Atkinson v. Dist. Bond Co. - 5 Cal. App. 2d 738, 43 P.2d 867 (1935)

Rule:

The real operation of a declaration of intention not to be bound to an executory contract appears to give the promisee the right of electing either to hold fast to the contract and wait until the time for performance has arrived, or to act upon the declaration and treat it as a final assertion by the promisor that he is no longer bound by the contract and as a wrongful renunciation of the contractual relation. If the promisee elects to pursue the latter course, it becomes a breach of contract, excusing performance on his part and giving him an immediate right to recover upon it as such. Upon such election the rights of the parties are to be regarded as then culminating, and the contractual relation ceases to exist, except for the purpose of maintaining an action for the recovery of damages.

Facts:

Plaintiffs, doing business under the firm name of Atkinson & Reish, instituted an action against defendant bond company for breach of an agreement to buy bonds and to loan money concerning plaintiffs' bid for certain street improvement work. Plaintiffs offered a proof showing that defendant repudiated its agreement to buy the bonds and loan money. Upon the offer of proof of repudiation, defendant objected to its admission, the objection being founded on the ground that proof of repudiation was not admissible in a case where the complaint was founded on allegations of full performance. Judgment was entered in favor of the plaintiffs. Defendant sought review. 

Issue:

Under the circumstances, were the plaintiffs justified in treating the defendant’s repudiation as a breach of contract? 

Answer:

Yes.

Conclusion:

The court concluded that no error occurred in admitting evidence relating to repudiation because plaintiffs abandoned a theory of full performance. The court found that a letter in which defendant disclaimed any liability under the contract was tantamount to a distinct, unequivocal, and absolute refusal to perform. The court further found that plaintiffs were justified in treating the refusal to perform as a breach and acting on it as though it were a wrongful renunciation. The court concluded that the contractual relation terminated as of the date of the letter. However, the court found that it was error to assess damages on the basis of evidence of a subsequent bid because plaintiffs had no right to increase the damages for defendant's breach.