Foran v Wight
168 CLR 38588 ALR 413
(Judgment by: BRENNAN J)
Between: Foran
And: Wight
Judges:
MASON CJ
BRENNAN JDEANE J
DAWSON J
GAUDRON
Subject References:
Vendor and Purchaser
Judgment date: 15 November 1989
Canberra
Judgment by:
BRENNAN J
Contracts for the purchase and sale of a parcel of land known as Lot 8, Tizzana Road, Ebenezer, were exchanged on 24 December 1982. The appellants were the purchasers, the respondents the vendors. It was a term of the contract that settlement should take place "on or before June 22, 1983 and in this respect time shall be of the essence." A deposit of $7,500 was paid. The contract contained a clause relating to an easement burdening the subject land shown on an unregistered plan and referred to in an instrument executed for the purposes of Conveyancing Act 1919 (NSW). The clause provided, inter alia, that "the Vendor warrants that he will attend to the registration of the said Plan together with 88B Instrument prior to completion."
On 20 June 1983 the solicitor for the purchasers rang the solicitor for the vendors, told him that finance had been arranged for Wednesday 22 June and asked:
"What time can we settle on that day?"
The vendors' solicitor said :
"We have a problem here. We won't be able to settle on Wednesday 22 June because the right of way which we are required to give under one of the special conditions in the contract is not registered as yet."
He offered an excuse for the vendors' inability to complete on the due date in strict accordance with the terms of the contract. When the purchasers' solicitor asked:
"What stage has the registration of the right of way reached?"
the vendors' solicitor replied:
"I don't know. I'll have to check that. What is your attitude to settling this matter some time after Wednesday when the right of way will be registered? We can't settle without the right of way."
The purchasers' solicitor said:
"You realise that time is of the essence in the contract. I cannot say anything in relation to that and will have to seek instructions. I can't enter into any further discussions in relation to settlement."
After this conversation, there was no further communication between the parties or their solicitors until 24 June. At no time prior to 22 June 1983, the stipulated day for completion, did the purchasers purport to rescind the contract. On 22 June neither the purchasers nor the vendors tendered performance. On 24 June the purchasers executed a notice of rescission which was duly served, apparently on the same day. The notice of rescission was based not on an anticipatory breach by the vendors on 20 June, but on the vendors' actual breach in failing to complete the contract on 22 June 1983. The vendors refused to recognize the validity of the notice of rescission.
Thereafter the purchasers issued a summons out of the Supreme Court of New South Wales seeking declarations, inter alia, that they had validly rescinded the contract and that they were entitled to the return of the deposit. The vendors cross-claimed, seeking declarations that the purchasers were not themselves able to complete the agreement for sale and on that account were not entitled to rely upon the essential time condition in the contract. While the proceedings were pending, the vendors gave the purchasers a notice to complete and, after the time limited by that notice had expired, they purported to rescind the contract. By an amended cross-claim, the vendors sought declarations that they had validly terminated the agreement, that they were entitled to forfeit the deposit and that the purchasers were liable to the vendors for damages for breach of contract. Needham J. found:
"that on 20 June 1983 the (vendors) indicated that they could not settle on the 22nd. The (purchasers) in my opinion were then entitled to treat that statement as a repudiation and to rescind, even though the time for completion had not arrived."
On this finding, his Honour held that the purchasers were entitled to accept the vendors' repudiation on 20 June, although the day for completion had passed. His Honour made the declarations sought by the purchasers and dismissed the vendors' cross-claim. However, his Honour also made an observation about readiness to complete by the purchasers who had been searching for finance. He said:
"It is my view that if the plaintiffs bore the onus of proving (readiness to complete), and ... it does seem that the onus would be on the plaintiffs to prove that fact, I would not have been satisfied that the plaintiffs had discharged that onus."
The judgment for the purchasers was set aside by the Court of Appeal. Street C.J. concluded that, as the purchasers had not rescinded the contract before the day fixed for completion, the contract had remained on foot and, as both parties had failed to perform their respective obligations, both were in default and neither could treat the other's failure to complete on the day fixed for completion as a breach founding rescission. Therefore, his Honour reasoned, the time stipulation lost its essential character, the purchasers' notice of rescission was ineffective and the contract remained on foot until it was rescinded by the vendors. McHugh J.A. was of the same opinion. Referring to earlier decisions of the Supreme Court of New South Wales, his Honour said:
"The principle of those cases is that a party who cannot perform his own contractual obligation on the date fixed for settlement cannot rescind because of the breach of the obligation of the other party irrespective of which obligation arose first. This is because the contract imposes concurrent obligations on each party, and one who is unable to perform his concurrent obligation cannot take advantage of the other party's inability to perform."
Kirby P. in dissent said that the vendors' argument contained an "essential flaw" for it ignored that the vendors' intimation on 20 June relieved the purchasers "of the obligation to continue the search for finance." By majority, the Court of Appeal held that the purchasers had not validly rescinded the contract, the vendors had validly terminated it and the vendors were entitled to retain the deposit and recover damages for the purchasers' refusal to perform.
