Claim Barred by Election of Remedies

On June 13, 2019, Justice Platkin of the Albany County Commercial Division issued a decision in Inferno Rest. & Pizzeria, Inc. v. SW Michaels Pizzeria, Inc., 2019 NY Slip Op. 50995(U), holding that a counterclaim was barred by the defendants' election of remedies, explaining:

Waiver is the voluntary and intentional relinquishment of a known right. A waiver may be accomplished by express agreement or by such conduct or a failure to act as to evince an intent not to claim the purported advantage. But a waiver is not created by negligence, oversight, or thoughtlessness, and cannot be inferred from mere silence. Rather, there must be proof that there was a voluntary and intentional relinquishment of a known and otherwise enforceable right.

The related doctrine of election of remedies generally prevents a party that has chosen to assert one of two inconsistent rights from later seeking to vindicate the alternative right. When a party materially breaches a contract, the nonbreaching party must choose between two remedies: it can elect to terminate the contract or continue it. If it chooses the latter course, it loses its right to terminate the contract because of the default.

But New York law does not treat as inconsistent the right to continue to perform and to accept performance under a contract (on the one hand) and the right to sue for damages based on a breach (on the other). A party to an agreement who believes it has been breached may elect to continue to perform the agreement and give [timely] notice [of breach] to the other side rather than terminate it. Thus, where performance is continued and such timely notice is given, the nonbreaching party does not waive the right to sue for the alleged breach.

Here, all of the breaches of contract alleged by defendants occurred early on in the parties' contractual relationship. Specifically, the training was to occur prior to SWMP assuming operation of the pizzeria, the pizzeria's recipes were to have been supplied to defendants within a reasonable time following the April 1, 2018 execution of the Service Mark License Agreement, and the $75,000 in renovation expenses allegedly attributable at least in part to preexisting health code violations was spent prior to defendants' reopening of the pizzeria in July 2018.

Yet, defendants make no claim that they ever informed Inferno of these alleged material breaches of contract, and plaintiff expressly denies receiving any such notice. Rather, defendants elected to continue operating the pizzeria and making installment payments to Inferno under the Note through October 1, 2018. And even following their November 2018 default, defendants did not notify Inferno of the alleged breaches at any time prior to the untimely filing of opposition papers.

Given defendants' election to the treat their agreements with plaintiff as valid and subsisting, despite knowledge of plaintiff's alleged material breaches, defendants lost their right to terminate the agreements on the basis of such breaches. And given defendants' failure to accord plaintiff timely notice of the alleged material breaches, defendants cannot rely upon such breaches as a basis for affirmative relief or as a defense to their nonperformance.

(Internal quotations and citations omitted).

This decision ultimately rests on the simple proposition that you cannot have your cake and eat it, too. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the claims you are entitled to bring in a lawsuit.