6.5 Nonperformance

• Library: Virginia Law and Practice: A Handbook for Attorneys (Virginia CLE) (2020 Ed.)

6.5 NONPERFORMANCE

6.501 Anticipatory Breach. Where one party to a contract has entirely abandoned it or has absolutely refused to perform, the other party may elect to sue on it without waiting for the time of performance to arrive. ³⁸⁹ The cause of action for abandonment of a contract obligation is one for anticipatory breach. ³⁹⁰ The doctrine of anticipatory breach or repudiation has its roots in English common law. In Hochster v. De La Tour, ³⁹¹ the parties entered into a contract under which the plaintiff was to commence work on June 1. On May 11, the defendant positively stated that he would not perform. On May 22, the plaintiff brought an action for breach even though the defendant had not yet breached. The court permitted the plaintiff's action.

A. What Constitutes Repudiation. Although Virginia case law does not provide a comprehensive framework of the types of repudiation, the Restatement (First) of Contracts³⁹² suggests a framework for categorizing most Virginia cases. It lists three actions that constitute anticipatory repudiation:

(a) a positive statement . . . indicating that the promisor will not or cannot substantially perform . . . (b) transferring

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or contracting to transfer to a third person an interest in specific land, goods or in any other thing essential for the substantial performance of his [or her] contractual duties; (c) any voluntary affirmative act which renders substantial performance impossible. ³⁹³

1. Positive Statement. Under the Restatement (Second) of Contracts, the repudiatory statement must be sufficiently positive to be reasonably interpreted that a party will not or cannot substantially perform. ³⁹⁴ A refusal to pay an executory contract before the time for performance becomes due may constitute an anticipatory breach. ³⁹⁵

2. Transferring Specific Property. In a contract to sell property, if the seller avowedly and unequivocally repudiates the contract by selling the property to another, the buyer is not obliged to wait until the time fixed for performance but may sue to establish his or her rights as soon as the contract is broken. ³⁹⁶

3. Voluntary Affirmative Act. An act may also constitute repudiation. If A agrees to work for B for one year starting on June 1, and on May 25, A sets sail for a year-long voyage, A has repudiated the contract. ³⁹⁷ For a voluntary act to constitute anticipatory repudiation, the defendant's

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conduct must evidence a clear intention to refuse performance in the future by assuming a position in which performance would be impossible. ³⁹⁸

B. The Right to Demand Assurances. Generally, under Virginia law, a right to demand assurances of due performance exists under the UCC but not otherwise unless the right is created in the contract.

Under the UCC, when a party has reasonable grounds for insecurity about performance by the other party, he or she may demand in writing adequate assurances of due performance. Failure to provide such assurances within a reasonable time (not to exceed 30 days) is a repudiation of the contract. ³⁹⁹ Before the adoption of the UCC in Virginia, it was unclear whether Virginia common law embraced the concept of the right to adequate assurances. ⁴⁰⁰

If the UCC does not apply, there does not appear to be any right to adequate assurances unless provided by contract. ⁴⁰¹ Accordingly, the practitioner may consider simply adding the appropriate language to the contract to provide the right to demand assurances. For example, the UCC generally does not apply to construction contracts, but the AIA General Conditions for construction contracts include language that gives the contractor the right to demand assurances from the owner that the owner can meet its financial obligations under the contract. ⁴⁰² The practitioner can do as the AIA has done in this example and simply write into the contract the desired language that enables the client to obtain assurances of performance when warranted.

C. Repudiation Must Be Clear, Unequivocal, and Material. To constitute a breach of contract, a repudiation must cover the entire performance of the contract. For example, in Simpson v. Scott, ⁴⁰³ the plaintiff, who had provided domestic services to the deceased for a number of years in exchange for a small salary and "at least" $4,000 upon the decedent's death,

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sued the executors of the decedent's estate for the failure of the decedent to provide for her in his will as promised. The defendants, relying on the statute of limitations, claimed that the plaintiff had failed to timely assert her rights when the decedent had, while alive, repudiated the contract by terminating the plaintiff's employment. The court disagreed, finding that "his termination of her employment did not necessarily mean that he was repudiating his promise to give her [in the future] additional pay for the time she had actually worked." ⁴⁰⁴

