When a party to a contract repudiates, the non-repudiating party is faced with two options: (1) treat the repudiation as an anticipatory breach, terminate the contract and seek damages; or (2) continue to treat the contract as valid and await the time for performance before bringing suit. In a recent decision from the Suffolk County Commercial Division, Justice Elizabeth H. Emerson reminds us that a non-repudiating party must choose one or the other—a plaintiff cannot assert simultaneously a cause of action for breach of contract and anticipatory breach.
In Contract Pharmacal Corp. v Air Industries Group, Plaintiff Contract Pharmacal Corp., as sublessor, and Defendant Air Industries Group, as sublessee, entered into a sublease on May 21, 2018, for approximately 81,000 square feet of space in a large warehouse building (“Sublease Agreement”). About a month later, Defendant informed Plaintiff that it was unable to immediately deliver the entire 81,000 square foot warehouse and instead offered to deliver 31,500 square feet of “back space” with the promise of delivering the remainder of the space by the “4th quarter” of 2018. Defendant assured Plaintiff the “back space” would be available by August 3, 2018, and offered to construct a wall for the purpose of separating the “back space” from the rest of the warehouse.
Plaintiff alleges in its Complaint that based on the Sublease Agreement, it proceeded with purchasing substantial equipment and merchandise, and although Plaintiff objected to any changes to the Sublease Agreement, it needed the “back space” to store its newly purchased equipment. On August 3, 2018, Plaintiff advised Defendant that it was in breach of the Sublease Agreement and expressly reserved its rights and remedies under the Sublease Agreement, but also accepted Defendant’s offer to construct a wall to separate the “back space” under the condition that the wall was constructed at Defendant’s sole cost and expense. Plaintiff built the wall, and Defendant moved in.
Shortly after, on September 10, 2018, Defendant informed Plaintiff that “the deal has now changed” and requested the Plaintiff enter a new sublease agreement for the “back space” only, replacing the original Sublease Agreement. Frustrated by Defendant’s failure to deliver the agreed upon space, Plaintiff went elsewhere and entered into a lease in another warehouse building for approximately 50,000 square feet of space.
Plaintiff then commenced an action in the Suffolk County Commercial Division against Defendant alleging causes of action for breach of contract, specific performance, and promissory estoppel. Plaintiff subsequently sought to amend its Complaint to add a cause of action for anticipatory breach of contract, which the Court denied. Plaintiff then sought reargument.
Upon reargument, Justice Emerson adhered to her prior determination that
“a plaintiff who brings a claim for breach of contract cannot simultaneously pursue a claim for anticipatory breach.”
The Court instructed that when confronted with an anticipatory repudiation, the non-repudiating party has two options: (1) treat the repudiation as an anticipatory breach and seek damages for breach of contract, thereby terminating the contractual relation between the parties; or (2) continue to treat the contract as valid and await the designated time for performance before bringing suit. The non-repudiating party must, however, affirmatively choose between these two exclusive options; it cannot “treat the contract as broken and subsisting at the same time.” The operative factor is whether the non-breaching party has taken an action (or failed to take an action) as to indicate to the breaching party that it has made an election between his options.
In Contract Pharmacal, the Court determined that Defendant repudiated the Sublease Agreement when it advised Plaintiff it could not immediately deliver the entire premise. At that point, Plaintiff could have terminated the parties’ contractual relationship and sought damages for breach of contract. Plaintiff, however, did not take that course of action. Instead, Plaintiff accepted Defendant’s offer to build a wall and moved into the “back space.” By doing so, Plaintiff indicated to the Defendant that it was electing to treat the Sublease Agreement as valid and to await the Defendant’s performance under it. The Court held that once Plaintiff made this choice, its decision was binding with respect to that breach, could not be changed, and thus Plaintiff’s claim for anticipatory breach was barred as a matter of law.
A complaint which asserts both a cause of action for breach of contract and anticipatory breach will likely not survive the pleading stage. A non-repudiating party’s decision to either terminate a contract upon repudiation and assert a cause of action for anticipatory breach or wait until the time of performance before bringing a cause of action for breach of contract is both exclusive and binding.