Contracts II

Repudiation


Anticipatory repudiation occurs if a promisor, prior to the time set for performance, indicates that he will not substantially perform when the time comes.

While repudiation does not have to be in words, it must be sufficiently positive to be reasonably interpreted to mean that the party will not perform.

Common Law
Restatement Second of Contracts § 250

When a Statement or an Act Is a Repudiation

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A repudiation is

  1. a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach under [R2C § 243], or
  2. a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach.
Restatement Second of Contracts § 253

Effect of a Repudiation as a Breach and on Other Party's Duties

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  1. Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.
  2. Where performances are to be exchanged under an exchange of promises, one party's repudiation of a duty to render performance discharges the other party's remaining duties to render performance.
Assurance
Restatement Second of Contracts § 251

When a Failure to Give Assurance May Be Treated as a Repudiation

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  1. Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach under [R2C § 243], the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance.
  2. The obligee may treat as a repudiation the obligor's failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case.
Comments:

. . .

  1. Nature and time of assurance. Whether an assurance of due performance is "adequate" depends on what it is reasonable to require in a particular case taking account of the circumstances of that case. The relationship between the parties, any prior dealings that they have had, the reputation of the party whose performance has been called into question, the nature of the grounds for insecurity, and the time within which the assurance must be furnished are all relevant factors.
UCC § 2-609

Delegation of Performance; Assignment of Rights.

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  1. A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
  2. Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.
  3. Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.
  4. After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.
Restatement Second of Contracts § 243

Effect of a Breach by Non-Performance As Giving Rise to a Claim for Damages for Total Breach

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  1. With respect to performances to be exchanged under an exchange of promises, a breach by non-performance gives rise to a claim for damages for total breach only if it discharges the injured party's remaining duties to render such performance, other than a duty to render an agreed equivalent under [R2C § 240].
  2. Except as stated in Subsection (3), a breach by non-performance accompanied or followed by a repudiation gives rise to a claim for damages for total breach.
  3. Where at the time of the breach the only remaining duties of performance are those of the party in breach and are for the payment of money in installments not related to one another, his breach by non-performance as to less than the whole, whether or not accompanied or followed by a repudiation, does not give rise to a claim for damages for total breach.
  4. In any case other than those stated in the preceding subsections, a breach by non-performance gives rise to a claim for total breach only if it so substantially impairs the value of the contract to the injured party at the time of the breach that it is just in the circumstances to allow him to recover damages based on all his remaining rights to performance.

A borrower's failure to make unrelated installment payments does not constitute a total breach when that is the only performance remaining in the contract.

Acceleration Clause

An acceleration clause in a lending agreement says that if the borrower defaults under any obligation, including failing to make a payment on time, the lender has the right to accelerate the entire loaned amount to be due, also called "calling the loan."

Restatement Second of Contracts § 254

Effect of Subsequent Events on Duty to Pay Damages

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  1. A party's duty to pay damages for total breach by repudiation is discharged if it appears after the breach that there would have been a total failure by the injured party to perform his return promise.
  2. A party's duty to pay damages for total breach by repudiation is discharged if it appears after the breach that the duty that he repudiated would have been discharged by impracticability or frustration before any breach by non-performance.
Restatement Second of Contracts § 255

Effect of a Repudiation as Excusing the Non-Occurrence Of a Condition

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Where a party's repudiation contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused.

Restatement Second of Contracts § 256

Nullification of Repudiation or Basis for Repudiation

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  1. The effect of a statement as constituting a repudiation under [R2C § 250] or the basis for a repudiation under [R2C § 251] is nullified by a retraction of the statement if notification of the retraction comes to the attention of the injured party before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final.
  2. The effect of events other than a statement as constituting a repudiation under [R2C § 250] or the basis for a repudiation under [R2C § 251] is nullified if, to the knowledge of the injured party, those events have ceased to exist before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final.
Restatement Second of Contracts § 257

Effect of Urging Performance in Spite of Repudiation

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The injured party does not change the effect of a repudiation by urging the repudiator to perform in spite of his repudiation or to retract his repudiation.

Sales of Goods under the UCC
UCC § 2-610

Anticipatory Repudiation.

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When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may

  1. for a commercially reasonable time await performance by the repudiating party; or
  2. resort to any remedy for breach ([UCC § 2-703] or [UCC § 2-711]), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and
  3. in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods ([UCC § 2-704]).
UCC § 2-611

Retraction of Anticipatory Repudiation.

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  1. Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.
  2. Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article ([UCC § 2-609]).
  3. Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.
Assurance
Restatement Second of Contracts § 251

When a Failure to Give Assurance May Be Treated as a Repudiation

View on Lexis Advance

  1. Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach under [R2C § 243], the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance.
  2. The obligee may treat as a repudiation the obligor's failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case.
Comments:

. . .

  1. Nature and time of assurance. Whether an assurance of due performance is "adequate" depends on what it is reasonable to require in a particular case taking account of the circumstances of that case. The relationship between the parties, any prior dealings that they have had, the reputation of the party whose performance has been called into question, the nature of the grounds for insecurity, and the time within which the assurance must be furnished are all relevant factors.
UCC § 2-609

Delegation of Performance; Assignment of Rights.

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  1. A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
  2. Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.
  3. Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.
  4. After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.