Contracts | Law | Law and Economics
Center for Contract and Economic Organization
Center for Law and Economic Studies
Performance of a contract can be excused by a number of circumstances, notably impossibility, impracticability, and frustration. When performance is excused there remains the question of how to treat any payments or expenditures that were made prior to the occurrence of the contract-frustrating event. In Chandler v. Webster, the English courts decided over a century ago that the parties should be left where they were at the time of the frustrating event. Forty years later that holding was overturned so that now recovery might be had both for restitution of payments made prior to the event and for expenditures made in reliance on the contract. American law, as embodied in the Restatement (Second) of Contracts, has also favored restitution with some concern for reliance. Both the English and the American responses emphasize the injustice of the Chandler solution.
This paper argues that the English and American rules both got it wrong. By emphasizing ex post justice rather than ex ante planning, they both propose default rules that are difficult to interpret and somewhat sticky. The paper first traces the development of the English rule from Taylor v. Caldwell through the most recent application of the Law Reform (Frustrated Contracts) Act. It then considers the American majority rule as presented in the Restatement, which focuses on a particular context: a contract to work on an existing structure which is destroyed prior to completion of the contracted work. After considering some of the problems with the Restatement resolution, I consider the contractual solution which, it turns out, rejects the Restatement rule, opting instead for the Chandler rule.
Victor P. Goldberg,
After Frustration: Three Cheers for Chandler v. Webster,
Washington & Lee Law Review, Vol. 68, p. 1133, 2011; Columbia Law & Economics Working Paper No. 382
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1663