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General overview of contract principles

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Basic Contract Principles
Benue State University makurdi Law 203
Basic Contract Principles Practice Essay
A general overview of Contract Principles
PART: A
Introduction
What is Frustration?
The doctrine of frustration discharges both parties from their contractual
obligations where following the formation of the contract, performance of the
contractual obligations become either:
1. Impossible; or
2. Radically different
Essentially, what the doctrine of frustration allows for is a remedy in case of
a change of circumstances. This does seem contradictory to the law of
contract and the contractual freedom the law allows. If the law does not
protect a party from a bad bargain, why does frustration protect against an
unfortunate one? Before the doctrine of frustration was formed, the case of
Paradine v Jane
1
ruled that irrelevant of changes in circumstances, parties
could never be freed from their contractual obligations.
The principle of freedom to contract is a founding principle upon which the
world of commercial contracts operates. This strictly means that the parties
to a contract are free to agree on their own rights and obligations to be
included in their agreement.
Problems can occur however, when the bargain struck is no longer possible
to achieve, or, in other words, where one party is prevented from, or unable
to, carryout his/her obligations under the contract due to a supervening event
1
[1647] EWHC KB J5

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beyond their control. As a result, a doctrine has accordingly emerged in the
law of contract to provide for situations where such an eventuality occurs.
Under the doctrine of frustration, a promisor is relieved of any liability under
a contractual agreement in the event of a breach of contract where a party
to the agreement is prevented from, or unable to, perform his/her obligations
under the agreement, due to some event which occurs, which was outside
of their sphere of control. In such circumstances, the law deems it unfair to
compel the injured party to comply with the terms of the agreement. Hence,
the law relieves this person from their obligations by regarding the contract
as frustrated for all purposes.
Davis Contractors Ltd v Fareham UDC
2
, It was held in this case that:
Frustration occurs whenever the law recognizes that without default of either
party a contractual obligation has become incapable of being performed
because the circumstances in which performance is called for would render
it a thing radically different from that which was undertaken by the contract.
Non haec in foedera veni. It was not this that I promised to do’.
The test for frustration
There are three main elements when assessing whether frustration applies
to a contract:
1. Has the contract allocated the risk of the particular event occurring
2. Has there been a radical change in obligations
3. Was the radical change due to the fault of one of the parties?
Has the contract allocated the risk of the particular event occurring?
Frustration can only operate where the parties have not themselves
allocated the risk of loss between themselves in the contract. In other words,
where a party has agreed to bear the risk/loss of some sort. There is no
requirement that the allocation of risk has to be exact or definite, just that
there is at least some mechanism for dealing with particular changes in
circumstances.
2
[1956] AC 696, [729]

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1 Basic Contract Principles Benue State University makurdi Law 203 Basic Contract Principles Practice Essay A general overview of Contract Principles PART: A Introduction What is Frustration? The doctrine of frustration discharges both parties from their contractual obligations where following the formation of the contract, performance of the contractual obligations become either: 1. Impossible; or 2. Radically different Essentially, what the doctrine of frustration allows for is a remedy in case of a change of circumstances. This does seem contradictory to the law of contract and the contractual freedom the law allows. If the law does not protect a party from a bad bargain, why does frustration protect against an unfortunate one? Before the doctrine of frustration was formed, the case of Paradine v Jane1 ruled that irrelevant of changes in circumstances, parties could never be freed from their contractual obligations. The principle of freedom to contract is a founding principle upon which the world of commercial contracts operates. This strictly means that the parties to a contract are free to agree on their own rights and obligations to be included in their agreement. Problems can occur however, when the bargain struck is no longer possible to achieve, or, in other words, where one party is prevented from, or unable to, carryout his/her obligations under the contract due to a supervening event 1 [1647] EWHC KB J5 1 2 beyond their control. As a result, a doctrine has ...
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