Discharge by Frustration

Question 1

Define

Answer 1

A contract may be frustrated if an unforeseen event occurs after the contract has been formed which was not the fault of either party and which makes the contract impossible to perform, or which makes performance of the contract radically different.

Question 2

What happens when a contract is frustrated?

Answer 2

If a contract is frustrated, it comes to an end automatically at the time of the frustrating event and the parties do not have to perform their future obligations.

Question 3

Physical impossiblilty

Answer 3

(Taylor v Caldwell)
Physical impossibility.

Question 4

Illegality

Answer 4

(Fibrosa)
Where the contract becomes illegal to perform.

Question 5

Vital person

Answer 5

(Condor v Barron Knights)

Question 6

Commercial sterility

Answer 6

(Krell v Henry)
Due to a cancellation of a common venture but the contract must be deprived of the whole commercial purpose to amount to frustration.

Question 7

Delay which makes contract more expensive

Answer 7

Applies in exceptional circumstances.
(Metropolitan Water v Dick Kerr) - WW1
Something becoming more expensive is not frustration.

Question 8

A contract will not be frustrated if…

Answer 8

1. Self-induced frustration (Mairtime Shipping)
2. Delay
3. Contract becomes less profitable (Davis v Fareham)
4. Frustrating event is foreseen (Walton Harvey)
5. Force majeure clause

Question 9

Rights and remedies at moment of cancellation

Answer 9

Anticipatory breach - other party can repudiate the contract and claim damages.

C can reject anticipatory frustration (Avery v Bowden)

D terminates contract - C treats as frustrated not breached - no right to damages.

Question 10

Remedies act

Answer 10

Frustration of Contracts Act 1943

Question 11

Remedies

Answer 11

1. Money paid prior the frustrating act is recoverable and money due to be paid but not paid ceases to be payable.
2. Courts may allow expenses to be paid or due prior the frustrating act to be recovered - subject to the discretion of the court if it is considered ‘just’. Maximum sum - what was paid or payable prior.
3. Party obtained a benefit - courts may allow C to be reimbursed.

Question 12

What if the contract is not frustrated?

Answer 12

D is in the position to sue and claim damages for breach of contract.

Innocent party - expectation damages - back in position prior to the contract.