Franconia Associates v. United States

Background

A group of property owners who took low-interest loans from a federal rural housing program agreed to keep their buildings available as affordable rental housing. Their promissory notes said borrowers could prepay “at any time.” In 1988 Congress passed a law that imposed new limits and steps before prepayment could be accepted for loans made before December 21, 1979. The owners sued years later, saying the law repudiated their right to prepay and amounted to a contract breach and a taking of property. Lower courts held those suits time-barred because, they said, the claims accrued when the law was enacted.

Reasoning

The Court addressed when the six-year clock begins for suits against the United States. Applying ordinary contract rules, the justices explained that a law announcing the Government will not perform in the future is a repudiation, not an immediate breach. A breach occurs when performance is due and the Government fails to perform. Therefore the owners’ claims accrue when a borrower actually tenders prepayment and the Government wrongfully refuses to accept it. The Court rejected the Government’s argument that the phrase “first accrues” or the fact that Congress enacted the rule makes accrual automatic on enactment. The Court also said Congress can withdraw or change a repudiation, so a statute can announce a repudiation without making breach immediate.

Real world impact

The decision means owners with similar loans may file suit within six years of a refused prepayment rather than within six years of the 1988 law. Lower courts must determine whether and when individual owners tried to prepay and were denied. The case is not a final ruling on liability or compensation; it sends the suits back for further proceedings consistent with this timing rule.