Mistake About Contractual Terms

4. Relaxation of the Rule of Absolute Promises

Taylor v Caldwell

• 
  In contracts, particularly contracts of sale, a condition that a certain thing will continue to exist when the contract is executed will be implied if it is apparent that the contracting parties contracted on the basis of its continued existence. If the thing should cease to exist then the parties' will be excused from having to perform the contract so long as the loss of the thing wasn't caused by the fault of one of the parties
  

• 
  The defendants contract with the plaintiffs to rent out a garden and hall for a specified period of time in order to put on several concerts at 100 pounds / day
  
• 
  Both parties agree to the contract
  
• 
  The Hall burns down one day before the first concert
  
• 
  The contract says nothing about what will happen if this situation arises
  

• 
  Should the defendants have to pay when the plaintiffs receive the full consideration offered?
  
  • 
    Plaintiffs would have made money at the concerts and are suing for expectation damage
    

• 
  For the Defendants, Music Hall's existence was implied
  

• 
  Generally in contracts which require one party to do a thing, the party must perform or pay damages for failure to perform
  
  • 
    Even if something happens that makes the performance difficult
    
• 
  Principle:
  
  • 
    If the parties must have known from the beginning that the contract could not be fulfilled unless some factor or element continued to persist, they must have considered the continued existence of that factor/element when they entered into the agreement
    
    • 
      There is an implied warranty that the factor will continue to exist
      
      • 
        In this case the contract is not an absolute promise but is subject to an implied warranty because if it were brought to one's mind one would always include the warranty
        
• 
  Personal contracts:
  
  • 
    There are contracts that require the contracting party to perform some task
    
    • 
      Marriage, build something, etc.
      
      • 
        The contracting party will be excused if through some external force, no fault of his/her own, performance of the contract is impossible
        
  • 
    Implied condition that death or debilitating injury would relinquish party of duty to perform
    
• 
  In contracts there can be implied conditions as to the continued existence of a thing
  
  • 
    If this thing should stop existing then the parties will be excused from performance of the contract
    
    • 
      Unless the loss of the thing was caused by the fault of one of the parties
      

Amalgamated Investment and Property Co. Ltd. v John Walker & Sons Ltd

• 
  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.
  

• 
  There must also be such a change in the significance of the obligation (promised performance?) that if performed it would be a different thing from that contract for.
  
  • 
    Policy: if a person is aware of a risk, and intentionally doesn’t include it in the contract, courts don’t want them to be able to get out of a contract on frustration: ruins risk allocation
    

• 
  Plaintiff agreed to buy warehouse from defendant for 1.7 million pounds
  
• 
  Plaintiff intended on redeveloping
  
• 
  A day after the contract was signed the warehouse was made a heritage building
  
  • 
    This made redevelopment impossible and the value of the building 200 000
    
• 
  Defendants knew at all times the plaintiff intended to redevelop
  
• 
  Plaintiff brings action for a rescission of the contract
  

• 
  Does the fact that the plaintiffs will no longer be able to develop the property purchase frustrate the contract
  
• 
  Plaintiff's bought contract with a known intention to develop it, immediately after contract is executed ability to develop is made impossible. BUT no stipulation in contract regarding ability to development
  

• 
  For Defendants, the plaintiffs didn't stipulate anything about development and so there was no change in contractual obligations when the status of the building changed
  

• 
  The judge initially addresses the plaintiff's argument that this is a contract based on a mutual mistake
  
  • 
    Must establish the mistake existed at the date of the contract
    
    • 
      Plaintiff argues important date at which the mistake existed was when the building was included on the list (of building to be made into heritage sites?)
      
    • 
      Judge claims this date was just an administrative step and that the crucial date was when it was signed
      
  • 
    There were not mistakes regarding the circumstances at the time it was signed
    

• 
  Argument regarding Frustration of the contract:
  
  • 
    Principle:
    
    • 
      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
      
    • 
      There must also be such a change in the significance of the obligation that if performed it would be a different thing from that contract for
      
      • 
        e.g. I promise to purchase this property on the grounds that it can be developed->it can't be-> performance would leave party with very different thing then developable property
        

• 
  Q: was there a change in the obligation? (Did the change go to the root of the contract?)
  
  • 
    One party contracted to purchase a property
    
  • 
    The other party contract to sell a property
    
    • 
      The plaintiffs did not make any stipulation that the contract would dependent on attaining permission to develop
      
    • 
      The defendants gave no warranty
      
  • 
    There is nothing from the facts to say that the contract was dependent on the ability to develop
    

• 
  Risk allocation:
  
  • 
    There was a risk in purchasing that the plaintiff couldn't develop
    
    • 
      The plaintiffs knew they had to get permission to develop
      
    • 
      And were aware it might become a heritage site (all buildings "might")
      

• 
  Finally, no proof they can't still develop.
  

