FIBROSA SPOLKA AKCYJNA
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LIMITED.
The Lord Chancellor
MY LORDS,
This is the appeal of a Polish Company who were Plaintiffs in
the action against the decision of the Court of Appeal composed
of Lord Justice MacKinnon, Lord Justice Luxmoore, and Mr.
Justice Stable, confirming the judgment of Mr. Justice Tucker at
the trial in favour of the Respondents. After the Court of Appeal’s
judgment and before the appeal came to be argued at your Lord-
ships’ bar, the town of Vilna, where the Appellant Company had
carried on its business, and indeed the whole of Poland, under
the laws of which State the Appellant Company was incorporated,
were occupied by our enemy Germany. The question might,
therefore, arise whether the Appellant Company should now be
debarred from prosecuting its appeal. (See the judgment of the
Court of Appeal delivered by Lord Reading C.J. in Porter v.
Freudenberg [1915] I K.B. 857, especially at pages 868 and 884;
see also Rodriguez v. Speyer Bros. [1919] A.C. 59.) In order to
obviate any difficulty on this head, the Plaintiff Company, at the
suggestion of the House, applied to the Board of Trade, and the
Department gave to the Appellants’ solicitors a licence to proceed
with the appeal, notwithstanding that their clients might be in the
position of an alien enemy. The House was content to let the
case proceed on this basis. It is not, therefore, necessary to con-
sider, in dealing with the present appeal, whether the recent de-
cision of the Court of Appeal in re an Arbitration between N. V.
Gebr. van Udens Scheepvaart en Agentuur Maatschappij and
Sovfracht [1941] 3 All E.R. 419, should be approved. If, as the
result of the decision of the House, any payment becomes due to
the Appellants, and if they were in the position of alien enemies
within the meaning of the Trading with the Enemy Act, 1939, the
payment would be regulated by that Act.
The Respondents are a limited company carrying on at Leeds
the business of manufacturing textile machinery, and by a con-
tract in writing dated the 12th July, 1939, the Respondents agreed
to supply the Appellants with certain flax-hackling machines as
therein specified and described, at a lump-sum price of £4,800.
The machines were of a special kind, and there is no suggestion
that the Respondents were not to manufacture them themselves.
By the terms of the contract, delivery was to be in three to four
months from the settlement of final details. The machines were
to be packed and delivered by the Respondents c.i.f. Gdynia;
the services of a skilled monteur to superintend erection were to
be provided by the Respondents and included in the price; and
payment was to be made by cheque on London, one-third of the
price (£1,600) with the order and the balance (£3,200) against
shipping documents.
On July 18th, 1939, the Appellants paid to the Respondents
£1,000 on account of the initial payment of £1,600 due under the
contract. On September 1st. 1939, Germany invaded Poland and
on the 3rd September Great Britain declared war on Germany.
On September 7th, the Appellants’ agents in this country wrote to
the Respondents: ” Owing to the outbreak of hostilities it is now
” quite evident that the delivery of the machines on order for
” Poland cannot take place. Under the circumstances we shall
” be obliged if you will kindly arrange to return our initial pay-
” ment of ,£1,000 at your early convenience.” To this request,
the Respondents replied on the next day refusing to return the
sum and stating that ” considerable work has been done upon these
“machines and we cannot consent to the return of this payment.
“After the war the matter can be reconsidered.”
2 [2]
On September 23rd, by Order in Council made under the pro-
visions of the Trading with the Enemy Act, 1939, it was declared
that Poland (including that part in which the port of Gdynia is
situated) was enemy territory.
There was further correspondence between the parties or their
agents which failed to produce agreement, and on May 1st, 1940,
the Appellant Company issued a writ and by its statement of claim
alleged “that the Respondents had broken the contract by refusing
to deliver the machines, while the Appellants ” are and have at all
” material times been ready and willing to take delivery and pay
” for the machines.” The prayer of the claim was (a) for damages
for breach of contract, (b) for specific performance—an obviously
hopeless claim—or, alternatively, return of the £1,000 with interest,
and (c) for further or other relief. The substantial defence of the
Respondents was that the contract had been frustrated by the
German occupation of Gdynia on the 23rd September, 1939, and
that in these circumstances the Appellants had no right to the return
of the £1,000.
Before passing to the main question involved in the appeal, I
must mention another contention of the Appellants which was
based on Clause 7 of the conditions of sale attached to the contract.
