Letter Declaring Contract Void Ab Initio, Demand for The Return of Down Payment, and Commencement of Litigation Constitutes an Anticipatory Breach of Contract

• Posted on: May 19 2025

By: Jeffrey M. Haber

A contract is an agreement between two or more parties to do something (e.g., provide goods or services) in exchange for a benefit.

When one or more parties to a contract fail to perform a term in their agreement, they are in breach of that agreement.

Most breaches fall into one of two categories: actual or anticipatory.[1] In the former, a party to the contract fails or refuses to perform his/her obligations under the agreement or performs his/her obligations incompletely. In the latter, a party to the contract declares, before performance is required, that he/she does not intend to perform the obligations under the agreement.[2]  A breach of contract, regardless of the form it takes, entitles the non-breaching party to bring an action for damages.

When one party unconditionally refuses to perform under the contract, regardless of when performance is supposed to take place, the refusal is called a “repudiation” of the contract.  A breach may be considered a repudiation even if it is not of an essential term or a material breach of an intermediate term. (This Blog previously wrote about the types of breaches here.)

Anticipatory Breach Examined

There are two types of anticipatory breaches: (1) express, and (2) implied.[3] In an express repudiation, a party to a contract announces, before performance is required, that he/she will not perform under the agreement. The repudiation must be clear, straightforward, and directed at the other party.[4] The declaration cannot be qualified or ambiguous. (For example, “Unless it stops raining, I will not be able to fix the roof.”) In an implied repudiation, a party takes actions that put the performance of a contract out of his/her power to perform (such as when a contractor sells the tools required to fix his customer’s roof).

If the breach can be shown to be repudiatory in nature, then the non-breaching party can terminate the contract, even though the date for performance has not yet occurred or proceed as if the contract is valid.[5] Importantly, the non-repudiating party need not tender performance or prove its ability to perform the contract in the future.[6] Rather, the non-repudiating party is relieved of his/her obligation of future performance and can recover the present value of his/her damages from the repudiating party’s breach of the contract.[7] 

The decision whether to accept that the contract has been repudiated and terminate or wait until the date for performing the obligation passes and treat the defaulting party as being in actual breach, is not an easy one.  One commentator described the difficulty as follows:

If the promisee regards the apparent repudiation as an anticipatory repudiation, terminates his or her own performance and sues for breach, the promisee is placed in jeopardy of being found to have breached if the court determines that the apparent repudiation was not sufficiently clear and unequivocal to constitute an anticipatory repudiation justifying nonperformance. If, on the other hand, the promisee continues to perform after perceiving an apparent repudiation, and it is subsequently determined that an anticipatory repudiation took place, the promisee may be denied recovery for post-repudiation expenditures because of his or her failure to avoid those expenses as part of a reasonable effort to mitigate damages after the repudiation.[8]

“When one party to a contract commits an anticipatory breach, the nonbreaching party, must choose one of two options: either treat the contract as terminated and seek damages, or ignore the breach and wait for the breaching party to perform.”[9] The nonbreaching party must “make an election and cannot ‘at the same time treat the contract as broken and subsisting. One course of action excludes the other.’”[10] “On learning of the breach, the other party has a reasonable time to elect its remedy.”[11] 

“In determining which election the nonbreaching party has made, ‘the operative factor … is whether the non-breaching party has taken an action (or failed to take an action) that indicated to the breaching party that [it] had made an election.’”[12] Once the nonbreaching party has chosen a remedy, the choice becomes binding and cannot be altered.[13] Accordingly, asserting a cause of action alleging breach of contract precludes pleading a cause of action alleging anticipatory breach of contract.[14]

Whether a party has anticipatorily breached a contract is ordinarily a question of fact reserved for a jury, but a court may decide the issue as a matter of law when the purported repudiation is embodied in an unambiguous writing.[15]

Can the Breaching Party Take Back the Repudiation?

A breaching party can repudiate the contract and then later retract the repudiation, as long as the non-breaching party has not made a material change in his/her position because of the repudiation. Notwithstanding, retraction cannot be made if the only contractual obligation remaining is for one party to pay money to the other. In that case, the party seeking the payment must wait until the due date for the payment has passed.