Capital Quality Homes Ltd. v Colwyn Construction Ltd

Ratio:

• 
  Contracts involving lease of land can be frustrated
  
• 
  When the supervening event occurs the meaning of the contract must be taken to be not what the parties intended (as neither had thought or intention regarding it)
  
• 
  The event must be beyond the control of the parties and must result in a significant change in the original obligation assumed by them
  

Facts:

• 
  Plaintiff agreed to purchase 26 building lots each comprising lots within a registered plan of subdivision
  
• 
  Both parties knew plaintiffs intention to build a home on each lot and then sell using superate conveyances
  
• 
  In order to receive a 26 deeds of conveyance plaintiffs had to:
  
  • 
    Pay $6000;
    
    • 
      No demand of conveyance made prior to closing
      
• 
  When sale agreement made no restrictions on conveying
  
• 
  June 27th, Planning Act comes into effect
  
  • 
    This limits an owner's right to convey, it now requires consent from a committee
    
• 
  Vendor did not convey the 26 building lots into 26 separate deeds
  
• 
  Both party argues as to whose responsibility it is to acquire the consent to convey
  
  • 
    Plaintiff demands separate deeds at closing
    
  • 
    Defendant refuses to get consent
    

Issue:

• 
  Is the effect of the planning legislation of such a nature that the law would consider the fundamental character of the agreement to have been so altered as to no longer reflect the original basis of the agreement
  

Decision:

• 
  For plaintiff, the contract was frustrated
  

Reasons:

• 
  The Judge goes over the common law
  
• 
  Establishes the general rule of frustration
  
  • 
    When the future event occurs the meaning of the contract must be taken to be not what the parties intended (as neither had thought or intention regarding it)
    
  • 
    The event must be beyond the control of the parties and must result in a significant change in the original obligation assumed by them
    

 

• 
  The issue becomes if frustration can apply to contract to do with the lease of land
  
  • 
    Lease of land is different from other commercial contracts because you get proprietary rights and personal rights
    

 

• 
  The judge sees no reason the rule of frustration shouldn't apply
  
  • 
    (the issue might be clearer in a situation where after the purchase the contract is frustrated and the new owner of property has built a home and is growing things, and now these things are taken way)
    

 

• 
  Judge concludes frustration of lease contracts is fine, finds that the factors necessary to constitute the impossibility of performance have been established
  
  • 
    The buyers intention was known
    
  • 
    There is a clear frustration of the common venture
    

Victoria Wood Development Corp. v Ondrey

Ratio:

• 
  There appears to be tension between giving weight to the intention of the parties and respecting one's ability to contract regarding potential risks
  
  • 
    This judge strictly looks at the obligations within the contract and whether they were affected by the legislation-> judge is balancing implied conditions (foreseeable risk) and freedom to contract
    

Facts:

• 
  Facts are near identical to Capital Quality Homes
  
  • 
    The plaintiffs purchase 90 acres with the intention of developing the land
    
  • 
    Legislation went through that restricted the use of property in the area to agricultural use
    
  • 
    Plaintiffs claim the contract is frustrated and want their deposit returned as well
    

Issue:

• 
  Does the inability to develop the land go to "the very foundation of the agreement"?
  
• 
  One parties ability to do use the exchanged good as they intended is effected by an external source, is the contract frustrated?
  

Decision:

• 
  For the defendants,
  

Reasons:

• 
  The judge goes through a similar analysis of whether the ability to develop the land is at the heart of the agreement
  
• 
  There is always a risk that there will be issues with zoning when it comes to developing land
  
  • 
    A party is welcome to insert conditions into the contract that take this risk into account
    
• 
  The only explicit obligations are to pay for the land and to receive the land
  
  • 
    The ability to perform these obligations is not effected by the legislation
    
• 
  Furthermore, zoning issues are always a foreseeable risk, that they may not have been able to develop the land is always (or should always have been) a consideration of the development company
  
  • 
    Frustration requires it be an event which was not considered
    

 

• 
  The judge makes a note of addressing an argument of the defense's which states that even though they could not have developed the property at the time, it has become a possibility
  
  • 
    The judge states this future possibility has no bearing on the case
    

Howell v Coupland

Ratio:

• 
  If the contract is an exchange for a specific item, with specific characteristics, and if it becomes impossible for that particular item with those particular characteristics cannot be exchanged, through no fault of the party who cannot perform, then that party will be excused from performance (excused from having to purchase those items at market in order to perform)
  
  • 
    Look to see if the contract deals with items with specific items, or general items (exchanging 200 pounds of red apples from Victoria, as opposed to exchanging 200 pounds of apples)
    

Facts:

• 
  Plaintiff = potato merchant
  
• 
  Defendant = farmer
  
• 
  The defendant got 80-90 acres of land for growing potatoes (as a dowry for getting married?)
  
• 
  Defendant agreed to sell, and plaintiff buy, 200 tons of potatoes grown on his farm at a certain price to be paid for when and as they are taken away
  
• 
  The defendant had ample land to grow that size of crop
  
• 
  In the summer a disease struck the defendant's crop through no fault of his own.
  
