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Advising a Client : Contract Law

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Introduction

When advising A there are three fundamental questions that must be asked; Is the event capable of frustrating the contract? Are there any rules of law that would render the doctrine of frustration inoperative? What would be the effects if the contract were found frustrated? In addressing the first question it must be recognised that the hallmark of frustration is an event that occurs after the contract is formed that radically alters the foundation or renders it physically or legally impossible to perform. A simple example of this can be found in Taylor v. Caldwell (1863) 3 B. & S. 826 where a contract for hire of a music hall and gardens was found to be frustrated when the music hall burnt down. The object of the contract was ascertained as the hiring of the gardens and music hall for the purpose of using them to stage four 'grand concerts and fetes'. When the hall was destroyed by fire after the contract was formed, the performance was rendered physically impossible. Thus it is essential when considering frustration to identify the object of the contract and then to decide whether the intervening event radically alters this object. ...read more.

Middle

The next point to consider is whether there are any rules of law that would render the doctrine of frustration inoperative. Did either party foresee the supervening event, and could either party be assumed to have taken the risk that such an event might occur? It is rare that a party may seek to rely on an event that he has foreseen in order to claim frustration (see Walton Harvey Ltd v Walker & Homfrays Ltd (1931) 1 Ch 274). The reason for this is that in the absence of a provision in the contract to deal with such an event, one or other of the parties must be taken to have accepted the risk of its occurring. Therefore, the more foreseeable an event, the more allocation of risk occurs. The courts often distinguish between events that were foreseen and events that were foreseeable at the time of the contract. Where the events are foreseen the courts will usually find that a plea of frustration will fail. A rare exception to this approach can be found in the case of The Eugenia (1964) 2 QB 226 where Lord Denning MR found there was evidence that the parties intended 'to leave the lawyers to sort it out'. ...read more.

Conclusion

First it is not now necessary to prove a total failure of consideration, but more importantly where the payee has incurred expenses he may be allowed to offset the paid or payable sum by an amount not exceeding the expenses incurred when performing the contract before the frustration. It may be assumed in the present case that B has incurred considerable expense in the development of the equipment and it is likely that the court will find �5000 for three months work to be less than excessive recompense. On this point A should be advised that he might lose all of his deposit and may be required to pay even more. However, s 1(3) of the 1943 Act allows courts to award a 'just sum' where one party has obtained a valuable benefit under the contract. A can argue that clause four has conferred a valuable benefit on B by allowing him the extra business-generating kudos of being linked with A. There is little in the way of valuable benefit conferred on A that can offset this consideration, so it is contended that A may indeed recover some or all of the �5000 deposit depending on the value placed upon the valuable benefit by the court. ...read more.

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