Discharge: performance, breach and frustration — SQE1 Contract question
A worked single-best-answer question on discharge: performance, breach and frustration, with why each wrong option is wrong — the way SQE1 traps candidates.
Leah and Sam booked Oakfield Hall for their wedding reception on 20 July at a price of £10,000. They paid a £3,000 deposit on signing, with the £7,000 balance due on 1 July. The contract contained no clause dealing with fire or other events beyond the parties' control. On 15 June the hall was destroyed by a fire for which no one was to blame. By then, Oakfield had spent £1,200 preparing bespoke decorations for the reception.
Which of the following best describes the parties' position?
- AThe contract is not frustrated, so Oakfield is liable to Leah and Sam for damages for failing to provide the hall.
- BThe contract is frustrated and the loss lies where it falls, so Oakfield keeps the £3,000 and the balance is not payable.
- CThe contract is frustrated; Leah and Sam may recover the £3,000 in full and the court cannot take Oakfield's expenses into account.
- DThe contract is frustrated, but Leah and Sam must still pay the £7,000 balance less Oakfield's expenses.
- EThe contract is frustrated; Leah and Sam may recover the £3,000 and need not pay the balance, but the court may allow Oakfield to keep up to £1,200 for its expenses.
Show answer and reasoning
Rule: On frustration, money paid is recoverable and money payable ceases to be payable, subject to the court's discretion to allow the payee its expenses up to the sums paid or payable before the frustrating event.
- A Destruction of the subject matter without fault frustrates the contract (Taylor v Caldwell). (right rule, wrong facts)
- B The 'loss lies where it falls' approach was replaced by the Law Reform (Frustrated Contracts) Act 1943. (wrong rule)
- C Section 1(2) of the 1943 Act gives the court a discretion to allow the payee to retain sums to cover expenses incurred. (wrong rule)
- D Sums payable before the frustrating event cease to be payable; the balance was not even due until after the fire. (wrong rule)
Source: Taylor v Caldwell (1863) 3 B & S 826; Law Reform (Frustrated Contracts) Act 1943, s 1(2)