This Clause contained the provision that ” should despatch be
” hindered or delayed by … any cause beyond our reasonable
” control including . . . war … a reasonable extension of time
” shall be granted.” The Appellants argued that there could be
no frustration by reason of the war which broke out during the
currency of the contract because this contingency was expressly
provided for in Condition 7 and, therefore, there was no room for
an implied term such as has often been regarded as a suitable way
in which to express and apply the doctrine of frustration. I entirely
agree with the Court of Appeal that in the circumstances of the
present case this is a bad point. The ambit of the express con-
dition is limited to delay in respect of which ” a reasonable exten-
sion of time ” might be granted. That might mean a minor delay
as distinguished from a prolonged and indefinite interruption of
prompt contractual performance which the present war manifestly
and inevitably brings about. A similar argument was unsuccess-
fully urged in Bank Line v. Capel [1919] AC 435 and in other
cases, a recent instance of which is Tatem v. Gamboa [1939] 1 K.B.
132. The principle is that where supervening events, not due to
the default of either party, render the performance of a contract
indefinitely impossible, and there is no undertaking to be bound
in any event, frustration ensues, even though the parties may
have expressly provided for the case of a limited interruption.
As Lord Justice MacKinnon points out, the unsoundness of the
contrary view is implicit in Jackson v. Union Marine Insurance
Co., Ltd., L.R. 10 C.P. 125, for the charter-party in that case con-
tained an exception of perils of the sea (see L.R. 8 C.P. at p. 584),
but none the less the contract was held to have been terminated
and the adventure to have been frustrated By the long delay due
to the stranding of the ship. The situation arising from the out-
break of the present war, so far as this country, Germany and
Poland are concerned, makes applicable Mr. Justice Lush’s well-
known observation in Geipel v. Smith, L.R. 7 Q.B. 404 at p. 414,
” a state of war ” (in that case the Franco-German war of 1870)
” must be presumed to be likely to continue so long and so to
” disturb the commerce of merchants as to defeat and destroy the
” object of a commercial adventure like this.”
There is a further reason for saying that this subsidiary con-
tention of the Appellants must fail, viz., that while this country is
at war with Germany and Germany is occupying Gdynia, a British
subject such as the Respondents could not lawfully make arrange-
ments to deliver c.i.f. Gdynia, and therefore the contract could
not be further performed because of supervening illegality. A
provision providing for a reasonable extension of time if despatch
is delayed by war cannot have any application when the circum-
stances of the war make despatch illegal. (Ertel Bieber & Co. v.
Rio Tinto Co., Ltd. [1918] A.C. 260.)
[3] 3
Mr. Linton Thorp, in conducting the argument for the Appel-
lants before us, admitted that if the point with which I have already
dealt was decided against him, the only other issue to be deter-
mined was whether, when this contract became frustrated, the
Appellants could, in the circumstances of the present case, claim
back from the Respondents the £1,000 which they have paid when
placing the order. As to this, Lord Justice MacKinnon, in deliver-
ing the judgment of the Court of Appeal, said: ” Mr. Justice
“Tucker held that, having regard to the principle laid down in
” Chandler v. Webster [1904] 1 K.B. 493 and other like cases, this
” claim must fail. We think he was right, and, further, that that
” principle must equally bind this court to reject the claim. Whether
” the principle can be overruled is a matter that can only concern
” the House of Lords.”
This alleged principle is to the effect that where a contract has
been frustrated by such a supervening event as releases from
further performance, ” the loss lies where it falls “, with the result
that sums paid or rights accrued before that event are not to be sur-
rendered, but that all obligations falling due for performance after
that event are discharged. This proposition, whether right or wrong,
does not first appear in Chandler v. Webster, but in Blakeley v.
Mutter & Co., decided in January, 1903, by a Divisional Court
[1903] 2 K.B. 760, note, which was also a case arising out of the
abandonment of the coronation procession owing to King Edward
VII’s sudden illness. In that case, Mr. Justice Channell said, ” If the
” money was payable on some day subsequent to the abandonment
” of the procession, I do not think it could have been sued for.
” If, however, it was payable prior to the abandonment of the pro-
” cession, the position would be the same as if it had been actually
” paid and could not be recovered back, and it could be sued
” for. . . . It is impossible to import a condition into a contract
” which the parties could have imported and have not done so.
