Be Careful What You Say – A Cautionary Tale of Anticipatory Repudiation

Anticipatory repudiation refers to a situation when one party to a construction contract refuses to perform some aspect of the agreement before the time for performance is due.  The non-repudiating party then has the option of treating the agreement as breached and is entitled to damages.  In other words, if a General Contractor determines that its subcontractor has engaged in conduct that would constitute anticipatory repudiation, they may consider the contract terminated and replace the breaching subcontractor with a new one.  Decisions by New York courts however have made basing a termination of a subcontractor on anticipatory repudiation a risky endeavor. 

To constitute an anticipatory repudiation there must be a clear manifestation of intent communicated in advance of the time for performance that when the time for performance arrives the required performance will not be rendered.  Simply put, anticipatory repudiation occurs when there is an overt communication of intention not to perform.  For these principles to operate, the expression of intention not to perform must be positive and unequivocal.[1]

  The recent case of Joseph P. Carrara & Sons, Inc. v. A.R. Mack Construction Company, Inc., 89 A.D.3d 1190, 931 N.Y.S.2d 813 (3^rd Dept. 2011) provides a good example of the limited circumstances in which a court will make a finding of anticipatory repudiation.  In Carrara & Sons, the plaintiff, a concrete supplier, entered into a purchase order agreement with the defendant, a contractor.  A dispute arose as to the pour schedule and the coming winter weather, culminating with the Plaintiff writing a letter to the Defendant requiring written acceptance of the supplier’s terms by the end of the day or they would shut down their New York operation. The court upheld a finding of anticipatory repudiation based upon the clear refusal to perform found within the letter.

It must also be noted that mere rumors or a lack of confidence as to a party’s ability to perform the contract or financial wherewithal will most likely not give rise to a finding of anticipatory repudiation.

In fact, the United States Court of Appeals has expressly found that such concerns are not valid reasons for a finding of anticipatory repudiation or termination.  In McCloskey & Co. v. Minweld Steel Co., 220 F.2d 101 (3^rd Cir. 1955), a steel subcontractor wrote a letter to the general contractor explaining its difficulty in obtaining the necessary steel.  The letter went further and requested assistance in procuring it and stated, “We are as anxious as you are that there be no delay in the final completion of the buildings or in the performance of our contract.”  The plaintiff, general contractor, claimed that by this letter their steel subcontractor had given notice of its positive intention not to perform its contract and had thereby breached it.  The court however disagreed, finding that “the letter conveys no idea of contract repudiation by [defendant]…Despite the circumstances there is no indication in the letter that [defendant] had definitely abandoned all hope of otherwise receiving the steel and so finishing its undertaking.”  The Court of Appeals then adopted a holding of the Pennsylvania Supreme Court, stating “In order to give rise to a renunciation amounting to a breach of contract, there must be an absolute and unequivocal refusal to perform or a distinct and positive statement of an inability to do so.  [Defendant’s] conduct is plainly not that of a contract breaker under that test.” 

The decision to terminate an agreement is always a difficult one and should not be made lightly.  If what the general contractor feels is an anticipatory repudiation turns out to be nothing more than a request for help or invitation to discuss the terms of the agreement, the termination may be found to be wrongful.  Rarely does a set of facts fit neatly within the conditions set out for a finding of anticipatory repudiation, so consultation with an experienced attorney would be the wisest way to avoid making a costly mistake.

If you would like more information on this issue or any other construction related issue, please contact Giannasca & Shook, PLLC at (914) 220-0216.

If you have any questions about the information set forth in this Legal Alert, call us at 914-220-0216. Please understand that this alert provides general information only. It is not intended to provide legal advice. We encourage you to contact an attorney should you desire to discuss specific situations for which you may need specific legal advice.