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George Mason School of Law

This review explores anticipatory repudiation in contracts, discussing when the seller can sue for the price and when the buyer can sue for the goods. It also examines the problem faced by buyers who decide they no longer want the purchased item. The concept of mitigation and the possibility of unilateral termination are also considered.

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George Mason School of Law

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  1. George Mason School of Law Contracts II Anticipatory Repudiation F.H. Buckley fbuckley@gmu.edu

  2. A Review: When is performance due? • When can the seller sue for the price? • When can the buyer sue for the goods?

  3. Mutual Conditions • When can the seller sue for the price? • UCC § 2-507: Tender of delivery is a condition of the buyer’s duty to pay • When can the buyer sue for the goods? • UCC § 2-511; Tender of payment is a condition of the seller’s duty to tender

  4. But what if the parties negotiate at a distance? • When can the seller sue for the price? • UCC § 2-507: Tender of delivery is a condition of the buyer’s duty to pay • When can the buyer sue for the goods? • UCC § 2-511; Tender of payment is a condition of the seller’s duty to tender

  5. Buyer’s Problem • Buyer agrees to pay seller $2M for custom-made machinery which can only be used by buyer • This will take a year to make and the cost of production is $100K per month.* *There is no time-value of money here

  6. Buyer’s Problem • Buyer agrees to pay seller $2M for custom-made machinery which can only be used by buyer • This will take a year to make and the cost of production is $100K per month. • After a few days, buyer decides he can’t use the machine. Advise buyer.

  7. Buyer’s Problem • After two months, buyer decides he does not want the machine. Advise buyer. • If buyer sticks to the contract he’ll pay $2M for a worthless machine.

  8. Buyer’s Problem • After two months, buyer decides he does not want the machine. Advise buyer. • If buyer sticks to the contract he’ll pay $2M for a worthless machine. • If seller sticks to the contract he’ll spend $1.2M for the right to sue for $2M

  9. A Coasian Solution • If buyer sticks to the contract he’ll pay $2M for a worthless machine. • If seller sticks to the contract he’ll spend $1.2M to be able to sue for $2M • So there’s a bargaining surplus if they terminate: and what would they be willing to spend to do so?

  10. A Coasian Solution • If buyer sticks to the contract he’ll pay $2M for a worthless machine. • If seller sticks to the contract he’ll spend $1.2M to be able to sue for $2M • Seller will require at least ($2M – $1.2M =) $800K to terminate

  11. A Coasian Solution • If buyer sticks to the contract he’ll pay $2M for a worthless machine. • If seller sticks to the contract he’ll spend $1.2M to make $2M • Buyer will pay up to $2M to terminate

  12. A Coasian Solution • If buyer sticks to the contract he’ll pay $2M for a worthless machine. • If seller sticks to the contract he’ll spend $1.2M to make $2M • The parties will terminate for a price between $800K and $2M

  13. Unilateral Repudiation? • What if we gave the buyer the unilateral right to terminate the contract?

  14. Unilateral Repudiation? • What if we gave the buyer the unilateral right to terminate the contract? • In that case, could the seller ever begin performance without an assurance of payment?

  15. Unilateral Repudiation? • What if we gave the seller the unilateral right to terminate the contract? • In that case, could buyer rely on seller for the machine?

  16. Advance Notice? • Suppose that the buyer tells the seller he can’t use the machine and will not take delivery, but will offer seller $800K in damages.

  17. Advance Notice? • Suppose that the buyer tells the seller he can’t use the machine and will not take delivery, but will offer seller $800K in damages. • What if seller nevertheless produces the machine and on tender demands payment of $2M (which would give him a profit of $800K)?

  18. Mitigation? • Suppose that the buyer tells the seller he can’t use the machine and will not take delivery, but will offer seller $800K in damages. • What if seller nevertheless produces the machine and on tender demands payment of $2M? • The principle of mitigation: Restatement § 350(1)

  19. Mitigation? • Restatement § 350(1) • Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation.

  20. Mitigation as an information forcing rule • Cf. other information-forcing rules, such as Warranty of Fitness, Unilateral Mistake

  21. Summing up • The parties should not be permitted to terminate their contract unilaterally • However, a bilateral termination agreement may be efficient • If Buyer repudiates the agreement, the principle of mitigation will prevent the seller from inefficiently running up the tab thereafter

  22. Anticipatory Repudiation • Five problems: • Can the parties have a fresh start thereafter? • When can the innocent party sue? • What constitutes a repudiation? • May the repudiating party change his mind?