When the appeal was argued in this Court, the vendors were not represented but written submissions on their behalf were received. The first question for determination is whether the contract was subsisting on 22 June despite the intimation by the vendors' solicitor on 20 June that the vendors could not complete on 22 June. It is clear that the vendors' solicitor did not wish the sale to go off; he sought no more than a postponement of the day for completion in order that he could procure the registration of the easement over the land before conveyance. The vendors did not offer to complete on 22 June; the vendors' solicitor had intimated that they were unready to complete on the day fixed for completion. As the parties had made completion on the day fixed an essential term of the contract, the intimation that the vendors were not ready to complete on 22 June was capable of amounting to a repudiation which would confer on the purchasers a right to rescind. When a promise is an essential term of a contract, an announcement by the promisor before the time for performance arrives that he will not perform the promise is an anticipatory breach amounting to a repudiation of the contract conferring on the promisee a right to rescind the contract: see Laurinda Pty Ltd v. Capalaba Park Shopping Centre Pty Ltd (1989) 63 ALJR 372, at pp 380,389-390; 85 ALR 183 , at pp 195-196,212. It is unnecessary, in my opinion, that an anticipatory breach be classified as "fundamental" in any other respect in order to amount to a repudiation: but cf. per Lord Diplock in Afovos Shipping Co. v. Pagnan & Flli (1983) 1 WLR 195 , at p 203; [1983] 1 All ER 449 , at p 455.
However, a repudiation by anticipatory breach does not affect the subsistence of a contract unless the promisee elects to rescind: Frost v. Knight (1872) LR 7 Exch 111, at p 112; Heyman v. Darwins, Ld. [1942] AC 356 , at p 361. Absent an election by the promisee to rescind, both parties remain bound by the contract, and the promisor may take advantage of any supervening circumstance which justifies him in refusing to perform when the time for performance arrives: Bowes v. Chaleyer (1923) 32 CLR 159 , at pp 169,192,197-198; Peter Turnbull & Co. Pty Ltd v Mundus Trading Co. (Australasia) Pty Ltd (1954) 90 CLR 235 , at pp 250,261; and see, for example, Avery v. Bowden (1856) 6 El & Bl 953 (119 ER 1119); Arcos, Ld. v. E.A. Ronaasen & Son [1933] AC 470 . The purchasers did not elect to rescind for repudiation by anticipatory breach and the contract was subsisting on 22 June, the day fixed for completion. The purchasers elected to rescind for an actual breach by the vendors in failing to complete on 22 June. The question is whether the failure by the vendors to complete on that day was a breach of contract.
The effect of an intimation of non-performance on mutually dependent obligations under a subsisting contract.
The obligation of a vendor to deliver a conveyance and the obligation of a purchaser to pay the price on completion are mutually dependent and concurrent obligations in the absence of any contrary stipulation; each obligation is to be performed in exchange for the other: Palmer v. Lark (1945) Ch 182, at pp 184-185. Where the respective obligations of parties to a contract are mutually dependent and concurrent, the primary rule is that neither party who fails to perform his obligation when the time for performance arrives can rescind for the other party's failure at that time to perform his obligation. Each party's obligation is conditional on performance by the other; neither can complain of non-performance by the other when the condition governing the other's obligation goes unfulfilled. But if one party intimates to the other that it is useless for the other to fulfil his obligation and the other acts on the intimation, the party to whom the intimation is given is dispensed from a nugatory tender of performance. Lord Mansfield said in Jones v. Barkley (1781) 2 Dougl 684, at p 694 (99 ER 434, at p 440):
"The defendant pleads, that the plaintiff did not actually execute an assignment and release; and the question is, whether there was a sufficient performance. Take it on the reason of the thing. The party must shew he was ready; but, if the other stops him on the ground of an intention not to perform his part, it is not necessary for the first to go farther, and do a nugatory act."
This passage was cited with approval by Dixon C.J. in Peter Turnbull, at p 247. In that case, Dixon C.J. pointed out that acting upon an intimation that tender of performance will be nugatory is equivalent to being prevented from performing one's obligation. He said (at pp 246-247):
"Now long before the doctrine of anticipatory breach of contract was developed it was always the law that, if a contracting party prevented the fulfilment by the opposite party to the contract of a condition precedent therein expressed or implied, it was equal to performance thereof: Hotham v. East India Co. ((1787) 1 TR 638 (99 ER 1295)). But a plaintiff may be dispensed from performing a condition by the defendant expressly or impliedly intimating that it is useless for him to perform it and requesting him not to do so. If the plaintiff acts upon the intimation it is just as effectual as actual prevention."
