Persimmon Homes Limited v Bellway Homes Limited
If a party is in material breach of contract, the "innocent" party is entitled to "rescind" the contract- that is- bring it to an end. However, in some cases, the innocent party should only rescind once the wrong-doer is given an opportunity to cure its breach of contract. This is known as the "ultimatum procedure".
Bellway Homes Limited (“Bellway”) sold a site at Broomhouse to Persimmon Homes Limited (“Persimmon”). In terms of the missives Bellway (“the Seller”) was to complete the Seller’s Works prior to the longstop date which failing Bellway would offer Persimmon an alternative site of a similar value and size as the Broomhouse site.
The Seller’s Works were not completed. As such, Bellway offered Persimmon a site in Airdrie, which Persimmon rejected on the basis that it did not meet the agreed criteria.
On 11 February 2009 Persimmon's solicitors wrote to Bellway demanding completion of the Seller’s Works by 15th May 2009 under threat of rescission. The Seller’s Works not being completed Persimmon rescinded the contract on 12 June 2009 and raised an action for damages for breach.
The court found that the value of the Airdrie site was not comparable to the original Broomhouse site and consequently Bellway were indeed in breach.
However, had the missives been properly rescinded?
Bellway argued that as time was not of the essence in the missives they should have been given another opportunity to propose an alternative site. Separately, they argued that the letter of 12 June 2009 had not rescinded the contract as it only referred to the obligation to complete the Seller’s works and not the obligation to offer an alternative site.
In response, Persimmon argued that a rescission notice did not have to be in a specific form and did not have to include reasons for the rescission.
The court agreed with Persimmon and held that the contract was validly rescinded by the letter of 12 June 2009. However, until rescission, Bellway would indeed have had the opportunity to offer a suitable alternative site and cure the breach.
Lord Drummond Young set out three principles which he considered vital when considering the effectiveness of a letter of rescission:
- The intention to rescind must be clear. There is no requirement that any reason be provided so long as the intention to rescind is evident.
- Where time is not of the essence in a contract, if the party seeking to rescind the contract fails to use the ultimatum procedure, they must be able to show that the other party would be unable/unwilling to fulfil his part of the contract no matter how much time was given.
- If a party to a contract fails to fulfil his obligations under a contract, the reason for the failure is irrelevant.
He reiterated that time is not normally of the essence in contracts for the sale of land. However, as Persimmon were able to show that Bellway could not have complied with their obligation to provide an alternative site within a reasonable time, the rescission was effective notwithstanding that the ultimatum procedure had not been followed.
The case illustrates that where a party attempts to rescind without giving the other side reasonable notice, this will be considered an attempt to make time of the essence in the contract. This will only be permitted where the party seeking to rescind can prove that the other party could not have fulfiled their side of the bargain even if notice had been given.
It also made clear that if time is to be of the essence in a contract for the sale of land, it is prudent to expressly state this (see previous e-update). In this case the court recognised that time was of some importance but it was unwilling to interpret the provisions in a manner which made time of the essence.