Circle, LLC v. M&L Engine, L.L.C., 2022-0381, 2022 WL 17750914, (La. App. 4 Cir. 12/19/22).

A Contract Deadline Without a Penalty Provision Has No “Teeth.”
Authors: Christopher K. LeMieux and Trey Talley

The Fourth Circuit recently ruled that if there is no penalty provision for the late delivery of a supplier’s materials to the jobsite, the late delivery only amounts to a default (not a breach) of the contract, which does not allow a contractor to withhold payment for damages caused by the delay.

Circle, LLC v. M&L Engine, L.L.C. arises out of a construction project in Lafourche Parish,
Louisiana. Circle contracted with Lafourche Parish to perform certain drainage work, including
the installation of pumps, and M&L Engine was to provide pump equipment to Circle for the project. A dispute ultimately arose when the manufacturer of the pump equipment, Lo-Lift, experienced a delay in the shipment of the pumps. Circle withheld money from M&L, M&L suspended its work on the project, and Circle filed suit. After the district court granted M&L’s Motion for Summary Judgment related to the open account, Circle appealed.

The Fourth Circuit Court of Appeal first looked at whether M&L’s late delivery of the pumps constituted a breach of the contract, which thereby allowed Circle to withhold the remainder of the balance without itself breaching the contract, or if the late delivery merely entitled Circle to delay damages. The Court found that M&L’s late delivery of the pumps was not a breach of the contract and was merely a default because M&L ultimately, though untimely, fulfilled its obligation under the contract to deliver the pumps. Under the terms of the contract, Circle was obligated to pay the balance of the account at the time of the final delivery, and it could separately seek any monetary damages that it sustained by M&L’s late delivery. Thus, M&L’s late delivery of the pumps was not a breach of the contract that relieved Circle from paying the balance of the account, and Circle’s withholding of payment from M&L therefore amounted to a breach of the contract.

In reaching this conclusion, the Court relied on Comment (b) to La. C.C.P. art. 1989, which draws a distinction between nonperformance of an obligation and delayed performance. The Court looked at the terms of the contract and determined that under the contract, although nonperformance was a breach of the contract, delayed performance was not a breach and was merely a default because the materials were ultimately delivered.

A key takeaway from this case for contractors is to always include a late delivery provision in purchase orders with suppliers. This provision will provide the subcontractor with a predetermined remedy in the event that the suppler fails to deliver the materials on time. Additionally, this case should be a warning to all contractors (and owners) that a delay may be a default but not a breach; and if the contract is silent as to the penalty for such delay, the Contractor or Owner cannot withhold payment, even after the default.