Impossibility of Contract terms

Question 1

What is impossibility concerned with?

Answer 1

what happens when a contract is completed but its not possible to perform the contract as envisaged by the contract terms

Question 2

What is the first thing to determine in analyzing a problem question in this area?

Answer 2

• Does the contract expressly/impliedly deal with this eventuality?
• If it does u just follow the contract

Question 3

When will the law intervene?

Answer 3

-if there is a contractual vacuum

Question 4

When can initial impossibility/common mistake occur?

Answer 4

-the circumstance that hasn’t been envisaged occurs before the parties signed the contract

Question 5

When does frustration occur?

Answer 5

-where the circumstance that hasn’t been envisaged comes after the formation of the contract

Question 6

What is frustration of purpose?

Answer 6

-when it is possible to do what the contract calls for but the change of circumstance renders the performance pointless and denies the essence of the contract

Question 7

Krell v Henry (1903)

Answer 7

• contract concluded in run up of coronation of the king
• people wanted to watch major processions
• owner advertised lease as enjoying a view of the coronation
• the actual contract made no mention of procession, just leased flat to D for 2 days
• King fell ill and coronation postponed
• C said contract wasn’t frustrated because it doesn’t mention the procession/view
• court had to determine what the core purpose of the contract was
• CA held contract was frusrated, view specified in the advert
• if you asked the parties what the contract was about when they were entering into it they wouldn’t define it as a simple lease
• ability to watch procession was a defining element of the contract
• there is a frustration because there was a radical change between purpose/performance of contract

Question 8

Herne Bay v Hutton (1903)

Answer 8

• royal review of fleet people would pay to watch on coronation day
• D hired boat to charge passengers to spend a day and watch it
• D entered contract with owner of boat to use it for the two review days
• king fell ill/review cancelled
• D claimed frustration
• contract stated it was a charter for the purpose of viewing the royal review
• CA held contract not frustrated
• it is clear why D wanted to enter but as for the owner they were simply hiring out a boat
• no prior advertisement for navy review like in Krell
• the nature of contract was for the use of the ship for a period of time
• simply= opportunity D thought was available didn’t materialize and he bears that risk

Question 9

Definition of specific goods

Answer 9

• specifically identified at the time the contract of sale is made
  e. g. a shirt made of cotton and with a mickey mouse cartoon on it
• if its not so identified it’s unascertained

Question 10

What happens in a contract for the sale of specific goods if the goods perish before delivery according to SAG?

Answer 10

• Section 7:
• where there’s an agreement to sell SG and without any fault of S/B they perish before delivery the agreement is avoided (frustrated)

Question 11

What happens in a contract for sale of specific goods if there is a significant delay in performance that causes a radical change?

Answer 11

• contract frustrated outside section 7

- doesn’t fall withins scope of s7 as goos didn’t perish

Question 12

What happens in the case of partial frustration? Can the buyer hold the seller liable for breach for the remaining goods (smaller amount) that cannot be delivered?

Answer 12

• According to Howell v coupland the answer is NO
• if all the goods were destroyed, contract would be frustrated and S would be excused for non-performance
• so in this case it doesn’t make sense that jut because not all were destroyed seller doesn’t have this defence of non-performance

Question 13

In partial frustration is the seller obliged to deliver what is remaining? (sainsbury v street, 1972)

Answer 13

• S argued between conclusion of contract and destruction of goods market price rose
• wanted to escape contract and sell remaining goods at higher price
• B wanted S to deliver what was left
• court held B’s position
• as a result of the original contract S had forfeited ability to resell remaining goods
• held no reason why S shouldn’t deliver remaining goods

Question 14

Does the buyer have to accept the lesser quantity? (sainsbury v street, 1972)

Answer 14

-YES, both parties have to be bound to the contract to the extent that their still able to perform

Question 15

Exception to partial frustration rule

Answer 15

• if B can demonstrate that the lesser quantity doesn’t perform in a fundamental way and that they cannot use the leftover quantity in the way they were intending to all along
• if the buyer can show the reduced q is no use to them at all
• they could build argument that they shouldn’t be expected to accept this altered contract performance

Question 16

When does frustration occur?

Answer 16

-where the frustrated event produces immediately outright impossibility then frustration is immediate

Question 17

Davis Contractors v Fareham requirement for frustration

Answer 17

-frustration must cause a radical change of obligations

Question 18

‘sensible prognosis (forecast of likely outcome of a situation) test’ for frustration

Answer 18

-deprivation of use of a sufficient time that satisfies the radical change of obligations test

Question 19

What is self-induced frustration?

