Earlier this year, we wrote about the First Department’s decision addressing the question, as framed by the Court of Appeals, of “whether the mere commencement of an action seeking ‘rescission and/or reformation’ of a contract constitutes an anticipatory breach of such agreement.” The First Department found that it did. The Court of Appeals recently disagreed and reversed.
The facts of this case are found in our prior post. Briefly, a buyer entered into a contract to buy two parcels of land with the closing set for after the seller obtained certain regulatory approvals, but not later than 18 months from the contract date. If the approvals could not be obtained either party could, among other things, terminate the contract. After the approvals were delayed, the seller opted to terminate the contract and return the downpayment unless the buyer agreed to modify the contract. The contract was modified to extend the deadline to close and other contract terms. The parties also agreed that the buyer would not sue the seller if the approvals could not be timely delivered. Believing that the approvals were forthcoming, the parties again extended the closing deadline. Before that newly extended closing deadline, the buyer sued the seller seeking to cancel, or rescind, the contract. The seller counterclaimed claiming that the buyer’s lawsuit, by which it announced that it would not close and sought to cancel the contract before the time to close, was itself a default entitling the seller to keep the buyer’s substantial downpayment. After the buyer’s lawsuit for rescission was dismissed, the seller pursued its counterclaim for the downpayment. The First Department deemed the buyer’s lawsuit to be a breach of the parties’ contract and allowed the seller to keep the downpayment.
The Court of Appeals zeroed in on the First Department’s core finding that “the Appellate Division affirmed . . . because a rescission action unequivocally evinces the plaintiff’s intent to disavow its contractual obligations, the commencement of such an action before the date of performance constitutes an anticipatory breach’ (Princes Point LLC v. Muss Dev. L.L.C., 138 AD3d 112, 114 [1st Dept 2016] ). The Appellate Division also concluded ‘that the seller . . . 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’ (id.).”