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5. On January 15, the lender is entitled to a judgment against the borrower for which of the following amounts?
The borrower did not pay the installments due on October 31, November 30, or December 31, and has informed the lender that she will be unable to make repayments in the foreseeable future.
A borrower asked a lender to lend her $1,000. The lender replied that he would do so only if the borrower's father would guarantee the loan. At the borrower's request, the father mailed a signed letter to the lender: «If you lend $1,000 to my daughter, I will repay it if she doesn't.» On September 15, the lender, having read the father's letter, lent $1,000 to the borrower, which the borrower agreed to repay in installments of $100 plus accrued interest on the last day of each month beginning October 31. The father died on September 16. Later that same day, unaware of the father's death, the lender mailed a letter to the father advising that he had made the $1,000 loan to the borrower on September 15.
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A party may make it unmistakably clear, even before his performance under a contract is due, that he does not intend to perform. When he does so, he is said to have anticipatorily repudiated the contract. Such a repudiation allows the other party to suspend and perhaps cancel his own performance.
Modern courts have held that a repudiation does not have to be expressly stated or clear to qualify as an effective repudiation. A repudiation is any possible statement by the obligor to mean that he will not or cannot perform his contractual duty. This can be through: (i) a statement by the promisor that he intends not to perform; (ii) an action by the promisor making his performance under the contract impossible; or (iii) an indication by the promisor or via some other means that the promisor will be unable to perform, although he desires to perform.
Under the doctrine of anticipatory repudiation, an unequivocal statement of unwillingness or inability to perform a future contractual obligation, if material, may be treated as a total breach of that obligation and give rise to a right to immediately recover damages for that breach. A repudiation of a duty will not operate as a total breach, however, if it occurs after the repudiating party has received all of the agreed exchange for that duty. In such a case, the non-repudiating party must wait until the obligation becomes due before enforcing it.
B is correct. The borrower failed to make three debt repayments and expressed her inability to repay the debt in the future. However, the lender cannot accelerate the debt unless the contract specified otherwise. Therefore, the lender can only recover for the three months of unpaid debt that is due and outstanding as of January 15.
A is incorrect. This is not a legally correct statement on how anticipatory repudiation works with regard to how damages will be measured. The lender can recover the amount that is due as of January 15.
C is incorrect. The breach is a minor, rather than a material breach because the lender's damages are less than a third of the total loan as of January 15. The lender may thus sue immediately for the unpaid debt from September through December.
D is incorrect. The right to accelerate debt is a material part of a contract that must be expressly contracted for by the parties in order to be enforceable and effective. The debt may not be accelerated unless the contract expressly so provides.