Contract. Repudiation
Repudiation
By Igor Sterzhantov©2011
www.lawandsea.net
Repudiation and Rescission........................................................................................................................... 1
Drastic Measure ............................................................................................................................................ 2
Repudiation and Rescission
Imperfection of terminology concerning to repudiation and rescission is well known. It is said that owing
to the historical difference between common law and equity, the language adopted is far from uniform:
while common lawyers usually use the word repudiation, equity lawyers inclined to employ words
rescission or setting a contract aside1. Main contributory factor to the said ambiguity is perhaps that
nondiscriminating way in which the word repudiation is often used2; it equally describes an election of
the aggrieved party to terminate the contract if another side committed a breach which went to the
root of the matter, and a conduct of the party in fault whose act or acts tantamount either to
repudiatory or anticipatory3 breach.
Legal effect of repudiation of contract by the innocent party when consequences of the breach are so
serious as to frustrate the commercial purposes of the contract, is to discharge the parties from further
performance of the contract, leaving liabilities already accrued unaffected. The word rescission is often
used in the same sense, meaning a rescission for breach, which follows alleged defect in the
performance of the contract,4 see McDonald v Dennys Lascelles Ltd. (1933) 48 C.L.R. 4575. 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 contract6, and sets the contract
aside both retrospectively and prospectively7. This distinction is well illustrated by the following words
of Lord Wilberforce in Johnson v Agnew [1979] 1 All ER 883, at p.889:
At this point it is important to dissipate a fertile source of confusion and to make clear that
although the vendor is sometimes referred to in the above situation as 'rescinding' the contract,
this so-called 'rescission' is quite different from rescission ab initio, such as may arise for
example in cases of mistake, fraud or lack of consent. In those cases, the contract is treated in
1
Further inconsistency arises from the special terminology, when for example in contracts of sale phrase rejection
of the goods used commonly rather than repudiating the contract. P. S. Atyah, Introduction to the law of contract,
at p.398.
2
Ibid
3
When one party evinces an intention no longer to be bound by the terms of contract before the time for
performance is due.
4 th
Sir Guenter Treitel, The law of contract, 10 ed, 343
5
Per Mr. Justice Dixon in at pp. 476-477:” 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.”
6 th
Sir Guenter Treitel, The law of contract, 10 ed, 343
7
E. McKendrick, CONTRACT LAW, 2003, at p.628 and p.649.
Igor Sterzhantov©2011 page 1
Contract. Repudiation
law as never having come into existence. In the case of an accepted repudiatory breach the
contract has come into existence but has been put an end to or discharged. Whatever contrary
indications may be disinterred from old authorities, it is now quite clear, under the general law
of contract, that acceptance of a repudiatory breach does not bring about 'rescission ab initio'.
Rescission ab initio means that contract was void from the very beginning and therefore parties are to
be restored to the same position they were before the contract was made. Since no contract ever came
into existence no one can claim damages under it.
Another notable difficulty related to the usage of word repudiation is that when it relates to termination
of contract its meaning is hardly accurate. Lord Porter addressed this problem in Heyman v Darwins Ltd
[1942] AC 356 case at p.398:
Indeed, the word "repudiation”, accepted or unaccepted, is an ambiguous expression. As Scott
L.J. pointed out in Toller v Law Accident Insurance Society, Ltd. [1936] 2 All E. R. 952:
"It may mean: repudiate the original existence of the contract. It may mean: disclose
an intention to disregard it in toto and refuse to be bound by its terms altogether. Or it
may mean: a mere contention that under the terms of the contract the defendant is
completely free from liability by reason of some fact."
Except in the first case the contract is not repudiated. Even in the second all that is repudiated is
the defendant’s future liability under it. Where the contract itself is repudiated in the sense that
its original existence or its binding force is challenged, e.g., where it is said that the parties never
were ad idem, or where it is said that the contract is voidable ab initio (e.g., in cases of fraud,
misrepresentation or mistake), and that it has been avoided, the parties are not bound by any
contract and escape the obligation to perform any of its terms including the arbitration clause
unless the provisions of that clause are wide enough to include the question of jurisdiction.
Summarising it can be concluded that in instances where repudiation is used to signify a right of the
innocent party to treat the contract at end, its true meaning is that the contract is neither abrogated nor
terminated, but that the injured party elected to cease any further performance. The contract remains
in existence at least so far as apportionment of liabilities already accrued concerns. Accordingly even
when the purposes of the contract have failed, stipulations incorporated for determining the mode of
their settlement, such as arbitration clauses for example, survive8. Repudiation of original existence of
the contract is equal to rescission ab initio and means that because of misrepresentation or fraud or
mistake the contract never came into existence at all.
Drastic Measure
Decision to terminate contract is wholly in hands of the contracting party, but the right to terminate is
only accrued in certain circumstances. Therefore, while each of the parties to contract is free to stop his
contractual performance when he considers that happening of certain events gave him a right to do so,
such action if later be found by the court as a wrongful termination, may leave him liable for substantial
damages. Thus, repudiation is a very important decision which if rightly exercised can become a highly
effective remedy, but when wrongfully made may fire back with equal force.
8
In Heyman v Darwins Ltd [1942] AC 356, per Lord Macmillan at p.374
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Contract. Repudiation
The right to abandon a contract vests only in the party who has been guilty of no default; and by him it
must be exercised within a reasonable time.
Read the rest of this article on:
http://www.lawandsea.net/Contract/Contract_Repudiation_DrasticMeasure.html
http://www.lawandsea.net/Contract/Contract_Repudiation_RepudiatoryBreach.html
http://www.lawandsea.net/Contract/Contract_Repudiation_PositiveElection.html
Igor Sterzhantov©2011 page 3