In Harper Lee’s novel To Kill a Mockingbird, the Cunningham family are desperately poor farmers. Walter, Scout’s classmate, is embarrassed by the new teacher, Miss Caroline Fisher – Miss Caroline – who, not understanding local customs and history, shames Walter before his class by insisting he borrow a quarter for lunch. Attempting to explain Walter’s refusal to accept the small loan, Scout is penalized by Miss Caroline. In retribution for being punished in front of the class by the teacher, Scout proceeds to beat-up Walter after school, only to be interrupted by Jem, who has come to Walter’s rescue, and who invites Walter home for dinner. During dinner, Atticus engages Walter, whose father was a client of Atticus’, in conversation about farming and hard times. It is during this exchange that Walter explains why he didn’t pass the first grade:
“Jem ran to the kitchen and asked Calpurnia to set an extra plate, we had company. Atticus greeted Walter and began a discussion about crops neither Jem nor I could follow.
“Reason I can’t pass the first grade, Mr. Finch, is I’ve had to stay out ever‘ spring an’ help Papa with the choppin‘, but there’s another’n at the house now that’s field size.”
Walter hasn’t passed the first grade because he has had to stay home and help out on his family’s farm.
This part of the book was in Chapter 3 where Scout was rubbing Walter's nose in the dirt for "making her start school on the wrong foot". Jem invites Walter to their house for lunch to apologize.
Walter then has a conversation with Atticus and what he basically said was that he couldn't pass the first grade because he had to help his father chop wood every spring on the farm.