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FRUSTRATION OF CONTRACT

BY V. AJAY KUMAR V. NARESH

A party may be discharged from his contractual obligations in any of the following ways. PERFORMANCE  FRUSTRATION  AGREEMENT  BREACH  .

  Is the party at fault. Is there a radical change in the contractual obligation in respect of which no prior agreement has been reached?  Was the supervening event. from which the radical change in obligation is arising from. unforeseeable? .

 . the contract becomes impossible to perform. A contract is frustrated where for reasons beyond the parties control. The impossibility must arise after the contract has been made.

. A contract is frustrated where after the contract was concluded unforeseen events occur which make performance of the contract impossible. illegal or something radically different from that which was in the contemplation of the parties at the time they entered the contract and neither party must be at fault.

. Impossibility of performance   Illegality of performance Radically different performance from that contracted for.

and When the alleged frustrating event was foreseen by the parties at the time the contract was made.When the alleged frustrating event is self induced  When the contract has specifically provided for the alleged frustrating event.  .

Similarly where one party has obtained some other valuable benefit the Court is empowered to make orders to fairly adjust matters between the parties.  .    Section 3 provides that where a contract has become frustrated: Moneys due cease to be payable. the Court may allow a party to retain or recover the whole or any part of the sums so paid. and Money already paid shall be recoverable .except Where expenditure has been incurred prior to the contract being frustrated.

in a proper case. The Court may.  The contract may make provision for the frustrating event. of specific goods which is frustrated by the destruction of the goods before risk has passed to the buyer. or ▪ For the sale etc.) . sever any part of the contract that is frustrated and allow the remainder of the contract to go forward.  ▪ Of insurance. (Section 9 Sale of Goods Act. The Act does not apply to any contract: ▪ For the carriage of goods by sea.

Kerr & Co Ltd [1918] AC 119 *Yong Ung Kai v Enting *Ho Weng Leong v Ng Kee Chin *Standard Chartered Bank v Kuala Lumpur Sdn Bhd Public Finance Bhd v Ehwan bin Saring Re Shipton . 4.Instance Case 1. 3. 2. 8. 7. Statutory Prohibition Inability of Promisor to Obtain License Grant of an injunction Seizure of compulsory acquisition by the government Metropolitan Water Board v Dick. Outbreak of War Destruction of the Subject matter Non-occurrence of a particular event Death or incapacity for personal service HA Berney v Tronoh Mines Taylor v Caldwell Appleby v Myers *Krell v Henry *Chandler v Webster *Nga Sheau Sheau v United Merchant Finance Bhd *Condor v Barron Knight Ltd [1966] 1 WLR 87 5. 6.

Event causing carriage of goods by sea more expensive Financial crisis Tsakiroglu &Co. . 5. Occurrence of bad weather *Kwan Sun Ming v Chak Chee Hing. [1965] 1 MLJ 236 *Khoo Than Sui v Chan Chiau Hee [1976] 1 MLJ 25 Wong Siew Choong Sdn Bhd v Anvest Corp Sdn Bhd [1999] 3 MLJ 577 Pacific Forest Industries Sdn Bhd v Lin Wen-Chih. Shortage of labour and materials in Davis Contractor Ltd v Fareham UDC [1959] AC building contracts 696. Compulsory acquisition by the government of small part of the land Difficulty in interpreting the terms of the contract 6. [2009] 6 MLJ 293 4. 3.Instances Case 1. Ltd v Noblee Thorl GmbH [1962] AC 93 Sentul Raya Sdn Bhd v Hariram a/l Jayaram [2008] 4 MLJ 852 2.

Non haec in foedera veni. Held: The court considered how the frustration of the performance of a contract affected the obligations under it: ‘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. The defendant appellants contended that their construction contract was frustrated because adequate supplies of labour were not available to it because of the war.  .

but on the true construction of the terms which are in the contract.• It was not this that I promised to do.’ and ‘it might seem that the parties (to the contract) themselves have become so far disembodied spirits that their actual persons should be allowed to rest in peace.’ • Lord Reid said: ‘It appears to me that frustration depends. read in light of the nature of the contract and of the relevant surrounding circumstances when the contract was made.’ . at least in most cases. is and must be the court itself. not on adding any implied term. In their place there rises the figure of the fair and reasonable man. And the spokesman of the fair and reasonable man. who represents after all no more than the anthropomorphic conception of justice.

and it seems to me impossible to maintain that the contract did not apply in this situation as it remained. The appellants took the risk under the contract. then he will refuse to contract unless protected by some specific provision. If not. the expectations on which the estimate was based not having been realised. Lord Somervell concluded that: ‘A party contracting in the light of expectations based on data of that or any other kind must make up his mind whether he is prepared to take the risk of those expectations being disappointed. There is no such provision here.’ .

 . It is not enough that the contract has become more onerous or expensive to perform. The contract will not be frustrated unless its foundation has been destroyed so that the performance becomes impossible or fundamentally different from what was agreed. Shortage of labour and materials in building contracts.

. The materials upon which the court must proceed to make a decision: terms and construction of the contract. In this case two things prevent the application of the principle of frustration  a) the cause of delay was not any new state of things which the parties could not reasonably be thought to have foreseen. and the events which have occurred. read in light of the then existing circumstances.  b) contractor cannot rely on frustration to get him out of his unfortunate predicament.

000 more than anticipated. had frustrated the contract. and labour shortages. which were unforeseen. the work took 22 months and cost £17. The builders said that the weather and labour shortages. The plaintiff agreed to build 78 houses in eight months at a fixed price. .000 by way of a quantum meruit. Due to bad weather. The House of Lords held that the fact that unforeseen events made a contract more onerous than was anticipated did not frustrate it. and that they were entitled to recover £17.