In Laird v. Pim (1841) 7 M & W 474 (151 ER 852) purchasers, who had been let into possession before completion, refused to pay the purchase price. The vendor, suing in assumpsit for the price, pleaded that he was ready, willing and able to complete had not the purchasers discharged him from so doing in that the purchasers "did not regard their ... promise": at p 484 (p 856). It was held on demurrer that the vendor was entitled to succeed. Parke B. said (at p 485 (p 857)):
"Upon the facts alleged in this declaration, the plaintiff is substantially in the same situation, for the purpose of recovering the money, as if all had been done on his part which he engaged to do. It does not follow that he shall recover the whole purchase- money, but he is in the same situation for the purpose of recovering damages for the non-payment of the price, as if all had been done by him."
In Cort v. The Ambergate, etc., Railway Company [1851] 17 QB 127 (117 ER 1229), Lord Campbell C.J., explaining Ripley v. M'Clure (1849) 4 Exch 345 (154 ER 1245), said (at pp 147-148 (p 1237)):
"There being an executory contract, whereby the plaintiff agreed to sell and the defendant to buy, on arrival, certain goods, to be delivered at Belfast at a certain price, payable on delivery, it was held that a refusal by the defendant before the arrival of the cargo to perform the contract was not of itself necessarily a breach of it, but that such refusal, unretracted down to and inclusive of the time when the defendant was bound to receive the cargo, was evidence of a continuing refusal and a waiver of the condition precedent of delivery, so as to render the defendant liable for the breach of contract."
This passage, cited with approval by Dixon C.J. (at p 247) and by Kitto J. (at p 250) in Peter Turnbull, illustrates the governing principle which Kitto J. stated thus:
"The principle, which applies whenever the promise of one party, A, is subject to a condition to be fulfilled by the other party, B, may, I think, be stated as follows. If, although B is ready and willing to perform the contract in all respects on his part, A absolutely refuses to carry out the contract, and persists in the refusal until a time arrives at which performance of his promise would have been due if the condition had been fulfilled by B, A is liable to B in damages for breach of his promise although the condition remains unfulfilled."
A's refusal to perform is an intimation to B that a tender of performance by B will be nugatory. (I shall hereafter follow the terminology of "A" and "B" - "A" to refer to a party who has declared that he will not perform his obligation under a contract containing mutually dependent and concurrent conditions; "B" to refer to the party to whom the intimation is given and who in reliance thereon omits to tender performance of his obligation.) Where A refuses to complete and thereby intimates to B that he need not trouble to fulfil a concurrent condition on which A's obligation to complete is dependent, B may be entitled to sue for A's actual breach though B elected not to terminate the contract before the time for completion arrived. Kitto J. said in Peter Turnbull (at p 251):
"What does it matter for the purposes of that action that the refusal was not treated as ending the contract and as founding an action for anticipatory breach? The damages claimed are not for loss of the contract by premature termination, but for loss of the benefit which performance of the contract in accordance with its terms by both parties would by now have produced to B but for the fault of A. It is a cause of action which the facts I have assumed make out, unless the non-fulfilment of the condition is an answer to it; and as to that the inescapable fact is that A's refusal was a continuing intimation that the condition need not be observed, and it did not become any the less an intimation to that effect because B chose not to determine the contract before its time. The intimation having continued until the time came when A would certainly have been in default if the condition had been fulfilled, the law, as I understand it, treats A's obligation as absolute, and holds B entitled to damages for not having got what A promised he should have in the event of the condition being fulfilled." (Emphasis added.)
Following Peter Turnbull, this Court held in Mahoney v . Lindsay (1980) 55 ALJR 118; 33 ALR 601 that a purchaser is not in breach of his obligation to complete on the day fixed for completion if he abstains from tendering the price on that day because of an intimation by a vendor that it is useless to do so since the vendor does not intend then to perform his part of the contract.
The reference by Dixon C.J. in Peter Turnbull to one party's "requesting" of the other party not to perform a condition suggests that the dispensing of the other party from his obligation is effected by acceptance of the request. A consensual variation of the contract may be the inference to be drawn in some cases but, more frequently, the facts will show no more than that the party to whom the intimation is given abstains from tendering performance in reliance on the intimation that he need not trouble to perform and that it will be useless for him to do so. It would be inequitable for A, having induced B to abstain from tendering performance, to assert that B's failure to tender performance when the time for completion arrives is a breach of contract by B or constitutes a failure to fulfil a condition on which A's obligation depends. The basis on which a party is dispensed from tendering performance is that an equity is raised against the party giving the intimation which is satisfied by treating him as though he had prevented the innocent party from tendering performance: see Waltons Stores (Interstate) Ltd. v. Maher (1988) 164 CLR 387 . Such an equity enures for the benefit of the party who has acted on the intimation, but it does not impair the contractual obligation of the party giving the intimation.
