Question

An Indonesian foreign firm agreed to sell and deliver goods to a Malaysian company that paid a considerable sum of money in advance. However, the contract was frustrated because of the 5.0 magnitude of an earthquake near Bima in West Nusa Tenggara. The Malaysian company claimed the right to recover the deposit they paid prior to the frustrating event. Advise the Malaysian company.

Answer 1

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

The legal consequence of a contract which is found to have been frustrated is that the contract is automatically terminated at the point of frustration. The contract is not void ab initio ("from the beginning"); only future obligations are discharged. At common law, obligations which fell due for performance before the frustrating event are still in operation.

Parties can claim some relief for a frustrated contract under restitution. Restitution claims do not arise from contract or tort, but protect parties from unjust enrichment at their expense. In the context of frustrated contracts this may apply when a party has made a pre-payment to the other party in return for their performance of the contract.

As per this , if Indonesian firm has not incurred any expense , it is the right of Malaysian company to recover the deposit .