LOCATION:Los Angeles City Hall
DOCKET NO.: 01-455
DECIDED BY: Rehnquist Court (1986-2005)
CITATION: 536 US 129 (2002)
ARGUED: Apr 15, 2002
DECIDED: Jun 10, 2002
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.
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?
Media for Franconia Associates v. United States
Audio Transcription for Opinion Announcement – June 10, 2002 in Franconia Associates v. United States
William H. Rehnquist:
The opinion of the Court in No. 01-455 Franconia Associates versus United States will be announced by Justice Ginsburg.
Ruth Bader Ginsburg:
This case presents a question of time, specifically the time within which suit must be commenced when Congress passes a statute renouncing the Government’s contractual undertaking to carryout a promise in the future.
The time allowed pursued on contracts with the Government is six years.
The issue is when does that time begin to run?
Petitioners are property owners who participated in a federal program designed to provide affordable rental housing in rural areas.
Petitioners gained low interest mortgage loans from the Government and in exchange, they agreed to devote their properties to low and middle income housing and to abide by related restrictions during the life of the loans.
Petitioners alleged that the promissory notes governing their loans guaranteed them the right to prepay at any time and thereby gain early release from the property use restrictions of the federal program.
In the suits that yielded the judgments before us, petitioners charged that Congress abridged that release right in the Emergency Low Income Housing Preservation Act, the acronym is ELIHPA, that Act placed permanent restraints on prepayment of program loans.
Petitioners complained that in so altering the terms of the bargain, Congress repudiated petitioner’s loan contracts.
The Federal Circuit held petitioner’s claims time barred.
Passage of ELIHPA that Court ruled immediately and totally breached petitioner’s loan agreement, and therefore, triggered the running of the six-year limitation period.
Petitioners filed suit not within six years of but over nine years after ELIHPA’s enactment.
Hence, the Federal Circuit concluded that claims were untimely and their suits were properly dismissed.
We accept for purposes of this decision as the Government that the loan contracts guarantee the absolute prepayment right that petitioners alleged.
We disagree with the Federal Circuit’s determination and reverse that court’s judgment.
ELIHPA’s enactment, we conclude, qualified as a repudiation of the parties’ bargain but not a present breach of the loan agreements.
Accordingly, breach would occur and the six-year limitations period will begin to run when a borrower seeks to prepay and the Government then disnonors its obligation to accept the payment and release control over use of the property that secured the loan.
Our decision is unanimous.