Princes Point LLC v. Muss Development L.L.C.

Rule of Law:

The mere commencement of a legal action seeking "rescission and/or reformation" of a contract, particularly when also seeking specific performance of the original agreement, does not constitute an anticipatory breach because it is not a "positive and unequivocal" expression of an intent not to perform.

Facts:

• In 2004, Princes Point LLC agreed to purchase a developable waterfront property on Staten Island from Allied Princes Bay Co. and Allied Princes Bay Co. #2, LP (APB).
• The purchase agreement stipulated that, as a condition precedent to closing, APB was required to deliver certain government approvals necessary to develop the property, setting an "Outside Closing Date" 18 months after the agreement's execution.
• Following Hurricane Katrina, the New York State Department of Environmental Conservation (DEC) identified flaws in a retaining wall along the waterfront, requiring APB to remedy these defects, which prevented APB from obtaining the requisite development approvals by the original closing date.
• APB advised Princes Point LLC that it intended to terminate the agreement unless Princes Point LLC agreed to an amendment due to the additional time and cost required for remediation.
• In March 2006, Princes Point LLC and APB amended the purchase contract, increasing the purchase price and down payment, requiring the parties to share remediation costs, and extending the "outside closing date" for the sale to July 22, 2007.
• The outside closing date was subsequently extended approximately 11 times due to the ongoing remedial work, ultimately to July 22, 2008.
• The amendments included a forbearance clause, which provided that, as a material inducement for APB's agreement to the new outside closing date, Princes Point LLC would not commence any legal action against APB if development approvals or remedial work were incomplete by that date.
• Approximately one month before the final new outside closing date, Princes Point LLC commenced an action alleging fraud in the inducement of the amendments, seeking to eliminate the increased purchase price and shared remediation costs, and requesting specific performance of the original contract (absent the amendments).

Procedural Posture:

• Princes Point LLC commenced an action in Supreme Court (trial court) against Muss Development L.L.C., et al., alleging fraud in the inducement of contract amendments and seeking specific performance of the original contract.
• Defendants (APB, Joshua L. Muss, and Muss Development L.L.C.) asserted various counterclaims, including a request for a declaratory judgment that the contract had terminated or that Princes Point LLC must immediately proceed to closing, and a claim that Princes Point LLC defaulted on the agreement, entitling APB to retain payments.
• All of Princes Point LLC's causes of action were subsequently dismissed by the Supreme Court.
• Defendants moved for partial summary judgment on their counterclaims concerning contract termination and material breach.
• The Supreme Court granted defendants' motion, adjudging that the contract had "expired by its terms" and that Princes Point LLC "materially breached" it, entitling defendants to retain the down payment and remedial payments.
• The Appellate Division affirmed the Supreme Court's judgment insofar as appealed by Princes Point LLC, concluding that the commencement of a rescission action constitutes an anticipatory breach and relieved the seller of further contractual obligations.
• The Appellate Division granted Princes Point LLC leave to appeal to the Court of Appeals, certifying for review the question of whether the Appellate Division's order, as affirmed, was properly made.