Frustration (L24)

Question 1

What can cause extinction of an obligation?

Answer 1

Performance:
- Extinction caused by ‘discharge’ of contractual obligations through performance.

Prescription:
- Extinction of contractual obligations automatic under statute after 5 years if not enforced.

Frustration:
- Extinction by operation of law when change of circumstances makes performance impossible, illegal or something fundamentally different in purpose from what was intended.

Question 2

What are some examples of frustrating events?

Answer 2

Destruction of property.
e.g. contract of carriage of goods by sea.
→ If ship sinks with cargo during voyage, contract becomes impossible to perform.

Outbreak of war.
e.g. international contract of sale.
→ If contracting parties are in states between which war is declared, contract becomes illegal to perform.

Unforeseen event makes performance pointless.
e.g. rooms hired for a day expressly to view a procession.
→ If procession cancelled then contractual performance loses its fundamental underlying purpose.

Question 3

How can a change of circumstances frustrate a contract?

Answer 3

• If performance becomes illegal.
• If performance becomes impossible.
• If performance becomes radically different and loses original purpose of contract.

Question 4

In Davis Contractors Ltd. v. Fareham UDC [1956] AC 696, what is Lord Radcliffe’s test for frustration?

Answer 4

“Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract” (p 729).

The elements of test:
By operation of law (“the law recognises”); Without default of the parties (not caused by the parties); Circumstances have changed (“supervening events”); Contractual obligations become incapable of being performed (e.g. impossible, or illegal); Because performance has become a thing radically different from what was undertaken in the contract.

Question 5

What does the case of James B. Fraser & Co. v Denny, Mott & Dickson Ltd 1944 SC (HL) 35 tell us about frustration?

Answer 5

Lord Wright:
“… where there is frustration, a dissolution of contract occurs automatically”.

Lord Macmillan:
Occurs when “further fulfilment of their mutual obligations has been brought to an abrupt stop by an irresistible extraneous cause for which neither party is responsible”.

Question 6

What was in dispute in James B. Fraser & Co. v Denny, Mott & Dickson Ltd?

Answer 6

The contract was frustrated by supervening illegality which made trading in this timber unlawful.

But was the contractual option to purchase the yard (as opposed to engaging in trading) ‘severable’ and still independently enforceable?

Question 7

What was the decision in James B. Fraser & Co. v Denny, Mott & Dickson Ltd?

Answer 7

NO: the option is part of the contract which has been frustrated in its entirety.

Lord Wright:
“This trading was frustrated, and the opportunity for exercising the option thereupon lapsed.”

Question 8

What did Lord Macmillan state for the reasoning in James B. Fraser & Co. v Denny, Mott & Dickson Ltd?

Answer 8

Lord Macmillan:
“It is true that the respondents could, without infringing the emergency legislation, sell or let their Grangemouth timber yard to the appellants … But the right to require such a sale or lease is conferred upon the appellants [in the contract] only as a consequence of one or other of the parties having voluntarily taken advantage of the right to terminate the agreement on notice. The operation of the agreement having been compulsorily terminated [by frustration], neither party can thereafter terminate it voluntarily.”