• 
  He was only able to supply 78 of the 200 tonnes
  
• 
  Plaintiff brought action to recover damages
  
• 
  Court found for defendant-> plaintiff appeals
  

Issue:

• 
  Is there an implied condition that if the crop should fail performance will be excused
  

 

Decision:

• 
  For Defendant, the contract made the exchange for specific potatoes, in existence, from a specific place
  

Reasons:

• 
  First judge applies similar approach to Taylor v Caldwell
  
  • 
    The performance was contingent on a certain thing continuing to exist
    
  • 
    The potatoes perished, and this was caused through no fault of the farmer
    
• 
  This was not an absolute contract of delivery
  
  • 
    Not: "I will deliver 200 tonnes of potatoes to you, and you will pay me X"
    
  • 
    It was: I will buy x amount, of x potatoes, grown at x location,
    

 

• 
  The contract specifies specific items and so if it becomes impossible to deliver those specific items (if performance becomes impossible) the party will not be held liable
  
  • 
    That those specific potatoes should continue to exist is a foundational aspect of the contract 
    

Canadian Industrial Alcohol Company, Ltd. v Dunbar Molasses Company

Ratio:

• 
  The duty to perform is not extinguished strictly because the ability to perform becomes difficult, and the difficulty was not adequately accounted for through the contract
  
• 
  If you contract negligently and fail to ensure, through contract, that you will be able to perform, you will still have to perform or pay damages
  

 Facts:

• 
  Plaintiff contracts for purchase of sale with defendant for 1,500,000 gallons of molasses
  
• 
  Defendant is a middle man for a molasses refinery
  
• 
  Defendant only delivers 344,083 gallons
  
  • 
    Plaintiff brings action to recover damages
    
  • 
    Defendant argues: the duty to deliver was conditioned upon the production by the refinery being sufficient to fill the order. The duty to deliver is proportionate to the refinery's ability to supply
    

Issue:

• 
  Can it be interpreted that the plaintiffs would agree to the implied condition that if the refinery couldn't supply the defendant that the defendant would be excused from having to perform
  
• 
  A supplier agrees to supply a manufacturer, supplier's source runs out, does the supplier still have a duty? Or are they excused?
  

Decision:

• 
  For the Plaintiffs, the Defendants are shitty at business
  

Reasons:

• 
  Cardoza states the key issue being whether the defendants duty being dependant on the refinery was an implied condition
  
  • 
    Cardoza thinks this is completely unreasonable
    
• 
  There is no evidence showing that the defendants attempted to form a contract with the refinery to ensure the supply they promised to the plaintiff
  
  • 
    Had the refinery exploded then yes, performance excused
    
  • 
    If the contract stated referred to the supply relating to a contract the defendants had with the refinery then yes.
    

 

• 
  The defendant failed to relieve itself of the imputation of contributory fault
  
  • 
    It doesn’t make any sense that they would not have had a contract with the refinery.
    
    • 
      Had the plaintiff had known that the defendant’s didn’t have a contract to guarantee supply why wouldn’t the plaintiffs have just contracted with the refinery directly?
      
    • 
      There would be a fair assumption that the defendants had a solid contract with the refinery for the amount they contracted for with the defendants
      

 Parrish & Heimbecker Ltd. v Gooding Lumber Ltd.

Ratio:

If) both parties are aware of the source(s) of the item which one party is contracting to deliver; and,

If) the source is not able to fill the contracted quantity from the source(s); and,

If) it is unreasonable to expect the delivering party to be capable of finding another source

Then) it is an implied condition of the contract that the corn is expected to come from that source; and,

If) the source is unable to supply the contracted amount; and,

If) the inability is of no fault of the delivering party,

Then) the delivering party will either be excused from the duty to perform, or the contract may be kept open by the other party until performance is available.

Facts:

• 
  The plaintiffs wished to purchase corn from a farmer
  
  • 
    This farmer only wanted to deal through the defendant
    
• 
  The plaintiff contacted the defendant and a contract for the delivery of corn was formed
  
• 
  The written contract specified how much corn, how much cost, and where.
  
• 
  Because of whether the farmers were unable to harvest enough corn
  
• 
  Defendant purchased the partial orders and delivered them
  
• 
  There was a clause in the contract stating "If the above is not correct, please wire or phone us immediately; failure to do this is understood as acceptance to these terms. Subject to strikes, embargoes etc.
  

 Issue:

• 
  Delivering party unable to deliver due to lack of supply, no specific source specified but a source seems implied?
  