A purchaser who is thus dispensed from his obligation to pay the price at the time stipulated for completion is not thereby discharged from his obligation to pay the price at some later time. A stipulation for completion on a fixed day creates both a substantive and a temporal obligation; an obligation to complete and an obligation to do so on the fixed day. A purchaser who acts on an intimation from the vendor that the vendor will complete but not on the fixed day is dispensed from his temporal obligation, so that his omission to tender the price on that day is no breach; but, unless the contract is terminated, his obligation to pay the price remains after the day fixed for completion is past. When a promisor's intimation of non-performance relates only to the temporal aspect of the promise and the promisee either cannot rescind or elects not to rescind on account of that intimation, the promisee is not forever released from the substantive obligation; he is dispensed from performance only until the promisor gives him reasonable notice that the promisor has performed or is ready, willing and able to perform his obligation. (If it were otherwise, it would be pointless for a party who has once been in default in the timeous performance of his obligation under a contract which continues to bind both parties to give to the other a notice to complete.) When no time is fixed for performance of mutually dependent and concurrent obligations and B abstains from tendering performance in reliance on A's intimation that he will not perform the contract, B must give A a notice to perform before A will commit an actual breach - as distinct from an anticipatory breach - of the contract: Carr v. J.A. Berriman Pty Ltd (1953) 89 CLR 327 , at pp 348-349. (I leave aside cases of delay so gross as to amount to repudiation: see Laurinda Pty Ltd v. Capalaba Park Shopping Centre Pty Ltd, at pp 380-381,387; pp 196-197,208.) But it is otherwise when the time for performance is fixed by the contract. In such a case, A's temporal obligation is breached by non-performance at the stipulated time.
I would hold, in accordance with Peter Turnbull and Mahoney v. Lindsay, that an intimation of non-performance of an essential term of a contract amounts to repudiation and dispenses a party who acts upon it from performance of his dependent obligation though he does not rescind the contract. Therefore, I am unable, with respect, to agree with Lord Ackner's rejection of what his Lordship described as a "third choice" in Fercometal v. Mediterranean Shipping Co. (1988) 3 WLR 200 , at p 212; [1988] 2 All ER 742 , at pp 751, 752:
"When A wrongfully repudiates his contractual obligations in anticipation of the time for their performance, he presents the innocent party B with two choices. He may either affirm the contract by treating it as still in force or he may treat it as finally and conclusively discharged. There is no third choice, as a sort of via media, to affirm the contract and yet to be absolved from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform. Such a choice would negate the contract being kept alive for the benefit of both parties and would deny the party who unsuccessfully sought to rescind, the right to take advantage of any supervening circumstance which would justify him in declining to complete."
The proposition that, if repudiation by anticipatory breach is not accepted, the contract subsists is undoubted; but it does not follow that an intimation by one party that tender of performance by the other will be nugatory cannot, if acted on, dispense the other from his obligation of performance under the contract by raising an equitable estoppel. It may be that Lord Ackner acknowledges some role for estoppel in this context for he said (at p 212; p 752):
"it is always open to (B), who has refused to accept (A's) repudiation of the contract, and thereby kept the contract alive, to contend that in relation to a particular right or obligation under the contract, (A) is estopped from contending that he, (A), is entitled to exercise that right or that he, (B), has remained bound by that obligation. If (A) represents to (B) that he no longer intends to exercise that right or requires that obligation to be fulfilled by (B) and (B) acts upon that representation, then clearly (A) cannot be heard thereafter to say that he is entitled to exercise that right or that (B) is in breach of contract by not fulfilling that obligation."
In my view, an equity created by estoppel arising from an intimation by A that he does not intend to perform which conveys to B that performance by him would be nugatory absolves B "from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform." Ready and willing to perform
The governing principle, stated by Kitto J. in Peter Turnbull, holds that the party giving the intimation (A) is liable in damages for actual breach subject to the qualification that "B is ready and willing to perform the contract in all respects on his part". If this be a valid qualification upon B's right to a remedy for A's actual failure to perform his obligation when the time for performance arrives, then, in a case where B is not ready and willing, A's failure to perform cannot be a breach of contract. If A's failure to perform where B is not ready and willing were a breach of contract, the qualification would raise logical and practical difficulties. Logically, it would be difficult to see why, given A's breach, B would not be entitled to the remedy to which a party not in breach is entitled under the general law of contract. Practically, if A were in breach of an essential term but B did not have the right to rescind, there would be no means by which either party might unilaterally terminate the contract. In that event, if B, who had not repudiated the contract, had parted with money or property pursuant to the contract, he would be left to bear the loss: B could not rescind for A's breach while A could point to no breach by B to support rescission. The contract would continue to subsist unless and until termination by express agreement or ultimate abandonment: Summers v. The Commonwealth (1918) 25 CLR 144 , at pp 151-152; D.TR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 23 , at p 434. In truth, the qualification of B's readiness and willingness relates to the character of A's failure to perform his contractual obligation: is A's failure a breach or not? We are concerned here not with an anticipatory breach by A but with what B asserts to be A's actual breach.
