Performance & Breach · Mar 1
Floor. ~40 min: R2d § 250 + McCloskey. The doctrine the next class assumes you have covered.
Target. ~75 min: Floor + UCC § 2-609 + Hornell + retraction + synthesis.
A repudiation is
(a) 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 § 243, or
(b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach.
(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 § 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.
(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.
(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.
A repudiation can take either of two forms (R2d § 250):
2 El. & Bl. 678, 118 Eng. Rep. 922 (Q.B. 1853)
Court of Queen's Bench
Rule. A renunciation of a contract before the time fixed for performance is itself a breach. The injured party may sue immediately on the repudiation; she is not required to wait for the performance date and is free to arrange substitute transactions in the interval.
220 F.2d 101 (3d Cir. 1955)
U.S. Court of Appeals for the Third Circuit
Rule. An anticipatory repudiation requires a definite, unequivocal, and absolute refusal to perform. A request for help in securing materials, or an expression of doubt about ability to perform, is not itself a repudiation and does not authorize the other party to treat the contract as breached.
664 N.Y.S.2d 698 (N.Y. Sup. Ct. 1997)
New York Supreme Court
Rule. Under UCC § 2-609, a party who has reasonable grounds for insecurity about the other party's performance may demand adequate assurance of due performance. A single adequate assurance does not permanently exhaust the right to demand further assurance if a new change of circumstances creates fresh grounds for insecurity. What constitutes adequate assurance and whether grounds for insecurity are reasonable are both commercially determined standards.
When a party has reasonable grounds for insecurity — but no outright refusal — it is not stuck choosing between blind trust and a risky cancellation. R2d § 251 / UCC § 2-609 give it a middle path:
1. Reasonable grounds for insecurity. Commercially reasonable, not mere rumor or minor delay. Falling behind on the account, bounced checks, judgments, late deliveries to others all qualify.
2. Demand adequate assurance. In writing (the UCC formality, loosely enforced if the demand is unequivocal). The insecure party may suspend its own performance meanwhile, if commercially reasonable.
3. Adequate, not maximal. The assurance demanded must be proportional — a bank statement may be reasonable; five years of full financials is excessive.
4. Failure to assure (≈30 days) = repudiation. Silence or an inadequate response lets the insecure party treat the contract as repudiated.
A repudiation is not always final. Under R2d § 256 / UCC § 2-611, a repudiating party may retract its repudiation and reinstate the contract — but only until the injured party has either:
Facts. Supplier and Buyer have a 12-month requirements contract; Buyer pays on net-30 terms. In month 4, Supplier hears a rumor that Buyer''s parent company is preparing a Chapter 11 filing. The rumor is in the Wall Street Journal but Buyer''s CFO publicly denies it. Buyer''s payments to Supplier are current. Supplier sends a written demand under UCC § 2-609 for "adequate assurance of performance, including either a letter of credit for the next 90 days of orders or a personal guarantee from the parent company''s CEO." Buyer refuses both, citing its current-payment history.
Question. Did Supplier have reasonable grounds for insecurity? If yes, were Supplier''s demands "adequate assurances" the Buyer must satisfy?
Answer. Two-stage analysis.
(1) Reasonable grounds: yes. A public WSJ-reported bankruptcy concern, even with denial, is the kind of fact that justifies a § 2-609 demand. Comment 3 notes that insecurity can arise even when current performance is satisfactory.
(2) Adequacy: this is where Supplier overreaches. § 2-609 requires adequate assurances, not maximum security. A letter of credit for 90 days or a personal guarantee or shorter payment terms might all be adequate. Demanding the most onerous option exceeds adequacy. Comment 4: the response must be "commercially reasonable" given the parties'' history.
Buyer''s flat refusal coupled with continued performance is risky. The better Buyer response: counter-offer with shorter payment terms or a more limited security. If Supplier rejects the counter and terminates, Supplier may have repudiated by demanding more than § 2-609 allows.
Facts. Employer hires Worker to start a six-month consulting engagement on July 1. On June 1, Employer emails: "We have to cancel. Sorry, budget cuts." Worker receives a competing offer on June 15 for the same period and at the same rate. Worker turns it down, planning to sue Employer for the original contract''s full damages.
Question. Did Employer repudiate? If yes, what are Worker''s options? Did Worker breach the mitigation duty by refusing the competing offer?
Answer. Employer''s June 1 email is a clear, unequivocal repudiation under R2d § 250(a). Worker has three options under Hochster v. De La Tour:
(1) Treat the repudiation as immediate total breach and sue now.
(2) Wait until July 1 (the performance date) and sue then.
(3) Urge Employer to retract and resume performance.
Worker chose option (2) but bears a mitigation duty (R2d § 350) from the moment of repudiation, not from the performance date. Refusing the competing offer at the same rate for the same period is a clear failure to mitigate. Worker''s damages are reduced by the rejected offer''s value, effectively, zero recovery.
The election trap: Worker''s strategy of "wait and sue for the full amount" misunderstands that mitigation begins on repudiation. Smart lawyers tell repudiation victims to accept reasonable substitute work immediately and sue for any shortfall.
Stretch problems from the chapter.
Facts. A lessee signed a two-year office lease (start delayed because the prior tenant, Catalytic, had not vacated). After buying a permanent headquarters elsewhere, the lessee's general counsel wrote: "We have no use for the space... and believe there are serious doubts about the validity of the lease... We are unwilling to agree to any extension of Catalytic's tenancy unless we are released from liability." The lessee then took no possession, ignored a rent invoice, and went silent. The lessor treated this as repudiation and sued.
Question. Did the lessee anticipatorily repudiate?
Answer. Yes. The letter alone might read as a negotiating posture. But combined with the purchase of substitute premises, the failure to prepare to occupy, the ignored invoice, and the silence, the totality of circumstances is a definite and unequivocal manifestation of intent not to perform (R2d § 250).
Rules. R2d § 250 (forms of repudiation), § 251 (failure to assure as repudiation), § 253 (effect of repudiation); UCC § 2-609 (adequate assurances); R2d § 256 / UCC § 2-611 (retraction); R2d § 350 (mitigation).
Cases. Hochster v. De La Tour · McCloskey & Co. v. Minweld Steel · Hornell Brewing Co. v. Spry.
Punchline. Repudiation requires a clear, unequivocal refusal or inability — by words or conduct. Mere trouble is not repudiation (McCloskey); the remedy for trouble is a proportional demand for assurances (§ 2-609), and unanswered insecurity ripens into repudiation (Hornell). On repudiation, the victim may sue now or wait (Hochster) — but must mitigate from the moment of repudiation.
Open question. McCloskey and Hornell ask whether a party signaled inability or refusal. But sometimes a party genuinely cannot perform through no fault of its own — the venue burns, the canal closes, the king falls ill. Next class: excuse by impossibility, impracticability, and frustration.
Next class: Excuse, Impossibility & Impracticability
_Performance & Breach_ · Mar 2
Read Taylor v. Caldwell and Transatlantic Financing v. United States. A music hall burned down before the concert. A ship had to sail around Africa after Suez closed. Both performers said the event made performance impossible (or close to it). When does a supervening event excuse a promise the parties had not allocated to a risk-bearer? Come ready to answer. You may be called.