Discharge by Frustration

Discharge by Frustration - Discharge by Frustration (Mugger...

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Discharge by Frustration (Mugger Notes) 1. Introduction A contract may be discharged in any of 4 ways : (i) Frustration (ii) Breach (iii) Performance (iv) Agreement (by both parties) to terminate the contract 1. Definition In * at Pg 272-274, it was stated that : If the fuller fulfillment of the contract is brought to an abrupt stop by some irresistible and extraneous cause for which neither party is responsible, the contract shall terminate forthwith and the parties be discharged. A situation where after entering into the contract, some unforeseen circumstance/event occurs which prevents the parties from further performing the contract or the attainment of the purpose which the parties had in mind when contracting. NB : If the event occurs before the contract is made, the doctrine of mistake is applicable and not frustration . Question : Because of this event, are the parties discharged from their contractual liabilities? Primary Effect : A contract which is discharged on the ground of frustration is brought to an end automatically by the operation of the rule of law, irrespective of the wishes of the parties. 2. Historical Development (i) Old View : Absolute Nature of Contractual Obligations Frustration would result in breach of contract . Paradine v Jane (1647) Aleyn 26 (Phang 809) Held : Court held that when the law casts a duty upon a man which, through no fault of his, he is unable to perform, he is excused for non-performance. But, if he binds himself by contract absolutely to do a thing, he cannot escape liability for damages for proof that as events turned out, performance is futile or even impossible. The alleged justification was that a party to a contract could always guard against unforeseen contingencies (could provide for contingencies?) by express stipulation but if he voluntarily undertook an absolute and unconditional obligation, he could not complain merely because events turned out to his disadvantage. (ii) Modern Development of Exceptions The rule in Paradine v Jane (1647) was considered excessively harsh and in time, the following exceptions were made : (a) Supervening Illegality – Subsequent change in law which renders contract illegal. Eg. Ritchie v Atkinson (1808) 10 East 295 (b) Supervening Impossibility – Normally relates to the destruction of the subject matter in question. Eg. Taylor v Caldwell (1863) 1
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(c) Frustration of Purpose/Adventure – Substantial object which the parties had in mind is unobtainable while the literal performance is still possible. (d) Catastrophic Eventuality - with neither parties’ responsibility which destroys the very basis of the contract so that the parties themselves find that the basis is now radically different. Eg. Krell v Henry (1903) or Jackson v The Union Marine Insurance Co Ltd (1874) [Facts : Ship chartered in Nov 1871, from Liverpool to Newport to San Francisco. Went aground in Jan 1872. However,
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Discharge by Frustration - Discharge by Frustration (Mugger...

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