## Facts

- Roy R. Tolley and Aureline Tolley hired Oak Ridge Construction Company (Oak Ridge) to build a residence on their land for \$64,500 under a written contract incorporating the owners’ specifications and plot plan.
- The specifications included Item 20, “Water Supply,” calling for a well “150' deep with 40' of 6" casing,” and stating that if the well exceeded 150 feet Oak Ridge would charge \$6.50 per additional foot, and if casing exceeded 40 feet Oak Ridge would charge \$7.00 per additional foot; any added cost for deep-well equipment was to be paid by the owners.
- Before drilling, Oak Ridge told the Tolleys that wells in the area could be very deep, citing nearby wells drilled to approximately 760 and 975 feet.
- A well location was chosen on the site after reference to the plot plan, and Oak Ridge completed the well at a depth of 800 feet.
- Oak Ridge sent the Tolleys an invoice seeking additional payment calculated under the contract’s per-foot terms, including charges for the extra 650 feet of drilling and additional casing beyond the base amount.
- Mr. Tolley replied by letter stating the additional well charges were “in dispute or disagreement” and directing: “All work under item 20 (Water Supply) … are [sic] to cease pending satisfactory resolution or settlement under item 13 (Arbitration) of our construction agreement.”
- Oak Ridge treated the letter and the refusal to pay as a breach, stopped performance, and gave notice that it was terminating the contract under a termination provision tied to failure to make payment when due.
- After a bench trial, the trial court entered judgment for Oak Ridge on the theory that the Tolleys had anticipatorily breached the contract, and awarded damages.
- The Tolleys appealed, arguing (among other points) that they had not breached, that testimony about the unreasonableness of drilling to 800 feet should not have been stricken, and that the damages award was improper.

## Issues

1. Whether the Tolleys’ letter disputing the well charges and ordering work under the water-supply item to stop pending arbitration constituted an anticipatory repudiation, justifying Oak Ridge’s termination of the contract.
2. Whether the trial court properly struck testimony offered to show that drilling an 800-foot well was unreasonable or unnecessary.
3. Whether the damages awarded to Oak Ridge were correctly measured and supported by the record.

## Decision

- The Superior Court of Pennsylvania held that the Tolleys anticipatorily breached (repudiated) the contract by refusing to proceed under the payment terms and ordering that work under the water-supply item cease pending arbitration.
- The court affirmed the trial court’s exclusion/striking of testimony about the “reasonableness” of drilling to 800 feet, because the written contract expressly addressed extra depth and set the pricing for it.
- The court affirmed Oak Ridge’s entitlement to relief based on the Tolleys’ breach, but reversed in part and remanded for further proceedings to correct the damages calculation consistent with Pennsylvania contract-damages rules and the evidentiary record.

## Legal Principles

- Anticipatory repudiation requires a clear, definite refusal to perform contractual duties before performance is due; a party may treat such repudiation as a breach and may terminate if the contract permits.
- When a contract unambiguously allocates the risk of a contingency and fixes the method of pricing it (here, additional per-foot well and casing charges above stated baseline amounts), courts enforce that allocation as written.
- A party’s unilateral attempt to suspend performance and payment on terms not found in the contract—such as ordering work to stop while withholding payment pending arbitration—may be treated as an unequivocal refusal to perform the contract as agreed.
- Evidence directed to whether performance was “reasonable” is not admissible to change or avoid a clear written pricing term; where the contract fixes payment for extra work, the dispute is governed by the contract language rather than hindsight views about whether the extra work should have been done.
- A damages award for breach must be tied to the proper measure of contract damages and must be supported by competent proof; if the trial court’s computation includes improper components or lacks adequate support, remand is appropriate for recalculation.

## Conclusion

The Superior Court held that the Tolleys’ stop-work/arbitration letter and refusal to pay the contractually priced extra well charges amounted to an anticipatory repudiation, allowing Oak Ridge to terminate under the contract; it also upheld the exclusion of “unreasonableness” testimony, but sent the case back to adjust the damages award.


Oak Ridge Construction v. Tolley, 504 A.2d 1343 (1985)