  23. Anticipatory Repudiation • When can the parties have a fresh start?

  24. A Fresh Start • Restatement 253(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.

  25. When can a suit be brought? • May seller sue immediately or must he wait till the expiry of the 12 month period?

  26. When can a suit be brought? • Restatement 253(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.

  27. Hochster v. De la Tour 779 Lord Campbell

  28. Hochster v. De la Tour • When were Πs duties to begin?

  29. Hochster v. De la Tour • When were Πs duties to begin? • June 1, 1852

  30. Hochster v. De la Tour • When were Πs duties to begin? • June 1, 1852 • When did Δ send his letter of repudiation?

  31. Hochster v. De la Tour • When were Πs duties to begin? • June 1 • When did Δ send his letter? • May 11 • When was the action brought?

  32. Hochster v. De la Tour • When were Πs duties to begin? • June 1 • When did Δ send his letter? • When was action brought? • May 22

  33. Hochster v. De la Tour • When were Πs duties to begin? • June 1 • When did Δ send his letter? • May 11 • When was action brought? • May 22 • When did Π enter into his contract with Lord Ashburton?

  34. Hochster v. De la Tour • When were Πs duties to begin? • When did Δ send his letter? • When was action brought? • When did Π enter into his contract with Lord Ashburton? • Before June 1. So had the Π acted inconsistently with his duties under the contract?

  35. Hochster v. De la Tour • A Fresh Start? • Could Π bring his action and enter into a contract with Lord Ashburton prior to June 1?

  36. Hochster v. De la Tour • If a man promises to marry a woman in December and marries another woman in May, when is he liable for breach of promise?

  37. Hochster v. De la Tour • If a man promises to marry a woman in December and marries another woman in May, when is he liable for breach of promise? • Short v. Stone, p. 780

  38. Hochster v. De la Tour • If a man promises to marry a woman in December and marries another woman in May, when is he liable for breach of promise? • An implicit promise not to do anything inconsistent with the principal obligation

  39. Hochster v. De la Tour • If a man promises to marry a woman in December and marries another woman in May, when is he liable for breach of promise? • Why is this “much more rational” so far as the other party is concerned?

  40. Hochster v. De la Tour • If a man promises to marry a woman in December and marries another woman in May, when is he liable for breach of promise? • Why is this “much more rational” so far as the other party is concerned? • The Liberty Interest: the injured party is at liberty to go elsewhere

  41. Hochster v. De la Tour • If a man promises to marry a woman in December and marries another woman in May, when is he liable for breach of promise? • Why is this “much more rational” so far as the other party is concerned? • Efficiency: Instead of remaining idle and laying out money wastefully

  42. Hochster v. De la Tour • If a man promises to marry a woman in December and marries another woman in May, when is he liable for breach of promise? • Why is this “much more rational” so far as the other party is concerned? • Estoppel and unfairness: It seems strange that the party in breach should object that faith is given to his assertion

  43. The Restatement • What constitutes a repudiation?

  44. What constitutes a repudiation? • Restatement § 250 • A statement that the obligor will commit a breach that would give a claim for damages for total breach • A voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach

  45. The Restatement • So when does one have damages for total breach: Restatement § 243 • Only if the breach discharges the injured party’s remaining duties to render such performance

  46. The Restatement • So when does one have damages for total breach: Restatement § 243 • Only if the breach discharges the injured party’s remaining duties to render such performance • Restatement 237: performance discharged if an uncured material breach • Materiality: Restatement 241

  47. Repudiation under the UCCUCC § 2-610 • 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 (a) for a commercially reasonable time await performance by the repudiating party; or • (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and • (c) 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 (Section 2-704).

  48. UCC § 2-610: Innocent Party’s Election • 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 (a) for a commercially reasonable time await performance by the repudiating party; or • (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and • (c) 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 (Section 2-704).

  49. UCC § 2-610: Innocent Party’s Election • 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 (a) for a commercially reasonable time await performance by the repudiating party; or • (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and • (c) 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 (Section 2-704).

  50. UCC § 2-610: Innocent Party’s Election • 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 (a) for a commercially reasonable time await performance by the repudiating party; or • (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and • (c) 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 (Section 2-704).

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