Extinction of Contractual Obligations

Question 1

Requirements for Frustration

Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal

Answer 1

Two requirements;
(1) an outside event which changed the situation which the parties had not provided for.
(2) the consequences must not be the fault of either party
If the requirements are met then the parties are free from their obligations.

Question 2

Supervening Impossibility

Cantors Properties (Scotland) Ltd. v Swears & Wells Ltd

Answer 2

Frustration
Performance becomes impossible
Pursuers leased property to defenders which was then destroyed in a fire.
Held - Lease no longer exists as the flat is destroyed. Contract frustrated - no requirement for the landlord to find new accommodation for the tenants.

Question 3

Condor v Barron Knights

Answer 3

Supervening Impossibility - Frustration
C was a drummer who was contracted to play for BK whenever there required over a 5 year period. C had a mental breakdown and could no longer perform. BK terminated his contract.
Held - The courts allowed it as C could no longer perform, contract frustrated.

Question 4

Supervening Illegality

Answer 4

Contracts become frustrated when the performance becomes illegal such as new regulations or being on opposite side during a war.

Question 5

Fraser and Co. v Denny Mott

Answer 5

Supervening Illegality - Frustration
Had a contract for timber trade. New regulations were passed which made timber trade illegal.
Held - Contract frustrated - no requirement for future performance.

Question 6

Cantiere San Rocco SA (Shipbuilding Co) v Clyde Shipbuilding & Engineering Co

Answer 6

Supervening Illegality - Frustration
The parties had contracted for ship engines. The war then broke out and the countries were fighting against each other.
Held - The contract had been frustrated so no action was required.

Question 7

Performance becomes Radically Different

Answer 7

Frustration
Also known as commercial impossibility.
The performance is not impossible or illegal it is just no longer what the parties thought that they were contracting.

Question 8

Krell v Henry

Answer 8

Radically Different - Frustration
H hired rooms in London to be able to look at the coronation which was later cancelled. H never took the rooms and refused to pay for them. H argued that the contract was frustrated as the purpose of the contract was the coronation.
Held - H was right, the contract was frustrated.
NOTE: Scottish courts might not follow this as the contract was in fact for the hire of the rooms.

Question 9

Tsakiroglou & Co Ltd v Noblee Thorl GmbH

Answer 9

Radically Different v Frustration
The seller had agreed to sell peanuts to the buyer for a set price for the nuts and delivery. The Suez canal then closed. The seller argued that the contract was frustrated.
Held - The contract was not frustrated it was just more challenging for the company but it was not impossible.

Question 10

force majeure clause

Answer 10

Frustration
A clause which the parties can add into the contract to cover incidents which may happen but not as a result of any of the parties.
This is common because if it is covered for in the contract then frustration cannot occur.
Although it is in the contract it could still be subject to challenge - unfair terms.

Question 11

Neither Party at Fault

Answer 11

Frustration
Can only occur if it is not either parties fault.
E.g.
An opera singer is required to perform but loses her voice - the contract is frustrated.
An opera singer is required to perform but gets drunk and loses her voice - singer is in breach, frustration cannot happen.

Question 12

Ways other than frustration for obligations to be extinct.

Answer 12

Discharge by consent - parties agree to bring the contract to an end even if some obligations have not yet been performed.
Novation - Parties start a new contract in replace of the existing one.
Compensation - Compensation Act
Prescription - Time Period has expired - The Prescription and Limitation (Scotland) Act 1973

Question 13

Short Negative Prescription

Answer 13

s6(1) - 5 Years from when an obligation becomes enforceable
s11(1) - Obligation to pay damages becomes enforceable at the date resulting loss.
s11(3) - When the party becomes aware of the loss

Question 14

Long Negative Prescription

Answer 14

s7 - 20 years from when it first became enforceable does it terminate.
Part 2 - personal injury/death - 3 years.
s18 for death