Where there are mutually dependent and concurrent obligations, an intimation by one party that he does not intend to perform or that he will be unable to perform when the time for performance arrives does not necessarily mean that that party is the only party at fault. The other party may be the party at fault or both may be at fault. The other party may have announced that he does not intend to perform or that he will be unable to perform when the time for performance arrives and that announcement itself constitutes an anticipatory breach (Frost v. Knight, at pp 113-114) which justifies the giving of notice of rescission by the first party. Or the other party may already be disposed not to perform but he makes no announcement of his disposition (and thus avoids committing a breach) or he may already be unable to perform when the time for performance arrives and that disposition or incapacity would prevent the fulfilment of the condition on which the first party's obligation depends: see Stickney v. Keeble [1915] AC 386 , at p 403. The qualification of readiness and willingness ensures that the party who gives an intimation of non-completion is not visited with liability for actual breach of contract merely because he had given an intimation of non-performance when the intimation amounts to notice of rescission for the other party's repudiation or when he would not have been obliged to perform in any event. There are two situations in which the qualification applies: rescission of an executory contract before the time for performance arrives and dispensation from performance of an obligation on which an obligation of the opposite party depends.
A party to an executory contract is entitled to rescind not only if the other party announces his intention not to perform his essential obligations but also if the other party is incapable of performing his essential obligations under the contract: see British and Beningtons, Ld. v. N.W. Cachar Tea Co. and Others [1923] AC 48 , at p 72; Universal Cargo Carriers Corporation v. Citati [1957] 2 QB 401 , at p 445; Trade Inc. v. Iino Ltd. (1973) 1 WLR 210 , at p 219; [1973] 2 All ER 144 , at p 152. It is not necessary to consider whether such an incapacity is a breach: see Rawson v. Hobbs (1961) 107 CLR 466 , at pp 481-482, 491. It is sufficient to identify such incapacity as a repudiation which entitles the opposite party to rescind. By giving notice of rescission on the ground of anticipatory breach of an essential term or on the ground of incapacity, the first party may procure his release from his executory obligations (Ogle v. Comboyuro Investments Pty Ltd (1976) 136 CLR 444 , at pp 459-460) provided that, until he gives notice, he was ready and willing to perform them. Moreover, he can justify rescission by reference to an announced repudiation or incapacity which he discovers after rescinding provided the repudiation occurred before or the incapacity existed when the notice to rescind was given: Shepherd v. Felt and Textiles of Australia Ltd. (1931) 45 CLR 359 , at pp 370-371,373,377-378. That principle was affirmed by Lord Sumner's speech in British and Beningtons, Ld. In that case, the buyers of three consignments of tea wrongly repudiated the sale, and the question arose whether the buyers were liable in full for damages for non-acceptance if the sellers were not then ready, willing and able to deliver in accordance with the contract. In the result, it was found that the sellers would have been ready, willing and able to deliver in accordance with the contract but the relevant passage from Lord Sumner's speech is this (at p 72):
"...I do not see how the fact, that the buyers have wrongly said 'we treat this contract as being at an end, owing to your unreasonable delay in the performance of it' obliges them, when that reason fails, to pay in full, if, at the very time of this repudiation, the sellers had become wholly and finally disabled from performing essential terms of the contract altogether."
Where a party claims to be entitled to rescind an executory contract on account of the other party's repudiation (whether by way of anticipatory breach or incapacity), the first party must show not only the other's repudiation but his own readiness and willingness up to the time of rescission to perform his essential obligations under the contract: Rawson v. Hobbs, at pp 480-481. Readiness or willingness imports capacity to perform as well as disposition to perform: De Medina v. Norman (1842) 9 M & W 820, at p 827 (152 ER 347, at p 350). Since a party's right to rescind an executory contract for the other party's repudiation is limited to cases where the first party is ready and willing to perform, neither party is treated as without fault where both would be at fault were the contract to continue until the time for performance arrives. In Cort v. The Ambergate, etc., Railway Company Lord Campbell pointed out that that is the effect of requiring the party rescinding to be ready and willing to perform (at p 144 (p 1236)):
"In common sense the meaning of such an averment of readiness and willingness must be that the noncompletion of the contract was not the fault of the plaintiffs, and that they were disposed and able to complete it if it had not been renounced by the defendants."
Readiness and willingness is ascertained at the time of rescission and on the assumption that the other party was then ready and willing to perform. In Psaltis v. Schultz (1948) 76 CLR 547 , Dixon J. said (at p 560):
"To be ready and willing to perform a contract a party must not only be disposed to do the act promised but also have the capacity to do it. But the tenor of the promise will show when and how the act is to be performed and it is to that time and mode of performance that the capacity and disposition to fulfil the promise are to be directed. It is enough that he is not presently incapacitated from future performance and is not indisposed to do, when the time comes, what the contract requires." (Emphasis added.)
