A shipbuilding contract provided that the second instalment of the contract price should be payable on a day certain. It gave the builders the right to rescind the contract in the event of non-payment. The buyers failed to pay the second instalment, and the builders rescinded. Two questions arose for decision, namely, whether the effect of the rescission was to deprive the builders of their right to claim the second instalment, and whether, if not, the second instalment could be recovered by the buyers on the ground of total failure of consideration.
Held: The defendant’s liability as guarantor continued despite the termination of the contract to build the ships. The instalment of the price in question remained due notwithstanding the termination of the contract: ‘save in the case of sales of land and goods and where there has been a total failure of consideration . . cancellation or rescission of a contract in consequence of a repudiation did not affect accrued rights to the payment of instalments of the contract price unless the contract provided that it was to do so.’
Lord Fraser of Tullybelton: ‘Much of the plausibility of the argument on behalf of the guarantor seemed to me to be derived from the assumption that the contract price was simply a purchase price. That is not so, and once that misconception has been removed I think it is clear that the shipbuilding contract has little similarity with a contract of sale and much more similarity, so far as the present issues are concerned, with contracts in which the party entitled to be paid had either performed work or provided services for which payment is due by the date of cancellation. In contracts of the latter class, which of course includes building and construction contracts, accrued rights to payment are not (in the absence of express provisions) destroyed by cancellation of the contract.’
Lord Edmund-Davies, Lord Fraser of Tullybelton
[1980] 1 WLR 1129, [1980] 2 All ER 29, [1980] 2 Lloyds Rep 1
England and Wales
Citing:
Approved – McDonald v Dennys Lascelles Ltd 1-Mar-1933
(High Court of Australia) ‘When a party to a simple contract, upon 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party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. . .
Cited – McDonald v Dennys Lascelles Ltd 1-Mar-1933
(High Court of Australia) ‘When a party to a simple contract, upon 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. . .
Cited by:
Cited – Astea (UK) Ltd v Time Group Ltd TCC 9-Apr-2003
The question of whether a reasonable time has been exceeded in performance of a contract is ‘a broad consideration, with the benefit of hindsight, and viewed from the time at which one party contends that a reasonable time for performance has been . .
Cited – Stocznia Gdanska S A v Latvian Shipping Co and Others HL 22-Jan-1998
The parties had contracted to design, build, complete and deliver ships. The contract was rescinded after a part performance.
Held: It remained appropriate for payment to be made for the work already done in the design and construction stages: . .
Lists of cited by and citing cases may be incomplete.
Updated: 22 August 2021; Ref: scu.223523