Decision:

• 
  For Plaintiff, BUT Laskin dissenting for the defendant (which is the important bit)
  

Reasons:

• 
  Majority judges suck and say that because the contract did not specify it the corn coming from a specific place it was strictly up to the defendant to supply corn
  
  • 
    If it has said I will supply corn from Victoria
    
    • 
      If the corn doesn't exist he can't be expected to supply
      
• 
  Dissent is important (Laskin):
  
  • 
    Laskin sees the contracts as being formed upon a common understanding
    
    • 
      The conversation indicated the farmers from which the corn was to be purchased
      

 

• 
  Furthermore, to require the defendant to acquire the corn from a different would fundamentally change the agreement (radically different)
  
  • 
    The defendant was merely a middleman between the plaintiff and the local corn farmers
    
  • 
    The plaintiffs set the price structure, and the price structure contemplates the cost of shipping as being from those particular farms
    
    • 
      It wouldn’t make sense to require the defendant to travel elsewhere to purchase the corn
      
      • 
        Contract seems to contemplate local purchase in the terms of the agreement
        

 

• 
  If both parties are aware of the source(s) of the item which one party is contracting to deliver, and if the source is not able to fill the contracted quantity from the source(s), and if it is unreasonable to expect the delivering party to be capable of finding another source, then it is implied that the corn is expected to come from that source and if the source is unable to supply the contracted amount, and the inability is of no fault of the delivering party, then the delivering party will be excused from the duty to perform.
  

 Krell v Henry

Ratio:

• 
  Upon ascertaining the substance of a contract, if that substance requires the assumption of the existence of a particular state of things then this will limit the operation of the general words, and if the contract becomes impossible of performance by reason of the non-existence of the state of things assumed by both contracting parties as the foundation of the contract, then there will be no breach of contract
  
  1. 
     Having regard to all the circumstances, what was the foundation of the contract?
     
  2. 
     Was the performance of the contract prevented?
     
  3. 
     Was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract?
     
     • 
       If all answers are yes both parties are discharged from further performance
       

Facts:

• 
  Defendant rented flat from plaintiff for 2 days (during the daytime only)
  
  • 
    A License to be on premises not a lease
    
• 
  Defendant wants to watch the coronation of Prince Edward 2^nd
  
  • 
    Defendant pays more for the rooms than normal
    
• 
  Plaintiff sues for non-performance (50 pounds)
  
  • 
    Coronation doesn’t occur (due to illness) so the defendant doesn’t pay
    
• 
  Defendant argues frustration because there is an implied condition that the coronation will occur
  
  • 
    Without the coronation the performance is fundamentally different
    
• 
  Defendant counter sues for the return of his deposit (25 pounds) 
  

Issue:

• 
  Is the contract frustrated through an implied term that the coronation had to take place
  

Decision:

• 
  For Defendant
  

Reasons:

• 
  Discusses the principle that in contracts there may be implied terms based on the idea that a specific would continue to exist at the time of performance
  
  • 
    Question is how far does this extend?
    
    • 
      Applies not only to the cessation of existence of the thing that is the subject-matter of the contract
      
      • 
        Thing is considered necessary for the performance of the contract
        
    • 
      Also applies when the event that renders performance impossible is the cessation or non-existence of an express condition or state of things
      
      • 
        An event removes an element that is required by the contract, without which the contract is completely different
        
• 
  Court states that the reason the rooms were rented were for one specific reason.
  
  • 
    Had the king died before the coronation but after the contract, the hirer would have no grounds for requesting the rooms on the contracted dates
    
• 
  The judge is trying to create an artificial divide in order to prevent floodgates (there is really no difference from renting a carriage specifically to go to an event and renting the rooms – the performance is still fundamentally different)
  
  • 
    This distinction crumbles in commercial impracticability
    

Aluminum Co. of America v Essex Group Inc.

Ratio:

• 
  Argument available through comparison to what is done in the American courts:
  
  • 
    Impracticability does not require impossibility of performance only unreasonable difficulty, expense, injury or loss to a party.
    
    • 
      There is an assumption in the American courts that people enter into contracts for profit. (though this does not respect freedom to contract)
      
    • 
      Impracticability will frustrate the contract
      
• 
  In the case of mistake, frustration, or impracticability the general remedy will be voiding the contract either ab initio, or by rescission, the court should not modify the contract unless it is necessary to avoid injustice.
  

 Facts:

• 
  1967 - ALCOA and Essex entered into contract
  
  • 
    ALCOE converts amounts of alumina, supplied by Essex, into aluminum for Essex
    
• 
  Contract is to run until end of 1983 (16 years) option to extend until 88 (21 years)
  
• 
  The price per pound of aluminum converted was calculated using a complex formula with three variable components (what are these components?)
  
• 
  In 1973 oil prices increase and legislation (pollution control) increases ALCOA's electricity costs
  
• 
  ALCOA production costs rose greatly and unforeseeably beyond the indexed increase in the contract price
  
  • 
    Stands to lose 75,000,000 by performing the remainder of the contract
    

 Issue:

• 
  Can the contract be frustrated because it has become financially ruinous to one of the parties 
  

Decision:

• 
  For Plaintiff
  

Reasons:

• 
  ALCOA argues impracticability and frustration: Court agrees
  
  • 
    Impracticability, Frustration, and Mutual Mistake all discharge an obligor from his duty to perform where a failure of a basic assumption of the parties produces a grave failure of the equivalence of value of the exchange to the parties.
    
