Discharge of a Contract
Frustration refers to the situation when a supervening event occurs, for which neither party is responsible, with the result that the very basis of the contract is destroyed so that the venture to which the parties now find themselves committed is radically different from that originally contemplated.
Frustration should not be used:
1. By a contracting party to escape what has turned out to be a bad bargain 2. Free to make contractual provision with respect to eventualities.
Elements of Frustration
* The test: does the event make the performance of the contract now radically different? * Radically different performance
* Whether performance of the contract in the changed circumstances would be something radically different from that which was originally undertaken. The court will look at the supervening event and what performance would be like if the promise were to be enforced in the new circumstances and the circumstances that existed when the contract was made. It will compare both, and ask if they are radically diff from each other. * Example – Davis Contractors v Fareham UDC (1956) * Neither party at fault
* Discharge was to take place by operation of law. If one party is at fault, it is likely that he has breached an express or implied term of the contract. Even in the absence of such a term, the law would not excuse a contracting party whose conduct leads to the event. * Time of Frustration
* When a frustrating event occurs, the contract is discharged automatically. The frustrating event may discharge a contract prospectively, in that the time of performance has yet to arrive. (hence parties’ rights will not be left indefinitely in suspense, contract is frustrated as soon as a sensible prognosis of the commercial probabilities can be made). Should not wait till the day of the scheduled performance in order to see how the event will affect the performance. * Foresight and Foreseeability
* An event of frustration must be an unexpected event.
Classifications of Frustration
* General Impossibility
* Destruction of subject-matter of contract (simply impossible) * Clear and obvious application of the doctrine of frustration. * Total destruction may not be necessary. It suffice if the thing is so seriously damage that, for commercial purpose, it has become something else, or that destruction of a part of the subject matter defeats the main purpose of the contract. (destroying necessary things for the subject matters performance also will lead to frustration) * Example – Taylor v Caldwell (1863)
* In [SGA] different rules of discharge apply as if the risk is pass onto the buyer (buyer got the goods from supplier) and an event of frustration occurs, he still must pay. * However, for building contracts, risk of damage lies with builder until the work is completed.
* Death or Incapacity
* Contracts of personal nature – those where the promisor has to perform the obligations personally. (Hence if the person dies, the contract is frustrated. However the critical factor is the personal nature of character of the contract. If the personal element is absent, the contract may still have to be performed) * In terms of incapacity, it depends on the likely duration of the incapacity or unavailability. Temporary unavailability due to illnesses/government intervention resulting in frustration would again depend on the various factors such as the length of the anticipated unavailability period, the period of contract and the commercial purpose of contract. * For eg, if I am sick and cannot come to work, employment contract not frustrated because Im sick for 3 weeks only while contract is for 3 years. * Unavailability
* The above situation of illness of an employee may also fall within the sub-category of...
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