Law of Contract

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					     Law of Contract



Discharge of Contract-
     Frustration
                      Frustration
If after a contract is made, something happens, through
no fault of the parties, to make its performance
impossible, the contract is said to be frustrated, and the
obligations under it come to an end.
Taylor v Caldwell (1863)
Facts : The parties had entered into a contract concerning the use
     of
the Surrey gardens and Music hall for a series of “grand concerts..”.
Six days before the planned date for the first concert the building
     was
burnt down.
Held : The contract was discharged by frustration as it would not be
possible to carry out contract as agreed.
                      Frustration
There are three broad categories of events that would make contracts
impossible of performance due to Frustration.


1.   events that make performance impossible

2.   events that make performance illegal

3.   events that make performance pointless
                       Frustration
Events that make performance impossible

1.   Destruction or unavailability of something essential
     for contract's performance (see Taylor v Caldwell)

2.   Death of either party.

3.   Unavailability of party.
     (Robinson v Davidson) piano player fell ill
4.   Method of performance impossible
     (Nickoll & Knight v Ashton Edridge (1901)
     cotton seed shipped by a certain ship...that ran aground.
                        Frustration
Just because performance becomes more difficult or more expensive
will not make the contract fail due to Frustration. See leading case :
Davis Contractors v Fareham UDC (1956)
Facts : Davis a building company contracted to build 78 houses for
      a
local authority. The job was to take 8 months, but in fact took 22
months due to labour shortages. It also costs Davis more money,
      but
the local auth was willing to pay more but not enough to cover all
      costs.
Davis sought to discharge the contract on frustration, and he
      argued
that performance was made fundamentally different by the labour
shortages and increased costs.

Held : The HL disagreed and held that although it would have been
                        Frustration
Events that make performance illegal : (supervening illegality)

In the leading case of Fibrosa :


Fibrosa Spalka Akeyjna v Fairbairn Lawson (1943)
Facts :
Fairbairn had a contract to manufacture machinery for a Polish
company, in July 1939. By sept 1940, parts of Poland were under
German occupation, making it illegal to ship the machinery to the
enemy occupied territory.
Held :
The contract was discharged due frustration as performance was
impossible.
                         Frustration
A contract can be frustrated where a supervening event makes
performance of a contract pointless, though still technically possible.
Krell v Henry (1903)
Facts : The defendant, had agreed to rent the plaintiff a suite of
rooms in Pall Mall, for the day on which the King's coronation
was to take place.
The rooms offered a view of the coronation and the price of the
rooms reflected the significance of the day.
Unfortunately the coronation was postponed.
The defendant did not want the rooms but the plaintiff sued for
the rent.
Held : The CA held that although the performance of the contract
was possible, it would be pointless as viewing of the procession
was the 'foundation of the contract”, and this was frustrated.
                       Frustration
But see another “coronation postponement” case :
Herne Bay steam boat Co v Hutton (1903)
Facts : The D had hired a steamboat in order to take passengers
to watch the naval review of the king, organized to mark the
coronation. The coronation and the naval review was postponed.
The D refused to pay for the hire saying the contract was
frustrated as it was pointless to carry on.

Held :
The CA disagreed and said that the ability to watch the review in
     this
case was not fundamental to contract, and the D could still carry
     out
pleasure trips on the boat. Thus contract was not frustrated.
                       Frustration
What are the consequences of a frustration during the performance of
a contract? See Fibrosa spalka case (1943)
Obligations to pay money !
S1(2) Law Reform (Frustrated Contracts) Act 1943
The section aims to entitle a person to recover money paid under
a contract prior to the frustrating event, and it also removes any
obligation to pay money that existed prior to the frustrating
event.
1) money paid is recoverable even upon a partial failure of
consideration.
2) Where the party to whom the money was paid or payable
incurred expences as a result of the contract, the court may order
that the recoverable sum would be less the expences incurred by
the party.
                        Frustration
What are the consequences of a frustration during the performance of
a contract? See Fibrosa spalka case (1943)
Obligations other than to pay money !
S1(3) Law Reform (Frustrated Contracts) Act 1943

If, before the frustrating event one party obtains a valuable
benefit (other than money) because of something done by the
other in performance, the party receiving the benefit can be
ordered to pay a just sum in return for it.

1) valuable benefit ?
2) just sum?
                        Frustration
What is valuable benefit and a just sum that the court would have to
award, under S1(3) LRA 1943?
BP Exploration v Hunt (1979)
as per Robert Goff J,
“the provision of services would in itself not be 'valuable' benefit
but the end result might be. For example in a building contract
the number of hours put in itself would not be valuable for the
house owner but the value that is added to his property. If fire for
example destroys the work done than it would not be fair to
expect the house owner to pay for the “value” that is lost.
In calculating the award of a just sum, for the valuable benefit,
the courts try to balance out the financial consequences of
frustration, in order to prevent the unjust enrichment of one party
at the expense of the other.

				
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