    • 
      (no one would have contracted if the value exchanged was presented as such from the outset)
      

 

• 
  Mutual mistake:
  
  • 
    mistake relates to an assumption on which the contract was made
    
• 
  Impracticability:
  
  • 
    A non-occurrence of the/an "event" which was assumed would persist/occur in order for the contract to be performed
    
• 
  Frustration:
  
  • 
    Also rests on "non-occurrence"/"non-existence" or "basic assumption" equation (requires more explaining)
    

 

• 
  There is an idea that mistakes happen prior to execution and impracticability and frustration post but this is not generally accepted
  
  • 
    These notions come from common experience not inherent limitations
    

• 
  ALCOA non-labor costs were an assumption on which the contract was made
  
  • 
    ALCOA, in the contract, didn't assume the risk for such a large increase in their labor cost
    
    • 
      "oh by the way if labor costs raise to a point at which we lose an exorbitant amount of money we will continue performing" <--- no one agrees to this
      

 

• 
  Court looks at aspects of frustration and impracticable that differ from mistake:
  
  • 
    Focus of these two is Hardship
    
    • 
      Impracticability:
      
      • 
        Supervening event makes performance impracticable
        
        • 
          What is impracticable?
          
          • 
            "extreme and unreasonable difficulty, expense, injury, or loss to one of the parties will be involved."
            
        • 
          The change in difficulty must be outside the range that would have been considered from the outset
          
      • 
        Focuses on occurrences which greatly increase costs, difficulty, or risk of performance
        

• 
  Frustration:
  
  • 
    Supervening event substantially frustrates the principle purpose of the contract
    
    • 
      "the frustration must be so severe that it is not fairly to be regarded as within the risks assumed under the contract"
      
  • 
    Focuses on a party's severe disappointment which is caused by circumstances which frustrate his principle purpose for entering the contract 
    

• 
  Which is it here? -> BOTH
  

 

• 
  Remedy?
  
  • 
    Will the court reform contract?
    
    • 
      Doesn't fall under reformation
      
  • 
    Options?
    
    • 
      Voidable by rescission
      
    • 
      Void ab initio
      
  • 
    The goal of the court is to prevent unjust enrichment
    
    • 
      Remedy requires careful examination of the circumstances of contract, purpose of parties, circumstances of the upset.
      
      • 
        Normally modifying a contract and enforcing it due to a development would be inappropriate:
        
        • 
          The court can void the contract and leave the parties free to contract again in the new circumstances
          
      • 
        In this case Essex contracted for a long-term supply at a certain price, ALCOA sought long term limited risk use for its factory.
        
        • 
          Modifying the contract is the most just solution 
          

Eastern Air Lines v Gulf Oil Corp.

Ratio:

• 
  When considering if a contract is rendered impracticable due to a supervening event, if that supervening event was reasonably foreseeable by the party claiming impracticability, then that party's claim will fail. The party should have taken foreseeable factors into account when allocating risk in the contract.
  

Facts:

• 
  Eastern Air Lines and Gulf Oil Corp. contract for sale and purchase of aviation fuel
  
• 
  Have good relationship for decades
  
• 
  Certain world events occur in the Middle East (OPEC Oil embargo), as well as the implementation of new government regulations increase Gulf's costs
  
  • 
    Airlines run on razor thin profit margins
    
• 
  Gulf then demands Eastern meet a price increase or Gulf will not supply
  
• 
  Eastern claims breach of contract and files complaint for performance
  
• 
  Gulf replies:
  
  • 
    Contract is not binding, void for want of mutuality, and "commercially impracticable" under Uniform Commercial Code
    

Issue:

• 
  Was the contract rendered impracticable?
  
• 
  One parties operating costs go up due to supervening factors, but these factors were foreseeable
  

Decision:

• 
  For Plaintiff (Eastern), because the factors which caused the increased burden on Gulf were reasonably foreseeable they should have contracted out of them
  

Reasons:

• 
  Court first looks over the history of "commercial impracticability" arguments in cases available in states at the time
  
  • 
    All of which fail
    
  • 
    All use the standard of impossibility for performance
    
    • 
      Performance is not excused if it is more difficult… it must be IMPOSSIBLE
      
• 
  Gulf argues:
  

• 
  The escalator indicator (thing that will raise the price East will have to pay) doesn't work because of the advent of government price controls
  
• 
  Crude Oil Prices have risen without a concomitant rise in the escalation indicator
  
  • 
    Like the previous case, costs have gone up, beyond the range considered by the parties
    
    • 
      (you can tell they considered a range because they made the escalator indication)
      
• 
  These arguments fail:
  
  • 
    Court claims that do not establish great harship
    
  • 
    Even if they had they would fail because the two aspects of their argument (world events raising oil prices and government regulation) were reasonably foreseeable
    
    • 
      "though performance, subsequent to the contract, may become difficult or even impossible, (this) does not relieve the promisor, and particularly where he might have foreseen the difficulty and impossibility." 
      

