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Posted: October 23, 2017

Bringing Action for Rescission/Reformation of Contract Not Anticipatory Breach of That Contract

On October 19, 2017, the Court of Appeals issued a decision in Princes Point LLC v. Muss Development L.L.C., 2017 NY Slip Op. 07298, holding that bringing an action seeking rescission and/or reformation of a contract did not constitute an anticipatory breach of that agreement, explaining:

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. An anticipatory breach of a contract — also known as an anticipatory repudiation — can be either a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach or a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach.

For an anticipatory repudiation to be deemed to have occurred, the expression of intent not to perform by the repudiator must be positive and unequivocal. We have taught that the party harmed by the repudiation must make a choice either to pursue damages for the breach or to proceed as if the contract is valid. We have also clarified 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.

On this record — and particularly in view of the repeated movement of the new outside closing date — we cannot conclude that the commencement of this action reflects a repudiation of the contract. At the core of this appeal is the unsettled question whether the commencement of an action, particularly one seeking rescission, is an anticipatory breach.

We do not, however, agree with the Appellate Division’s conclusion that, in this context, an action seeking rescission of a contract is markedly different from a declaratory judgment action. To be sure, this action (one for rescission and/or reformation of the purchase agreement based on defendants’ purported misrepresentation with respect to the condition of the property) and a declaratory judgment action necessarily would produce different results. This action is one based on the terms under which the amendments to the contract were entered, and essentially seeks to nullify those terms. A declaratory judgment action would produce a ruling as to the rights of the parties under the terms of the contract, and essentially would determine the meaning of those terms. Nevertheless, in this context — specifically, where the amended complaint seeks, among other things, reformation of the amendments to the contract and specific performance of the original agreement — there was no positive and unequivocal repudiation. There is no material difference between this action and a declaratory judgment action. At bottom, both actions seek a judicial determination as to the terms of a contract, and 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.

(Internal quotations and citations omitted) (emphasis added).

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