” All that can be said is that when the procession was abandoned
” the contract was off, not that anything done under the contract
” was void. The loss must remain where it was at the time of the
” abandonment. It is like the case of a charter party where the
” freight is payable in advance and the voyage is not completed,
” and the freight, therefore, not earned. Where the non-completion
” arose through impossibility of performance, the freight could not
” be recovered back.” In Civil Service Co-Operative Society, Ltd.
v. General Steam Navigation Co., which was decided in the Court
of Appeal in October, 1903 [1903] 2 K.B. 756, Lord Halsbury L.C.
expressed entire concurrence with this passage in the judgment
of Mr. Justice Channell. Lord Alverstone C.J., who was a party
to both these decisions, took the same view.
If we are to approach this problem anew, it must be premised
that the first matter to be considered is always the terms of the
particular contract. If, for example, the contract is ” divisible ”
in the sense that a sum is to be paid over in respect of completion
of a denned portion of the work, it may well be that the sum is
not returnable if completion of the whole work is frustrated. If
the contract itself on its true construction stipulates for a particular
result which is to follow in regard to money already paid, should
frustration afterwards occur, this governs the matter. The ancient
and firmly established rule that freight paid in advance is not
returned if the completion of the voyage is frustrated (Byrne v.
Schiller (1871) L.R. 6 Ex. 319) should, I think, be regarded as a
stipulation introduced into such contracts by custom, and not as
the result of applying some abstract principle. And so, a fortiori, if
there is a stipulation that the prepayment is ” out and out.” To
take an example, not from commerce, but from sport, the cricket
spectator who pays for admission to see a match cannot recover the
entrance money on the ground that rain has prevented play if,
expressly or by proper implication, the bargain with him is that no
money will be returned. Inasmuch as the effect of frustration may
be explained as arising from an implied term (see Joseph
Constantine S.S. Line, Ld. v. Imperial Smelling Co. [1942] A.C. 154
4 [4]
at p. 163), it is tempting to speculate whether a further term
could be implied as to what was to happen, in the event
of frustration, to money. already paid. But if the parties were
assumed to have discussed the point when entering into the con-
tract, they could not be supposed to have agreed on a simple
formula which would be fair in all circumstances, and all that
could be said is that, in the absence of such agreement, the law
must decide. The question now to be determined is whether, in
the absence of a term in the contract dealing with the matter, the
rule which is commonly called the rule in Chandler v. Webster
should be affirmed.
This supposed rule has been constantly applied in a great
variety of cases which have since arisen—and necessarily so,
because the rule had been laid down in plain terms by the Court
of Appeal in England in 1904, and the present appeal provides
the first occasion on which it can be effectively challenged. A
very different rule prevails in Scotland, as was made plain by
the decision of this House in Cantiare San Rocco v. Clyde Ship-
building and Engineering Co. [1924] AC 226. In that case
the Earl of Birkenhead (at p. 233) was careful to reserve the
question whether Chandler v. Webster and the other English cases
on the point were rightly decided, saying, ” the question is as to
” the law of Scotland, and I desire to say nothing which may in
” any way fetter opinion if those authorities hereafter come to
” be reviewed by this House, for none of them is binding upon
” your Lordships.” Similarly, in the same case, Viscount Finlay
(at p. 241) observed that it would be out of place on that occasion
to enter into the question dealt with in Chandler v. Webster,
adding, “the principle of English law was re-stated with great
” clearness by Lord Parmoor in the case of French Marine v.
” Compagnie Napolitaine d’Eclairage et Chauffage par le Gaz (27
” Com. Cas. 69 at p. 94).. This statement forms no part of the
” judgment of the House of Lords in that case, but there is no
“ doubt that the principle has been repeatedly acted on in the
” Court of Appeal.” Lord Dunedin in the Cantiare San Rocco
case (at p. 240) referred to the different angle of approach from
which an English or a Scottish Judge would look at the question,
and thought that the cause was to be found in the reluctance of
the English law to order the repayment of money once paid. But
he added, ” I do not enlarge on the topic, for I am not at all con-
” cerned to criticise English law.. . . . For the purpose of this
” case, it is sufficient to say, as I unhesitatingly do, that Chandler
“ v. Webster, if it had been tried in Scotland, would have been
” decided the other way.” Lord Dunedin’s restraint was not
imitated by Lord Shaw, whose pronouncement included a vigorous
denunciation (at p. 259) of the proposition that the loss lies where
it falls as amounting to a maxim which ” works well enough among
” tricksters, gamblers and thieves.” The learned Lord asserted
that this was part of the law of England (presumably meaning that
it had been so laid down by the English Court of Appeal), but
patriotically rejoiced that it had never been part of the law of
Scotland.
