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2401 PENNSYLVANIA AVENUE CORPORATION v. FEDERATION JEWISH AGENCIES GREATER PHILADELPHIA (03/18/85)

decided: March 18, 1985.

2401 PENNSYLVANIA AVENUE CORPORATION, TRADING AS 1528 WALNUT STREET, APPELLANT,
v.
FEDERATION OF JEWISH AGENCIES OF GREATER PHILADELPHIA, APPELLEE



Appeal from the Order of the Superior Court, dated August 19, 1983, entered at No. 764 Philadelphia, 1981, vacating the Order of the Court of Common Pleas of Philadelphia, Trial Division, Civil Section, dated March 2, 1981, entered at No. 4384 February Term, 1975.*fn* Pa. Super. , Nix,*fn* C.j., and Larsen, Flaherty, McDermott, Hutchinson, Zappala and Papadakos, JJ. Larsen, J., files a dissenting opinion. Hutchinson, J., files a dissenting opinion in which Zappala, J., joins.

Author: Nix

[ 507 Pa. Page 168]

OPINION

This appeal*fn1 raises the question of whether there was an anticipatory breach of the lease agreement between the appellant owners of the building at 1528 Walnut Street (hereinafter referred to as "Walnut"), and the Federation of Jewish Agencies of Greater Philadelphia ("Federation"). At trial the Court of Common Pleas of Philadelphia County concluded that Federation had committed an anticipatory breach of its lease and entered judgment in favor of Walnut. Damages were assessed at Two Hundred Ninety-two Thousand Dollars ($292,000) plus interest.

On appeal a Superior Court panel determined that the lower court erred in its application of Pennsylvania contract law to the facts of this case. On the grounds that the evidence did not support the finding of an anticipatory breach and that the lower court had erroneously imposed on the Federation a duty to occupy the premises in addition to its obligation to pay rent, the Superior Court reversed and vacated the judgment against Federation. This Court granted Walnut's petition for allowance of appeal on February 29, 1984.

I.

In 1971, Federation decided that its headquarters was inadequate and appointed a search committee to find a new site. After a year and a half the committee recommended that Federation demolish its own building and construct a new one at its location at 1509-13 Walnut Street rather than buy an existing building at another site.

The Federation developed a plan to implement this recommendation. Under that plan Federation was to relocate for the two years during which the demolition and construction at its own location would take place. Therefore, Federation

[ 507 Pa. Page 169]

    entered a lease agreement with Walnut for the rental of four floors of the building at 1528 Walnut Street.

The lease, dated November 8, 1973, provided for rental by Federation of space for a period of two years beginning May 1, 1974 and ending April 30, 1976. Attached to the lease before its execution by Federation was a letter, also dated November 8, 1973. The letter indicated that, as Federation well knew,*fn2 part of the space referred to in the lease was then occupied by Catalytic, Inc. ("Catalytic") whose lease would not expire until August 31, 1974. Every effort was promised to be made to tender delivery to Federation as close to May 1, 1974 as possible.

Catalytic estimated that it would be able to vacate the premises some time in May of 1974. That move was delayed, however, by a sheet metal worker's strike in May, 1974, which prevented prompt completion of the Center Square building project into which Catalytic was to move. These circumstances indicated to Catalytic that not only would it be unable to vacate the premises on Walnut Street during May, 1974, but also that it would have trouble meeting the August 31st deadline. Catalytic, therefore, requested an option to extend its lease for up to ninety (90) days from the August 31, 1974, deadline. Walnut refused this request noting its obligations to lease the space to Federation.

[ 507 Pa. Page 170]

During May and June of 1974 there was frequent correspondence between Catalytic, Walnut, Federation and those involved in the Center Square project on the subject of an extension of Catalytic's lease at 1528 Walnut Street. During that time Federation indicated its disappointment but accepted the fact that it would not be able to obtain possession until September 1, 1974.*fn3 In acquiescing to the delay until September 1st, Federation never agreed to any extension beyond that time even though repeatedly asked to agree.

Meanwhile, in late June Federation executives became aware of a building for sale at 226 South Sixteenth Street which would more than adequately meet Federation's needs for permanent headquarters. On July 1st that building was purchased and Federation abandoned all plans to demolish and rebuild at its old location. A newspaper account of this transaction indicated that Federation had been motivated to make this purchase by the amount of money it would save on construction costs and rental fees in the temporary location.

Subsequent to Federation's purchase of its new site, Catalytic continued to endeavor to get an extension from Walnut. Walnut repeatedly refused stating that it would not agree to the extension unless Federation approved. Federation, however, refused to give its approval claiming that it did not wish to lend any validity to the contract by agreeing to the extension.

At a meeting on August 1, 1974 Federation stated its position more specifically. Federation claimed that its lease with Walnut was invalid because Walnut had failed to deliver possession by May 1st which it claimed to be the date for delivery under the lease. Therefore Federation claimed that it could not give its approval without abandoning its claim of invalidity of the contract. Contrastingly,

[ 507 Pa. Page 171]

    however, Ronald Rubin, then Assistant Treasurer of Federation, declared to Walnut agents that Federation "did not want to occupy [the four floors], had no use for it and would not consider any type of extension without a release of liability from the lease." Exhibit 50, R. 796a.

