The Effect Of Frustration At Common Law

Introduction

Meaning Of Frustration

• Frustration occurs where:
  • A valid contract exists.
  • A supervening event occurs after formation.
  • Neither party is responsible.
  • Performance becomes impossible, illegal or radically different from what was originally agreed.

Main Consequence Of Frustration

• When frustration occurs:
  • Contract is automatically discharged.
  • Future obligations end.
  • Parties are released from further performance.

Importance Of This Topic

• Establishing frustration is only the first stage.
• Courts must then determine:
  • What happens to the contract?
  • What happens to money already paid?
  • What happens to benefits already received?
  • What rights survive?

Historical Position

Common Law Approach

• Original common law rules were extremely harsh.
• Courts focused on certainty rather than fairness.
• Financial losses often remained where they fell.

Examination Importance

• Students must distinguish between:
  • Frustration itself.
  • Effects of frustration.
• This topic concerns:
  • Consequences after frustration has been established.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

Automatic Discharge Of The Contract

General Rule

• Frustration automatically terminates the contract.

Meaning Of Automatic

• No action required by parties.
• No court order required.
• No acceptance required.
• No election required.

Operation Of Law

• Contract ends by operation of law.
• Parties do not choose termination.
• Law imposes termination.

Difference From Breach

Breach

• Innocent party usually chooses whether to terminate.

Frustration

• Contract ends automatically.

Significance

• Major distinction between frustration and breach.

Effect On Future Obligations

General Rule

• Future obligations are discharged.

Meaning

• Parties no longer required to perform future duties.

Examples

Seller

• No longer required to deliver goods.

Buyer

• No longer required to accept goods.

Contractor

• No longer required to complete work.

Employer

• No longer required to provide future employment.

Importance

• Frustration operates prospectively.
• Future obligations disappear.

Effect On Rights Already Accrued

General Rule

• Rights that accrued before frustration generally survive.

Meaning

• Rights already earned remain enforceable.

Examples

Debt Already Due

• Remains payable.

Instalment Already Earned

• Remains recoverable.

Completed Obligation

• Rights arising from completion survive.

Importance

• Frustration does not rewrite past events.
• Only future obligations are discharged.

Frustration Does Not Create Breach

Important Principle

• Frustration is not breach of contract.

Reason

• Neither party at fault.

Consequence

• No damages for frustration itself.

Contrast With Breach

Breach

• Damages available.

Frustration

• No damages because neither party has committed wrongdoing.

Examination Point

• Students frequently confuse frustration and breach.
• They are fundamentally different doctrines.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

The Original Common Law Position

General Rule

• At common law:
  • Losses remained where they fell.

Meaning

Money Already Paid

• Could not be recovered.

Money Due But Unpaid

• Still payable.

Result

• Outcomes often extremely unfair.

Judicial Philosophy

• Courts prioritised certainty.
• Courts reluctant to redistribute losses.

Leading Case: Chandler v Webster (1904)

Facts

• Room hired to view King Edward VII’s coronation procession.
• Part payment made.
• Balance remained outstanding.
• Coronation cancelled.
• Contract frustrated.

Decision

• Money already paid could not be recovered.
• Outstanding balance still payable.

Legal Principle

• Loss lay where it fell.

Significance

• Classic example of harsh common law rule.

Why Rule Was Criticised

Unfairness

• Customer received no benefit.

Harsh Consequences

• Required payment despite frustration.

Lack Of Flexibility

• Ignored practical realities.

Example Of Chandler Rule

Contract Price

• £1000.

Amount Paid

• £500.

Amount Outstanding

• £500.

Frustration Occurs

Result

• £500 already paid lost.
• Remaining £500 still payable.

Criticism

• Appeared unjust.
• Created windfall benefits.

The Harshness Of Common Law

Main Problem

• Financial consequences often arbitrary.

Winners And Losers

• Outcomes depended entirely on timing of payment.

Lack Of Fair Distribution

• No attempt to share losses fairly.

Academic Criticism

• Rule widely condemned.

Commercial Criticism

• Produced unreasonable results.

Development Of Reform

Judicial Dissatisfaction

• Courts increasingly unhappy with Chandler rule.

