estate Commission.
[1] See Agreement, line 262.
[2] La. Civ. Code art. 1986 provides:
Upon an obligor’s failure to perform an obligation to deliver a thing or not to do an act, or to execute an instrument, the court shall grant specific performance plus damages for delay if the obligee so demands. If specific performance is impracticable, the court may allow damages to the obligee.
Upon a failure to perform an obligation that has another object, such as an obligation to do, the granting of specific performance is at the discretion of the court.
[3] Id.
[4] See Agreement, lines 258-276.
[5] See Philippi v. Vigueric, 606 So. 2d 577 (La. App. 5th Cir. 1992).
[6] See Camey v. Boles, 25, 905 (La. App. 2d Cir. 9/21/94) 643 So. 2d 339 writ denied. 94-2592 (La. 12/16/94) 648 So. 2d 391.
[7] See Agreement, lines 264 and 274.
[8] See Agreement, lines 266 and 276.
[9] See Whitbeck v. Champagne, 2014-245 (La. App. 3 Cir. 10/1/14), 149 So. 3d 372, 386.
[10] See generally Dipaola v. Municipal Police Employees’ Retirement System, 2014-0037 (La. App. 1 Cir. 09/25/14); 155 So.3d 49, 52, writ denied, 2014-2575 (La. 02/27/15); 159 So.3d 1071.
[11] See Agreement, lines 264-265 and 274-275.
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