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Contract Law: Frustration
- Module
- Contract Law
- Institution
- Kings College London (KCL)
Comprehensive notes for Contract Law: Frustration.
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Frustration - Lecture Notes_______________________________________________________________________________________
INTRODUCTION
This chapter deals with the part of the contracting process where something goes wrong: either because of a disaster has
overtaken the contract (frustration) or because one of the parties has committed a breach.
Definition:
Unforeseen/unforeseeable events that take place after contract made and which make contract
impossible/illegal/something very different from what parties had in mind in making the contract may have e ffect o f
bringing the contract to an end by operation of law. The point of frustration is the point of termination.
Frustrations are relatively rare. The usual way for a frustration to occur is through a disaster and it over takes the
contract, causing one party to not be able to perform their duties. When one party fails to perform his/her obligations,
the other party will claim for a breach. In defence of this claim, the party in fault will argue that they were faced with
unforeseeable events, which resulted in them not being able to perform their duties (this is cited as a good reason).
Essentially, frustration is seen as a form of an excuse for not fulfilling your duties. Therefore, if you are able to
successfully claim for frustration, you as the non-performing party have an excuse for your failure to perform.
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TERMINATION V RESCISSION
Difference:
This is different from ending the contract due to misrepresentation or mistake. In these circumstances, when the
contract ends, it is known as rescission - reinstating parties to their original position before entering the contract
(treating as though it never existed). With termination, there is no such distinction. It is during the running of the
contract and so if it were to end due to frustration, the contract simply stops (what has been accrued stays where it stays
- this is subject to a couple of rules).
The reason for this distinction is that rescission serves as a remedy when something has gone wrong during the
negotiations of the contract (mistake, misrepresentation, duress). Therefore, it only makes sense that remedy for these
problems is to reinstate the parties into their original positions, because they would not have entered into the contract if
it were not for these mishaps. Termination is a remedy when something wrong happens during the life of the contract
(after the signing of the contract).
Judges’ interpretation:
While a clear distinction is given between termination and rescission above, judges do not view matters in the same the
way. Judges in case law will often use the word ‘rescission’ instead of ‘termination’, and sometimes use the word
‘termination’ when they mean ‘rescission’, making things complicated.
_______________________________________________________________________________________
MISTAKE V FRUSTRATION
,Frustration - Lecture Notes
These two concepts are quite closely linked; especially in the way, that courts talk about doctrine. The main difference
is as following:
➢ Mistake: Mistaken event occurs before entering the contract;
➢ Frustration: Mistaken event occurs during the course of the contract.
Courts maybe more ready to find a contract brought to an end because of frustration than to f ind it void for common
mistake, BUT courts still very reluctant to do apply this doctrine.
Why courts reluctant to find contracts discharged because of frustration?
Concerning big companies, courts are of the consensus/opinion that you do not need to ab ide by the agreements that
you had entered into. Therefore, if the situation is as such where one enters into a contract and realises that the
contract is disadvantageous to his/her side, then nothing can be done about it. Courts are generally harsh on pa rties
who want to get out of contracts for external events. They don’t want to let parties out of what have turned out to be
bad deals
✓ Davis Contractors Ltd. v. Fareham UDC (HL1956)
The other rationale that courts consider is that there should be a mechanism for deciding what is going to change if
something goes wrong (events of material changes of circumstances). This role is performed by the contract itself.
Parties are perfectly able within the contracts itself to manage risk allocation. Essentially, the purpose of this expectation
is to prevent parties from getting out of a poorly drafted contract.
Example: There is a contract for the construction of a super tech and the price of steel goes up exponentially. You
should put in your contract what should happen if a price of a raw material increases.
_______________________________________________________________________________________
THE DEVELOPMENT OF THE FRUSTRATION DOCTRINE
✓ Paradine v Jane (1647), Aleyn 26 - This was a case which involved the tenant of a farm was dispossessed from
the farm that he was renting. The dispossession took place following the invasion of King Rupert of Germany.
As a result, the tenant was not able to live on the farm for two years, claiming that he was not liable to p ay rent
for the two-year period. The court held in favour of the landlord.
‘Now the rent is a duty created by the parties upon the reservation, and had there been a covenant to pay it,
there had been no question but the lessee must have made it good, notwithstanding the interruption by enemies,
for the law would not protect him beyond his own agreement . . .’
Now, what this judgement essentially means is that there should have been/included a clause in the contract
addressing this provision to deal with the eventuality. Such clauses are known as force majeure or ‘hardship’
clauses.
Note: A force majeure clause is a clause, which lists down unforeseen events that are likely to occur. Sometimes, it refers
to vague terms like ‘acts of god’ or ‘extraordinary events’. Nevertheless, the ultimate aim is to ensure that parties do not
have the obligation to perform in the manifestation of such events. Such clauses used to be rare in the past, but are
, Frustration - Lecture Notes
becoming increasingly popular of late as courts (commonplace in commercial contracts) are of the opinion that you
should provide for the risks that are going to occur.
✓ Taylor v Caldwell (1863) 3 B & S 826 - In this particular case, the plaintiffs entered into a contract with the
defendants and the plaintiffs were hiring the music hall at Surrey Gardens. They want to put up concerts at this
venue. Both the parties signed the contract for four days. But after signing the contract and before the first
musical was supposed to take place, the hall burnt down. The fire was an accident was nobody’s fault as a
result. The plaintiff brought a claim against the defendants for a breach of contract; arguing that the music hall
wasn’t made available in return for the payment. This case went up to the Queen’s Bench and it was hel d that
the contract was frustrated and therefore terminated. The rationale of this judgement derived from the existence
of an implied condition that the music hall would be physically present. This is one specific type of valid
frustration: destruction of the (main) subject matter.
“…in contracts in which the performance depends on the continued existence of a 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.
In none of these cases is the promise in words other than positive, nor is there any express stipulation that the
destruction of the person or thing shall excuse the performance; but that excuse is by law implied, because from
the nature of the contract it is apparent that the parties contracted on the basis of the continued existence of the
particular person or chattel."
The judge in Taylor v Caldwell distinguished it from Paradine v Jane by saying that in the latter, the subject matter
being the farm was not destroyed, resulting in no frustration.
Hence, the initial development of the doctrine had an exception through Taylor v Caldwell to the general rule that
emerged from Paradine v Jane. Therefore, Judge Blackwell (in Taylor v Caldwell) opened the door of expansion for the
application of the doctrine in other circumstances.
✓ Davis Contractors Ltd v Fareham UDC [1956] AC 696 - This was a case where DC entered a contract into F
to build 78 houses; F was the council and DC was the contractor in charge of building houses for F. It was
supposed to be for roughly £94,000. However, due to unforeseen circumstances, they could not get enough
labour (not the fault of either party). As a result, housing works took longer to complete than anticipated and
costed more (£115,000). But F insisted on paying only the contract price. Davis argued that the initial contract
had been frustrated due to not finding sufficient labour. Davis essentially claimed for £115,000 based off what
was known as Quantum Meruit. The House of Lords held that the contract had not been frustrated. The
shortage of labour had rendered the contract more onerous (performance could still happen despite this
shortcoming - it is just more difficult and time consuming) than had been contemplated but was not sufficient
to discharge the contract for frustration.
Note: Quantum Meruit is when a particular payment demanded for the service that has been provided. It is similar to
quasi contracts and it comes up in these type of contracts where either there is a flaw in the contract or the contract has
filed as a whole. Therefore, this is sort of an adjacent claim if a claim via a contract is no longer valid.
Summary
We see the themes emerging from the way courts behave with frustration.
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