Seller of a Ferrari Was Out of Time to Exercise Termination Right When Payment Funds Did Not Arrive in Time

by | Jun 17, 2022 | Blog

In a High Court case involving the sale of a racing car, the Judge made useful observations on what is a reasonable timeframe in which to exercise a contractual termination right before the right is lost and the breach waived.

The contract explained that if “the buyer does not meet his payment obligations […] within 5 business days after the due date, the seller is entitled to withdraw from this contract without reminder or setting a deadline”.

On receipt of the sale price, the defendant/seller was to transfer ownership and instruct Ferrari to release the car to the claimant.

The contract was signed on 24 March 2021. On 7 April, the claimant instructed its bank to transfer the balance of the purchase price. The defendant said that the money had not arrived in his account by 13 April and purported to terminate the agreement.

The defendant accepted that the money reached his account by 25 May but refused to deliver the car, arguing that the claimant’s failure to meet the payment deadline meant that he was discharged from performing the contract.

The judge thought that in this situation, it was “entirely simple and straightforward” to decide whether or not to withdraw and therefore the “reasonable time” within which the contractual right had to be exercised would be very short. It could not possibly be as much as 13 days. These remarks suggest that in a clear-cut scenario, the innocent party may only have a small window to decide to use a termination right before losing it.

Depending on contract drafting and interpretation, any termination right must either be exercised within a reasonable period of time or be exercised at any time. Parties are free to draft a contractual right to terminate “at any time” after a trigger event, which is not then lost by delay.

The Claimant purchaser therefore won, on a summary judgement application.

Lessons to Learn: having well drafted contracts is important. Here setting a window of opportunity meant the seller had to have acted within that window.

 

Case: DD Classics Ltd v Chen [2022] EWHC 1404 (Comm) (20 May 2022)
Source: Practical Law

0 Comments

Submit a Comment

Your email address will not be published.

× Live Chat via Whatsapp