Under contract law, repudiation is a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach. And total breach is a breach that so substantially impairs the value of the contract to the injured party at the time of the breach that it is just in the circumstances to allow him to recover damages based on all his remaining rights to performance.
Oil companies sought restitution for money they paid for lease contracts giving them rights to explore for and develop oil. The rights were not absolute, but were conditioned on petitioners' obtaining further governmental permissions. The oil companies claimed that the United States repudiated the contracts when it denied them certain elements of the permission-seeking opportunities they were promised. The trial court found for the oil companies in that the United States repudiated the parties' contracts. On appeal, however, the appellate court held that the United States' refusal to consider petitioners' final exploration plan was not the operative cause of any failure to carry out the contracts' terms. The case was elevated to the Supreme Court of the United States on a writ of certiorari.
Did the government breach its contracts?
The court found that in communicating its intent to follow § 6003 of the Outer Banks Protection Act, 104 Stat. 555, the United States was communicating its intent to violate the contracts. The breach was substantial, depriving petitioners of the benefit of their bargain. Petitioners did not receive significant postrepudiation performance and did not waive their right to restitution. Because of the repudiation, petitioners were entitled to restitution whether or not the contracts would have ultimately produced a financial gain or led them to obtain a definite right to explore.