Effect of Frustration at Common Law

General Principle

Position Before Statutory Reform

• At common law, frustration automatically discharged the contract.
• The discharge operated from the moment of the frustrating event.
• Neither party was required to perform future obligations.
• Rights and obligations that had already accrued before frustration generally remained enforceable.

Examination Importance

• The common law rules were often criticised as unfair.
• Understanding the common law position is essential before studying statutory reform under the Law Reform (Frustrated Contracts) Act 1943.

Automatic Discharge

General Principle

Legal Rule

• Frustration automatically terminates future contractual obligations.
• Neither party needs to elect to terminate.
• Discharge occurs by operation of law.

Application

• Distinguishes frustration from breach.
• In breach, the innocent party may choose whether to terminate.
• In frustration, discharge is automatic.

Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497

Facts

• Ship requisitioned by government during wartime.
• Performance became impossible.

Judgment

• Contract automatically discharged.

Legal Principle

• Frustration ends future contractual obligations automatically.

Application

• Important authority on automatic discharge.

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696

Legal Principle

• Frustration kills the contract automatically at the point of the frustrating event.

Application

• Frequently cited in examination answers.

Frustration Operates Prospectively

General Principle

Legal Rule

• Frustration discharges future obligations only.
• It does not invalidate the contract from the beginning.

Consequence

• Contract remains valid until the frustrating event occurs.

Application

• Rights accrued before frustration survive.

National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675

Legal Principle

• Frustration brings the contract to an end from the date of the frustrating event.

Application

• Supports prospective operation.

Accrued Rights Survive

General Principle

Legal Rule

• Rights already earned before frustration remain enforceable.
• Obligations already due before frustration remain payable.

Application

• Common law distinguished between:
  • Past obligations.
  • Future obligations.

J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1

Application

• Illustrates that accrued obligations remain unaffected by frustration.

Common Law Rule on Money Paid Before Frustration

General Principle

Legal Rule

• Money paid before frustration could not be recovered.

Consequence

• Even where the payer received no benefit, money already paid was lost.

Examination Application

• One of the harshest common law rules.

Chandler v Webster [1904] 1 KB 493

Facts

• Room hired to view King Edward VII’s coronation procession.
• Payment partly made before the procession.
• Procession cancelled due to the King’s illness.

Judgment

• Money already paid could not be recovered.
• Money due before frustration remained payable.

Legal Principle

• Loss lay where it fell.

Importance

• Leading common law authority.

Application

• Classic example of the harsh common law position.

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

Common Law Rule on Money Payable Before Frustration

General Principle

Legal Rule

• Money due before frustration remained payable even if not yet paid.

Consequence

• Party might have to pay despite receiving no benefit.

Application

• Frequently criticised by judges and academics.

Chandler v Webster [1904]

Principle

• Obligations accrued before frustration survive.

Application

• Most important authority.

Criticism of Chandler v Webster

Judicial Criticism

Problem

• Extremely unfair outcomes.

Example

• One party could retain money despite providing no benefit.
• Other party could remain liable to pay money despite receiving nothing.

Examination Application

• Important evaluation point in essays.

Limited Common Law Exception

Total Failure of Consideration

General Principle

• Money paid could sometimes be recovered where there was a total failure of consideration.

Meaning

• Party received absolutely no part of the agreed benefit.

Application

• Narrow exception.

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32

Facts

• Polish company paid £1000 deposit for machinery.
• Before delivery, World War II made performance illegal.
• Machinery never supplied.

Judgment

• Deposit recoverable.

Legal Principle

• Money paid may be recovered where there is a total failure of consideration.

Importance

• Overruled Chandler v Webster in important respects.

Application

• Leading authority on recovery of payments.

Lord Wright’s Principle in Fibrosa

Statement

• Retention of money where no consideration has been received may produce unjust enrichment.

Application

• Foundation for later statutory reform.

Total Failure of Consideration

Requirement

Entire Failure

• Claimant must receive no contractual benefit whatsoever.

Partial Benefit

• Recovery generally unavailable at common law.

Application

• Very strict rule.

Rowland v Divall [1923] 2 KB 500

Facts

• Buyer purchased stolen car.
• Seller lacked title.
• Buyer forced to return vehicle to true owner.

Judgment

• Full purchase price recoverable.

Legal Principle

• Total failure of consideration occurred.

Application

• Important authority on total failure of consideration.

Hunt v Silk (1804) 5 East 449

Facts

• Tenant occupied property for part of lease period.
• Later sought repayment.

Judgment

• Recovery denied.

Legal Principle

• Partial benefit prevents total failure of consideration.

Application

• Demonstrates strictness of the rule.

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

Distinction Between Common Law and Breach

Frustration

Effect

• Automatic discharge.

Fault

• No fault required.

Future Obligations

• Automatically terminated.

Breach

Effect

• Innocent party chooses whether to terminate.

Fault

• One party responsible for non-performance.

Future Obligations

• Depend on election of innocent party.

Hirji Mulji v Cheong Yue Steamship

Application

• Demonstrates automatic operation of frustration.

Hochster v De La Tour (1853) 2 E & B 678

Application

• Contrasts frustration with anticipatory breach.

Common Law Position Before 1943

Summary

Rule 1

• Contract automatically discharged.

Rule 2

• Future obligations terminated.

Rule 3

• Accrued obligations survived.

Rule 4

• Money paid generally irrecoverable.

Rule 5

• Money due remained payable.

Rule 6

• Limited recovery where total failure of consideration existed.

Rule 7

• Loss generally lay where it fell.

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

Key Cases

Common Law Rules Table

Examination Evaluation Point

Main Criticism

Chandler v Webster

• Produced unfair outcomes.
• Allowed one party to retain money despite giving no benefit.
• Required payment even where contractual purpose completely failed.

Result

• Dissatisfaction with common law rules led directly to the enactment of the Law Reform (Frustrated Contracts) Act 1943.

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

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