Franconia Associates v. United States
536 U.S. 129 (2002)

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OCTOBER TERM, 2001

Syllabus

FRANCONIA ASSOCIATES ET AL. v. UNITED STATES

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

No. 01-455. Argued April 15, 2002-Decided June 10,2002*

Under §§ 515 and 521 of the Housing Act of 1949, the Farmers Home Administration (FmHA) makes direct loans to private, nonprofit entities to develop and/or construct rural housing for the elderly and low- or middle-income individuals and families. Petitioners are property owners who entered into such loans before December 21, 1979. The promissory notes petitioners executed authorized "[p]repaymen[t] of scheduled installments, or any portion thereof, ... at any time at the option of Borrower." On February 5, 1988, concerned about the dwindling supply of low- and middle-income rural housing in the face of increasing prepayments of mortgages by § 515 borrowers, Congress enacted the Emergency Low Income Housing Preservation Act of 1987 (ELIHPA), which amended the Housing Act of 1949 to impose permanent restrictions upon prepayment of § 515 mortgages entered into before December 21, 1979. On May 30, 1997, the Franconia petitioners filed suit under the Tucker Act, 28 U. S. C. § 1491, charging that ELIHPA abridged the absolute prepayment right set forth in their promissory notes and thereby effected, inter alia, a repudiation of their contracts. In dismissing petitioners' contract claims as untimely under § 2501-which provides that a claim "shall be barred unless the petition thereon is filed within six years after such claim first accrues" -the Court of Federal Claims concluded that the claims first accrued on the ELIHPA regulations' effective date. In affirming on statute of limitations grounds, the Federal Circuit ruled that, if the Government's continuing duty to allow petitioners to prepay their loans was breached, the breach occurred immediately upon ELIHPA's enactment date, over nine years before petitioners filed their suit. The court rejected petitioners' argument that ELIHPA's passage qualified as a repudiation, so that their suit would be timely if filed within six years of either the date performance fell due (the date they tendered prepayment) or the date on which they elected to treat the repudiation as a present breach. On September 16, 1998, the Grass Valley petitioners filed an action that was virtually identical to the Franconia suit. The Court of Federal Claims dismissed for the

*Together with Grass Valley Terrace et al. v. United States (see this Court's Rule 12.4), also on certiorari to the same court.


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reasons it had dismissed the Franconia claims, and the Federal Circuit affirmed without opinion.

Held: Because ELIHPA's enactment qualified as a repudiation of the parties' bargain, not a present breach of the loan agreements, breach would occur, and the six-year limitations period would commence to run, when a borrower tenders prepayment and the Government then dishonors its obligation to accept the tender and release its control over use of the property securing the loan. Pp. 141-149.

(a) Resolution of two threshold matters narrows the scope of the controversy. First, the requirement that the Government unequivocally waive its sovereign immunity is satisfied here because, once the United States waives immunity and does business with its citizens, it does so much as a party never cloaked with immunity. Cf. Clearfield Trust Co. v. United States, 318 U. S. 363, 369. Second, the Court, like the Government, accepts for purposes of this decision that the loan contracts guaranteed the absolute prepayment right petitioners allege. P. 141.

(b) Under applicable general contract law principles, whether petitioners' claims were filed "within six years after [they] first accrue[d]," § 2501, depends upon when the Government breached the prepayment undertaking stated in the promissory notes. In declaring ELIHPA a present breach of petitioners' loan contracts, the Federal Circuit reasoned that the Government had but one obligation under those agreements: to continue to allow borrowers the unfettered right to prepay their loans at any time. If that continuing duty was breached, the court maintained, the breach occurred immediately, totally, and definitively, when ELIHPA took away the borrowers' unfettered right to prepay. In so ruling, the court incorrectly characterized the performance allegedly due from the Government under the promissory notes. The Government's pledged performance is properly comprehended as an obligation to accept prepayment. Once the Government's obligation is thus correctly characterized, the decisions below lose force. A promisor's failure to perform at the time indicated for performance in the contract establishes an immediate breach. But the promisor's renunciation of a contractual duty before the time fixed in the contract for performance is a repudiation, which ripens into a breach prior to the time for performance only if the promisee elects to treat it as such, see Roehm v. Horst, 178 U. S. 1, 13. Viewed in this light, ELIHPA effected a repudiation of the FmHA loan contracts, not an immediate breach. ELIHPA conveyed the Government's announcement that it would not perform as represented in the promissory notes if and when, at some point in the future, petitioners attempted to prepay their mortgages. Unless petitioners treated ELIHPA as a present breach by filing suit prior to the


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