In Rawson v. Hobbs Dixon C.J. expressed a caution (at p 481) against lightly finding a party not to be ready and willing:
"One must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires is counted as an absence of readiness and willingness. On the other hand it is absurd to treat one party as tied to the performance of an executory contract although the other has neither the means nor intention of performing his part when his turn comes, simply because his incapacity to do so is not necessarily final or logically complete."
To speak of an incapacity which is "substantial" and of a resolve or decision which is "definitive" is to import a test of degree. A test of degree inevitably gives rise to differences in the evaluation of facts and produces some uncertainty in the resolution of concrete cases. Yet, in the great variety of circumstances to which the test might be applied, it is impossible to posit terms of greater precision. Lord Sumner's phrase - "wholly and finally disabled" - is too demanding a test of incapacity to accord with reasonable commercial practice but it is indicative of the range which the test of substantiality connotes. The test of incapacity, either as a ground of rescission or as an element in readiness and willingness, is an exacting test though it must be expressed as a matter of degree.
Where an executory contract creates mutually dependent and concurrent obligations, the dispensing of one party from performance of his obligation by reason of the other's intimation of non-performance produces a situation analogous to that produced by rescission for repudiation. A party who gives the intimation (like the party who repudiates) exposes himself to liability for breach though the party who is dispensed (like the party who rescinds) does not have to perform. If a need to identify the party at fault imposes a requirement of readiness and willingness on the party who seeks to rescind, it imposes a like requirement on the party who seeks relief on the footing that he has been dispensed. In Forrestt and Son Limited v. Aramayo (1900) 83 LT 335, Lord Halsbury L.C. said (at pp 337, 338):
"The sole point which I intend to decide upon this appeal is that whenever there are concurrent obligations the party who seeks to recover against the other must show that he has always been ready and willing to perform the obligation upon him."
When a party gives an intimation of non-performance to another and the other acts upon it, the other is dispensed from performing his obligation but if the other would not have completed his obligation in any event, liability for breach cannot be visited on the party who gave the intimation. And so, before the dispensation of the other party is treated as the equivalent of performance so as to satisfy the condition on which the obligation of the first party depends, the other party must himself have been ready and willing to perform.
In Cohen & Co. v. Ockerby & Co. Ltd. (1917) 24 CLR 288 , Isaacs J. said (at p 298):
"In my opinion Byrne v. Van Tienhoven ((1880) 5 CPD 344) goes to show that a party so absolved (that is, from a nugatory tender of performance), though he may defend an action against him, by merely showing he was so absolved, yet, if he sues the other party whose refusal he relies on, he must show he was ready and willing to perform his part, had he not been absolved from actual performance. 'Readiness and willingness' is in that case a condition precedent."
Of course, it is possible that a party who is not disposed to perform or capable of performing in any event may not be dispensed from his obligation by receipt of an intimation of non-performance: he may not have acted in reliance on the intimation at all. But, whether or not he placed some reliance on the intimation in abstaining from performance of his own obligation, a disposition not to perform or an incapacity to perform when the intimation was given denies the character of breach to a failure to perform by the party giving the intimation.
Where a contract continues to subsist after A gives an intimation of non-performance, B continues to be bound except to the extent that he is dispensed by acting in reliance on A's intimation. If A has recanted his intimation and B is ready and willing to perform when the time for performance arrives, B is bound to complete. But where A has not recanted or where B is not ready and willing because he has relied (at least to some extent) on A's intimation, B is dispensed from being ready and willing at the time for performance. Where B is so dispensed and B was ready and willing to perform when the intimation was given, A's failure to perform is a breach of contract. B's readiness and willingness, so far as it is an element in B's cause of action against A, corresponds with the readiness and willingness of a party who is entitled to rescind for repudiation or incapacity. It is readiness and willingness up to the time when the intimation is given and it relates to B's then disposition and capacity to perform his obligation when the time for performance arrives. The caution which Dixon C.J. expressed in Rawson v. Hobbs against finding an absence of readiness and willingness too lightly must be observed. Unless B is ready and willing in this sense, A's failure to perform his obligation when the time for performance arrives is no breach of contract.
In the light of this discussion, I would state the relevant principles thus: if an executory contract creates obligations which are mutually dependent and concurrent and, before the time for performance of the obligations arrives, one party, A, gives the other party, B, an intimation that it will be useless for B to tender performance and B abstains from performing his obligation in reliance on A's intimation, B is dispensed from performing his obligation and A's obligation is absolute provided that B had not repudiated the contract and he was ready and willing to perform his obligation up to the time when the intimation was given. It is immaterial that A's intimation amounts to a repudiation of the contract unless B terminates the contract by accepting the repudiation. If, at the time when the intimation was given, B was substantially incapable of future performance of his obligation or had already definitively resolved or decided not to perform it, B was not ready and willing. If B was not then ready and willing, A's failure to perform his obligation when the time for performance arrives is no breach of contract.