The Non-Breaching Party’s Duty to Mitigate

If one party repudiates the contract, most courts require the non-breaching party to avoid incurring unnecessary costs or expenses. This is referred to as “mitigating damages” and generally means that the non-breaching party cannot sit on his/her rights and let the situation get worse.

JP Pizza Eastport, LLC v. Luigi’s Main St. Pizza, Inc.

The foregoing principles were recently addressed by the Appellate Division, Second Department, in JP Pizza Eastport, LLC v. Luigi’s Main St. Pizza, Inc., 2025 N.Y. Slip Op. 02915 (2d Dept. May 14, 2025) (here).

JP Pizza was an action, inter alia, to recover damages for breach of contract involving certain real property located in Eastport (hereinafter, the “subject premises”) that was owned by defendant Luigi’s on Main, LLC (“Luigi’s, LLC). The subject premises was a mixed-use property with a pizzeria business and residential apartments located thereon. Defendant Luigi’s Main Street Pizza, Inc. (hereinafter, “Luigi’s Pizza”) operated the pizzeria business.

In July 2018, Luigi’s Pizza sold the pizzeria business to plaintiff JP Pizza Eastport, LLC (hereinafter, “JP Pizza”). On or around the same date as the closing of the sale of the pizzeria business, Luigi’s Pizza, as lessor, entered into a lease agreement with JP Pizza for a portion of the subject premises used for the operation of the pizzeria business.

On or around July 16, 2018, plaintiff 491 Montauk Highway Eastport, LLC (hereinafter, “Montauk Highway, LLC”) entered into a contract to purchase the subject premises from Luigi’s, LLC. JP Pizza and Montauk Highway, LLC were related companies, sharing a common managing member. Pursuant to the contract, Montauk Highway, LLC paid a down payment of $33,250, which was deposited into an escrow account. The contract provided that the closing was to occur on or around September 15, 2018. The contract required Luigi’s, LLC to deliver a “[c]ertificate of [o]ccupancy or other required certificate of compliance, or evidence that none was required, covering the building(s) and all of the other improvements located on the property authorizing their use as a commercial property with permit for restaurant, cottage and apartment rentals” at closing. The contract further provided that Luigi’s, LLC could adjourn the closing up to October 15, 2018, if necessary, in order to cure any defects or objections to title.

By letter dated August 22, 2018, plaintiffs advised defendants they had discovered that the pizzeria business and the subject premises lacked “required approvals, permits, and licenses,” declared all agreements entered into between the parties “void ab initio,” and demanded the immediate return of the $33,250 down payment paid by Montauk Highway, LLC, in connection with the contract for the sale of the subject premises and the payment of certain monies allegedly expended by JP Pizza in connection with the purchase of the pizzeria business and the making of improvements to the subject premises. Plaintiffs further advised defendants that JP Pizza would cease operations of the pizzeria business on the following day and that it would return the subject premises to Luigi’s Pizza. JP Pizza vacated the subject premises and ceased operations in August 2018.

By letter dated August 27, 2018, defendants responded that they would obtain any required certificates for the subject premises in accordance with the terms of the contract.

On September 4, 2018, plaintiffs commenced the action asserting causes of action sounding in, among other things, fraud, rescission, and breach of contract. The complaint did not assert a cause of action seeking specific performance of the contract. Defendants interposed an answer, asserting, inter alia, an affirmative defense alleging that Montauk Highway, LLC, had repudiated the contract and that Luigi’s, LLC, was entitled to retain the down payment as liquidated damages.

In May 2019, several months after JP Pizza had vacated the subject premises and stopped paying rent, Luigi’s, LLC, entered into a 10-year lease agreement for the subject premises with a third party. Thereafter, by letter dated November 25, 2019, plaintiffs purported to schedule a time-of-the-essence closing for December 9, 2019.

After the completion of discovery, defendants moved, among other things, for summary judgment dismissing the cause of action alleging breach of contract. Plaintiffs cross-moved, inter alia, for summary judgment on that cause of action. In an order dated March 22, 2022, the Supreme Court, among other things, granted that branch of the defendants’ motion and denied that branch of the plaintiffs’ cross-motion. Plaintiffs appealed.

The Appellate Division, Second Department affirmed.

