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Contract: Discharge

The effects of frustration and the Law Reform (Frustrated Contracts) Act 1943

  • 3 things to know
  • A2 Units 3 and 4

Overview

Immediate effect of frustration on a contract and limitation of the rule established in Fibrosa.

What you need to know

Answer each one before you reveal it.

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Key term

What was the position at common law before the Law Reform (Frustrated Contracts) Act 1943?

Evaluation

What was the limitation of the rule established in Fibrosa v Fairbairn (1943)?

Key term

What is the immediate effect of frustration on a contract?

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What is the immediate effect of frustration on a contract?

    Model answer

    The contract is automatically discharged from the moment of the frustrating event, so obligations falling due after that moment come to an end and neither party is liable for failing to perform them.

  2. 2

    Why does frustration operate automatically rather than at the election of a party?

    Model answer

    Frustration is not a breach and neither party is at fault, so there is nothing for an innocent party to elect about, and allowing a choice would let a party keep alive a contract that has become something quite different.

  3. 3

    What was the position at common law before the Law Reform (Frustrated Contracts) Act 1943?

    Model answer

    The loss lay where it fell, so money already paid could not be recovered and money already due had to be paid, whatever the parties had received in return.

  4. 4

    How did Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour (1943) change the common law position?

    Model answer

    The House of Lords held that money paid in advance could be recovered where there had been a total failure of consideration, so the Polish company recovered its prepayment when the outbreak of war frustrated the machinery contract.

  5. 5

    What was the limitation of the rule established in Fibrosa?

    Model answer

    Recovery depended on a total failure of consideration, so a payer who had received any part of what was promised recovered nothing, and the payee had to hand back the full sum even after incurring large expenses in performing.

  6. 6

    What does section 1(2) of the Law Reform (Frustrated Contracts) Act 1943 provide about money?

    Model answer

    Money paid before the frustrating event is recoverable and money then payable ceases to be payable, whether or not there has been a total failure of consideration.

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