BetterLawNotes-5 (2)

CONTRACT LAW

(i) The issue is whether the contract has been frustrated by the imminent ban on offering bears for sale.

Frustration occurs where an event supervenes without the fault of, or due to, either party, for which the contract makes no provision, and which so changes the nature, rather than the cost or onerousness, of performance of the outstanding obligations from what the parties had contemplated, that it would be unjust to hold them to the contract (National Carriers v Panalpina).

A classic example of frustration is where performance of the contract becomes illegal (eg Fibrosa). That does not appear to be the case here – Sally will not be offering the bears for sale to Bel after 31st October – the sale agreement has already been made. It will be an offence for Bel to offer them for sale – but that does not render the contract with Sally illegal. Instead, Bel will argue that performance becomes radically different eg Krell v Henry. It would, so Bel could argue, be unjust to require her to take delivery of, and pay for, bears which she cannot sell on as the parties had originally contemplated.

However, strictly before considering frustration, the court will look to see whether the risk of the event has been assumed, here, by Bel (Amalgamated Investment v Walker). This is perhaps unlikely, given the chances of legislation banning the sale of teddy bears.

If the contract is not frustrated, Bel will be obliged to pay for the bears delivered, and to pay the price or damages in respect of the second delivery.

Assuming the contract has been frustrated, it is necessary to establish when frustration would have occurred, ie, on 3rd October when the announcement was made, or 1st November, when the announcement takes effect. As against the former, it could be argued that the possibility of a government change of heart could not have been ruled out, and that it would have been premature for the contract to be discharged as soon as the announcement was made. But perhaps on balance, the 3rd October date is the more likely date of frustration – see for example Bel’s reaction.

If the contract is frustrated, the parties are automatically discharged from those obligations performance of which has not accrued at the time of the frustrating event (Taylor v Caldwell). Accordingly, Bel would be excused from her obligation to take delivery of, and pay for, the second load of bears. Sally would be discharged from her obligation to deliver the bears on 1st December.

What about the first delivery and payment of the first £10,000?

If the contract was frustrated on 3rd October, then on the same principle, Bel would be discharged from her obligation to pay, as the obligation would not have accrued at the time of discharge. Under s 1(3) of the LR(FC)A 1943, Sally could claim such sum as the court considers just in respect of the benefit obtained by Bel by having the 1,000 bears delivered by Sally on 1st October.

If the contract became frustrated after 8th October, then at common law, Sally could claim the sum from Bel (Chandler v Webster). However, s 1(2) LR(FC)A states that sums payable before the time of discharge shall cease to be payable. On this basis, Bel would not have to pay the first £10,000. Again, under s 1(3) of the LR(FC)A, Sally could claim such sum as the court considers just in respect of the benefit obtained by Bel by having the 1,000 bears delivered by Sally on 1st October.

In fact, it seems more likely that s 1(2) will not be applicable here. S 1 is expressed to be subject to s 2. S 2(4) states that where the contract has been frustrated but it is severable and part has been wholly performed before discharge (or has been save for payment for that part), the court shall treat that part as separate and not frustrated. On this basis, Sally can claim the £10,000 from Bel, instead of bringing a claim under s 1(3).


(ii) According to s 7, SGA where there is a contract for the sale of specific goods and, without any fault on the part of the seller or buyer, the goods perish before risk passes to the buyer, the agreement is avoided. S 7 would seem to apply here – note that under s 29 CRA 2015, the goods remain at the seller’s risk until they are delivered to the consumer.

On this basis, Baz will be able to recover the pre-payment of £2,500 at common law – there has been a total failure of consideration (Fibrosa). Note that the remedy lies at common law (via the law of unjust enrichment). S 1(2) LR(FC)A (which would have the same effect) does not apply: s 2(5)(c) says that the Act does not apply to any contract to which s 7 SGA applies. Simon’s liability to make restitution of the price aside, neither party will have any liability to the other.

If the fire was caused by Simon’s carelessness, s 7, SGA will not apply. Nor will the contract be frustrated at common law, as the frustrating event is likely to be treated as self-induced (see, eg, Super Servant 2). It follows that Simon will be in breach of contract, as he will be unable to deliver the desk. Baz could claim damages for breach of contract, such damages being assessed under s 51, SGA as the difference between the contract price and the market value of the desk as at the delivery date (assuming there is an available market for Queen Anne desks).

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