Will a Louisiana court enforce this stipulated (liquidated) damages clause, and can the court re-price it after the fact?
Yes, and Louisiana's civil-law approach starts from the opposite presumption of the common-law penalty doctrine: a stipulated-damages clause is enforced AS WRITTEN unless it is manifestly unreasonable, and the obligee does not even have to prove actual damage. Louisiana Civil Code art. 2005: "Parties may stipulate the damages to be recovered in case of nonperformance, defective performance, or delay in performance of an obligation," and the same article adds that the stipulation "gives rise to a secondary obligation for the purpose of enforcing the principal one." Article 2009 then removes the obligee's usual burden of proof: "An obligee who avails himself of a stipulated damages clause need not prove the actual damage caused by the obligor's nonperformance, defective performance, or delay in performance." The Civil Code's own limit on judicial second-guessing is narrow and is itself an article: art. 2012, "Stipulated damages may not be modified by the court unless they are so manifestly unreasonable as to be contrary to public policy." The Louisiana Supreme Court applies the article as a real limit on judicial power, not an invitation to revisit the bargain: in Lombardo v. Deshotel the Court held "Stipulated damages may not be modified by the court unless they are so manifestly unreasonable as to be contrary to public policy, C.C. Art. 2012," and enforced a stipulated-damages clause against a seller who had elected specific performance first and damages only after that remedy became impracticable. The Court’s own conclusion was that the seller "was bound by the stipulation of damages clause that she agreed to in advance with the purchaser" and "was not excused from her reciprocal duty under this obligation simply because she sought to enforce her right to performance of the obligation before resorting to her right to damages"; the judgment of the court of appeal, which had cut the award to the stipulated $1,000, was affirmed.
The trap
Article 2012's "manifestly unreasonable" standard is deliberately a high bar, and Lombardo confirms the Supreme Court will not let a party out of a stipulation merely because the actual loss, measured later, turned out different from the stipulated figure. There the seller had stipulated a $1,000 deposit forfeiture, sold the property to a third person “for a sum substantially below the purchase agreement's sale price”, and asked the court to fix her damages instead; the Court held her to her own stipulation unless it was shown to be manifestly unreasonable. The article protects the parties' pre-estimate in both directions, not a post-hoc damages calculation. Two other Code articles change the analysis in ways a common-law-trained reviewer will miss. First, art. 2010: "An obligee may not avail himself of a clause stipulating damages for delay unless the obligor has been put in default": a delay-damages clause is dead on arrival without a formal default (mise en demeure), a Louisiana-specific procedural prerequisite that has no counterpart in most states' liquidated-damages doctrine. Second, art. 2006: "Nullity of the principal obligation renders the stipulated damages clause null. Nullity of the stipulated damages clause does not render the principal obligation null": the dependency runs only one way, so a defective stipulated-damages clause does not let the obligor escape the underlying deal. Do not assume art. 2012's public-policy standard is the only escape hatch, either: art. 2007 caps the obligee's election ("he may not demand both unless the damages have been stipulated for mere delay"), and a stipulated-damages clause attached to a nullified principal obligation falls with it under art. 2006's first sentence.
10 authorities
- statuteLa. Civ. Code art. 2005enactment date not established
The words that state the rule
Parties may stipulate the damages to be recovered in case of nonperformance, defective performance, or delay in performance of an obligation. That stipulation gives rise to a secondary obligation for the purpose of enforcing the principal one.
- statuteLa. Civ. Code art. 2009enactment date not established
The words that state the rule
An obligee who avails himself of a stipulated damages clause need not prove the actual damage caused by the obligor's nonperformance, defective performance, or delay in performance.
- statuteLa. Civ. Code art. 2012enactment date not established
The words that state the rule
Stipulated damages may not be modified by the court unless they are so manifestly unreasonable as to be contrary to public policy.
- statuteLa. Civ. Code art. 2010enactment date not established
The words that state the rule
An obligee may not avail himself of a clause stipulating damages for delay unless the obligor has been put in default.
The words that state the rule
Stipulated damages may not be modified by the court unless they are so manifestly unreasonable as to be contrary to public policy, C.C. Art. 2012
- statuteLa. Civ. Code art. 2006enactment date not established
The words that state the rule
Nullity of the principal obligation renders the stipulated damages clause null. Nullity of the stipulated damages clause does not render the principal obligation null.
- statuteLa. Civ. Code art. 2007enactment date not established
The words that state the rule
An obligee may demand either the stipulated damages or performance of the principal obligation, but he may not demand both unless the damages have been stipulated for mere delay.
The words that state the rule
In an October 1, 1985 real estate purchase agreement, the parties stipulated that, if the purchaser failed or delayed in performance, the seller would have the right to demand specific performance or to declare a $1,000 deposit by the purchaser forfeited. When the purchaser failed to perform, the seller sued for specific performance but subsequently sold the property to a third person for a sum substantially below the purchase agreement's sale price and amended the suit to pray that damages be fixed by the court rather than according to the stipulated damages clause.
The words that state the rule
The court of appeal was correct in concluding that the seller was bound by the stipulated damages clause agreed upon by the parties to the real estate purchase agreement. The trial court erred in awarding court-determined damages. (1) The seller was bound by the stipulated damages clause. Under Civil Code Article 1986, the seller could enforce her right to damages when her right to specific performance became impracticable, but this article must be read in pari materia with Article 2012 which provides that stipulated damages cannot be modified by the court unless they are so unreasonable as to be contrary to public policy.
The words that state the rule
Consequently, we conclude that the seller, Lombardo, was bound by the stipulation of damages clause that she agreed to in advance with the purchaser, Deshotel. She was not excused from her reciprocal duty under this obligation simply because she sought to enforce her right to performance of the obligation before resorting to her right to damages. For the reasons assigned, the judgment of the court of appeal is affirmed. AFFIRMED.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.