On August 5, 1974, Walnut, relying on advice of counsel that Federation had anticipatorily breached the lease agreement, acquiesced to pressure by Catalytic and granted the ninety-day (90) extension on Catalytic's lease. Catalytic exercised its option to extend its lease beyond August 31st and remained in the space until October 31, 1974.*fn4

Despite Catalytic's continued tenancy Walnut sent a bill to Federation on October 24, 1974 for rent due from October 6th through the 31st. Federation refused to pay reiterating its claim that the lease was void. Walnut commenced this action in February, 1975, seeking damages alleged to have occurred as a result of Federation's breach of the lease agreement.

II.

To resolve the dispute between these two parties this Court must address two issues. The first is whether there was an anticipatory breach by Federation of its lease agreement with Walnut. Secondly, if we conclude that there was no breach by Federation we must determine whether Walnut's grant of the extension to Catalytic constituted a material breach of the lease.*fn5

[ 507 Pa. Page 172]

In analyzing the issues presented here we note that the Court is bound by the trial judge's findings of fact unless those findings are not based on competent evidence. Conclusions of law, however, are not binding on an appellate court whose duty it is to determine whether there was a proper application of law to fact by the lower court. Lawner v. Engelbach, 433 Pa. 311, 249 A.2d 295 (1969). Our inquiry here, therefore, is limited to whether the trial court properly concluded that Federation had anticipatorily repudiated its lease and excused any subsequent performance by Walnut of its obligations under the contract.

A.

The requisite elements of an anticipatory breach were established by this Court in McClelland v. New Amsterdam Casualty Co., 322 Pa. 429, 185 A. 198 (1936). This Court, following the standards set out by the U.S. Supreme Court in Dingley v. Oler, 117 U.S. 490, 6 S.Ct. 850, 29 L.Ed. 984 (1886), stated that to constitute anticipatory breach under Pennsylvania law there must be "an absolute and unequivocal refusal to perform or a distinct and positive statement of an inability to do so." McClelland v. New Amsterdam Casualty Co., supra 322 Pa. at 433, 185 A. 198. The McClelland standard is still the rule of law in Pennsylvania. See, William B. Tanner v. WIOO, Inc., 528 F.2d 262 (3d Cir.1975); McCloskey v. Minweld Steel Co., 220 F.2d 101 (3d Cir.1955); Alabama Football, Inc. v. Greenwood, 452 F.Supp. 1191 (D.C.Pa.1978); Wolgin v. Atlas United Financial Corp., 397 F.Supp. 1003 (E.D.Pa.1975), aff'd. mem., 530 F.2d 966 (3d Cir.1976); Shafer v. A.I.T.S., Inc., 285 Pa. Super. 490, 428 A.2d 152 (1981).

The facts of this case indicate no statement or action which constituted an absolute and unequivocal refusal to perform or a distinct and positive statement of an inability to do so. There are only three instances that could arguably be interpreted as amounting to an anticipatory breach. Upon analysis, it is apparent that these instances do not

[ 507 Pa. Page 173]

    meet the McClelland standard either standing alone or considered in combination.

The relevant facts as found by the trial court are as follows:

(a) on July 24, 1974 [Federation's] statement that "he was advised that the lease would have no effect because of the inability of [appellant] to give possession in May as called for in the lease;"

(b) an inconclusive meeting with [Federation] on July 30, 1974, followed by

(c) a meeting with [Federation] on August 1, 1974, at which time [Federation] declined to grant an extension because "they were being advised by their attorneys that any extension given by the Federation would in essence, acknowledge the validity of the lease," and

(d) on this same date [Federation's] . . . informing [Walnut] that "the Federation did not want to occupy [the four floors], had no use for it, and would not consider any type of extension without a release, of liability from the lease." [Emphasis in original].*fn6

Whether viewed individually or collectively these statements are insufficient to meet McClelland's requirement of an absolute and unequivocal refusal. The July 24th statement that appellee had been advised that the lease would have no effect because of appellant's failure to deliver the space in May is insufficient because it does not provide a definitive indication that appellee intends to act on this advice or treat the contract as void. Appellee's August 1st statement that it did not wish to approve an extension for Catalytic because it would lend validity to the lease does not indicate that it will in fact not perform. Moreover, appellee's statement that it had no use for the space and would not consider approving the extension without a release from its obligations under the lease indicates that

[ 507 Pa. Page 174]

    appellee did recognize at the very least a possible obligation under the contract. The fact that a party seeks to preserve what it deems to be a legal defense to the required performance does not reflect an intention to deliberately breach the agreement. To the contrary, it reflects an intention to avoid performance only if there is a legal basis for the refusal of performance.

The rationale behind the rule of anticipatory repudiation is the prevention of economic waste. An obligee/plaintiff should not be required to perform a useless act as a condition of his right to recover for a breach when the obligor has demonstrated an absolute and unequivocal refusal to perform. Baldwin v. Transitone Automobile Radio Corp., 314 Pa. 10, 169 A. 755 (1934); Weinglass v. Gibson, 304 Pa. 203, 155 A. 439 (1931); Clavan v. Herman, 285 Pa. 120, 131 A. 705 (1926); Greenlee v. West, 71 Pa. Super. 468 (1919). However, we reject any argument suggesting a dilution of our long recognized standard of an "absolute and unequivocal refusal to perform."*fn7 Our efforts to avoid economic waste must not be allowed to encourage precipitous breaches of contract. Such an approach undermines the stability of contracts and encourages unnecessary litigation.

In conclusion we hold that there was no anticipatory breach of the lease agreement by Federation since it did not utter an absolute and unequivocal refusal to perform or a definite and positive statement of an inability to fulfill its obligations under the contract.*fn8

[ 507 Pa. Page ...


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