If you make a contract you will be held to that contract despite a change in future conditions so long as those conditions are not an accident by inevitable necessity
You are free to contract out of potential future happenings
People are allowed to contract out of it.
16.Relaxation of the Rule of Absolute Promises
Taylor v Caldwell
Supervening event occurs frustrating the contract, implied condition
Issue
Ratio
Notes
D contracts to rent P’s hall for music concerts
Hall burns down
Contract says nothing about this
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
There are contracts the require one to perform: building, marriage, etc. There is an implied condition that death or debilitating injury would relinquish party with the duty to perform
Amalgamated Investment and Property Co. Ltd. v John Walker & Sons Ltd.
P buys property, next day supervening event makes it worthless: rescission? Maybe…
Issue
Ratio
Notes
P Ks to buy warehouse from D for 1.7mil, with intention of developing
D knew about intention
Day after signing building became heritage building (worth only 200,000
P wants rescission
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.
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
In this case since contract didn’t stipulate intention to develop there had been no change in contractual obligations
Risk allocation: P knew they wanted to develop, could have contracted for the risk
Capital quality Homes Ltd. v Colwyn Construction Ltd.
P purchases land but ability to develop becomes frustrated by legislation: judge says K is frustrated
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
Victoria Wood Development Corp v Ondrey
Goes back on Capitol, makes note of reasonable foreseeability, if supervening event is foreseeable contract for it
Issue
Ratio
Notes
P purchases land to develop
Legislation makes that impossible after contract is executed
P wants rescission
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
Def Counsel argued that development companies have knowledge of the risk, if they know it its foreseeable and it should have been allocated
Howell Coupland
Contract is purchase of sale for specific items, if supervening event makes specific items unavailable K = frustrated
Issue
Ratio
Notes
P buys potatoes from D
K is for potatoes from D’s farm
D’s farm has infestation, no potatoes
Does D have to go buy potatoes in order to fulfil contract
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)
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,
P1 makes big K with P2 to supply X’s product, P1 does not K with X to ensure product -> not supervening, no frustration
Issue
Ratio
Notes
P Ks purchase of sale for molasses from D
D is middleman for refinery
D only delivers as much as the refinery has
Was there implied condition D only had to deliver as much as was available
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
It doesn’t make sense that D wouldn’t sign contract with refinery to cover themselves-> one would assume they would, otherwise P should just contract with refinery
Policy: If plaintiff has to recover they have to sue they have to recover from intermediary, but they have no assets….
Parrish & Heimbecker Ltd. v Gooding Lumber Ltd.
When it is an implied condition that the item delivered is specific
Ratio
Issue/Notes
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.
Farmer wants distributors to use specific company
P Ks with D for the shipment of corn
D couldn’t because of lack of supply
Was the corn specifc?
Doesn’t make sense in this case to say it isn’t because the P set the pricing structure, and structured the cost for the shipment of that specific corn.
Krell v Henry
Classic Case establishing frustration, contract is fundamentally different
Issue
Ratio
Notes
P rents room from D to watch coronation of king
King gets sick
P wants out
Is coronation implied condition?
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
Having regard to all the circumstances, what was the foundation of the contract?
Was the performance of the contract prevented?
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
Judge is creating artificial divide - > this crumbles with the formulation of commercial impracticability
Aluminum Co. of America v Essex Group Inc.
Severe increase in financial burden on one party may (in America) frustrate contract
Issue
Ratio
Notes
P is in long term K with D
OPEC embargo (increases price of oil) and environmental legislation make P’s operational costs high
If K is enforced P will lose 75,000,000
Does this frustrate?
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.
Eastern Air Lines v Gulf Oil Corp.
K will be frustrated due to impracticability if supervening event is foreseeable
D claims K is not binding for commercial impracticability
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.
Policy: Courts don’t want price increases rendering contracts non-binding so they use foreseeability
Edwinton Commercial Corporation and Another v Tsavliris Russ
Will delay due to supervening event frustrate contract/prevent payment (comes down to foreseeability)
Issue
Ratio
Notes
D Ks to use P’s bought for salvage
Charter was for 20 days
Port claims negligence on D and holds boat for 180 days
P wants to be paid for this time
Can the contract still be performed? (Is the delay the kind of supervening event that would frustrate?
No rule, depends on circumstances.
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
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.
Does delay make a K frustrated? -> only if it makes performance impossible or goes to root.
Judge’s application of frustration, factors to look at:
Terms of contract
Matrix/context
Parties’knowledge/expectations
Nature of event
Parties reasonable thoughts to
possibility of future performance
Tsakiroglou & Co. Ltd v Noblee Thorl G.m.b.H
Whether breach of an implied “customary” term frustrates contract (ie common sea route closed to ships)
Issue
Ratio
Notes
P1 orders nuts from P2
Supervening event closes normal shipping way (Suez Canal)
No specification of shipping route in contract
Is closing of canal frustrating?
•"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
In this case, there was no specification of how it got shipped just that it did. The closing did not frustrate it was just an inconvenience as performance was still possible
Transatlantic Financing Corp v United States
Similar to previous, but actual charter contract as opposed to purchase of sale;
Issue
Ratio
Notes
USA charters shipping company
Suez canal crisis happens
Shipping company incurs extra costs due to longer route-> seeks more money (quantum meruit)
3 things court will look at:
Supervening event
Unallocated risk
Occurrence of supervening event has rendered performance commercially impracticable
Result in this case:
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.. may be different if difference is large)
Davis Contractors Ltd. v Fareham Urban District Council
Good summary of frustration: Foreseeability? Was risk allocated? Root of matter?
Letter isn’t incorporated but court discusses frustration
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
Change in price alone cannot justify frustration or it would destabilize contracting
