1 George Mason School of Law Contracts II Anticipatory Repudiation This file may be downloaded only by registered students in my class, and may not be

*George Mason School of Law

Contracts II

Anticipatory RepudiationThis file may be downloaded only by registered students in my class, and may not be shared by them

F.H. [email protected]

Next week

The Contractual Measure of DamagesScott 93-107, 863-80Rest. 344, 346-48, 352-53*

A Review: When is performance due?

When can the seller sue for the price?

When can the buyer sue for the goods?*

Mutual Conditions

When can the seller sue for the price?UCC 2-507: Tender of delivery is a condition of the buyers duty to pay

When can the buyer sue for the goods?UCC 2-511; Tender of payment is a condition to the sellers duty to tender*

Buyers ProblemBuyer agrees to pay seller $2M for custom-made machinery which can only be used by buyerThis will take a year to make and the cost of production is $100K per month.***There is no time-value of money here

Buyers ProblemBuyer agrees to pay seller $2M for custom-made machinery which can only be used by buyerThis will take a year to make and the cost of production is $100K per month.After a few days, buyer decides he cant use the machine. Advise buyer.*

Buyers ProblemAfter two months, buyer decides he does not want the machine. Advise buyer.If buyer sticks to the contract hell pay $2M for a worthless machine.*

Buyers ProblemAfter two months, buyer decides he does not want the machine. Advise buyer.If buyer sticks to the contract hell pay $2M for a worthless machine.If seller sticks to the contract hell spend $1.2M for the right to sue for $2M*

A Coasian SolutionIf buyer sticks to the contract hell pay $2M for a worthless machine.If seller sticks to the contract hell spend $1.2M to make $2MSo theres a bargaining surplus if they terminate: and what would they be willing spend to do so?*

A Coasian SolutionIf buyer sticks to the contract hell pay $2M for a worthless machine.If seller sticks to the contract hell spend $1.2M to make $2MSeller will require at least ($2M $1.2M =) $800K to terminate*

A Coasian SolutionIf buyer sticks to the contract hell pay $2M for a worthless machine.If seller sticks to the contract hell spend $1.2M to make $2MBuyer will pay up to $2M to terminate*

A Coasian SolutionIf buyer sticks to the contract hell pay $2M for a worthless machine.If seller sticks to the contract hell spend $1.2M to make $2MThe parties will terminate for a price between $800K and $2M*

Unilateral Repudiation?What if we gave the buyer the unilateral right to terminate the contract? *

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?*

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?*

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

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Advance Notice?Suppose that the buyer tells the seller he cant 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?

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Mitigation?Suppose that the buyer tells the seller he cant 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), Illustration 1

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Mitigation?

The principle of mitigation: Restatement 350(1), Illustration 1Note how this gives the buyer in breach the entire bargaining surplus

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Mitigation?

If buyer didnt get the entire bargaining surplus, would he have an incentive to notify the seller promptly?

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Mitigation as an information forcing rule

If buyer didnt get the entire bargaining surplus, would he have an incentive to notify the seller promptly?Cf. eg Warranty of Fitness, Unilateral Mistake

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Summing up

The parties should not be permitted to terminate their contract unilaterallyHowever, a bilateral termination agreement may be efficientIf Buyer repudiates the agreement, the principle of mitigation will prevent the seller from inefficiently running up the tab

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Anticipatory Repudiation

Two problems:Is the repudiation binding, or may the repudiating party change his mind?When can the innocent party sue?

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Is the repudiation binding, or may the repudiating party change his mind?Restatement 253(2): seller may suspend performance on repudiation

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Suppose Buyer promptly informs seller of his intention not to proceed with the contract.May seller sue immediately or must he wait till the expiry of the 12 month period?

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Hochster v. De la Tour 799Lord Campbell

Hochster v. De la Tour

When were s duties to begin?*


When were s duties to begin?When did send his letter?*


When were s duties to begin?When did send his letter?When was the action brought?*


When were s duties to begin?When did send his letter?When was action brought?When did enter into his contract with Lord Ashburton?*


When were s duties to begin?When did send his letter?When was action brought?When did enter into his contract with Lord Ashburton?Had the acted inconsistently with his duties under the contract?*


When were s duties to begin?When did send his letter?When was action brought?When did enter into his contract with Lord Ashburton?Could bring his action prior to the date when his duties with were to begin?*


If a man promises to marry a woman in December and marries another woman in May, when is he liable for breach of promise?*


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. 800*


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?*


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?Impossibility?Estoppel?Fairness?*


If a man promises to marry a woman in December and marries another woman in May, is she free to marry another man in June?*


If a man promises to marry a woman in December and marries another woman in May, is she free to marry another man in June?Lord Campbells rationale?*

The Restatement

Does the party in breach have an incentive to communicate his intention to breach asap?Restatement 350(1)*

The Restatement

Is the innocent party free to take a conflicting position elsewhere immediately on repudiation?Restatement 253(2)*