• 
  Lots of evidence for foreseeability regarding both of Gulf's arguments 
  

Remedy:

• 
  Specific performance is appropriate
  
  • 
    Court doesn't want to just declare the contract valid thought (I don't understand if they would need to re-contract with gulf? Or if Gulf can somehow be a dick?)
    
• 
  Court orders the initial temporary injunction placed on Gulf to perform to be made a permanent injunction (for the duration of the contract?) 
  

 

Edwinton Commercial Corporation and another v Tsavliris Russ (Worldwide Salvage and Towage) Ltd. ("The Sea Angel")

Ratio:

• 
  Test (ask Alford)
  

1. 
   Can the contract still be performed? (Is the delay the kind of supervening event that would frustrate?
   
   • 
     No rule, depends on circumstances.
     
2. 
   Did one party assume a particular/general risk
   
   • 
     Particular risk-> if they assumed a similar risk
     
   • 
     General risk-> if it is a risk that is assumed by an industry in general
     
3. 
   Is consideration of justice an independent factor?
   
   • 
     No, but the result (frustration or no frustration) should be a just result. If it isn’t go and check the facts again.
     

• 
  Since the purpose of the doctrine of frustration is to do justice, its application cannot be divorced from considerations of justice. Further, the answer to the question of whether it would be just to apply the doctrine while considering factors of the assumption of risk, the foreseeability of risk, the nature of the supervening event, etc. should conform with a proper assessment of the issue of frustration
  
• 
  Wait and see?..
  

Facts:

• 
  The defendants contracted with the Plaintiff to use their boat ("Sea Angel") to aid in a salvage of an oil tanker
  
• 
  The charter was to last 20 days
  
• 
  Three days before returning the boat to the plaintiffs, the Karachi Port Trust(KPT) claimed negligence on the part of the defendants in relation to pollution cleanup
  
• 
  As a result of these allegations of negligence the boat was unable to leave port
  
  • 
    The KPT would not issue a certificate that was required as a prerequisite to leave
    
• 
  The boat remained in port 180 days past the when it was to be returned.
  
• 
  Plaintiffs want to be paid for these 180 days (claiming hire)
  
• 
  Defendants argue the unlawful detainment frustrated the contract
  

Issue:

• 
  One party contracts to borrow something from the other to perform a job, a third party claims they performed the job negligently, won't allow the return of the thing to the party that owns it.
  

Decision:

• 
  For the Plaintiff, the defendants had assumed responsibility for delay (via nature of charter) required an exclusion clause to be free of liability. They had one but its terms did not cover the present situation
  

Reasons:

• 
  The judge first covers the general principle over frustration
  
  • 
    Frustration occurs when . . Blahblahsupervening event…..changes nature of obligations significantly…
    
  • 
    Also discusses the policy background of the doctrine of frustration
    
    • 
      Frustration is a device for finding just solutions and avoiding injustices when required by the demands of justice.
      

 

• 
  Problem: Delay as a cause of frustration
  
  • 
    The fact that there was a long delay isn't the only important fact, the probability of the length of the deprivation is important
    
  • 
    You have to consider what the parties would have reasonably contemplated
    

 

• 
  Discussion on Foreseeability
  
  • 
    Unforeseeable event does not necessarily lead to frustration
    
  • 
    Foreseeable event will generally exclude the operation of frustration
    
    • 
      What about foreseeable event not foreseen?
      
      • 
        Frustration may be applicable 
        

• 
  Key factors:
  
  • 
    The extent to which the event was foreseeable
    
  • 
    Had one of the parties assumed the risk of the occurrence of the event?
    
  • 
    Would any person of ordinary intelligence regard the event as likely to occur?
    
  • 
    Is the even one which the parties could reasonably be thought to have foreseen as a real possibility? 
    

• 
  Application of Frustration:
  
  • 
    Judge wants multi-factorial approach to doctrine of frustration; factors:
    
    • 
      Terms of the contract
      
    • 
      Matrix/context of contract
      
    • 
      Parties' knowledge, expectations, assumptions and contemplations (particularly in regards to risk)
      
    • 
      Nature of the supervening event
      
    • 
      Parties' reasonable/ascertainable thoughts as to the possibility of future performance under new circumstances 
      

• 
  Frustration is a doctrine of justice (Policy issue of applying doctrine)
  
  • 
    Decision: must be weighed against the demands of justice
    
    • 
      Issue here:
      
      • 
        Frustration of the contract will completely reverse risk allocation.
        