The Court held that “the Supreme Court properly granted that branch of the defendants’ motion which was for summary judgment dismissing the cause of action alleging breach of contract and denied that branch of the plaintiffs’ cross-motion which was for summary judgment on that cause of action.”[16]

The Court found that “defendants established their prima facie entitlement to summary judgment dismissing the cause of action alleging breach of contract.”[17] The Court explained that defendant established that plaintiffs had anticipatorily breached the contract of sale:

Pursuant to the contract, the defendants had until September 15, 2018, to obtain the requisite approvals and were entitled to extend that deadline to October 15, 2018. By declaring the contract void ab initio through their attorney’s letter dated August 22, 2018, and demanding the return of the down payment, the plaintiffs anticipatorily breached the contract.[18]

Having found that plaintiffs breached the contact of sale, the Court explained that defendants properly elected their remedy for said breach by ignoring the breach and waiting for plaintiffs to perform.[19] But, as noted, plaintiffs did not perform. Under the circumstances, the Court found that plaintiffs repudiated the contract, entitling defendants to retain the down payment for the subject property:

The plaintiffs’ conduct, first by the letter declaring the contract void ab initio and demanding the return of the down payment, and then by the commencement of this action, amounted to a positive and unequivocal expression of their intent not to perform, and the defendants, under the terms of the contract, were entitled to retain the down payment as liquidated damages for the plaintiffs’ anticipatory breach.[20]

_______________________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] This Blog has examined cases involving an anticipatory breach of contract on numerous occasions. To find articles related to this topic, visit the “Blog” tile on our website and enter “anticipatory breach” in the “search” box.

[2] Princes Point LLC v. Muss Dev. L.L.C., 30 N.Y.3d 127, 133 (2017); Fuoco Group, LLP v. Weisman & Co., 222 A.D.3d 619, 621-622 (2d Dept. 2023); see also 10-54 Corbin on Contracts § 54.1 (2017) (“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”); 13 Williston on Contracts § 39:37 (4th ed.).

[3] Norcon Power Partners v. Niagara Mohawk Power Corp., 92 N.Y.2d 458, 463 (1998) (noting that 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”) (internal quotation marks omitted).

[4] Tenavision, Inc. v. Neuman, 45 N.Y.2d 145, 150 (1978) (noting that the expression of intent not to perform must be “positive and unequivocal”). See also Central Park Capital Grp., LLC v. Machin, 189 A.D.3d 984, 986 (2d Dept. 2020) (quoting, Princes Point, 30 N.Y.3d at133).

[5]  Strasbourger v. Leerburger, 233 N.Y. 55, 59 (1922); see also American List Corp. v. U.S. News & World Report, 75 N.Y.2d 38, 44 (1989).

[6] American List Corp., 75 N.Y.2d at 44.

[7] Id.

[8] Norcon Power, 92 N.Y.2d at 463 (quoting, Crespi, The Adequate Assurances Doctrine after U.C.C. § 2-609: A Test of the Efficiency of the Common Law, 38 Vill. L. Rev. 179, 183 (1993)).

[9] Contract Pharmacal Corp. v. Air Indus. Grp., 224 A.D.3d 873, 874 (2d Dept. 2024); see Princes Point, 30 N.Y.3d at 133.

[10] Inter-Power of N.Y. v. Niagara Mohawk Power Corp., 259 A.D.2d 932, 934 (3d 1999) (quoting, Strasbourger, 233 N.Y. at 59).

[11] Todd English Enters. LLC v. Hudson Home Grp., LLC, 206 A.D.3d 585, 587 (1st Dept. 2022).

[12] AG Props. of Kingston, LLC v. Besicorp-Empire Dev. Co., LLC, 14 A.D.3d 971, 973 (3d Dept. 2005) (quoting, Bigda v, Fischbach Corp., 898 F. Supp. 1004, 1013 (S.D.N.Y. 1995), aff’d 101 F.3d 108 (2d Cir. 1996)).

[13] See Lucente v. International Bus. Machs. Corp., 310 F.3d 243, 258-259 (2d Cir. 2002).

[14] Id. at 258-260.

[15] Briarwood Farms, Inc. v. Toll Bros., Inc., 452 Fed. App’x. 59, 61 (2d Cir. 2011).

[16] Slip Op. at *3.

[17] Id. at *2.

[18] Id.

[19] Id. (citing Contract Pharmacal, 224 A.D.3d at 874).

[20] Id. at *2-*3 (citation omitted).