Long Island Rail Road Company v. Northville Industries Corp., 41 N.Y.2d 455 (1977)
The doctrine of anticipatory breach can apply to contracts where the breaching party’s remaining obligation is solely the payment of money, provided that the non-breaching party has remaining obligations under the contract.
Summary
Long Island Rail Road (LIRR) sued Northville Industries after Northville canceled a license agreement allowing it to construct a pipeline on LIRR property. The agreement specified a minimum annual payment to LIRR. Northville never built the pipeline. LIRR sought damages for the entire term of the agreement, claiming anticipatory breach. The court held that while Northville was not obligated to build the pipeline, its cancellation constituted an anticipatory breach entitling LIRR to damages for the remaining term, discounted to present value, because LIRR had remaining obligations to allow Northville to build the pipeline had it desired to.
Facts
Northville sought a right-of-way from LIRR to build a fuel pipeline on LIRR’s land.
LIRR and Northville entered into a license agreement granting Northville the right to construct and maintain the pipeline in exchange for payments, including a guaranteed minimum annual payment.
The agreement was characterized as a license, not a lease.
Northville had the option to cancel the agreement within the first three years.
Northville encountered delays and sought an extension to the cancellation period, which LIRR did not formally grant.
Northville eventually canceled the agreement before building the pipeline.
Procedural History
LIRR sued Northville for breach of contract, seeking damages for the entire term of the agreement.
Special Term (trial court) rejected LIRR’s argument that Northville was obligated to build the pipeline and dismissed claims for payments due after the lawsuit commenced, finding the acceleration clause inapplicable.
The Appellate Division modified, holding that the doctrine of anticipatory breach applied and that LIRR was not limited to damages accrued before the lawsuit.
Issue(s)
1. Whether the agreement obligated Northville to construct the pipeline.
2. Whether Northville’s cancellation constituted an anticipatory breach of the agreement.
3. Whether the doctrine of anticipatory breach applies to a contract where the only remaining obligation of the breaching party is to pay money.
4. Whether LIRR can recover damages for future installments of the guaranteed minimum payment.
Holding
1. No, because the agreement was a license granting Northville permission to construct and operate a pipeline, but did not require it to do so.
2. Yes, because Northville repudiated the agreement before full performance and before receiving all consideration.
3. Yes, because the doctrine can apply to contracts for the payment of money if the non-breaching party has remaining obligations under the contract.
4. Yes, because Northville’s cancellation constituted an anticipatory breach, entitling LIRR to damages for the remaining term, discounted to present value.
Court’s Reasoning
The court found the agreement to be a license, not a contract requiring Northville to build the pipeline. The court stated, “To construe various portions of the agreement in such a fashion as to place an obligation on Northville to exercise the privilege granted to it, as urged by the railroad, would be contrary to the obvious intention of the parties as expressed therein.”
Despite Northville’s lack of obligation to build, its cancellation constituted an anticipatory breach. The court addressed the issue of whether anticipatory breach applies to contracts for money only, acknowledging precedent limiting it to bilateral contracts with mutual obligations. However, the Court reasoned that “The question is whether, at the time of the repudiation, there existed some dependency of obligation.”
The court found that LIRR had remaining obligations, for example, refraining from selling or leasing the property in a way that would prevent pipeline construction. “In order to recover in a future action, the railroad must show that it is still in a condition to perform… This manifests ‘dependency of performances’ and thus the need to apply the doctrine of anticipatory breach.”
Because LIRR had remaining obligations, the doctrine of anticipatory breach was properly applied, entitling LIRR to damages for the remaining term of the agreement, discounted to present value.