        • 
          If there is delay and no frustration the risk is completely on the defendant
          
        • 
          If there is delay and frustration the risk is completely on the plaintiff
          
          • 
            If the contract leads to a frustration it must be in the interest of justice that the courts relieve a party of obligations 
            

• 
  Counsel for defense wants simple test applied of probable delay vs unexpired duration of contract
  
• 
  Judge focusses on:
  
  • 
    Supervening event comes at the very end of performance
    
    • 
      Only redelivery is left (lack of redelivery only has financial consequences)
      
  • 
    Risk of delay must be assumed by defendants
    
    • 
      Defendant's did not contract out of liability (have an exclusion clause but doesn't capture these terms)
      
  • 
    There was a concern (pollution) and the concern was foreseeable
    
    • 
      Foreseeable by the entire industry in fact
      

Tsakiroglou & Co. Ltd. v. Noblee Thorl G.m.b.H

Ratio:

• 
  "Where a contract, expressly or by necessary implication, provides that performance, or a particular part of the performance, is to be carried out in a customary manner, the performance must be carried out in a manner which is customary at the time when the performance is called for" Reardon Smith Line Ltd. v. Black Sea and Baltic General Insurance Co. Ltd.
  
• 
  When determining if a contract is frustrated due to the breach of an implied "customary" term, assess the nature of the contract and whether both parties would have considered this term fundamental to the contract
  

Facts:

• 
  Appeal case
  
• 
  Respondent's agreed to buy 300 tons of Sudanese groundnuts from appellants
  
  • 
    To be shipped from Port Sudan to Hamburg during November or December
    
• 
  At the end of October the Suez Canal Crisis began and lasted until April
  
  • 
    The normal shipment route was through the Suez Canal
    
    • 
      Cape of Good Hope was a routing option but over twice as far
      
• 
  Respondent's brought action for breach of contract (remedy of expectation)
  
• 
  Arbitration found for respondent, Appellant appealed, judge found for respondent
  
  • 
    Contract was a standard form contract
    
    • 
      Exclusion clause called for 2 month extension of contract and subsequent cancellation in case of war
      
    • 
      Must be prevention of shipment
      
  • 
    Judge found:
    
    • 
      No war
      
    • 
      Shipment not prevented (just inconvenience)
      

Issue:

• 
  Original contract's performance becomes more difficult (financially) on one party due to an international incident
  
• 
  Is there an implied term that goods shall be carried by a particular route?
  
• 
  Is the contract frustrated
  

Decision:

• 
  For Respondents, appeal dismissed: shipping was not a condition that was considered in depth by the respondents… they didn't care how the nuts got there
  

Reasons:

• 
  First, Is there an implied term that the route was going to be the Suez?
  
  • 
    Judge concludes that it doesn't matter if there is an implied term as either way it doesn't necessarily decide the issue of frustration
    
• 
  Is it frustrated?
  
  • 
    Judge looks to another judges assessment of frustration in relation to the Suez crisis:
    
    • 
      "Where a contract, expressly or by necessary implication, provides that performance, or a particular part of the performance, is to be carried out in a customary manner, the performance must be carried out in a manner which is customary at the time when the performance is called for" Reardon Smith Line Ltd. v. black Sea and Baltic general Insurance Co. Ltd.
      
      • 
        In the quoted case shipment through the Suez canal was a fundamental assumption
        

 

• 
  Judge agrees with the quote but argues that there was no fundamental assumption in this case
  
  • 
    The respondent only purchased the nuts. It was the obligation of the Appellant to ship them.
    
  • 
    The respondent made no specification for shipping route, and no specification for shipping date.
    
    • 
      There was no issue of the nuts perishing in transit, and no season they had to arrive during
      

 

• 
  The contract is not fundamentally changed due to the closing of the Suez canal, the cost merely increases for one party
  

 Transatlantic Financing Corp v. United States

Ratio:

• 
  If a party can legitimately be presumed to have accepted some degree of abnormal risk (based on circumstances at the time of contracting) and if impracticability is argued for on the basis of added expense alone: then impracticability will not be available to the party unless there is a great variation between expected cost and cost of performing.
  
  • 
    (in this case the difference in cost was $44,000 beyond the contract price of a $306,000
    

Facts:

• 
  Appellant is a shipping company, Plaintiff is the U.S.
  
• 
  U.S. government chartered the Appellant to transport a cargo of wheat to Iran
  
• 
  The contract discussed where the cargo was to be taken but not how it was to get there
  
• 
  In transit the Egyptian government closed the Suez Canal
  
• 
  Appellant called the U.S. to get additional compensation to accommodate the longer voyage around the Cape of Good Hope
  
  • 
    Plaintiff wants more money by saying the contract is void and then getting restitution on the grounds of unjust enrichment
    
• 
  The U.S. argues the appellant isn't entitled to such a claim
  

Issue:

• 
  Was there an implied term between shipping company and the party hiring them
  
• 
  Party hires company to ship item. Supervening event occurs which makes the shipping companies intended route impossible. Circumstances made the event potentially foreseeable
  

Decision:

• 
  For the Respondent, the Appellant could have
  

Reasons:

• 
  Appellant's Argument
  
  • 
    Usually it will be implied (from custom) that the voyage will go by the "usual and customary" route. (there is nothing in the contract about route)
    
  • 
    When Suez closed performance became impossible
    
  • 
    When it continued to perform it conferred benefit upon the U.S. for which it deserves payment
    
• 
  Was performance impossible?
  
