Millis Construction Co. v. Fairfield Sapphire Valley, Inc.

358 S.E.2d 566 (1987)

MILLIS CONSTRUCTION COMPANY
v.
FAIRFIELD SAPPHIRE VALLEY, INC.

No. 8630SC1209.

Court of Appeals of North Carolina.

August 4, 1987.

Smith, Bonfoey & Queen by Frank G. Queen, Waynesville, for plaintiff-appellee.

Coward, Cabler, Sossomon & Hicks by J.K. Coward, Jr., Sylva, for defendant-appellant.

EAGLES, Judge.

I

Defendant assigns error to the trial judge's refusal to charge the jury on the issue of anticipatory breach as requested by the defendant pursuant to G.S. 1A-1, Rule 51(b).

It is the duty of the trial judge without any special requests to instruct the jury on the law as it applies to the substantive features of the case arising on the evidence. Faeber v. E.C.T. Corp., 16 N.C. App. 429, 192 S.E.2d 1 (1972). When a party appropriately tenders a written request for a special instruction which is correct in itself and supported by the evidence, the failure of the trial judge to give the instruction, at least in substance, constitutes reversible error. Bass v. Hocutt, 221 N.C. 218, 19 S.E.2d 871 (1942); Faeber v. E.C.T. Corp., supra. Here, we believe the trial court improperly refused to give the requested instruction on anticipatory breach.

The trial court submitted two issues to the jury on breach of contract: Did the defendant breach its contract with the plaintiff and did the plaintiff breach its contract with the defendant? Breach of contract occurs when a party fails to perform a contractual duty which has become absolute. J. Calamari and J. Perillo, The Law of Contracts section 12-1, at 513 (3d ed. 1987). As explained by the Restatement when performance of a duty under contract is presently due any nonperformance constitutes a breach. Restatement (Second) of Contracts section 235(2) (1981). Breach may also occur by repudiation. Id. at section 236 comment a. Repudiation is a positive statement by one party to the other party indicating that he will not or cannot substantially perform his contractual duties. Calamari and Perillo, section 12-4, at 524; Restatement (Second) of Contracts at section 250 comment a. When a party repudiates his obligations under the contract before the time for performance under the terms of the contract, the issue of anticipatory breach or breach by anticipatory repudiation arises. Calamari and Perillo, section 12-3, at 521. One effect of the anticipatory breach is to discharge the non-repudiating party from his remaining duties to render performance under the contract. Restatement (Second) of Contracts at section 253(2).

[W]hen a party to a contract gives notice that he will not honor the contract, the other party to the contract is no longer required to make a tender or otherwise to perform under the contract because of the anticipatory breach of the first party.

Dixon v. Kinser and Kinser v. Dixon, 54 N.C.App. 94, 101, 282 S.E.2d 529, 534 (1981), disc. rev. denied, 304 N.C. 725, 288 S.E.2d 805 (1982).

Here there was sufficient evidence to support an instruction that the plaintiff's statements during the November 16 meeting constituted a repudiation. In order to constitute a repudiation, a party's statement "must be sufficiently positive to be reasonably interpreted that a party will not or cannot substantially perform." Calamari and Perillo, Section 12-4, at 525 (quoting Restatement (Second) of Contracts at section 250 comment b). For example, if a party to a contract states "I doubt I will perform," his statement, alone, is not sufficiently positive to be reasonably interpreted by the other party to mean that he will not perform. Id. at 524. However, if a party to the contract states that he cannot perform except on some condition which goes outside the terms of his contract then the statement will constitute a repudiation. Id. at 525. Applying these rules to the facts here, we hold that plaintiff's statements on November 16 could have constituted a repudiation. According to defendant's evidence, at the meeting between Coker and Millis, Millis stated that he was "busted," "belly-up" and would be unable to complete the contract unless he received retainage on building number 7. However, according to the terms of the contract, plaintiff was not entitled to retainage until 30 days after building number 7 was completed. At the time of the November 16 meeting building number 7 was not yet completed. Clearly at the time of the November 16 meeting, plaintiff was not yet entitled to any retainage under the terms of the contract. In essence, his statement was that he could not perform the remaining contracts except on some condition outside the terms of the contracts, i.e. that he be paid the retainage before he was entitled to it under the contract.

