Term Paper, 2000
11 Pages, Grade: 2,8
I. Frustration and supervening impossibility
3. Frustration in English Law
4. Impossibility in other systems of law
II. The doctrines of consideration and promissary estoppel
2. The doctrine of consideration
3. The doctrine of promissory estoppel
4. The conflict between promissory estoppel and consideration
In English law, a contracting party is generally bound to the promise he has given and is not easily excused from his liability. However, there is an exception to this principle of pacta sunt servanda if non-performance is caused by upheavals beyond the parties' control.
The purpose of this essay is to give a short overview about this issue. I will start by examining the connection between the doctrines of impossibility and frustration. Afterwards I will have a more detailed look on the concept of frustration in English law and continue by briefly outlining the corresponding principles in other legal systems.
In order to illustrate the rather abstract concept I will contrast two cases in detail and point to a few other ones in more general terms.
Impossibility occurs not only when performance becomes physically impossible, but when the contract carried out would be radically different from what was originally intended by the parties.
It can arise either before or after the contract has been made.
The first instance is called 'mistake' and is a complete topic in itself. It will not be dealt with in this essay since in this case no contract is formed at all.
On the other hand, if the contract becomes impossible after it has been entered into – also referred to as 'supervening impossibility' – , this is called frustration, and will be discussed in the next paragraph. Since only existing contracts can be frustrated, the doctrine of frustration is part of the broader problem of impossibility. It only applies to situations where a contract becomes impossible after it has been agreed on.
It should be mentioned that one can distinguish a third case where impossibility arises after an offer has been made but before it is accepted. However, since it happens very seldom this special situation is usually ignored in discussions.
In any case, it should not be forgotten that "impossibility" in the sense of law is not only physical, but also practical and of much wider scope than destruction of the subject matter. I will refer to this denotation in the further course of my argument.
Studying the concept of frustration it should be kept in mind that the inability to perform is usually a party's own misfortune and he cannot escape the consequences of not performing unless stipulated so in the contract (see Owens, 174). In this sense frustration is a unique "doctrine of excuse" for not performing (Downes, 280), which can only be applied under special circumstances.
There are different events where the contract can be frustrated (for the following see Owens, 176ff). In all cases frustration can only be applied if the event occurs without fault of either party.
Supervening illegality arises when a legislation is passed which makes either the contract or its further performance illegal. This happens, for example, where a contract is due to be performed in a country which becomes enemy territory in a war. In the Fibrosa case (1943) an English manufacturer was released from delivering machinery to a Polish company because of the Second World War.
Furthermore, contracts can be frustrated because of supervening physical impossibility. This arises when either the subject matter is destroyed or someone or something essential to the performance of contract becomes unavailable. In this case the use of a particular thing or person should have been stipulated in the contract to prove that it is an essential part of the agreement. In the leading case in frustration, Taylor v Caldwell (1863), a musical hall hired with the purpose of holding concerts, was destroyed by fire. Since this way the subject matter had ceased to exist without fault of either party, the contract was discharged.
Finally, frustration can occur if a contract could still be carried out but would be radically different from what was envisaged by the parties entering into the agreement. The difficulty of using this principle in practice will be discussed later on.
Nevertheless, to apply frustration it is not sufficient that a contractual liability becomes more difficult or inconvenient. Higher costs – or even a loss – are no basis for frustration (see Pearson, 113). In Tsakiroglou v Noblee Thorl (1962) a seller was not freed from shipping goods from Sudan to Germany because of the closure of the Suez Canal. It was held he could still choose a different route, hence performance was not impossible.
So, rather than making it simply more burdensome, a frustrating event must render the contractual obligation "radically different" from what was agreed on, as Lord Radcliff stated when defining the doctrine of frustration (see de Cruz, 315).
To understand this principle it is useful to contrast the cases of Krell v Herny and Herne Bay Steam Boat Co v Hutton (both 1903). Due to the King's illness, a planned coronation was postponed. In the first case, where rooms had been let along the route, the contract was frustrated since the pro-cession was its foundation. Therefore, it was impossible to perform what had been contracted for and frustration could be applied. In the Herne Bay case, however, where a steamboat had been chartered for viewing the naval review and taking a cruise around the fleet, it was held that there was no frustration. Although the naval review was cancelled, the steamboat could still have been used for a cruise. So the contract did not become radically different and was, therefore, not frustrated.
As can be seen from this example, it is sometimes rather difficult to decide whether a contract has become impossible in the sense that if carried out it would be radically different from what had been intended by the contracting parties. To solve this problem in practice two key elements are to be considered (see Wheeler and Shaw, 719): Firstly, the obligations of the parties must become different in nature due to the frustrating event, and secondly the doctrine should do justice between the parties. In other words, a contract should be held frustrated if it would be unjust to cling to it in a changed situation. This is, of course, always very much dependent on the circumstances and facts of a special case.
As a result of frustration the contract is discharged, which means neither party can sue for damages in breach of contract. However, potential financial consequences are dealt with in the Law Reform (Frustrated Contracts) Act 1943.
The problem of supervening impossibility is treated differently by various systems of law. Although explaining these complex concepts in detail is beyond the scope of this essay, I want to describe the different approaches shortly and compare them with the English doctrine of frustration (for the following, see de Cruz, 312ff).
The doctrine of frustration itself is unknown to French contract law. Its purpose, however, is served by the concept of force majeure (Code Civil, Articles 1147 and 1148).
The frustrating event must posses three features: it has to render performance impossible, not merely more difficult; it must not be reasonably foreseeable and needs to have an external cause.
Although the consequences are the same in French as in English law - the contracting parties are freed from liabilities for not fulfilling their promises -, the scope of the French concept is narrower. In the traditional view a contract is seen as the "law of parties" in which an external party will seldom interfere. Only in very special cases, where a major obstacle to the performance is created, can the doctrine of force majeure free the parties from their obligations.
In general, the question of impossibility is treated similarly in German and English contract law. The peculiarity of the German approach is the distinction between cases where anyone would be unable to perform (objective impossibility) and those where only the particular debtor is prevented from performing (subjective impossibility).
Hence, by specifying different forms of impossibility a more complex scenario is presented in German law. The final result, however, is similar to English frustration.
The above discussion has shown that the doctrine of frustration is by no means easy to apply, especially in regard to the fact that it is an exception to the strict principle of contractual obligations.
Nevertheless, it is an important feature of English law, which occurs when a contract becomes impossible after it has been formed and before it is completed. Bearing in mind that the term "im-possible" has to be understood in not only the physical sense but in a broader and more practical context, it can be concluded that supervening impossibility corresponds to the doctrine of frustration, because it includes the same features.
As can be seen from the short outline of German and French law, impossibility is also known to other systems of law whilst the doctrine of frustration itself is uniquely English. However, to deal with supervening impossibility other countries have developed different ways and approaches embedded in their legal system.
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