What are the rules governing the doctrine of frustration in the law of contract? Evaluate it's usefulness.
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Paper 1, June 2000, Question 5 a) What are the rules governing the doctrine of frustration in the law of contract? (15m) b) Evaluate the usefulness of this doctrine. (10m) a) The term "frustration of a contract" defines the unexpected termination of a contract as a result of an event that either renders the performance impossible or illegal, or prevents its main purpose from being achieved. For a contract to be frustrated, there must first be a contract between the parties. The frustration must be beyond the control of the contracting parties, and the event must bring the contract to an end.
The modern test was enunciated by Lord Simon in National Carriers v. Palpina, where frustration arises when 'there supervenes an event (without default of either party, and for which the contract makes no sufficient provision), which so significantly changes the nature of the outstanding contractual rights/ obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of stipulation in the new circumstances.' In Davis Contractors v. Fareham UDC, Lord Radcliff stated that frustration occurs where to require performance would be to render the obligation something 'radically different' from what was undertaken by the contract.
and "where one party has obtained a valuable benefit, before the time of discharge, the other party may recover from him such sums as the court considers just," in Section 1(3). Section 1(3) was applied in BP Exploration v Hunt in 1982, where it was held that the court must identify and value the 'benefit' obtained, and access the 'just sum' which it is proper to award. This section was devised to prevent unjust enrichment, but has its limits. The Law Reform (Frustrated Contracts) Act does not apply to charter parties, contracts for the sale of specific goods which have perished and contracts of insurance.
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