  • 
    "A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost" Mineral Park Land co. v. Howard.
    
• 
  When this issue is raised court must construct a condition of performance based on the changed circumstances:
  

• 
  A contingency (unforeseen supervening event)
  
• 
  Unallocated Risk (neither party agreed to burden supervening event imposes)
  
• 
  Occurrence of supervening event has rendered performance commercially impracticable
  

 

• 
  This case is different from the previous because:
  
  • 
    The previous involved a buyer buying an item which it left up to the seller to transport
    
    • 
      Not a charter contract, just a contract of sale
      
  • 
    This case involves a seller contracting to ship an item to a buyer
    
    • 
      It will be implied in the charter contract that the vessel will travel by the customary route
      

 

• 
  Contingency definitely happened
  
• 
  Allocation of Risk:
  
  • 
    Did either party consider the risk that the Canal would close
    
  • 
    Given that both parties were aware about what was happening it is fair to say they knew the area might become dangerous.
    
  • 
    Nothing necessitated the canal's closing though, at the time of contracting
    
    • 
      It was not completely foreseeable
      
  • 
    Judge argues that:
    
    • 
      The circumstances indicate a willingness by the Appellant to assume abnormal risks, which makes an assessment of impracticability stricter.
      
      • 
        The appellant knew the risks, was in a better position to insure against the hazards of war
        

Davis Contractors Ltd. v Fareham Urban District Council

Ratio:

• 
  Contains all the standard frustration rules:
  
  • 
    "Frustration occurs whenever the law recognizes 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… it was not this that I promised to do"
    
  • 
    Frustration requires that "there must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be different thing from that contracted for
    
  • 
    Frustration requires that the parties could not have reasonably foreseen the event or risk to be allocated
    

 Facts:

• 
  Plaintiff tendered to build 78 houses in 8 months for 92,000
  
  • 
    a letter accompanying the tender stated:
    
    • 
      "Our tender is subject to adequate supplies of material and labour being available as and when required to carry out the work within the time specified"
      
• 
  Appendix 1 of the contract stated the plaintiff was to purchase materials
  
  • 
    Here the plaintiff wrote "subject to terms of the letter"
    
• 
  The plaintiff later offered a detailed list of prices to constitute Appendix 1
  
• 
  Project took 22 months due to lack of skilled labour
  
• 
  Plaintiff claimed he required 115,000 due to the delay
  
  • 
    Arbitrator awarded, Court of Appeal held letter was not incorporated
    
  • 
    House of Lords dismissed appeal but considered the question of frustration
    

Issue:

• 
  Does the unforeseeable delay frustrate the contract?
  
• 
  Contractor tenders bid, work goes long and wants additional pay or frustration of contract, (contractor attempted to get in exclusion clause that price of tender was subject to available work)
  

Decision:

• 
  For Defendant, frustration cannot be used to get plaintiff out of something he was free to allocate risk for using the cost of his bid
  

Reasons:

• 
  In this case Lord Radcliff lays down frustration
  
• 
  Frustration:
  
  • 
    Does not depend on parties' intentions or opinions, or even knowledge, as to the even
    
  • 
    When the supervening event occurs the meaning of the contract must be taken to be that which the parties, as reasonably parties, would presumably have agreed upon it, having the considered supervening event in view
    
    • 
      Judge states that this sounds silly because the parties are not these "reasonable parties"
      
    • 
      Radcliffe gives the classic formulation of frustration:
      
      • 
        "Frustration occurs whenever the law recognizes 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… it was not this that I promised to do"
        
      • 
        Frustration requires that "there must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be different thing from that contracted for
        

• 
  Plaintiff argue the delay wasn't foreseeable and the change in price made the price so unfair….
  
• 
  Radcliffe argues the change in cost alone cannot justify frustration or it would destabilize contracting
  
• 
  For frustration to be applied in this case:
  

1. 
   The cause of the delay would have to be a new state of things which the parties could not reasonable have foreseen
   
   • 
     Obviously foreseeable or the plaintiff wouldn't have written that letter.
     
2. 
   The risk was not allocated by the parties
   
   • 
     Here he Radcliff states the owner draws up conditions, includes a penalty clause for delay and then the contractor offers a tender. The contractor when offering the tender is aware of the risk and prices the cost of his bid accordingly.
     

 

• 
  What if the letter had been included in the contract? 
  

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