Repudiation is the rejection of an idea. In the form of a contract, it would be the rejection to perform. As such, Anticipatory repudiation is when the circumstances illustrate that a breach is going to occur, but has not yet done so. In these instances what right does anticipatory repudiation give the parties? Can they preemptively terminate the contract, even though the total breach has not yet occurred?
Truman L. Flatt & Sons Co. v. Schupf
649 N.E.2d 990 (Ill. App. Ct. 1995).
Truman is the plaintiff seeking specific performance. Summary judgment was granted in favor of the defendants and Truman appealed.
Question
Did the plaintiff repudiate the contract (so the defendant does not have to perform)? If so, did the plaintiff timely retract that repudiation?
Rule
If a party anticipates the lack of performance before the deadline, they must say so clearly. Otherwise, the contract will not be deemed to be repudiated. A request to alter a term does not repudiate the contract.
However, if a party anticipatory repudiates the contract, they can retract the repudiation as long as the second party has not altered their position and notified the first party of the second party’s intent to rescind the contract.
Holding
The contract was not repudiated. Alternatively, the repudiation was retracted before the contract was rescinded. Thus, the trial court’s grant of summary judgement is reversed, and the case is remanded for trial.
Facts
Truman entered into an agreement with Schupf for the purchase of land. The sale price was to be $160,000 and was conditioned on Truman obtaining a permit for rezoning so the property can be used as an asphalt factory. If the rezoning was not granted, Truman had the right to make the contract voidable.
At a meeting for the rezoning, Truman determined that the permit would not be granted, evaluated the cost of the property without the permit, and requested to reduce the sale of the land to $142,5000. However, the price change was denied by Schupf. As such, Truman determined to purchase the land for the full $160,000. Truman’s attorney followed up several times before the closing date with no response. A response came after the closing date wherein Schupf stated that he believed Truman had repudiated the contract allowing Schupf to rescind the contract.
Thus, Truman sued for specific performance. At the time of the suit, Schupf had not made any attempts to sell the land to another party.
The trial court granted summary judgment saying that the contract had been repudiated. Thus, Schupf had the right to rescind the contract.
Analysis
Most of the analysis is utilized to flush out the details of the rules, which are outlined above. Applying the rules, two arguments were presented by Truman. First, that they had not repudiated the contract. Second, even if they did, they timely retracted the repudiation.
First, Truman did not repudiate the contract. A anticipatory repudiation due to the potential failure to perform needs to be stated clearly and unambiguously. In the letter requesting the price change, due to the inability to obtain a zoning law, there was no language stating that Truman wished to repudiate the contract. Instead, this was a negotiation for a price change. Negotiations are not sufficient to repudiate a contract.
Second, even if Truman did repudiate the contract, they successfully retracted the repudiation. A repudiation can be retracted as long as one of two things had not happened. First, if the other party has materially changed their position, the repudiation cannot be retracted. Here, the seller had not materially changed their position before the retraction occurred (having entered no discussions to sell the property to another party). Second, if the other party has not materially altered their position, they must notify the first party of an intention to rescind the contract (and must do so before the retraction occurs). Here, the notification of rescinding the contract occurred after Truman expressed a desire to continue under the current terms of the contract.
As such, there was no anticipatory repudiation, and if there was, the repudiation was timely retracted.
Additional Notes
The language here was not clear that a repudiation occurred. Consequently, the acts show that a repudiation did not occur. Even if repudiation did occur, the buyers successfully retracted because the position of the sellers did not change and did not give notice to the repudiating party that the back out was final.
Hornell Brewing Co. v. Spry
664 N.Y.S.2d 698 (1997).
Hornell is the plaintiff, seeking a declaratory judgment against Spry and Arizona Tea. The judgment would prevent Spry from having any rights to distribute Hornell’s products in Canada.
Question
Did Hornell feel insecurity and have the right to demand assurances? If so, does the lack of fulfillment of those demands necessitate the order?
Rule
A party may anticipate repudiation if they:
- Feel insecurity as to the fulfillment of the contract. This is measured by:
- The buyers words and actions
- Course of dealings or course of performance between the parties,
- Nature of the sales contract and the industry
- Demand assurances which are not met.
Both elements are measured by a commercial standard and fair dealing.
Holding
There were two instances of insecurity which allowed Hornell to demand assurances. Having not been met, the judgment is justified.
Facts
Hornell is a manufacturer of alcoholic and nonalcoholic beverages. Spry was a well known, albeit untruthful (but not to Hornell’s knowledge), business man who had run a successful beer company earlier. Trusting on this reputation, Hornell and Spry entered into negotiations for Spry to become a distributor of Arizona tea in Canada. As such, Spry set up a company in Canada and made purchases of Hornell’s tea to distribute there. However, Spry failed to make several payments, putting him over $75,000 in debt to Hornell.
Wishing to retain a relationship between the parties, Hornell and Spry worked with another party to pay for Spry’s debts with the assurance that Spry would make smaller orders and pay them within 14 days. However, when the debt was paid, Spry made a much larger order. As such, instead of making the delivery, Hornell demanded to see a previously mentioned line of credit that Spry had obtained. When no credit was revealed, Hornell sent notice to terminate the agreement.
Analysis
Here, there are two instances of insecurity necessitating a demand for assurance. The first instance of insecurity was when Spry failed to make several payments and to make any payments on time. A proper request for assurance included Metro’s (the third party) ability to pay the debt.
Although the demand was met, further insecurity arose. By failing to follow the conditions of making an order smaller than $300,000, Spry had pushed his limits again. Consequently, Holland was left with the need to request further assurance that Spry had the means to make payments. When no document was produced, Holland was within their right to repudiate the contract.
Both instances were completed within reasonable commercial standards based on their actions and the course of performance between the parties. Additionally, Spry’s previous track record as an unreliable business partner had significant influence on the court.
Instead of backing out of the deal, Hornell asked for reasonable assurances that Spry would be able to pay.
Additional Notes
253 Effect of a Repudiation as a Breach
If a party repudiates before a breach, repudiation alone gives rise to a claim for total breach. This is important because it allows the non breaching party to take steps to recover.
250 When a Statement or an Act is a Repudiation
How does anticipatory repudiation occur?
- B says that it won’t perform, in a way that would be a total breach.
- B takes a voluntary affirmative action which makes it unable or apparently unable to perform, in a way that would be a total breach.
So, if B is anticipating repudiation, does A need to wait to terminate the contract?
256 Nullification of Repudiation or Basis for Repudiation
A repudiating party can retract the repudiation if the injured party does not materially change their position (based on the repudiation) or gives the repudiating party notice that the repudiation is final.
251 When Failure to Give Assurance May be Treated as a Repudiation
When there are reasonable grounds to believe that the other party will not perform, the injured party may request adequate assurances that they will perform.
In other words, “I see that you may not be able to perform, tell me if you will be able to perform. Otherwise, if you do not assure me within a reasonable time, you will have repudiated the contract and I will receive damages for breach.”
UCC 2-610 Anticipatory Repudiation
If repudiation occurs, the injured party has three options
- For a commercially reasonable time await performance by the repudiating party
- Resort to any remedy for breach
- In either case suspend his own performance.
2-611 Retraction of Anticipatory Repudiation
Mirrors the restatement. Repudiation can be retracted unless the injured party materially changes or send notice of finality.
2-609 Right to Adequate Assurance of Performance
- Again mirror the restatements as long as the assurance is commercially reasonable.
- Between merchants, must follow commercial standards
- The reasonable time to receive a justified demand for assurances is within 30 days.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
