THE SPIRIT OF FRUSTRATION IN THE LAW OF CONTRACT

HOW IS THE SPIRIT OF FRUSTRATION INTERPRETED IN THE COURT OF LAW BY LEGAL LUMINARIES? Maxwell Ahuahey ?? Donkoh Joel Immanuel

INTRODUCTION

A contract is an arrangement that exists between two or more people. Numerous procedures exist for ending a contractual connection. These channels include mutual consent, contract fulfillment, agreement violation, and frustration.

CASE STUDY

The dictum made by ACQUAH JSC in BARCLAYS BANK ( GHANA ) LTD V SAKARI. "frustration occurs where an external event of some kind, which is not the responsibility of either party, renders further performance of a contract impossible … or radically different from what had been contracted for..."

"What then is frustration? An unanticipated external incident that prevents the contracting parties from carrying out their end of the bargain would lead to frustration. Better still, the performance of the contract would radically be different from that agreed. These unexpected and unplanned circumstances are commonly called "force majeure" in legal terminology.

These unforeseen circumstances fundamentally alter the terms of the agreement, rendering it unenforceable, commercially unviable, or even impossible to perform. Frustration occurs when an event makes it impossible to fulfill an obligation under the contract, completely changes the obligation, or renders the contract illegal. If these events were anticipated by the parties and addressed in the contract terms, the contract may not be discharged due to frustration.

What does case law say about frustration?

In Taylor v. Caldwell1 where the defendant (Cadwell) hired out a garden and a music hall to the plaintiffs (Taylor) for a series of concerts. Six days before the first concert, the hall was destroyed by fire, the courts held that the Cadwell was not liable to Taylor as the fire frustrated the contract and that, where there was no part of the contractual agreement between that addressed cases of force majeure. And in the absence of such an agreement, the court would imply the frustration of the contract.

However, the subsequent case of Davies Contractors v. Fareham, U. D. C2. Lord Radcliffe, held that the court would only apply the doctrine of frustration where, holding the parties to furthermore performance, would change the fundamental nature of the of the contract. In the case of Davis Contractors v. Fareham U. D. C., Davis Contractors agreed to build 78 houses for the defendant within 8 months for a fixed price. They took 22 months to complete the agreement due to weather conditions, shortage of labor and slow demobilization. As a result of the delay due to the prevailing circumstances, the agreed cost price stipulated in the contract was inflated by ￡17,000. The Davis Contractors contended that the contract was frustrated. The court however held otherwise as the circumstances did not render the contract impractical or impossible to perform.

The principle regarding the destruction of the subject matter is that the contract is deemed to have been frustrated. Also, in Morgan v. Manser3, where the subject matter is unavailable for a period and the circumstance leading it may render a contract frustrated. However, a mere inconvenience, hardship or financial inability will not suffice for a contract to be frustrated as seen in the Davis Constructors case. These Elements of Frustration are;

1. External event: Both parties must be unable to control the frustrating occurrence.

2. Not the responsibility of either party: none of the parties should be held responsible for the frustrating occurrence

3. Impossibility or radical difference: The occurrence must change the essence of the contract substantially or make performance impossible.

4. No fault or breach by either party: There must be no negligence or breach on the part of either party for the frustrating event to occur.

5. Ongoing obligation: Frustration is related to unfulfilled contracts, not finished ones.

6. No alternative mode of performance: The parties cannot fulfill their obligations under the contract in any other way.

7. Frustration of purpose: The contract's goal must become meaningless or unachievable as a result of the frustrating incident.

Self-Induced Frustration; The principle of self-induced frustration is that self-induced frustration would not amount to discharge of a contract but rather would be treated as breach of contract. In Maritime National fish Ltd v. Ocean Trawlers Ltd, Maritime National Fish Ltd had the option to license a trawler chartered from the respondents but failed to do so and claimed frustration of the contract due to the non-registration of the trawler. The court held that such frustration was self-induced. Remedies for Frustration.

The Ghanaian Contracts Act allows for the recovery of all money paid prior to the contract's frustration and the cessation of all payable payments. The parties may explicitly agree on the consequences of the contract's frustration in accordance with section 3 of the Act. In that case, those rules rather than the Act's provisions should be followed. Analysis Of the Dictum. The case involved an appeal against the majority decision of the Court of Appeal in Ghana. Barclays Bank (Ghana) Ltd. (the plaintiff) sought to recover a substantial sum from the defendant, Sakari, based on outstanding loan facilities. Acquah JSC’s dictum addressed the issue of whether the contract was indeed frustrated by this event. Acquah JSC’s contribution clarified aspects related to frustration of contracts and the bank’s right to recover outstanding amounts. Acquah JSC’s dictum emphasized the legal principles surrounding loan agreements and the impact of events (such as the truck’s confiscation) on contractual obligations. The case sheds light on the delicate balance between contractual rights and unforeseen circumstances. In the dictum made by the learned Judges specifically Acquah JSC, the question as to;

(i) which obligation was created under this loan contract(supra).

(ii) the breach of which would entitle the other to sue.

