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Breach of contract

Under New York law, a party establishes a breach of contract where it proves the existence of a valid contract, breach by the other party, that the non-breaching party fully performed its obligations and that the non-breaching party sustained damage as a result of the breach. The non-breaching party must demonstrate that the other party committed a material breach of the contract. A breach is material if it deprives 'the injured party of the benefit it justifiably expected' under the contract. Conversely, '[i]f the party in default has substantially performed, the other party's performance is not excused'.

Courts will look at several factors to determine whether substantial performance has occurred, including the amount of performance completed, the magnitude of the default, whether the purpose of the contract has been frustrated and whether the non-breaching party has received a substantial benefit of the contract.

In New York, parties to a contract are also bound by the implied duty of good faith and fair dealing. This common law principle is intended to address situations where 'there is not a breach of contract, but where one party has attempted to undermine the contract or deprive the other of the benefit of the bargain'. Despite the fact that New York generally recognises the covenant of good faith and fair dealing, courts have presented conflicting signals when applying the doctrine to contracts that afford one party sole discretion to take or refrain from taking a particular action. For example, some New York courts have held that the covenant is not violated if a party chooses to exercise its contractual right to 'terminate the contract “in its sole discretion” and for “any reason whatsoever”', while other courts in New York have allowed claims to proceed notwithstanding such language. Whether the covenant was allegedly breached, however, often is fact-specific and dependent on the nature of the act that violated it. As a general rule, courts are more likely to find a party breached an express term of an agreement rather than the implied covenant of good faith.

Anticipatory breach or repudiation of a contract is a breach 'that occurs before performance by the breaching party is due'. An anticipatory breach can be a statement by the repudiating party to the non-repudiating party that the former will breach, or a 'voluntary affirmative act' rendering the repudiator unable to perform without breach. The repudiator's expression of intent not to perform must be 'positive and unequivocal'. When faced with an anticipatory repudiation, the non-repudiating party may elect to:

  1. 'treat the repudiation as an anticipatory breach and seek damages for breach of contract'; or
  2. 'continue to treat the contract as valid and await the designated time for performance before bringing suit'.