Question

Question 1

Paris planned to celebrate her birthday with a party on 27 November 2017. On 1 November, she agreed with the Sun Hotel to hire its ‘Orangery’ annexe for the party. The contract required the payment of $5,000 immediately, which Paris paid, and a further payment of $10,000 by 14 November. On 4 November, the Sun Hotel spent $2,000 relocating orange trees in preparation for the event. On 8 November, a colony of bats settled in the Orangery. The Sun Hotel rang the local authority to ask whether the bats could be removed. The local authority said that the bats could not be disturbed and that it would therefore be illegal to use the Orangery while the bats were in it. Paris was immediately notified but, despite her protests, was told that no refund could be made, as the contract had no provision for this eventuality.

Required a. Define what is meant by frustration of a contract.

b. Identify the types of frustrating event with reference to relevant legal cases.

c. Explain whether the contract between the Sun Hotel and Paris has been frustrated.

d. Explain whether Paris can recover any or all of the $5,000 payment made to the Sun Hotel and is liable to pay the further payment of $10,000.

Answer 1

1. A Frustrated contract is a contract that(subsequent to its formation) is incapable of being performed due to an unforeseen event(s), resulting in the obligations under the contract being radically different from those contemplated by the parties to the contract without the fault of either of the parties  

It can be caused by any reasons like an accident, change in law, fire, sickness of on of the parties etc.,Frustration automatically discharges the contract. Frustration is not acceptable as an excuse where the circumstance was foreseeable like in the cases of insurance policies.

2. Types of Frustrating events:-

A. Death of either of the party:- When the contract demands personal performance of the party to the contract, his death puts an end to the contract.

Eg:- A entered into contract with B where B has to perform personally and B died. The contract comes to end.

B. Change in law:- When government passes an act or law which goes against the object of the contract.

Eg:- A contracts with B to open liquor shop in certain places. Govt. has banned the place to sell liquor, contract gets ended.

C. Destruction of subject matter:- In TAYLOR vs CALDWELL case it has been clarified that, where the contract was entered into for the pupose of musical hall for concert purpose and the day before the concert the hall was destroyed by fire which made the performance impossible.

3. The contract entered between Paris and the Sun Hotel for birthday party has been frustrated because either of the parties were not aware of the bats. And also it is not possible for the Sun Hotel to remove bats from the Orangery as it is illegal which was said by the local authority.It can be described as change in the circumstances of the contract. The event cannot be organised as the bats cannot be removed.Therefore the contract is frustrated.

4. Paris can recover only $3000 from the payment made to Sun hotel of $5000 because Sun hotel has spent $2000 for relocating the Orangery.