A frustrated contract will usually release both parties from future obligations. Despite this, the contract still remains valid for everything that took place up until the frustrating event. As a result, a party will usually try and make the contract no longer relevant because of a frustrating event.
Keep reading to find out how to protect your contract from a frustrating event.
A frustrated contract is where an unforeseen event occurs and damages the contract between the two parties. This occurs after the contract has been made. A contract will only be frustrated if it meets the right criteria.
- The event must have a substantial impact;
- The event must take place after they made the contract;
- The risk of the event was not provided for by the contract;
- The event must occur without fault of the party which seeks to rely on it; and
- The event was not reasonably foreseeable.
Breaking down the criteria
There is obviously a lot contained in those criteria. Therefore, the ones to focus on are the more ambiguous ones such as 1,3 and 5. The idea of a substantial impact is something that goes to the core of the contract, its foundation. The next criteria to work through is 3, whether the event was provided for by the contract. This means that contracts with clauses explaining what is to take place if an intervening event occurs will not be void. The court would then enforce the agreement if the frustrating event fit the clause. The final one to consider is point 5. This is one is context-dependent based on what the agreement is and who the parties are, as this will dictate what is reasonably foreseeable.
An example of this would be a contract to view the fireworks from a particular hotel. Then a fire breaks out near the fireworks, so they cancel them. This goes to the core of the contract and would act as an external frustrating act. However, it may fail to frustrate the contract for other reasons such as a clause which sets out what happens if the fireworks failed to take place.
If there was a contract to paint a house between two parties and the painter died this may frustrate the contract. However, if the painter was 90 years old with ongoing heart conditions, then it may not be entirely unreasonable to expect him to possibly die before completing the contract. Although generally, death would be a frustrating factor, context is always key.
Frustrated Contracts Act
The NSW Act covers certain contracts where frustration has taken place. However, the Act doesn’t apply to a large list of contracts. The Act doesn’t intrude too much on what the courts have already set down. Instead, it covers what happens in the case of frustration and the mechanisms controlling it. The main points are about what happens if a party performed a service before the event. This means the other party is to pay them based on the performance. Likewise, if a party paid money and then the contract was frustrated before any performance, then the money is to be returned.
How to prevent a frustrated contract
As mentioned earlier one of the best ways to prevent a contract being set aside because of frustration is by preparing for it. The easiest way to prepare is to have a series of clauses detailing what will happen in the case of possible frustrating events. Therefore, allowing the contract to continue through the operation of these clauses. In the case, of a frustrated contract, you may try and disprove that it fits the criteria listed in the beginning. However, such an approach is reactionary and it’s best to prepare in advance. If you are unsure of whether your contract is sufficient you can always check with a contract lawyer.
If you are trying to get out of a contract there are always other ways than frustration. Even if a contract has encountered frustration parties may still need to pay or return the money. The best action is to prepare and be aware.
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