26.7 Disputes and Claims
Library | Virginia Construction Law Deskbook (Virginia CLE) (2019 Ed.) |
26.7 DISPUTES AND CLAIMS
The following discussion is intended to examine some of the more prevalent concerns for subcontractors and suppliers dealing with contract disputes and claims issues under Virginia law. Other chapters of this book address a number of the legal principles related to these matters and should also be reviewed.
26.701 Failure in Performance.
A. Anticipatory Breach or Repudiation. The common law in Virginia 483 and the Uniform Commercial Code as adopted in Virginia 484 recognize the doctrine of anticipatory breach or breach by anticipatory repudiation of contract. According to this doctrine, if one party to a contract declares in advance that it will not perform at the time set for its performance, the other party may bring an immediate action for total breach of the contract. 485
The Virginia Supreme Court has written that upon an anticipatory repudiation by one party to a bilateral contract of mutually dependent promises, the non-repudiating party may "(1) rescind the contract altogether, (2) elect to treat the repudiation as a breach, either by bringing suit promptly, or by making some change of position, or (3) await the time for performance of the contract and bring suit after that time has arrived." 486 The
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statute of limitations does not begin to run until the time for performance has passed. 487
To commit an anticipatory breach, the breaching party must appear to have unequivocally refused to perform. 488 There must be "a positive, unconditional, and unequivocal declaration of fixed purpose not to perform the contract in any event or at any time." 489 Further, the repudiation must go to the very essence of the contract—it cannot consist of a partial breach, nor can it be based on mere delay unless the contract makes time of the very essence. 490
In City of Fairfax v. Washington Metropolitan Area Transit Authority, 491 the Fourth Circuit Court of Appeals wrote:
The rule is that in order to give rise to an anticipatory breach which will support an action for breach of the contract, the breach must be "so material and substantial in nature that it affects the very essence of the contract and serves to defeat the object of the parties;" it must be a "refusal to perform . . . the whole contract or a covenant going to the whole consideration;" and it must be "of such substantial character as to defeat the object of the parties in making the contract." 492
The repudiation must be unconditional and total, but it need not be express or dependent on spoken words alone; the repudiation may arise from a party's conduct evidencing a clear intention to refuse performance in the future, such as placing himself in a position in which performance would be impossible. 493 Whether the repudiation of a contract is sufficiently positive
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or unequivocal to give rise to a cause of action for anticipatory breach is a factual question for the jury. 494
In City of Fairfax, the contract at issue arose in connection with the construction of the Metrorail System, particularly one segment of transit line serving the City of Fairfax. The local jurisdictions, including the City of Fairfax, were signatories to an initial Capital Construction Agreement that provided for the local jurisdictions to make Capital contributions for construction of the Metrorail System. When funding shortages arose, the local jurisdictions, except for the City of Fairfax, entered into an Interim Capital Contributions Agreement that would permit continued construction. The City of Fairfax refused to enter into the interim agreement, contending that the agreement was a repudiation of the initial Capital Contributions Agreement because a draft of the interim agreement did not confirm the construction for the future line to serve the City of Fairfax. The appellate court rejected the City's contention, finding no express repudiation of the initial Capital Contributions Agreement. 495
The Uniform Commercial Code as adopted in Virginia also provides for anticipatory repudiation 496 as well as for retraction of anticipatory repudiation in contracts for the sale of goods. 497 When one party has reasonable grounds to doubt the due performance of the other party to the contract, the first party may demand of the other party adequate assurance in writing of due performance. 498 Until that assurance is received, the party seeking assurance may, if commercially reasonable, suspend any performance for which it has not received the agreed return. 499 Failure to provide adequate assurance within a reasonable time is a repudiation of the contract. 500 Section 8.2-609(4) of the Virginia Code defines a reasonable time to receive adequate assurance as "not exceeding thirty days."
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The Virginia UCC provides:
§ 8.2-610. Anticipatory repudiation.
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 (§ 8.2-703 or § 8.2-711), 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 title on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (§ 8.2-704). |
As noted before, the Virginia UCC also provides for retraction of anticipatory repudiation:
§ 8.2-611. Retraction of anticipatory repudiation.
(1) | Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. | ||
(2) | Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this title (§ 8.2-609). | ||
(3) | Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to |
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the aggrieved party for any delay occasioned by the repudiation. |
B. Materiality of Breach. When considering a failure in performance, it is important to distinguish a material breach of contract from an immaterial or partial breach. Not all failures in performance are material breaches, and the rights and remedies flowing from a material breach are different from those that arise from an immaterial or partial breach. 501
In Horton v. Horton, 502 the Virginia Supreme Court described a material breach as "a failure to do something that is so fundamental to the contract that the failure to perform that obligation defeats an essential purpose of the contract." 503 The federal district court in United States ex rel. Virginia Beach Mech. Servs., Inc. v. Samco Constr. Co. 504 Supp. 2d 661 (E.D. Va. 1999). described how the courts distinguish a material from a minor or partial breach:
In making this determination, courts assess the totality of the circumstances, including: 1) the extent to which a party's breach deprived the injured party of the benefit it reasonably expected; 2) the extent of the contract that the breaching party did perform; 3) the likelihood that the breaching party will cure its failure to perform, including any reasonable assurances of performance it did or did not give; and 4) the extent to which the behavior of the party failing to perform comported with standards of good faith and fair dealing. 505
Generally, a party who commits the first breach of a contract is not entitled to enforce the contract. 506 An exception to this rule of enforcement arises when the breach did not go to the root of the contract but only to a
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minor part of the consideration. 507 If the breach is material, however, the non-breaching party is excused from performing its contractual obligations. 508
A material breach of contract not only discharges the nonbreaching party's duty to perform, it also entitles the non-breaching party to seek redress from the party committing the breach. 509 The usual remedy for a material breach is to place the aggrieved party in the position that it would have been in had the promise been performed. 510 Some examples of breaches that courts in Virginia have ruled to be material are:
• | Contractor's failure to make progress payments to subcontractor when due was a material breach, as was Contractor's violation of Virginia's Prompt Payment Act, § 2.2-4347, et. seq. 511 | ||
• | Subcontractor's failure to provide or install, or both, mechanical fans, heat pump, plumbing fixtures, roof curb, louvers and ducts amounting in value to $5,860 versus $10,000 subcontract price was material breach. 512 |
In contrast, an immaterial or partial breach may allow an aggrieved party to recover damages or a setoff against the breaching party, but it does not excuse the aggrieved party from performing its contractual obligations. 513
In United States ex rel. Virginia Beach Mech. Servs., Inc., 514 the federal appellate court wrote that a failure to perform by the time stated in a
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contract ordinarily does not amount to a material breach. 515 If, however, the nature of the contract makes timely performance essential, or if the contract expressly provides that time is of the essence, a failure to timely perform may rise to the level of a material breach. 516 The federal appellate court further wrote:
[C]ourts will deem a delay in contract performance a material breach when 1) the party caused a substantial delay in performance; 2) a contract term expressly forbids such delays; and 3) the aggrieved party incurred actual damages or other compensable injuries...
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