Paradine v. Jane (1647): Rule of “absolute contracts,” in this case a tenant was driven off his home, but the landlord still wanted rent (long term lease) – the court enforced the contract
Taylor v. Caldwell (1863): “Impossibility by destruction of specific subject matter” – in this case a music hall burned down, but it still had contracts of rental, the court did not oblige the owners to rebuild the hall to honour the contract
Impossibility will discharge promisor if without his fault
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Where a contract requires the existence of a thing, the thing perishes or becomes unavailable
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Where a contract requires personal performance, the promisor dies or is incapacitated
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Legal impossibility – prohibited/prevented by law (trade restrictions) – excused as if physically impossible
Mistake vs. Frustration in CML
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Mistake – for existing facts
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Frustration – wrong predictions about future developments fall in the scope of application of the doctrine of frustration, which deals with supervening events
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Both about underlying assumptions not voiced in the contract
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Difficulty of drawing the line… -the key is mistake goes to conditions at the point of establishing the contract, frustration is an event that happens after contract has been established
CML – Alcoa v. Essex Group
“The court finds the parties’ mistake in this case to be one of fact rather than one of simple prediction of future events. […] this mistaken assumption was essentially a present actuarial error.”
CML – Alcoa v. Essex Group, 499 F.Supp. 53 (Penn S.C. 1980): CB2 224 |
Jurisdiction
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Quebec
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Facts
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A agreed to process aluminum for EG, under a K that include an escalator clause. 1973 OPEC actions raised price of oil and therefore of electricity; A would have lost $60 million under original K.
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Issues
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Can Alcoa have terms of K modified on basis of mistake or frustration?
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Holding
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Yes (mistake) Alcoa
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Reasoning
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Teitelbaum J:
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Mistake of fact (actuarial error in indexing), not of prediction; when K was formed both parties knew that future was uncertain but tried to make a long-term K anyways, with each assuming that the index was adequate
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They used an “actuarial prediction of the outside limits of variation in the relation between two variable figures”, whose capacity to work was a question of fact
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A must still prove (beyond mistake of fact) that mistake was mutual, related to a basic assumption underlying the K, and caused a severe imbalance in prestations
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Both parties believed the uncertainty to be limited within a designated range, with outcomes outside that range highly unlikely
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J proposes a complex formula for determining the price A will receive
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Policy concerns: long-term Ks gone badly wrong must be eligible for remedies, or people would avoid them or bog them down with detail (business community)
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Risk limitation is sought by responsible business managers, especially corporate managers with a fiduciary duty – when they’ve sought to limit risk, courts should protect that purpose
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Ratio
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“Both consciously undertook a calculated risk rather than a limitless one. Their mistake concerning its calculation is thus fundamental…” Where parties have sought to limit risk, courts should protect that purpose.
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Comments
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CML - Amalgamated Investment v. John Walker
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No mistake as to present fact: not the quality of being suitable for and capable of being developed is what counts, but whether the property is included in the list or not
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The crucial date is the one of signature by the head of the department, which gives legal effect to the listing
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Therefore just a misguided belief as to the future fact that the property would not be included in the list.
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No frustration either: the risk of being listed as a landmark is inherent to ownership – if the parties had intended otherwise, they should have included such a re-allocation of risk in the contract
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Note the test established by Lord Radcliffe in Davis Contractors
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Can it be said that the parties must have made their contract on the footing that the warehouse would not be listed in the future?
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Is the contract which the parties made, on its true construction, wide enough to apply to the situation which arose when the property was listed?
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Would the thing undertaken, if performed, be a different thing from that contracted for? Or, again, can the plaintiffs say, “This was not the bargain that we made”? (Non haec in foedera veni)
CML – Amalgamated Investment and Property v. John Walker & Sons Ltd., [1976] 3 All E.R. 509 (C.A.): CB2 225 |
Jurisdiction
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Quebec
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Facts
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AIP Ks to buy property from JW&SL with intention of developing it; K subject to General Conditions of Sale (1973) refusing permission to vendor to compel purchaser to convey property different substantially from the property agreed if such difference would constitute prejudice towards one party. 3 days after K signed, Department of the Environment writes JW&SL notifying them that property has been selected for inclusion in the statutory list of building so special architectural or historic interest – implications for development. Property now worth about 15% of original purchase price.
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Issues
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Can K be rescinded for common mistake? For frustration?
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Holding
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No. No. John Walter & Sons Ltd.
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Reasoning
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Buckley J:
Mistake:
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AIP insists that both parties undertook a transaction for a property ripe for development, so common mistake applies here
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Decision to list the house just an administrative step, and list didn’t take legal effect until after K signed
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No mistake as to the circumstances, only as to the expectations
Frustration
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JW&SL’s obligation was to sell the property, and they didn’t warrant that planning permission could be obtained
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No factual basis for finding frustration
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Risk of property being listed as being of architectural or historic interest is “a risk which inheres in all ownership of buildings”; AIP should’ve known this, as they knew that planning permission was still necessary
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Court will not interfere unless there is a radical change – Davis Case, but the threshold for “radical” is very high
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Ratio
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Must show that mistake existed at date of K. “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”.
Hardship, inconvenience, or disappointed expectations do not necessarily constitute frustration.
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This (above) is the state of the law for English and Canadian CML… Only take into account change of circumstances that make performance more onerous only if it completely changes the nature of the obligation.
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