FRANCONIA ASSOCIATES v. UNITED STATES

Print this Page
Case Basics
Docket No. 
01-455
Petitioner 
Franconia Associates
Respondent 
United States
Advocates
(Argued the cause for the petitioners)
(Argued the cause for the respondent)
Tags
Term:
Facts of the Case 

Under the Housing Act of 1949, the Farmers Home Administration 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. Franconia Associates is a property owner that entered into such loans before December 21, 1979. The promissory notes Franconia executed authorized "prepaymen[t] of scheduled installments, or any portion thereof...at any time at the option of Borrower." In 1988, 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 mortgages entered into before December 21, 1979. In 1997, Franconia filed suit, charging that ELIHPA abridged the absolute prepayment right set forth in their promissory notes and thereby effected a repudiation of their contracts. In dismissing Franconia's contract claims as untimely, 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 Franconia to prepay their loans was breached, the breach occurred immediately upon ELIHPA's enactment date.

Question 

Does the Emergency Low Income Housing Preservation Act of 1987, which restricted the right of property owners to prepay at any time mortgages under the Housing Act of 1949, constitute a present breach of contract?

Conclusion 
Decision: 9 votes for Franconia Associates, 0 vote(s) against
Legal provision: 28 U.S.C. 2501

No. In a unanimous opinion delivered by Justice Ruth Bader Ginsburg, the Court held that 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. The Court reasoned that the government's pledged performance was properly comprehended as an obligation to accept prepayment, not an obligation to allow borrowers to have the right to prepay. Therefore, the borrowers' repudiation claims were not time-barred, because the cause of action would not accrue until the government dishonors its obligation to accept the prepayment.

Cite this Page
FRANCONIA ASSOCIATES v. UNITED STATES. The Oyez Project at IIT Chicago-Kent College of Law. 14 December 2014. <http://www.oyez.org/cases/2000-2009/2001/2001_01_455>.
FRANCONIA ASSOCIATES v. UNITED STATES, The Oyez Project at IIT Chicago-Kent College of Law, http://www.oyez.org/cases/2000-2009/2001/2001_01_455 (last visited December 14, 2014).
"FRANCONIA ASSOCIATES v. UNITED STATES," The Oyez Project at IIT Chicago-Kent College of Law, accessed December 14, 2014, http://www.oyez.org/cases/2000-2009/2001/2001_01_455.