Discuss the development of doctrine of frustration regard to the law of contact

Authors Avatar

The general rule of contract law before 1863 was absolute contractual responsibility is bound by the parties once the contract is made and there would be no excuse for non-performance. This absolute contract rule was founded by the judges in Paradine v. Jane where a tenant was sued for the rent due and pleaded that he was held out of possession of the premises due to the invasion of the enemy. He claim that the rent was not due as he was deprived from the lease. The court held that he is obliged to perform his duty. “When the party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract. And therefore if the lessee covenant to repair a house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it.”   This doctrine works well on reasonable and ordinary situation however it poses problems under supervening events which changes the situation drastically.

 

The doctrine of frustration was introduced in Taylor v. Caldwell as the exception of the existing law to reconcile the situation where justice demands. It was stated by Blackburn J. “in contract in which performance depends on the continued existence of the given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance.”

Under this doctrine, a contract may be discharged if occurrence of supervening event after the formation of the contract. When frustration occurs, performance of the contract would be impossible, by the destruction of the subject matter, by the incapacity (e.g. illness) or death of the party for personal services; or performance would be illegal, by outbreak of war; or when the supervening event affected the performance even though possible but radically different or pointless than what is state in the contract, as per Krell v. Henry where the viewing “the Coronation precession was the foundation of the contract, and the non-happening of it prevented the performance of the contract”, though performance was possible however pointless, leaving the contract frustrated.

Under the common law, it was in the original rule that when a contract is frustrated, the parties are relieved from further performance from this point, however they are bound by the obligation arouse before the supervening event. Thus in Krell v. Henry, the defendant was not liable to pay the balance of the agreed rent where the supervening event happened before the suppose payment of balance.

The effect of frustration is to cease the contract from any further performance from the point of frustration rather than treating the contract ab initio, like never existed.

The respond of the courts on effect of frustration was to let the loss lie where it fell. This rule was founded in Chandler v. Webster, where the plaintiff agreed to hire a room from the defendant to watch the Coronation procession. The price of £141 was payable immediately and he paid £100. The procession was cancelled before the balance was paid and he claimed to recover the paid amount. Court held the effect of frustration did not affect the obligations before the supervening event, where in this case the obligation was to pay £141 immediately rather than £100. Thus instead of refund, the plaintiff was liable to pay the £41. The decision was harsh and it poses problem as the effects on the parties are unpredictable depending on how far they reached in the contract at the point of frustration. It allows a party to retain unjustly a benefit in the expense of another party when the contract has been discharged in frustration, as per Chandler v. Webster.

This harsh decision was however overruled in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. It was held that a party could recover the advance payment only if there was a total failure of consideration. Although Fibrosa case improved the rule in Chandler v Webster, the common law was still left under unsatisfactory condition as there are few defects visible. Firstly, money would be irrecoverable for those who seek for recovery of money if they received any part, even a small part of benefit, as per Whincup v. Hughes. The rule only gives right of recovery for total failure of consideration, which exclude partial failure of consideration.  Secondly, it would be unjust for the payee who already used the pre-payment for the incurred expenses for the purposes of the performance of the contract, before the frustration, to return the paid amount, or left with valueless goods as the result of failure of the contract. Thirdly, for those whose right not yet accrued at the frustrating event, as per Appleby v. Myers, when the event destroyed the work which had been done where the payment was to be made only at the point of completion, the service provider would not be able to make restitution. This rule may be reasonable as it is illogical for the payer to pay for an unfinished work, however it leave unsatisfactory to service provider where they could not recover anything for the work done.

Join now!

Thus came in the Law Reform (Frustrated Contracts) Act 1943 to remedy the unsatisfactory under common law. The main principle in this act is to prevent unjust enrichment of either party at the expense of others under discharge of frustration. The statute alters the legal consequences of frustration of the contract under the common law.

The act basically deals with specific areas in recovery of money payable or paid in advance of the contract, performance conferring a valuable benefit and the award of a just sum, and the scope of contract covered under this act.

 S1(2) of ...

This is a preview of the whole essay