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Jo C.
Jo C., Barrister
Category: UK Law
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Experience:  Over 5 years in practice.
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Denial of existence of oral contract - rescission ab initio

Customer Question

Mr A entered into an oral contract (under English Law) with Mr V for a sale of a painting on the terms of deferred payment. Mr V failed to pay on the due date and, when Mr A requested the payment, Mr V filed a claim against Mr A for declaratory relief that there was never a sale contract but the painting was a gift to Mr V made by Mr A (on a date later than the alleged sale contract date). Mr A retained certain evidence which allows him to easily prove existence of the oral sale contract and that no gift was ever made. However, Mr A is no longer interested in enforcing the sale contract, because he can currently sell that painting at a price much higher than the contract price. Can Mr A rely on the denial of existence of the contract by Mr V and, holding him to his word, regard the contract as rescinded ab initio and seek restitution instead of damages or performance?

Submitted: 2 years ago.
Category: UK Law
Expert:  Alex J. replied 1 year ago.
Hi Thank you for your question and welcome. Assuming Mr A does not want to proceed with the sale and has found a buyer else where - what damages has Mr A actually suffered from non performance? Can this be quantified? Ie wasted costs. Also if Mr A wants to seek restitution for wasted costs he will have to prove the existence of a contract, without the contract there is no actual claim for breach and therefore no restitution can be claim. Mr A would need to ensure that any claim does not include a claim for specific performance and be certain that Mr B did not have a change of heart and want to enforce the sale. I look forward to hearing from you. Kind regards AJ
Customer: replied 1 year ago.

Hi, thank you for the answer.

The main issue is that Mr A wants to get the painting back and forget about the contract (which Mr V now denies existence of). He does not want to seek any damages - if he gets the painting back from Mr V he would sell it for a much higher price and would be glad to forget about the story with Mr V (together with any damages he could possibly get from Mr V).

Mr A has transferred the painting to Mr B and thereby performed his obligations under the contract. Now, Mr A can easily prove that the painting was never a gift and there was a sale contract, but he wants to regard the contract rescinded ab initio, so that he could get the painting back, on the grounds that Mr B explicitly denies in his statement of case that there was ever a sale contract at all (and pleads that he never purchased anything from Mr A).

Expert:  Alex J. replied 1 year ago.
Hi
Thank you.
Does Mr A know where the painting is?
Does Mr A have evidence he did not part with the legal ownership? For example does he still have any papers or does he still insure it?
Kind regards
AJ
Customer: replied 1 year ago.

To the best of his knowledge, the painting is with Mr V, in his house.

Mr A parted with legal ownership in accordance with the sale contract (the contract was on the terms of deferred payment). He has no evidence to the contrary.

Expert:  Alex J. replied 1 year ago.
Thank you.
So Mr A needs to sue Mr V for the return of the painting on the basis of a breach of contract. Payment would be a condition of the contract and the remedy for breach of a condition is recission. That is to return the parties to the position they were in had the contract not been made.
What evidence does Mr A have to disprove that he gifted the painting?
Kind regards
AJ
Customer: replied 1 year ago.

As I have been advised previously, a breach of a condition is a repudiatory breach and Mr A can elect to accept the repudiation and discharge the contract, however, the discharge is for future performance only. So, if the denial of existence of the contract is treated as just a repudiatory breach of the contract, Mr A would be entitled to damages and not to rescission ab initio and restitution.

This was well explained by Lord Wilberforce in Johnson v Agnew [1980], AC 367:


"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 intio, such as may arise, for example, in cases of mistake, fraud or lack of consent. In those cases, the contract is treated in law as never having come into existence. (Cases of a contractual right to rescind may fall under this principle but are not relevant to the present discussion.) 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.‘ I need only quote one passage to establish these propositions.


In Heyman v Darwins Ltd [1942] AC 356 at p 399 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 on 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."



So, I am afraid, this approach would not result in rescission ab initio.



Customer: replied 1 year ago.

Dear Alex,

I received a request to rate your service. Unfortunately, I can only rate the answer, which I received from you so far as unsatisfactory, which I would not like to do. (unsatisfactory, because your advice was incorrect - as explained by Lord Wilberforce in the quotes I provided in my previous message, rescission as a remedy available on breach of condition is not ab initio and does not "return the parties to the position they were in had the contract not been made" so that Mr A would be entitled to have the painting returned to him.)

Please let me know whether you would like to revert with further advice.

Kind regards,

Vladimir

Customer: replied 1 year ago.

Dear Alex,

As I explained in my previous messages, I am not satisfied with your answer. Could you please open my question to other experts?

Kind regards,

Vladimir

Expert:  Jo C. replied 1 year ago.
I can confirm that the answer you have received is correct.
Customer: replied 1 year ago.

Hello,

Could you please refer to an authority (a case) where rescission ab initio is a remedy awarded in case of breach of condition of a contract?

As far as I know, the remedy for breach of condition may, upon acceptance of the breach as a repudiation, only be in discharge from future performance (which is sometimes called misleadingly rescission) and damages only.

I can quote Lord Porter again (Heyman v Darwins Ltd [1942] AC 356 at p 399), who said:
"
Strictly speaking, to say that on 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."

(also see my previous messages)

So, it is not clear to me how can a breach of condition lead to restitution (and this is what Mr A seeks - to have the painting returned to him).

Expert:  Jo C. replied 1 year ago.
Sorry but I'm not able to look up case law as that is outside the remit of this site. I will opt out.