Need For Fairness

• Law required more equitable approach.

Result

• Judicial modification followed.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943)

Facts

• Polish company ordered machinery.
• Part payment made in advance.
• Before delivery:
  • World War II made performance illegal.
• Contract frustrated.

Issue

• Could advance payment be recovered?

Decision

• Money already paid could be recovered.

Legal Principle

• Where there had been total failure of consideration:
  • Money paid recoverable.

Meaning Of Total Failure Of Consideration

• Party receives none of the contractual benefit promised.

Significance

• Major limitation on Chandler v Webster.
• Important step towards fairness.

Why Recovery Allowed

No Benefit Received

• Buyer received nothing.

Complete Failure

• Entire contractual basis collapsed.

Justice

• Recovery considered fair.

Effect Of Fibrosa

Modified Common Law

• Chandler approach weakened.

New Position

• Total failure of consideration allowed recovery.

Importance

• Improved fairness.

Limitation

• Still imperfect.
• Did not solve every problem.

Total Failure Of Consideration

Meaning

• No part of promised benefit received.

Examples

Goods Never Delivered

• Total failure.

Services Never Provided

• Total failure.

Event Never Occurs

• Total failure.

Examples Where Total Failure Does Not Exist

Partial Benefit Received

• Some goods delivered.

Partial Performance

• Some services completed.

Contract Partially Executed

• Benefit already obtained.

Importance

• Recovery depended upon existence of total failure.

Common Law Before Statutory Reform

General Position

Contract Discharged

• Yes.

Future Obligations End

• Yes.

Damages Available

• No.

Money Already Paid Recoverable

• Generally no.

Exception

• Total failure of consideration.

Money Due Before Frustration

• Usually remained payable.

Criticism

• Still produced unfair results.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

Strengths Of The Common Law Approach

Certainty

• Clear rules.

Predictability

• Parties knew legal consequences.

Respect For Contract

• Preserved contractual obligations.

Judicial Simplicity

• Easy to apply.

Weaknesses Of The Common Law Approach

Serious Unfairness

• Losses distributed arbitrarily.

Harsh Results

• Innocent parties suffered significant losses.

Lack Of Flexibility

• No fair adjustment mechanism.

Windfall Benefits

• One party could benefit unfairly.

Commercial Unsuitability

• Poor fit for modern transactions.

Why Reform Became Necessary

Chandler v Webster Problems

• Widely criticised.

Economic Reality

• Commercial contracts increasingly complex.

Fairness Concerns

• Courts sought better solutions.

Result

• Parliament enacted:
  • Law Reform (Frustrated Contracts) Act 1943.

Examination Point

• The 1943 Act was introduced because common law rules were inadequate.

Relationship Between Common Law And The 1943 Act

Common Law

• Established frustration doctrine.
• Determined when frustration occurs.

1943 Act

• Modified financial consequences.

Examination Importance

• Common law explains:
  • Automatic discharge.
  • No breach.
  • Survival of accrued rights.
• Statutory law later addressed:
  • Payments.
  • Expenses.
  • Benefits.

Key Cases To Memorise

Taylor v Caldwell (1863)

Principle

• Modern frustration doctrine established.

Chandler v Webster (1904)

Principle

• Loss lay where it fell.

Fibrosa v Fairbairn (1943)

Principle

• Recovery possible where total failure of consideration.

Quick Revision Table

Comparison: Chandler And Fibrosa

Examination Evaluation Points

• Frustration automatically discharges a contract by operation of law.
• Future obligations are terminated.
• Accrued rights generally survive frustration.
• Frustration is not breach of contract and therefore does not generate damages.
• The original common law approach was extremely harsh.
• Chandler v Webster established the principle that losses lie where they fall.
• Under Chandler, money already paid could not usually be recovered.
• Fibrosa modified the common law position.
• Recovery became possible where there was a total failure of consideration.
• Common law treatment of financial consequences was widely criticised.
• The perceived unfairness of common law rules led to statutory reform through the Law Reform (Frustrated Contracts) Act 1943.
• Understanding the common law position is essential before studying the statutory consequences of frustration.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course