OCR A2 Law - The Law of Contract - Frustration (5)

The Effects of Frustration:

AO1/AO2: When frustration occurs both parties are relieved of their further obligations. Problems occur however, if money has been paid in advance. The courts have to consider if the money is to be returned or kept.

Common Law Position: "Losses lie where they fall". CASE: "Chandler v Webster". In this case, a deposit was paid for a room to watch the coronation of King Edward VII. HELD: Frustrated and the payee couldn't keep his deposit. AO2: This is an unfair decision, as the defendant lost out on the money with nothing in return. However, it can be classed as a logical decision as there is a valid contract until the frustrating event occurs.

Question arose again in ---> CASE: "The Fibrosa". In this case there was a contract between an English and Polish company, and £1000 deposit was paid. The English company started the work. The contract was frustrated because of the war. HELD: The deposit had to be returned to the Polish company as the English Company provided no consideration.AO2: This is again, an unfair decision as now the party receiving the money had to bear the loss. The decision overruled "Chandler v Webster", but neither of the decisions are any good. Parliament was aware of this injustice and quickly passed an Act of Parliament... "The Law Reform (Frustrated Contracts) Act 1943".