In a decision that addresses a contract law issue with respect to anticipatory breach, the New York Court of Appeals has held in Princes Point LLC v Muss Dev. L.L.C., 2017N.Y Slip Op 07298 ( 2017) that an action for recession is not considered anticipatory breach of contract.
The case involved a real estate transaction between plaintiffs, Princess Point LLC and defendants collectively known as Allied Princes Bay (“ABP”). The parties signed a purchase agreement in 2004 whereby plaintiff agreed to purchase property from the defendants. As part of the agreement, the one condition precedent was that ABP was to gather government approvals so that the property could be developed. The initial agreement had a closing date of 30 days after plaintiff received notice of the government approvals and also an “Outside Closing Date” which was within 18 months after the execution. Furthermore, if the approvals were not received within 18 months, either party could terminate the agreement within 30 days notice. In the event of termination, the plaintiff would be refunded any deposits. The plaintiff also had the right to waive termination and proceed to closing.
In 2005, the New York State Department of Environmental Conservation noted certain flaws on the property and required ABP to remedy the defects prior to any approval. As a result, ABP was not able to obtain the approval within the closing date deadline. Given the challenges of additional costs and time, ABP also informed the plaintiffs that it intended to terminate the agreement unless it was amended.
In 2006, the parties amended the agreement by increasing the purchase price as well as down payment; the parties would share the costs of the remedial work required and extended the Outside Closing Date to July 22, 2007. Subsequently, due to challenges in the remedial work, the Outside Closing Date was extended once more to July 22, 2008 (this was referred to as the “New Closing Date”). The parties also added a forbearance clause that stated the plaintiff would not “commence any legal action against ABP in the event that the Development approvals had not been issued or the remedial work had not been completed by the New Closing Date.”
Close to one month before the New Closing Date, the plaintiffs commenced various causes of action against the defendants including fraud in the inducement of the amendments to the contract. The plaintiffs sought specific performance of the contract prior to the amendments since such amendments were based on defendant’s misrepresentations of the ability to complete the remedial work. On the other hand, the defendants alleged various counterclaims including: (1) declaratory judgment as to whether the contract was terminated or whether the closing should occur without any reduction in price and (2) breach of contract by the plaintiffs since they allowed the contract to lapse without closing and thus the defendants were entitled to damages limited to the down payment and costs for any remediation work.
The Supreme Court dismissed all of the plaintiff’s causes of action and with respect to the defendants, granted the motion for declaratory judgment that the contract was terminated on its terms, and the plaintiff materially breached the contract. The Appellate Division further affirmed the Supreme Court’s ruling by stating that “that the seller [(here, APB,)] was not required to show that it was ready, willing, and able to complete the sale [as a condition of receiving damages] because the buyer’s anticipatory breach relieved [the seller] of further contractual obligations.” Regardless, the Appellate Division certified the question to the Court of Appeals as to whether the plaintiff’s cause of action for recission could be considered anticipatory breach.
An anticipatory breach of a contract by a promisor is a repudiation of [a] contractual duty before the time fixed in the contract for . . . performance has arrived. The key element of anticipatory breach is that the expression of intent not to perform by the repudiator must be “positive and unequivocal”. The damages sought by the aggrieved party must be either for the breach of contract or proceed if contract is valid. The Court observed that with respect to damages, that “a wrongful repudiation of the contract by one party before the time for performance entitles the nonrepudiating party to immediately claim damages for a total breach”.
Here, the Court concluded that the commencement of the recession action reflects a repudiation action because of the continuous movement of new closing dates. The observation of the Appellate Division was reiterated in that a declaratory judgment does not constitute anticipatory breach since such judgment is seeking to define the rights and obligation of the parties.
However, the Court reversed the Appellate Division’s decision by noting that “there is no material difference between an action seeking recession and a declaratory judgment action.” Although the opinion stated that an action for rescission is one where a contract is entered, but the terms should be nullified whereas the a declaratory judgment action seeks to find a ruling for the rights of the parties under the contract, nevertheless, the Court held that there was no “positive and unequivocal” repudiation. Furthermore, in the Court’s view, “the mere act of asking for judicial approval to avoid a performance obligation is not the same as establishing that one will not perform that obligation absent such approval”.
Ultimately, the Court underscored an important aspect of anticipatory breach in that the focus is to be on plaintiff’s action had to be positive and unequivocal. The Court appeared to hone in on the distinction between the actual conduct of the plaintiff and simply obtaining a judgment or order. It appears in the Court’s view, anticipatory breach could be established once a plaintiff displays positive and unequivocal intent post-judgment.