Answer 19

frustration where the contract has become impossible to perform but the reason for that is something which the part claiming frustration is responsible for

Question 20

General rule for self induced frustration

Answer 20

• the wrongdoer cannot benefit from their wrongdoing

- if you prevent yourself from performing the contract you are in breach

Question 21

Maritime National Fish v Ocean Trawlers (1953)

Answer 21

• operator of fleet of 5 fishing trawls
• each trawls legally needed a liscense
• applied for 5, only got 3
• company allocated the liscenses but claimed frustration for the one it couldn’t
• privvy council held no frustration
• the inability to use the trawler without liscense caused by their own decision
• they didn’t allocate 1 of the 3 liscenses they were given and they could have used the liscense for the ‘frustrated’ trawler
• no frustration, self induced because they had choice

Question 22

Superservant two: Lauritzen v Wijsmuller (1990)

Answer 22

• W owns 2 large vessels and enters into contract with L for the use of either vessel
• W internally allocates two boats to 2 different contravts
• one bot is put out of action (W isnt to blame) by accident
• W still needs to perform 2 contracts with only 1 working vessel
• according to the judge when there is a decision to be made there was no frustration because it is self induced
• its W’s fault for entering into the two contravts

Question 23

What is the common law consequence of frustration?

Answer 23

• contract is automatically an prospectively discharged

- neither party needs to do anything to trigger discharge

Question 24

When is it too late for a contract to be frustrated?

Answer 24

-when it’s been performed in full

Question 25

What happens to money that's already been paid by the time the contract is frustrated?

Answer 25

-the money that's been paid remains paid, there's no basis on which you can claim it back because discharge is a prospective remedy

Question 26

What happens to payment that was due at the time the contract was frustrated, does it still have to be paid?

Answer 26

-it remains payable, the obligation to pay remains intact, you get to keep money paid to you and have to pay money that is payable

Question 27

What is the exception to the paid/payable rule for frustration?

Answer 27

-where there is a total failure of consideration (complete failure of performance) where the payer of the money doesn't receive anything for the money they paid according to Fibrosa v Fairbairn (1943)

Question 28

What happens where the payment was not yet due under contract, can any claim be brought for payment?

Answer 28

- no | - money is neither paid nor payable so there is no possibility for any claim

Question 29

How do the consequences of frustration in the frustrated contracts (law reform) act 1943 reverse the common law?

Answer 29

- section 1(2) - any sums that have been paid under contract must be repaid and any sums payable under the contract by the time its frustrated cease to be payable

Question 30

provision to section 1(2) of the frustrated contracts (law reform) act 1943

Answer 30

-where expenses before contract is frustrated have been incurred in performing the contract, the court may permit retention of some/all money paid and payable up to a max. of expenses incurred

Question 31

claim against sums not paid/payable by the time the contract is frustrated in the frustrated contracts act 1943

Answer 31

- section 1(3) - judicial discretion allows court to award sums where they think is just out of sums not paid/payable but they cannot exceed the value of benefit conferred through performing the contract (BP exploration v Hunt)

Question 32

Does discharge by performance apply to severable contracts?

Answer 32

- once one severable part has been completed it is too late for a subsequent frustration of the rest of the contract to affect it - s1 will continue to apply according to s2(4)

Question 33

How do you reciognise a severable contract?

Answer 33

- contract structured so it links a particular element of performance to separate payment - e.g goods delivered in installments, each installment to be separately paid for

Question 34

where does the frustrated contracts act not apply?

Answer 34

- it doesn't apply to contracts withi SGA | - financial consequences where contract is frustrated by s7 of SGA falls to the common law

Question 35

consequences for the seller if the contract is frustrated by s7 of SGA

Answer 35

- seller gets no money - if he's been paid there's a total failure of consideration (must give the money back) and if its payable he can't recover because he'd have to give it back according the common law

Question 36

difference between common mistake and frustration

Answer 36

common mistake occurs before the contract is concluded

Question 37

what is common mistake?

Answer 37

before contract conclusion both parties are laboring under the same grave mistake that is fundamental/core of the contract

Question 38

Law's response to common mistake

Answer 38

-there is no contract, it is void and no contract is ever born in the first place

Question 39

consequence for common mistake under SGA s 6

Answer 39

-if the specific goods have perished without the knowledge of the seller by the time the contract is made it is void

Question 40

Bell v Lever bros

Answer 40

- Bell worked for L in senior position - his services were no longer needed and L entered into contract to buy out B's service contract - agreed to pay them well - L discovered B was in breach of his service agreement - L could dismiss B without any compensation - B didn't realise their breach was serious - common mistake: L and B both though service contracts were legally binding - the mistake wasn't sufficiently fundamental to render the contract void - for it to be void it required an essential difference in fundamental difference not just difference in a secondary attribute (Lord atkin)

Question 41

Treitel test

Answer 41

'the matter may be tested by imagining that one can ask the parties, immediately after they made the contract what its subject matter was. If in spite of the mistake, they would give the right answer the contract is valid at law'