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Frustration

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Frustration in Contract Law

The doctrine of frustration applies in contract law when an unforeseen event occurs, rendering the performance of the contract impossible, illegal, or radically different from what was contemplated by the parties. When a contract is frustrated, it automatically terminates, and the parties are discharged from their future obligations. This doctrine helps to ensure fairness when continuing a contract becomes untenable due to circumstances beyond the control of either party.

Grounds for Frustration

Frustration can arise from various situations where the contractual obligations become impossible or fundamentally altered. Key grounds include:

  • ★ Impossibility: This occurs when an event makes it physically or legally impossible to perform the contract. For example, the destruction of a specific subject matter essential to the contract.
  • ★ Illegality: If a change in law makes the performance of the contract illegal, the contract is frustrated. An example includes a new regulation prohibiting the activity covered by the contract.
  • ★ Radical Change in Circumstances: The contract may be frustrated if an unforeseen event changes the contractual obligations to a degree that they are significantly different from what was initially agreed upon, such as the cancellation of an event central to the contract.

When a contract is frustrated, several legal consequences follow:

  • ★ Automatic Termination: The contract ends automatically at the point of frustration. Parties are released from their future obligations but are still accountable for any obligations due before the frustrating event.
  • ★ Restitution: The Law Reform (Frustrated Contracts) Act 1943 provides for the recovery of money paid before the frustrating event and compensation for any benefits conferred under the contract.
  • ★ No Damages for Breach: As frustration is not due to the fault of either party, neither party can claim damages for breach of contract.

Case Law

Impossibility - Taylor v Caldwell (1863)

In this foundational case, a music hall was destroyed by fire before a series of concerts could be held. The court ruled that the destruction of the hall, a key subject matter, rendered the contract impossible to perform, thereby frustrating the contract and relieving the parties of their obligations.

Radical Change - Krell v Henry (1903)

This case involved the cancellation of King Edward VII's coronation procession, which was central to the contract for hiring a flat to view the event. The court held that the cancellation frustrated the contract as the sole purpose could no longer be achieved, leading to automatic termination.

Examples

Example 1 - Frustration Due to Impossibility

Scenario:

A company contracts to deliver a specific piece of machinery, but the factory where the machinery is being manufactured burns down, destroying the equipment. The contract is frustrated as it becomes impossible to deliver the specific item.

Example 2 - Frustration Due to Illegality

Scenario:

Two businesses enter into a contract for the export of goods. However, subsequent changes in government regulations prohibit the export of the particular goods. The contract is frustrated due to the illegality of the transaction.

Conclusion

The doctrine of frustration serves to fairly allocate the burden of unexpected, disruptive events that make contract performance impossible or fundamentally alter its nature. When a contract is frustrated, it automatically terminates, discharging parties from their obligations and providing remedies for restitution. Understanding the concept of frustration helps parties anticipate potential legal outcomes and prepare for unforeseeable changes in circumstances.

Breach Basic principles of restitution and unjust enrichment in the context of termination of contract
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