Plaintiffs Cannot Rely on the Doctrine of Anticipatory Repudiation As Plaintiffs Are Already in Material Breach of the Contract
March 16, 2020
A life lesson you likely heard growing up applies to contracts: take a hard look at yourself before criticizing others. By the same token, a party who is in material breach of a contract cannot succeed on a claim alleging an anticipatory breach by the other party.
In Rapson Invs. LLC v 45 E. 22nd St. Prop. LLC, Plaintiffs – as Purchasers – entered into multiple Purchase Agreements with the Sponsor – the owner of the property and developer of the Condominium – for the purchase of certain condominium units at a property in New York City. However, Purchasers could not timely close on the sale even by exercising all their adjournment rights. Purchasers notified Sponsor of the fact that they were not prepared to pay the purchase price for the units by email, dated July 25, 2017. Although the Sponsor had the right to terminate the Purchase Agreements, the Sponsor nevertheless agreed to give the Purchasers additional time to close on the condition that they 1) waive all rights to the escrowed down payments, and 2) pay the carrying charges of the units until closing. Although Purchasers agreed, they failed to pay the carrying charges of the units. Notably, the Purchase Agreements contained a 30 day cure period in the event of default.
In response, on September 7, 2017, the Sponsor issued a Notice of Default. However, shortly before the 30 day period to cure had run, Sponsor issued a Notice of Termination. Purchasers then sent the Sponsor a letter advising that the termination was defective because the 30 day cure period had not run. Although the Sponsor did not rescind its termination notice, on October 7, 2017, after the 30 day cure period had run, Sponsor issued a second Notice of Termination.
Purchasers then filed an Amended Complaint alleging that the Sponsor anticipatorily breached the Purchase Agreement by sending the notice of default before the expiration of the 30 day cure period and failing to rescind the first termination notice. Purchasers alleged that they were relieved of all their obligations under the Purchase Agreements and were entitled to a return of the down payments. The Sponsor subsequently moved for summary judgment to dismiss the amended complaint.
In his Decision and Order, Justice Andrew S. Borrok held that Petitioner’s July 25th email advising the Sponsor that they are not prepared to timely close, constituted an anticipatory breach of contract. The Purchasers were thus in default of the Purchase Agreements. The Commercial Division further noted that Purchasers never escrowed the carrying fees as they were required to do or, otherwise, indicated that they were ready, willing, and able to close before the 30 day cure period had run. Justice Borrok noted that the doctrine of anticipatory repudiation is intended to be a “shield, not a sword,” and that the Purchasers “cannot take advantage of this equitable doctrine to escape the fact that they were not ready to close” once the 30 day cure period had fun.
The First Department affirmed Justice Borrok’s Decision and Order, entered on March 11, 2019, granting the Sponsor’s motion for summary judgment dismissing Purchasers’ complaint and denying the Purchasers’ cross-motion for summary judgment. The First Department held that
“Given that plaintiffs do not deny that they were in breach of their respective purchase agreements and the amendments thereto when defendant sent out premature notices of termination, plaintiffs’ cause of action for anticipatory breach must fail. By definition, an anticipatory breach cannot be committed where, as here, one party is already in material breach of the contract”
The First Department has held that “anticipatory breach cannot be committed by a party already in material breach of an executory contract” (Kaplan v Madison Park Group Owners, LLC). In that regard, an anticipatory breach of a contract is one that occurs before performance by the breaching party is due (see id.) Courts have held that the rationale behind the doctrine is it permits the nonrepudiating party an opportunity to “treat a repudiation as an anticipatory breach without having to futilely tender performance or wait for the other party’s time for performance to arrive” (see id.).
In sum, when the non-repudiating party is confronted with an anticipatory repudiation, the non-repudiating party has two options. “He may (a) elect to treat the repudiation as an anticipatory breach and seek damages for breach of contract, thereby terminating the contractual relation between the parties, or (b) he may continue to treat the contract as valid and await the designated time for performance before bringing suit” (Lucente v Intl. Bus. Machines Corp.).
Notably, you need to carefully evaluate your own actions if you are relying on anticipatory repudiation in filing suit. You will not be able to bring suit for anticipatory breach if you are already in breach of the contract.