Contract; remedies for breach; the effect on the contract of terminating performance.
Facts: This case involved a purchase of land, the price of which was payable in instalments. After making some payments, the buyer failed to pay an instalment on time. The seller treated this failure as a serious breach of contract and terminated further performance. The buyer did not dispute this decision. However, because the buyer was no longer entitled to complete the contract and become owner of the land, he wanted to recover the instalments already paid. The seller wanted to keep the instalments.
Issue: After terminating performance of the contract, was the seller entitled to keep the instalments already paid while not being obliged to transfer the land to the buyer?
Decision: The common law remedy of terminating performance of a contract on grounds of breach of a condition does not make the entire contract void ab initio and the seller could not keep both the money and the land.
Reason: Even after termination of the right to perform, a contract remains in existence and undischarged obligations may be enforced in other ways. Since the seller in this case was not prepared to complete the contract and transfer the land to the buyer, he had no right to retain the instalments paid by the buyer, which payments were conditional on the completion of the contract.
Dixon J said (at 476-7):
"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party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning.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 … [W]hen a contract … is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined [ended] so far as it is executory only and the party in default is liable for damages for its breach."