Opinion ID: 714635
Heading Depth: 2
Heading Rank: 1

Heading: Material Breach Constituting Repudiation

Text: 20 A breach of contract can constitute a repudiation of a contract if, in and of itself or in conjunction with other statements or actions, it is sufficiently substantial to signal a party's intent not to perform its remaining contractual obligations or to render such future performance impossible. Roye argues that Arkla committed such a breach, as established by its confession of judgment on Roye's breach of contract claim, and its expressed intention of never performing its contractual obligations. We disagree and affirm the district court's ruling that any breach that Arkla committed did not impair the value of the entire contract. 21 The take-or-pay contract at issue in the instant case is an installment contract. See Okla. Stat. tit. 12A 2-612(1) (An installment contract' is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause each delivery is a separate contract' or its equivalent.); Arkla Energy Resources v. Roye Realty & Developing, Inc., 9 F.3d 855, 860-61 (10th Cir.1993) (holding in an unrelated action between these same parties that gas contract calling for delivery in separate lots was an installment contract under Oklahoma law). A party's failure to fulfil some obligation under an installment contract does not constitute a repudiation unless it impairs the value of the entire contract. As Oklahoma's Uniform Commercial Code (UCC) provides, only where the default on one or multiple installments substantially impairs the value of the whole contract is there a breach of the whole. Okla. Stat. tit. 12A 2-612(3); see also id. (comment 6) (Subsection (3) is designed to further the continuance of the contract in the absence of an overt cancellation.). In the instant case, Roye has identified no such substantial breach by Arkla that impaired the value of the whole multiyear take-or-pay contract. 22 Roye argues that the collateral estoppel effect of Arkla's confession of judgment on Roye's breach of contract claim establishes that Arkla repudiated the contract. 14 However, even giving the Rule 68 settlement preclusive effect 15 would not establish that Arkla repudiated the contract. Through its settlement of Roye's breach of contract claim, Arkla admitted only that it breached its promise to take or pay for certain quantities of gas on the Epley well and was, therefore, liable for $200,000 in damages. 16 Thus, Arkla's breach only went to one of the two wells under contract, and related only to the single year that Roye was a party to the contract. As the district court found, [a] breach, if any, was relatively insubstantial and never went to the essence of the contract nor discharged Roye Realty from its obligations. Such a single and limited breach of contract, without more, neither impairs the value of the entire contract nor signals Arkla's intent not to perform in the future. See Kirkwood Agri-Trade v. Frosty Land Foods Int'l, Inc., 650 F.2d 602, 604 (5th Cir. Unit B July 1981) (explaining that default on single installment is not necessarily equivalent to a breach of the whole contract). 23 The Oklahoma Supreme Court's decision in Roye Realty & Developing, Inc. v. Arkla, Inc., 863 P.2d 1150 (Okla.1993), which Roye cites, is not to the contrary. In that case, the Oklahoma Supreme Court stated that 24 [b]ecause there is a second alternative available for Arkla to perform, failure to take and pay for gas merely constitutes a decision not to perform the first alternative obligation and is not a repudiation of the contract. Repudiation of the contract does not occur until Arkla also refuses to make the required deficiency payments. 25 Id. at 1157 (emphasis in original). The quoted language can be read to provide that the mere breach of a take-or-pay contract--that is, failing to take and pay and then also refusing to make a deficiency payment--constitutes a repudiation. However, such a reading takes the quoted language out of context. The court in that case explicitly did not address what constitutes a repudiation, or whether Arkla repudiated the contract, but merely answered the certified question of what the appropriate measure of damages would be in the event of an anticipatory repudiation. Id. at 1153. In the quoted passage, the court explained that the pay prong of the take-or-pay contract should not be viewed as a liquidated damages provision, but as an alternative means of performance. Given that context, we read the court as providing that if Arkla repudiated the contract by nonperformance, the repudiation could only have occurred after it failed to make deficiency payments and not by its failure to purchase gas alone, because the latter failure would not even constitute a breach. Moreover, as the district court emphasized, the quoted passage states that Arkla must have refused to make the required deficiency payments. Roye argues that refuse is synonymous with fail and could even encompass a single unintentional breach. However, such a reading would alter the well established concept of repudiation as involving a knowing and overt rejection of contractual obligations. Accordingly, we do not read the Oklahoma Supreme Court's decision as establishing that the mere breach of a single installment of a take-or-pay contract by itself necessarily constitutes a repudiation. 26 Roye maintains, nevertheless, that Arkla manifested its intent not to perform through other statements it made beyond the mere breach established by the Rule 68 judgment, and that Arkla's overall conduct still amounted to a repudiation of the contract. For example, Roye emphasizes that Arkla officials testified that Arkla did not intend to make any deficiency payments to Roye, as Roye alleges were required by the contract, and never even calculated whether or to what extent Arkla owed any deficiencies. However, Arkla explains that it did not make any such payments on the Epley well because it believed that it had satisfied its minimum obligations given the number of days the wells were prepared to deliver, not because it intended to reject its contractual obligations. 17 Arkla further explains that it continued to nominate gas for delivery from both wells after the end of the contract year on the Epley well, thereby demonstrating an intent to continue performance despite its $200,000 breach. Accordingly, notwithstanding Roye's allegations, the record before us contains no objective evidence indicating that Arkla did not intend to perform its future contractual obligations even if it did wrongfully refuse to make a deficiency payment in a particular year on the Epley well. 18 27 As such, Roye has failed to show that Arkla's admitted breach, either by itself or coupled with other statements or actions, evinced the kind of overt communication of an intent not to perform its future contractual obligations that is required to establish repudiation. 19 As such, Roye must rely on its claim that Arkla wrongfully terminated the agreement to establish repudiation. We now turn to that claim.