Res extincta: unknown to both parties the subject matter of the contract had ceased to exist by the time they made the contract so the contract may be void for initial impossibility.

£30,000 compensation was paid to an employee to terminate his service contract with the company. There was a common mistake as to quality since both parties thought that the service contract could only be terminated with compensation, when in fact no compensation was required. HL held that the compensation agreement was not void for such a mistake as to quality.

Mistake as to quality will not generally render the contract void as parties are agreed on the same terms on the same subject matter. Only if the mistake as to quality is fundamental—i.e. renders the subject matter ‘essentially different’—will the contract be void, and this is interpreted restrictively.

Ds (salvage service) sought the closest vessel when a ship was damaged at sea. Both Ds and Ps (owners of The Great Peace) thought it was The Great Peace at about 35 miles distance and the ship was hired. The ships were 410 miles apart (mistake as to quality). CA held that this mistake was not fundamental since performance of obligation to reach destination and ‘stand by’ was not impossible.

CA accepted that the test of whether the contract performance would be ‘essentially different from the performance that the parties contemplated’ amounted to whether performance in accordance with the contractual terms or adventure is impossible due to the common mistake.

This is the most important recent case on common mistake and CA discussed the development of the law and denied any equitable jurisdiction to set aside a contract on terms for ‘fundamental’ common mistake as to quality.

A contract to hire rooms advertised as rooms to view the coronation procession of Edward VII was frustrated when the coronation was subsequently cancelled due to the King’s illness and surgery. CA considered the viewing of the procession as the ‘foundation of the contract’ for both parties.

A contract may be frustrated if the common purpose of both parties has been destroyed by the event. It is not enough that the purpose of only one party is destroyed or if there are two purposes and one remains (Herne Bay Steam Boat Co. v Hutton).

Contractors argued that a construction contract was frustrated because they were unable to acquire manpower and materials in a period of shortages after the Second World War and they could therefore recover on a quantum meruit basis for performance to date. HL held that the contract had not been frustrated.

The shortages had made the contract more onerous to perform but had not altered the fundamental nature of the contractual performance. The shortages should have been foreseen so, in the absence of a risk provision, this was a risk which fell on the contractor.

Concert by the group ‘Guns N’ Roses’ at a stadium in Madrid had to be cancelled due to safety issues affecting the stadium. Ps, promoters, had already paid $412,000 and had incurred expenses of $450,000 prior to the cancellation. Ds had expenses of $50,000. Held: contract was frustrated and Ps could recover advance payment under s. 1(2) LR(FC)A 1943. There would be no deduction for Ds’ expenses under the proviso bearing in mind that Ps had expenses of $450,000 which they had no way of recovering.

Section 1(2) LR(FC)A 1943 and the exercise of the broad discretion to permit expenses to be retained before the return of an advance payment to the payer.

P oil company had agreed to explore for oil and develop D’s oil concession in Libya. P spent considerable sums drilling for oil and found it. However, the Libyan government then expropriated the concession. P sought a ‘just sum’ under s. 1(3) LR(FC)A 1943 for the benefit it had conferred on D prior to frustration. Held the contract had been frustrated and the Act applied.

The decision is of greatest significance for what is said in the judgment about the purpose of the Act (prevention of unjust enrichment) and calculation of a just sum under s. 1(3).