The Restatement

Can the innocent party sue immediately on repudiation?Restatement 253(1)*

The Restatement

What constitutes a repudiation?Restatement 250Cf total breach at 243*

The UCC

The innocent partys election in UCC 2-610Does substantial impairment conflict with perfect tender?*

The UCC

Retraction of repudiation under UCC 2-611Notice the information-forcing incentive for the innocent party*


Must the innocent party communicate his acceptance of the repudiation in a non-sales case?*

A bit of contract review

Is an offeror bound before his offer is accepted?Can the offeror revoke his offer at any time prior to acceptance?*


The rules of offer and acceptance: Its not just that the parties mutually assent, but they should both know that the other has assented.*


What is the logic behind the requirement of mutual assent?*


What is the logic behind the requirement of mutual assent?Otherwise a possibility of a false startNeed for commercial certainty*


What is the logic behind the requirement of mutual assent?Presumption against options*


The presumption against optionsYou give me an option to buy 100 oz of gold at $900/oz on August 1 next.If the price of gold is less than $900 at that time the option is valueless.If the price of gold is above $900 at that time, the option is in the money and is worth 100*(PriceAugust 1 - $900) *


The presumption against optionsThe option is valuable and one should not presume that it is given away for free *

Now: Anticipatory repudiation

The same issues arise when the contract is overWhere there is some uncertainty about whether its over *


Where there is some uncertainty about whether its overCan the innocent party start over?Can the party in breach start over? *


Where there is some uncertainty about whether its overDo mitigation requirements kick in?*


Where there is some uncertainty about whether its overIs one party getting an option?*


Where there is some uncertainty about whether its overIs one party getting an option?The market price falls: Can a repudiating seller change his mind, since the contract now looks like a better deal?*


Where there is some uncertainty about whether its overIs one party getting an option?The market price falls: Can a repudiating seller change his mind, since the contract now looks like a better deal?Cf. UCC 2-611

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Where there is some uncertainty about whether its overIs one party getting an option?The market price rises: Can an innocent buyer decide later that he doesnt accept the repudiation?UCC 2-610(a)*

Flatt v. Schupt 802 agrees to sell land to at $160K, closing June 30Contingent on buyer obtaining zoning for an asphalt plant*

Flatt v. Schupt

Letter of May 21: we decided to withdraw the request for rezoningIn an effort to keep the thing moving, an offer to purchase at $142.5K

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Flatt v. Schupt

Letter of May 21: we decided to withdraw the request for rezoningIn an effort to keep the thing moving, an offer to purchase at $142.5K

rejects the offer of $142.5K on June 9

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Flatt v. Schupt

Letter of May 21: we decided to withdraw the request for rezoning

rejects the offer of $142.5K on June 9

purports to proceed with the purchase at $160K on June 14

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Flatt v. Schupt


Qu. Did s repudiate the contract on May 21?

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Flatt v. Schupt


Qu. Did s repudiate the contract on May 21?Not a clearly implied threat of nonperformance

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Flatt v. Schupt


Qu. Did s repudiate the contract on May 21?Why might this be the right result?

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Flatt v. Schupt


Qu. Did s repudiate the contract on May 21?How does Restatement 251 help?

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Flatt v. Schupt


Qu. Did s repudiate the contract on May 21?Should the parties have cured the problem?Were they simply thick?*

Flatt v. Schupt


Qu. Did s repudiate the contract on May 21?What is the best information forcing rule?Do we want to chill efficient renegotiations?*

Flatt v. Schupt

What is the best information forcing rule?Are retraction rights inconsistent with information forcing?*

Flatt v. Schupt

If there had been a repudiation, did the s retract it in time?

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Flatt v. Schupt

If the courts require an explicit repudiation, does this give rise to the strategic behavior suggested at 816-17Party in breach seeks to provoke a cover which he can treat as a repudiationParty in breach uses the ambiguity to get an option

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Taylor v Johnson at 809*

Taylor v Johnston at 809

Did Johnston repudiate?And did Taylor accept?*

Was there a clearly implied threat of nonperformance in Decker at 811?

Well get right on it

Could both parties have done something differently?*

What about Bonebrake at 812?

Were the buyers acting reasonably?

Would a different result create a problem of opportunism?*

What about Lak at 812?

What is the good faith issue?*

UCC 2-610

Is this in any way qualified by 2-609?

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Insolvency

Presumptive grounds for repudiation under Restatement 252Right to assurance of performance. Restatement 251.Sellers Remedy in UCC 2-702But see Koppelon at 815*

Executory Contracts in BankruptcyPresumptive grounds for repudiation under restatement 252Right to assurance of performance. UCC 2-609Sellers Remedy in UCC 2-702Bankruptcy Code Sec. 365(a) The trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor. *

*George Mason School of Law

Contracts II

Remedies

F.H. [email protected]

**

Documents

1 George Mason School of Law Contracts II Anticipatory Repudiation This file may be downloaded only by registered students in my class, and may not be