These principles are, I think, consistent with the cases except Braithwaite v. Foreign Hardwood Company [1905] 2 KB 543 . That is a difficult case. It was analysed by Lord Ackner in Fercometal (at pp 208-212; pp 748-752). In Braithwaite, buyers of rosewood wrongfully repudiated a contract of sale for 100 tons of rosewood while the first consignment of 63 tons was on the water. After the consignment reached London, the seller tendered or offered to tender the shipping documents in exchange for the price, but the tender or the offer was rejected. (It does not clearly appear from the report whether there was only an offer to tender or an actual tender.) The seller then sold the consignment for the best price obtainable and sued the buyers for damages for non-acceptance. It turned out that a proportion of the consignment of 63 tons was not of the stipulated quality. The trial judge (Kennedy J.) found that the defect in quality was such as to entitle the buyers to reject the whole consignment. Kennedy J. assessed substantial damages against the buyers, making an allowance for the defective timber. The Court of Appeal dismissed the appeal.
Salmon L.J. in Esmail v. J. Rosenthal & Sons Ltd. (1964) 2 Lloyd's Rep 447, at p 466, and Lord Ackner (citing Salmon L.J.) in Fercometal, at pp 211-212; p 751, treat Braithwaite as a case of acceptance by the seller of the buyers' repudiation by anticipatory breach. Treating the buyers as having repudiated by committing an anticipatory breach and the seller as having accepted the repudiation, Lord Ackner thought that no question of actual breach by the buyers had arisen and that the quality of the timber in the first consignment was relevant only to the issue of damages. Had Lord Ackner regarded Braithwaite as a case of actual breach, he would have thought it to have been wrongly decided for the seller could not and did not perform its obligation under the contract by delivering a consignment of the stipulated quality. His Lordship rejected a proposition which (subject to the proviso of readiness and willingness) I accept, namely, "that where a party repudiates, the non-repudiating party, who does not accept the repudiation and affirms the continued existence of the contract, is thereby absolved from tendering further performance under the contract while the repudiatory attitude is maintained." If that proposition (subject to the proviso) be correct, it is immaterial whether the buyers' breach be treated as anticipatory or actual. In my view, the critical issue in Braithwaite was whether the seller, at the time when the buyers intimated that they would refuse to accept the consignment of 63 tons, were substantially incapable of delivering rosewood of a quality which the buyers were bound to accept. If the seller were so incapable, the buyers' refusal to accept - whether it be treated as an anticipatory or an actual non-acceptance - was justified and the buyers were not in breach; if the seller were not so incapable, the buyers' refusal to accept was a breach of contract. On one view of the facts, the quality of the rosewood in the consignment practically determined the seller's capacity to deliver rosewood of the stipulated quality; on another view, if the quality of the consignment was defective the seller still had an opportunity to acquire and tender rosewood of the stipulated quality. On the former view, the quality of rosewood in the consignment was the issue. Mathew L.J. in the Court of Appeal held (at p 553) that:
"there was, in my opinion, abundant evidence to shew that the first consignment was sound and was merchantable as rosewood, and would have been properly described as rosewood in the trade, though it would have been subject, as regards a portion of the consignment, to a small reduction in price."
But that view of the facts was not adopted by Collins M.R., with whom Cozens-Hardy L.J. agreed. Collins M.R. did not consider the finding of the trial judge that, had the buyers not wrongfully repudiated the consignment before delivery, they would have been entitled "to repudiate the whole" (at p 546). Yet the majority in the Court of Appeal upheld the trial judge's award of damages. His Lordship said (at p 552):
"The (buyers) are not in a position now, by reason of their after-acquired knowledge, to set up a defence which they previously elected not to make. We must in such a case look to see whether, at the time of each alleged breach, each side was ready and willing to perform the conditions of the contract which it lay upon them to perform, and there was clearly a breach by the (buyers), for they had by their own act absolved the (seller) from the performance of the conditions of the contract."
The proposition that the buyers could not set up the defence of the seller's incapacity to deliver a consignment of the stipulated quality because they did not know of it at the time is inconsistent with the principle stated in Shepherd v. Felt and Textiles of Australia Ltd. and by Lord Sumner in British and Beningtons, Ld., cited above. And Collins M.R. appears to have disregarded the requirement that, if the seller was entitled to recover substantial damages, it had to be ready and willing to deliver a consignment of the stipulated quality at the time when the buyers "absolved" the seller from its obligation to deliver. On the approach to the facts which the majority adopted, the case was wrongly decided. Damages and Rescission
A breach by A of an essential term of the contract entitles B to rescind the contract and to recover damages for the loss of the benefit to which, had the contract been performed, he would have been entitled. Whether the breach be anticipatory or actual, it is necessary to form an estimate of what would have happened had the contract been performed in comparison with what has happened, the contract being broken: see Hochster v. De la Tour (1853) 2 El & Bl 678, at p 691 (118 ER 922, at p 927).