However, the court reiterated that the obligation of the bank was to advance the money, which it did, and that of the defendant was to repay the loan together with interest, if any. This is the obligation of the parties under this loan contract, and indeed, almost all loan contracts. When a bank lends money to its customer, the obligation of the customer is to repay the loan. If the loan is sought for, let’s say, a business venture, and the business flops resulting in massive financial loss to the customer, this misfortune, though may be due to no fault of this customer, does not change the nature of the obligation of the customer to repay the loan he had contracted for. He will still be obliged to fulfill his obligation.

Thus, the obligation of a borrower in a loan contract as opposed to other types of contracts, is to repay the loan and not the performance of the purpose for which the loan was sought. This was where the issue of coronation arose, where the court juxtaposed between a SPECIAL CONTRACT and LOAN CONRACT outlining how special contracts parties enter into agreement between the two parties.

The coronation cases deal with special types of contracts wherein the parties enter into the contract with the mutual understanding that the event would happen. Thus, if the event fails to happen, the very basis of the contract becomes void. Instances of the coronation type of contracts are those dealing with buying tickets to watch a football or boxing tournament. If the function is cancelled, the substratum of the contract vanishes. Whiles, In loan contracts, the rationale underlying the need to disclose the purpose for which the loan is sought is to ensure that the loan is going to be utilized for a lawful and gainful object, which if prudent precautions are taken would enable the borrower to fulfill his obligation of repaying the loan with the requisite interest.

The purpose of the loan is not the subject matter, nor the fundamental obligation owed by the borrower to the lender. The Court reasoned that it's highly faulty because the trial judge failed to appreciate that the obligation of the defendant under the loan contract is the repayment of the loan; and secondly, he also failed to realize that the frustrated event must relate to the obligation owed by one party to the other under the contract. Going by the trial judge's reasoning, it will mean that whenever someone goes for a loan to buy a vehicle and pay the loan from the earning of the vehicle and unfortunately the vehicle is involved in an accident or other mishap, the loan contract becomes frustrated. Certainly not! For, because the operation of the vehicle, though a term of the loan contract, is not the obligation of the borrower to the lender, the borrower can soon after buying the vehicle and before the expiry period, payoff the entire loan together with the agreed interest. And the lender cannot sue the borrower for a breach of the operation clause. We concede that an accident or any misfortune like the seizure by the government, would undoubtedly cause serious inconvenience, hardship, financial loss, and even delay in the performance of the obligation to repay the loan. But such a factor is not sufficient to constitute frustration as seen in the case of Davis Contractors Ltd v Fareham UDC (supra); and Hangkam Kwingtong Woo v Liu Lan Fong [1951] 1 All ER 567, Pc4. In the instant case, assuming that the vehicle was not seized by the government but by a gang of armed bandits, would it still have constituted frustration?

Frustration will only be fulfilled if the event is affected by the subject matter of the contract, or the fundamental obligation created by the contract and not any term of the contract. In Sakari's case, the event wasn't affected by the subject matter as affirmed by the learned the Judges. This can be seen in Taylor v Caldwell. Acquah JSC succinctly captures the essence of frustration which are; External Event; An event that happens outside of the terms of the contract causes frustration; - This event is out of both parties' control; - The incident was not foreseen at the time the contract was created; Examples of such events include natural catastrophes, laws, war, etc. Not the Responsibility of Either Party. This element underlines that frustration is not the result of a breach or fault by either party.

Frustration is not caused by any fault or negligence of either party. It is an unforeseen occurrence that limits performance. Neither party can be held accountable for the frustrating event. Effect on Performance- Impossibility Frustration arises if the event makes the contract impossible to complete. An example of this would be the subject matter being destroyed (e.g., a building is destroyed by a natural disaster)Radical Change: - Impossibility: Frustration arises if the event makes the contract impossible to complete. An example of this would be the subject matter being destroyed (e.g., a building is destroyed by a natural disaster) If an event drastically alters the nature or purpose of the contract, even though performance is still possible, frustration may still apply. - Example: A change in government regulations renders the purpose of the contract meaningless (e.g., a contract to build a factory becomes impossible due to new zoning laws) Legal Significance.

The dictum highlights the delicate balance between enforcing contracts and recognizing genuine cases of frustration. Courts carefully assess whether the event truly falls within the scope of frustration or whether it’s a mere inconvenience or hardship.

In the Barclays Bank (Ghana) Ltd. v. Sakari case, the bank sought repayment of loans. If an unforeseen event (such as economic collapse, natural disaster, or regulatory change) had made repayment impossible or fundamentally different, frustration could have been invoked.

However, the court ultimately upheld the bank’s claim, indicating that the specific circumstances did not meet the criteria for frustration because the event did not affect the subject matter of the contract.

CONCLUSION

In Conclusion, Acquah JSC’s dictum provides a concise definition of frustration, emphasizing its external and unforeseeable nature. It serves as a guiding principle for determining frustration in contract law.

To cap it all, frustration of contract requires consideration of both external events and their impact on contractual performance. The principles established through cases like Taylor v. Caldwell, Krell v. Henry, and Davis Contractors Ltd. v. Fareham Urban District Council provide a framework for analyzing when frustration applies. Each case highlights different scenarios where the doctrine of frustration has been applied to discharge parties from further contractual obligations when performance becomes impossible or significantly different due to unforeseen event. In this case, the court will discharge the parties to the contract from further performance of the contract.