Mr. Valentine Holmes, in his able argument for the Respond-
ents, asked us to consider whether this House would be justified
in disturbing a view of the law which has prevailed for nearly
forty years, which has been so frequently affirmed, which has been
constantly applied in working out the rights of the parties to com-
mercial contracts, and which, moreover, at any rate furnishes a
simple rule against the effect of which the parties to a contract can,
if they so desire, expressly provide. These are weighty considera-
tions, but I do not think they ought to prevail in the circumstances
of this case over our primary duty of doing our utmost to secure
that the law on this important matter is correctly expounded and
applied. If the view which has hitherto prevailed in this matter is
found to be based on a misapprehension of legal principles, it is
of great importance that these principles should be correctly
defined, for, if not, there is a danger that the error may spread
[5] 5
in other directions, and a portion of our law be erected on a false
foundation. Moreover, though the so-called rule in Chandler v.
Webster is nearly forty years old, it has not escaped much un-
favourable criticism. My noble and learned friend Lord Atkin
when sitting in the court of appeal as Justice Atkin in
Russcoe v. Stirk [1922] 10 LI.L.Rep. 212, at p. 217, doubted
whether any two business people in the world would ever make
a contract which embodied such a doctrine as Chandler v. Webster
laid down; and in the present case the Court of Appeal, while
bound by previous authority, hinted a hope that this House might
be able to substitute a ” more civilised rule.” I think, therefore,
that we ought to regard ourselves as at liberty to examine the
challenged proposition freely, and to lay down what we regard as
the true doctrine in English law without being hampered by a
course of practice based on previous decisions in the Court of
Appeal.
The locus classicus for the view which has hitherto prevailed
is to be found in Sir Richard Collins’ judgment in Chandler v.
Webster. It was not a considered judgment, but it is hardly neces-
sary to say that I approach this pronouncement of the then Master
of the Rolls with all the respect due to so distinguished a common
lawyer. When his judgment is studied, however, one cannot but
be impressed by the circumstance that he regarded the proposition
that money in such cases could not be recovered back as flowing
from the decision in Taylor v. Caldwell [1863] 3 B. & S. 826.
Taylor v. Caldwell, however, was not a case in which any question
arose as to whether money could be recovered back, for there had
been no payment in advance, and there is nothing in the judgment
of Mr. Justice Blackburn which, at any rate in terms, affirms the
general proposition that ” the loss lies where it falls “. Sir Richard
Collins’ application of Taylor v. Caldwell to the actual problem
with which he had to deal in Chandler v. Webster deserves close
examination. He said at p. 499 of [1904] 1 K.B.: —
” The Plaintiff contends that he is entitled to recover the
” money which he has paid on the ground that there has been
” a total failure of consideration. He says that the condition
” on which he paid the money was that the procession should
” take place, and that, as it did not take place, there has been
” a total failure of consideration. That contention does no
” doubt raise a question of some difficulty, and one which has
” perplexed the Courts to a considerable extent in several cases.
” The principle on which it has been dealt with is that which
” was applied in Taylor v. Caldwell—namely, that where, from
” causes outside the volition of the parties, something which
” was the basis of, or essential to the fulfilment of, the contract
” has become impossible, so that, from the time when the fact
” of that impossibility has been ascertained, the contract can
” no further be performed by either party, it remains a per-
” fectly good contract up to that point, and everything pre-
” viously done in pursuance of it must be treated as rightly
” done, but the parties are both discharged from further per-
” formance of it. If the effect were that the contract were
” wiped out altogether, no doubt the result would be that money
” paid under it would have to be repaid as on a failure of
” consideration. But that is not the effect of the doctrine;
” it only releases the parties from further performance of the
” contract. Therefore the doctrine of failure of consideration
” does not apply.”