Where B, being otherwise ready and willing to perform his part of mutually dependent and concurrent obligations, acts on A's intimation of non-performance and does not tender performance of his own obligation, he is entitled to damages for A's non-performance. In assessing the damages, it is necessary to form an estimate of the benefit to which B would have been entitled had A performed his contractual obligation. Where, as in this case, a purchaser who has made no announcement that he will not complete and who is attempting to raise finance in order to complete when the vendor intimates that he will not complete on the stipulated day, the purchaser's entitlement to damages for the vendor's failure to complete on that day depends on two related but distinct questions: first, whether the purchaser was at the time of the intimation substantially incapable of raising the finance and, second, whether it is more likely than not that the purchaser would have succeeded in raising the finance. A reasonable prospect of a purchaser's raising finance (the converse of "substantial incapacity") suffices to show that the purchaser was ready and willing at the time of the intimation, but it does not establish that the purchaser would have been ready and willing to complete when the time for completion arrived and would have become entitled to the benefit of the completed contract. The onus is on the purchaser to establish his damages on the balance of probabilities. The readiness and willingness which must be shown by a purchaser in proof of his damages for the vendor's breach in failing to complete at the stipulated time is readiness and willingness to pay the price at that time: Hensley v. Reschke (1914) 18 CLR 452 , at pp 467-468. There, Isaacs and Rich JJ. pointed out that:
"it must never be forgotten that readiness and willingness in this sense means readiness and willingness in the event of the vendor being able to carry out the contract as the purchaser insists by his action it should have been carried out, and claims damages on that basis."
The distinction between readiness and willingness up to the time of an intimation of non-performance and readiness and willingness when the time for performance arrives is not drawn by Isaacs J. in Cohen & Co. There he cited Hensley v. Reschke although the latter case is concerned not with the elements of a cause of action for breach but with proof of damage. Readiness and willingness to pay the price when the time for completion arrives is a condition precedent to the recovery of substantial damages, but proof of that kind of readiness and willingness is not essential to establish that a vendor who has given an intimation of non-performance and who fails to perform is in breach.
The problem of assessing damages does not arise in this case, where the purchasers have purported to rescind for the vendors' breach and seek merely to recover the deposit. The finding, albeit obiter, of Needham J. that the purchasers had not discharged the onus of proving readiness to complete seems to relate to the likelihood of the purchasers' having in hand on 22 June the finance needed to settle. That question does not fall for determination. Had the purchasers sought to recover substantial damages from the vendors for the vendors' failure to complete on 22 June, the purchasers' inability to prove on the balance of probabilities that they would have been able to pay the price on that day would have been fatal to the claim. But the purchasers abandoned a claim for damages for the vendors' breach.
The true question is whether, when the vendors intimated on 20 June that they could not complete on 22 June, the purchasers were already "substantially incapable" of raising the needed finance to tender on 22 June. The purchasers were undoubtedly encountering grave difficulties in raising the finance they needed on 20 June they were perhaps $10,000 short of the amount needed to complete - but their difficulties were not so grave that in their view it was futile to continue the effort. The male purchaser's evidence not only contains an assertion that he was able to complete; it contains an expression of confidence that his mother and his bank would make up the shortfall. Though Needham J. was not convinced that either source would produce the finance needed, the male purchaser apparently had a good relationship with both prospective sources neither of whom was shown to be without lending capability. Those circumstances preclude a finding that, when the vendors' solicitor intimated on 20 June that the contract could not be completed on 22 June, the purchasers were substantially incapable of raising the finance needed to complete. After the vendors' solicitor intimated that completion would not take place on 22 June, the purchasers apparently acted upon the intimation of 20 June, suspended the arrangements with the finance company which was to provide the major part of the finance, and did not tender the balance of the price on 22 June. The facts support the inferences that the purchasers acted on the vendors' solicitor's intimation and were, up to the time when the intimation was given, ready and willing to complete. In those circumstances, the vendors' failure to complete on 22 June was a breach of contract which entitled the purchasers to rescind. The purchasers were content with the declarations made by the trial judge that the contract was validly rescinded and that they were entitled to a return of the deposit.
Recovery of deposit
Upon rescission of the contract, the consideration for which the purchasers had paid the deposit failed totally. The purchasers became entitled to recover the deposit not as damages but in quasi-contract as money paid for a consideration that had totally failed: see Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Ld. [1943] AC 32 , esp. at pp 57,64-66; Christie v. Robinson (1907) 4 CLR 1338 , at p 1346; Casson v. Roberts (1862) 32 LJ Ch (NS)105, at p 106. The purchasers' claim for the deposit was not founded on the contract which they rescinded.
The appeal should be allowed, the judgment of the Court of Appeal should be set aside and the judgment of Needham J. restored.