Contract Law

Contract Law

Bingham LJ's statement expresses well the purpose of the doctrine of

frustration which is to moderate the general rule, as expressed in

Paradine v. Jane (1647), that, unless they have been expressly

qualified, contractual obligations are absolute. It does not tell us

much about the underlying principles of the doctrine. How and when

does it apply and what are the effects? Contract law needs certainty

and a doctrine that excuses parties from the performance of their

obligations must, by necessity, be restrictive and unambiguous. By

concentrating on the object of the doctrine, however, the author

reflects accurately the courts' modern trend of relying less on an

abstract theory justifying the doctrine, and more on an objective

interpretation of the contract and the practical situation before them

in order to produce a just result. We will see how this development

has affected both the ambit of the doctrine and its effects.

A contract is frustrated if an event occurs after the contract has

been formed which makes it impossible to perform it and this event is

outside the control of the parties to the contract. This definition is

as valid now as it was when the seminal case of Taylorv Caldwell(1863)

was decided. The underlying principle was that there was an implied

condition that the parties would be excused from their obligation if

performance (literally and legally!) became impossible trough no fault

of theirs. The principle applied if a specific person vital to the

contract would become unavailable (Morgan v Manser [1948]), if a

fundamental event did not occur (Krell v Henry [1903]), if the

contract was made impossib...

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...ating event by the party to whom money was paid or payable in

the performance of the contract, can be paid out of that money and the

onus of proof is on the payee to show that it is just (Gamerco SA v

ICM/Fair Warning Ltd [1995]). S 1(3) deals with valuable benefits and

the court is not limited to the amount paid or payable before the

frustrating event but the value is calculated as per the value of the

product/service of what the claimant has provided, not what it cost

him (see BP Exploration Co. Ltd v Hunt [1979]). Parties may exclude

the act and the common law rules apply to excluded contracts.

In applying the statute the courts have much discretion and the

combination of common law principles and statute have practically

brought the whole subject of frustration into the principles of

equity: what justice demands!