Opinion ID: 1058030
Heading Depth: 1
Heading Rank: 3

Heading: Repudiation of a Contract

Text: Repudiation may be asserted as a valid defense to a breach of contract claim in Virginia. The United States Court of Appeals for the Fourth Circuit, applying Virginia law, has recognized that in the case of a bilateral contract for an agreed exchange of performances, a repudiation of his duty by one of the parties terminates the duty of the other. It gives to the latter the legal privilege of refusing to render the return performance; if sued for such refusal, the plaintiff's repudiation is a good defense. WRH Mortgage, Inc. v. S.A.S. Assocs., 214 F.3d 528, 532 (4th Cir.2000) (emphasis added) (citation and internal quotation marks omitted). We agree with the holding in WRH Mortgage that repudiation may be used as a defense to a breach of contract claim. The question presented now becomes whether the court erred by allowing Sage to assert repudiation as a defense to Bennett's breach of contract claim based on Bennett's demand for increased compensation or his transition out of the company, after he had already begun performance under the Agreement. While we acknowledge the line of Virginia cases that characterizes repudiation before performance is due under a contract as an anticipatory breach, we hold that repudiation may also apply to a contract that has been partially performed, when future obligations under the contract are repudiated. See Lenders Financial Corp. v. Talton, 249 Va. 182, 189, 455 S.E.2d 232, 236-37 (1995) ([B]ecause defendant's repudiation of this executory contract constitutes an anticipatory breach, plaintiff may sue on the contract without waiting for the time of defendant's performance to arrive); Link v. Weizenbaum, 229 Va. 201, 203, 326 S.E.2d 667, 668-69 (1985) (holding that although the defendant clearly repudiated before performance of the contract commenced, his repudiation could not serve as the basis for a claim of breach of contract because his co-obligor did not join in the repudiation either expressly or by assent). Our holding in this case is supported by our decision in Board of Supervisors of Fairfax County v. Ecology One, Inc., 219 Va. 29, 245 S.E.2d 425 (1978). In Ecology One, we applied an anticipatory breach theory to a factual scenario in which performance under a contract had already begun. There, the contract for the construction of public streets and drainage facilities was formed in May 1973, and performance under that contract was underway as of October 1974 but an inspection revealed that the contractor's work had come to a complete halt in the early months of 1975. Id. at 31, 245 S.E.2d at 427. We held that the contractor had repudiated because it abandoned its contract, and we reversed the circuit court's decision that the County had not made out a prima facie case for anticipatory breach. Id. at 33-34, 245 S.E.2d at 428. In Ecology One, the contractor's obligations required continuous performance over a period of time. Id. at 31, 245 S.E.2d at 426. The evidence justified the jury's conclusion that the contractor had abandoned the contract. Id. at 33, 245 S.E.2d at 428. We stated that the abandonment of a contract will give rise to an action for anticipatory breach. Id. In reaching this decision, we properly recognized that a party's abandonment of his or her contractual duties under a continuous performance contract, after performance has commenced, constitutes an anticipatory repudiation. The same result applies in this case. Our view is also supported by case law from the United States Supreme Court. In Franconia Assocs. v. United States, 536 U.S. 129, 122 S.Ct. 1993, 153 L.Ed.2d 132 (2002), for example, the Supreme Court applied repudiation principles to a factual scenario in which a party repudiated after performance had commenced. There, certain property owners agreed to devote a portion of their properties to low- and middle-income housing in exchange for low interest mortgage loans issued by the government. Id. at 132-33, 122 S.Ct. 1993. The owners' promissory notes allowed prepayment of the loans. Id. at 133, 122 S.Ct. 1993. But a subsequent act of Congress placed permanent restraints on the prepayment of the owners' loans. Id. The owners filed suit against the government arguing that the act effected . . . a repudiation of their contracts. Id. The Supreme Court agreed with the owners and held that the act qualified as a repudiation of the parties' bargain. Id. at 133, 143, 122 S.Ct. 1993. In so holding, the Court stated that the promisor's renunciation of a `contractual duty before the time fixed in the contract for. . . performance' is a repudiation. Id. at 143, 122 S.Ct. 1993 (quoting 4A Corbin on Contracts § 959, at 855 (1951) (emphasis in original)). The Restatement (Second) of Contracts also supports the view that a party may repudiate his or her contractual duties after performance has commenced. Section 250 defines repudiation as: (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. . . or (b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach. Restatement (Second) of Contracts § 250 (1981). Thus, the Restatement's definition does not provide that repudiation must occur prior to the commencement of any performance under the contract. When a contract requires performance continuously for some period of time, a party's renunciation of his or her contractual obligation may constitute a repudiation. Arthur L. Corbin, 9 Corbin on Contracts § 954, at 738 (interim ed.2002) (section entitled Breach by Repudiation of Obligation). In such cases, the repudiation of the contractual obligation is anticipatory with respect to the performances that are not yet due. Id. In sum, we hold that a party's renunciation or abandonment of his or her contractual duties, after performance has commenced under a contract requiring continuous performance, constitutes a repudiation, which may be treated by the party to whom the duty is owed as an anticipatory breach of the contract. Therefore, the issue of Bennett's alleged repudiation was properly before the jury.