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Frustration

Obligations under the Contract, Primary

Rescission and Frustration

Repudiation of Contract


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Repudiation and Rescission

The word rescission is often used in the same sense as the word repudiation, meaning a rescission for breach, which follows alleged defect in the performance of the contract, see also McDonald v Dennys Lascelles Ltd. (1933) 48 C.L.R. 457. If, however, one speaks about rescission for misrepresentation, mistake, fraud or lack of consent such rescission, involves an allegation that there was a defect in the formation of the contract, and sets the contract aside both retrospectively and prospectively.
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Rescission
Last updated: 29-Jul-2015

In Clarke v Dickson (1858) EB 8c E 148 Crompton J stated on common law view on the right of the claimant to rescind the contract:

The plaintiff must rescind the contract in toto or not at all; he cannot both keep the shares and recover the whole price. That is founded on the plainest principles of justice. If he cannot return the article he must keep it, and sue for his real damage in an action on the deceit. Take the case I put in argument, of a butcher buying live cattle, killing them, and even selling the meat to his customers. If the rule of law were as the plaintiff contends, that butcher might, upon discovering a fraud on the part of the grazier who sold him the cattle, rescind the contract and get back the whole price: but how could that be consistently with justice? The true doctrine is, that a party can never repudiate a contract after, by his own act, it has become out of his power to restore the parties to their original condition.

Per Blacrborn J in Kennedy v Panama, New Zealand and Australian Royal Mail Co (1867) LR 2 QB 580 at p.587:

There is, however, a very important difference between cases where a contract may be rescinded on account of fraud, and those in which it may be rescinded on the ground that there is a difference in substance between the thing bargained for and that obtained. It is enough to show that there was a fraudulent representation as to any part of that which induced the party to enter into the contract which he seeks to rescind; but where there has been an innocent misrepresentation, or misapprehension, it does not authorise a rescission unless it is such as to show that there is a complete difference in substance between what was supposed to be and what was taken, so as to constitute a failure of consideration. For example, where a horse is bought under a belief that it is sound, if the purchaser is induced to buy by a fraudulent representation as to the horse’s soundness, the contract may be rescinded. If it was induced by an honest misrepresentation as to its soundness, though it may be clear that both vendor and purchaser thought that they were dealing about a sound horse and were in error, yet the purchaser must pay the whole price, unless there was a warranty; and even if there was a warranty, he cannot retain the horse and claim back the whole price unless there was a condition to that effect in the contract.

Mr. Justice Dixon in McDonald v Dennys Lascelles Ltd. (1933) 48 C.L.R. 457 at pp. 476-477 said:

When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected.

In Heyman v Darwins Ltd [1942] 1 All ER 337 at 360-361 Lord Porter said:

To say that the contract is rescinded or has come to an end or has ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that, upon acceptance of the renunciation of a contract, the contract is rescinded is incorrect. In such a case the injured party may accept the renunciation as a breach going to the root of the whole of the consideration. By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded.

Universal Cargo Carriers Corpn v Citati [1957] 2 All ER 70, per Devlin J:

… it does not follow automatically that because the object of the venture is destroyed, there is no value left in the charterparty. Usually that would be so, and therefore usually no doubt the aggrieved party would wish to rescind. But the rights given to a party under a contract may be wider than the object of the venture requires them to be. It may then be worth a party’s while to keep the contract alive for an ancillary purpose and compensate himself by damages for the loss of his main object.

Per Lord Wilberforce in Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 at p.283:

…I would only add that it would be a regrettable development of the law of contract to hold that a party who bona fide relies upon an express stipulation in a contract in order to rescind or terminate a contract should, by that fact alone, be treated as having repudiated his contractual obligations if he turns out to be mistaken as to his rights. Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations.

Per Longmore LJ in Salt v Stratstone Specialist Ltd (t/a Stratstone Cadillac Newcastle) [2015] EWCA Civ 745 at para 30:

Rescission is prima facie available if "practical justice" can be done. If "practical justice" requires a representor to be compensated for depreciation, it is for the representor so to assert and prove; likewise if the representor asserts that use of the car is to be taken into account, which may well be difficult if the car was as "troublesome" (to use Judge Harris's words) as this Cadillac was. The absence of evidence about depreciation or the value of the use of the car should not operate to the disadvantage of the representee who should never have been put in the position of having a troublesome old car rather than a brand new one.


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