Gamesa Energy USA, Aplt. v. Ten Penn Center
Slip Opinion [J-5-2019] (2019)
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Rule of Law:
A non-breaching party to a contract who continues to perform its obligations and accept benefits under the contract after a material breach by the other party has, by its conduct, made an election of remedies. This election affirms the contract and limits the party's recovery to damages for partial breach, thereby barring a claim for rescission of the contract and restitution.
Facts:
- In 2008, Gamesa Energy USA, LLC (Gamesa) entered into a ten-year commercial lease for office space from Ten Penn Center Associates, L.P. (Ten Penn Center).
- The lease required Ten Penn Center's prior written approval for any sublease, which could not be 'unreasonably withheld, conditioned or delayed,' and also defined vacating the premises as an 'Event of Default.'
- In April 2012, Gamesa notified Ten Penn Center that it was consolidating operations and would vacate the premises on May 18, 2012, but would continue to pay rent and seek sub-lessees.
- On June 12, 2012, Gamesa submitted a formal request for Ten Penn Center's consent to sublease a portion of the space to Business Services International, LLC (BSI).
- On June 26, 2012, Ten Penn Center responded by declaring Gamesa in default for having vacated the premises.
- On July 13, 2012, Ten Penn Center proposed it would consent to the BSI sublease only if Gamesa forfeited its remaining tenant improvement allowance of approximately $391,000.
- The proposed sublease with BSI never materialized, but for over three years thereafter, Gamesa continued to pay its monthly rent, collect rent from its existing sub-lessee (Viridity), and attempt to find other sub-lessees.
Procedural Posture:
- Gamesa filed a complaint against Ten Penn Center in the Court of Common Pleas of Philadelphia County (trial court), asserting claims for breach of contract and unjust enrichment.
- Following a non-jury trial, the court found in favor of Gamesa, awarding it damages for the lost BSI sublease (breach of contract) and a full reimbursement of all rent paid since Ten Penn Center's breach (unjust enrichment/rescission).
- Ten Penn Center appealed the trial court's judgment to the Superior Court of Pennsylvania (intermediate appellate court).
- The Superior Court affirmed the award of damages for the lost sublease but reversed the award for rent reimbursement, holding that Gamesa had elected its remedy by continuing to perform under the lease.
- The Supreme Court of Pennsylvania granted Gamesa's petition for allowance of appeal to review the Superior Court's decision on the election of remedies.
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Issue:
Does a non-breaching party's continued performance and acceptance of benefits under a lease agreement, after a material breach by the other party, constitute an election of remedies that bars recovery for retroactive termination of the lease and restitution of rent paid?
Opinions:
Majority - Justice Dougherty
Yes, a non-breaching party to a contract may, by its conduct following a breach, conclusively elect its remedy, and continuing to perform under the contract bars a later claim for rescission. By continuing to pay rent, collect sub-rent, and otherwise benefit from the lease for over three years after Ten Penn Center's breach, Gamesa affirmed the contract's existence. The court reasoned that a party cannot treat a contract as simultaneously terminated for the purpose of seeking restitution (return of rent) and continuing for the purpose of seeking damages (lost sublease profits). Gamesa's conduct constituted a conclusive election to treat the breach as partial, entitling it to damages for that breach but precluding the inconsistent remedy of retroactive termination and restitution. The purpose of the election of remedies doctrine is to prevent a double recovery, which the trial court's award erroneously granted. While a party can plead inconsistent remedies, its post-breach conduct can operate as a substantive election, limiting which remedy is ultimately available.
Concurring - Chief Justice Saylor
The text of the concurring opinion was not included in the provided case document.
Analysis:
This decision reinforces the traditional contract law doctrine of election of remedies in Pennsylvania, emphasizing that a party's post-breach conduct has significant legal consequences. It clarifies that a non-breaching party cannot wait indefinitely to choose between affirming a contract and rescinding it; continued performance and acceptance of benefits will be interpreted as an affirmation. This places the risk on the non-breaching party to make a prompt and decisive choice, as it cannot simultaneously enjoy the benefits of the contract while also seeking to have it nullified. The ruling serves as a caution to commercial tenants and other contracting parties that they cannot 'have their cake and eat it too' when faced with a breach by the other side.
