## Facts

- Neptune Research & Development, Inc. (buyer) agreed to purchase a specialized machining center from Teknics Industrial Systems, Inc. and an affiliated seller (collectively, seller) for about $55,000.
- The written contract set a mid-June 1986 delivery date and included a printed “cancellation charge” equal to 15% of the purchase price; the contract did not state that time was of the essence.
- Delivery did not occur in mid-June. Over the ensuing months, Neptune repeatedly sought delivery information; the seller gave noncommittal responses and did not provide a reliable explanation for delay.
- Neptune learned that the seller had unilaterally changed the machine’s design without Neptune’s request or authorization, resulting in a machine that did not match the original specifications.
- Despite the nonconforming redesign, Neptune agreed to accept the machine if it would be ready by a firm reset date of September 5, 1986.
- On September 4, the seller stated the machine could not be ready for at least another week; Neptune cancelled, citing loss of confidence in the seller’s ability to perform.
- About an hour later, the seller claimed it could have the machine ready the next day, but Neptune reaffirmed cancellation.
- Neptune sued to recover its $3,000 deposit; the seller counterclaimed for the unpaid portion of the 15% cancellation charge. After a bench trial, judgment entered for Neptune and the counterclaim was dismissed.

## Issues

1. Whether the seller’s statement on September 4 that it could not meet the agreed September 5 readiness date constituted anticipatory repudiation under the U.C.C.
2. Whether the buyer could cancel and recover its deposit despite the seller’s prompt attempt to retract and tender timely performance.
3. Whether the seller could enforce a contractual 15% cancellation charge when the buyer cancelled in response to the seller’s repudiation.

## Decision

- The Appellate Division affirmed judgment for Neptune.
- The court held the seller’s September 4 statement, viewed in context of prior delays and unilateral changes, amounted to anticipatory repudiation substantially impairing the contract’s value to the buyer.
- Neptune’s cancellation in response to the repudiation was effective and gave Neptune the right to recover its deposit.
- The seller’s attempted retraction came too late because Neptune had already treated the repudiation as final by cancelling.
- The 15% cancellation charge was unenforceable against Neptune where cancellation was a lawful response to the seller’s repudiation.

## Legal Principles

- Under the U.C.C., a party repudiates by words or conduct indicating it will not or cannot perform, when the repudiation substantially impairs the contract’s value to the other party.
- In evaluating repudiation, courts may consider surrounding circumstances, including prior delays, noncommunication, and conduct undermining reasonable confidence in performance.
- After anticipatory repudiation, the aggrieved buyer may cancel and recover payments made as a remedy for the seller’s breach.
- A repudiating party may retract only until the aggrieved party cancels, materially changes position, or otherwise indicates it treats the repudiation as final.
- A contractual cancellation fee clause does not permit a breaching seller to impose liquidated damages on a buyer who cancels due to the seller’s anticipatory breach.

## Conclusion

The court ruled that the seller’s inability announcement—against months of delay and unauthorized modifications—was an anticipatory repudiation, entitling the buyer to cancel, recover its deposit, and defeat the seller’s claim for a contractual cancellation charge notwithstanding the seller’s attempted retraction.


Neptune Rsch. & Dev., Inc. v. Teknics Indus. Sys., Inc., 235 N.J. Super. 522, 563 A.2d 465 (App. Div. 1989)