If the repudiation occurs before the time of performance arises under the contract, the repudiation is anticipatory and the issue of anticipatory breach arises. Here plaintiff's statements were made on November 16, at least one month before completion of buildings 8, 9 and 10 was required under the terms of plaintiff's contracts. The effect of breach by anticipatory repudiation is to relieve the non-repudiating party from further performance under the contract. Dixon v. Kinser, supra. We agree with defendant's argument that had the jury been given the opportunity to consider the issue of anticipatory breach, it could have found that the defendant did not breach its contract with plaintiff but was no longer required to perform under the contract due to plaintiff's anticipatory breach or breach by anticipatory repudiation. Dixon v. Kinser, supra. Accordingly, the trial court erred in refusing to instruct the jury on the issue of anticipatory breach as requested by defendant.

The issue of anticipatory breach does not affect defendant's obligation under its contracts to pay for work performed, invoiced and approved as of the date of the November 16 meeting, where defendant alleges plaintiff anticipatorily breached its contracts with defendant. Up until that date plaintiff had fully performed. The evidence suggests that plaintiff was owed money for work performed, invoiced and approved by defendant as of 16 November 1984 and that defendant without justification refused to pay for that work. Plaintiff's exhibit number four sets out the following amounts as being owed for invoices not paid: $3,064.50 for building number 8; $5,172.75 for building number 9; and $2,034.00 for building number 10. In addition, plaintiff's exhibit number four indicates that plaintiff was overpaid in the amount of $1,675.95 for work completed, invoiced and approved on building number 7. Plaintiff also claims retainage on buildings 8, 9 and 10 in the amounts of $1,276.89, $2,548.98 and $1,588.00 respectively. However, plaintiff never satisfactorily completed buildings 8, 9 and 10 and consequently would only be entitled to retainage on these buildings if it is found by the trier of the fact that defendant materially breached its contract with plaintiff. The general rule governing bilateral contracts requires that if either party commits a material breach of the contract, the other party should be excused from the obligation to further perform. Coleman v. Shirlen, 53 N.C.App. 573, 281 S.E.2d 431 (1981). The question of whether a breach is material or immaterial is ordinarily a question of fact. Id. If the breach is material, the aggrieved party may cancel the contract and sue for total breach if he can show that he was ready, willing and able to perform but for the breach. See Calamari and Perillo, Section 11-18, at 458. As a result, he may recover all of his damages under the contract. Id. If the breach is immaterial the aggrieved party may not cancel the contract but may sue for partial breach. When a party sues for partial breach, the contract continues and the aggrieved party may only recover these damages actually caused by the breach. Id. at 458-59.

In summary, we conclude that the evidence of record raises several questions. Did the defendant breach its contracts with plaintiff by failing to pay plaintiff money owed as of 16 November 1984 for work performed by plaintiff? If so, was the breach material, thereby entitling plaintiff to recover for all damages under his contracts with plaintiff, or was the breach immaterial, thereby entitling plaintiff only to recover those damages actually caused by the breach? If the defendant did not materially breach its contract with plaintiff, then did plaintiff anticipatorily breach its contract with defendant by statements made by Millis at the 16 November 1984 meeting thereby excusing defendant from further performance under its contracts with plaintiff? If so, then defendant was justified in mitigating its damages by securing other contractors when it became obvious that plaintiff would not perform.

We note from the verdict in this case that the jury found that the defendant breached its contract with plaintiff. However, on this record it is not clear whether the jury in answering this issue relied on evidence that defendant failed to pay money due to plaintiff on 16 November or on evidence that defendant on 19 November sent the letter giving plaintiff its 48-hour notice of termination. Here the issues of breach and anticipatory breach are so intertwined that we cannot say, even given the jury's verdict, that the trial court's error in refusing to instruct the jury on anticipatory breach was harmless. Consequently, there must be a new trial.

New trial.

HEDRICK, C.J., and PARKER, J., concur.