An essential element of the doctrine of anticipatory breach is that the breach in question must be a repudiation of the very essence 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. ⁴⁰⁵

Even if a party has breached the contract in some respect, if the party continues to perform under the contract, no cause of action for anticipatory breach exists. In Tandberg, Inc. v. Advanced Media Design, Inc., ⁴⁰⁶ the seller continued to ship videoconferencing equipment upon receiving certain purchase orders well into June 2009—therefore the seller could not be said to have unconditionally refused to perform the contract in all circumstances. The court granted summary judgment for the seller on the claim for anticipatory breach.

Generally, whether repudiation is sufficiently unequivocal to give rise to a cause of action for anticipatory breach depends on the particular facts and circumstances of each case and is a factual question for a jury's

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determination. ⁴⁰⁷ For this reason, the practitioner may want to encourage the client to develop as good a record as possible on the issue. Correspondence and other methods of documentation may help pin down the issue, making what was equivocal far less so.

6.502 Breach: Types and Effects.

A. Overview. Any failure to perform a contractual duty constitutes a breach. ⁴⁰⁸ Unless otherwise agreed between the parties, the non-breaching party may sue to enforce the contract if the breach is material. A material breach is a failure to do something that is so fundamental to the contract that failure to perform the obligation defeats an essential purpose of the contract. ⁴⁰⁹

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B. Making Performance Impossible. A party to a contract is under a duty not to prevent performance by the other party. ⁴¹⁰ If a party does prevent substantial performance, that party will be unable to enforce the contract and may be liable for damages to the nonbreaching party. ⁴¹¹

Generally, a party prevented from performing a contract is at liberty to treat the contract as broken, abandon the contract, and recover damages for breach. ⁴¹² But there are potentially severe consequences for incorrectly declaring the contract breached and abandoning it: the party doing so would then itself be in breach. Accordingly, the practitioner should ensure that the client has explained fully all circumstances constituting the prevention of performance and that these circumstances are very well documented. Making a record through correspondence with the other party may be helpful.

C. Failure of Performance. Virginia law recognizes that failure to render the performance promised is a breach, but only if the time fixed for performance has expired and all conditions precedent have been satisfied. In Sligo Parkway Apartments v. Landscape Engineering Co., ⁴¹³ the plaintiff sued a landscape company for damages for breaching its contract to plant trees and shrubs around the plaintiff's apartment buildings. Under the contract, the defendant agreed to replace any plantings that did not survive one year. The defendant's subsequent failure to replace the shrubs that died within the year constituted a breach of contract, and the plaintiff was not required to

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pay the defendant the balance due under the contract. While the defendant's refusal to perform was a breach of contract because "the time fixed for performance had expired," the plaintiff's refusal to perform—namely, to pay the defendant—was not a breach because the plaintiff did not yet have a legal duty to pay.

The party who commits the first material breach of a contract is not entitled to enforce it or to bring an action against the other party based upon the other party's subsequent failure to perform. ⁴¹⁴ But if the contract is divisible or severable, a breaching party may nevertheless recover for part performance if the part performance preceded the breach. ⁴¹⁵

A contract is divisible or severable if it has two or more parts not necessarily dependent upon or intended to be dependent upon each other, so that it is capable of division and apportionment. ⁴¹⁶ Generally, if a contract is divisible, each breach may be sued upon separately. ⁴¹⁷ The most common example of a divisible contract is an installment contract. Generally, when a party breaches an installment contract, the nonbreaching party may sue only for those installments that are past due. However, if the installment contract includes an acceleration clause, the nonbreaching party may terminate the contract and sue for future as well as past-due installments. ⁴¹⁸ Under the UCC, where an installment of goods is defective, the buyer is not necessarily entitled to terminate the entire contract. ⁴¹⁹ Also, the buyer's failure to pay for

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an installment does not necessarily justify the seller's terminating the contract. ⁴²⁰

6.503 Substantial Performance.

A. Overview. The doctrine of substantial performance is not a complete defense to liability for...