It appears to me that the reasoning in this crucial passage is
open to two criticisms: —
(a) The claim of a party who has paid money under a contract
to get the money back, on the ground that the consideration for
which he paid it has totally failed, is not based upon any provision
contained in the contract, but arises because, in the circumstances
that have happened, the law gives a remedy in quasi-contract to
the party who has not got that for which he bargained. It is a claim
to recover money to which the defendant has no further right
20330 A 3
6 [6]
because in the circumstances that have happened the money must
be regarded as received to the plaintiff’s use. It is true that the
effect of frustration is that, while the contract can no further be
performed, ” it remains a perfectly good contract up to that point,
” and everything previously, done in pursuance of it must be treated
” as rightly done.” But it by no means follows that the situation
existing at the moment of frustration is one which leaves the party
that has paid money and has not received the stipulated considera-
tion without any remedy. To claim the return of money paid on the
ground of total failure of consideration is not to vary the terms
of the contract in any way. The claim arises not because the right
to be repaid is one of the stipulated conditions of the contract, but
because, in the circumstances that have happened, the law gives
the remedy. It is the failure to distinguish between (1) the action
of assumpsit for money had and received in a case where the con-
sideration has wholly failed, and (2) an action on the contract
itself, which explains the mistake which I think has been made
in applying English law to this subject-matter. Thus, in Blakeley
v. Mutter & Co. (cited above), Lord Alverstone C.J. said, ” I agree
” that Taylor v. Caldwell applies, but the consequence of that
” decision is that neither party here could have sued on the con-
” tract in respect of anything which was to be done under it after
” the procession had been abandoned.” That is true enough, but
it does not follow that because the plaintiff cannot sue ” on the
” contract” he cannot sue dehors the contract for the recovery
of a payment in respect of which consideration has failed. In the
same case, Mr. Justice Wills relied on Appleby v. Myers, L.R.
2 C.P. 651, where a contract was made for the erection by A. of
machinery upon the premises of B., to be paid for upon completion.
There was no pre-payment, and in the course of the work the
premises were destroyed by fire. It was held that both parties were
excused from further performance, and that no liability accrued
on either side. But the liability referred to was liability under
the contract, and the learned Judge seems to have thought that
no action to recover money in such circumstances as the present
could be conceived of unless there was a term of the contract,
express or implied, which so provided. Once it is realised that
the action to recover money for a consideration that has wholly
failed rests not upon a contractual bargain between the parties,
but (as Lord Sumner said in Sinclair v. Brougham [1914] A.C.
398. at p. 452) ” upon a notional or imputed promise to repay “,
or (if it is preferred to omit reference to a fictitious promise) upon
an obligation to repay arising from the circumstances, the difficulty
in the way of holding that a pre-payment made under a contract
which has been frustrated can be recovered back appears to me
to disappear.
(6) There is, no doubt, a distinction between cases in which
a contract is ” wiped out altogether “, e.g., because it is void as
being illegal from the start, or as being due to fraud which the
innocent party has elected to treat as avoiding the contract, and
cases in which intervening impossibility ” only releases the parties
” from further performance of the contract”. But does the dis-
tinction between these two classes of case justify the deduction of
Sir Richard Collins that ” the doctrine of failure of consideration
” does not apply ” where the contract remains a perfectly good
contract up to the date of frustration ? This conclusion seems to
be derived from the view that, if the contract remains good and
valid up to the moment of frustration, money which has already
been paid under it cannot be regarded as having been paid for
a consideration which has wholly failed. The party that has paid
the money has had the advantage, whatever it may be worth, of
the promise of the other party. That is true, but it is necessary to
draw a distinction. In English law, an enforceable contract may
be formed by an exchange of a promise for a promise, or by the
exchange of a promise for an act—I am excluding contracts under
seal—and thus, in the law relating to the formation of contract,
the promise to do a thing may often be the consideration. But
[7] 7
when one is considering the law of failure of consideration and of
the quasi-contractual right to recover money on that ground, it
is, generally speaking, not the promise which is referred to as the
consideration, but the performance of the promise. The money
was paid to secure performance and, if performance fails, the in-
ducement which brought about the payment is not fulfilled.
If this were not so, there could never Be any recovery of money,
for failure of consideration, by the payer of the money in return
for a promise of future performance. Yet there are endless
examples which show that money can be recovered, as for a com-
plete failure of consideration, in cases where the promise was given
but could not be fulfilled. (See the notes in Bullen and Leake, 9th
edition, page 263.) In this connection the decision in Rugg v.
Minett (11 East 210) is instructive. There the plaintiff had bought
at auction a number of casks of oil; the contents of each cask were
to be made up after the auction by the seller to the prescribed
quantity so that the property in a cask did not pass to the plaintiff
until this had been done. The plaintiff paid in advance a sum
of money on account of his purchases generally, but a fire occurred
after some of the casks had been filled up, while the others had
not. The plaintiff’s action was to recover the money he had paid
its money received by the defendants to the use of the plaintiffs.
The Court of King’s Bench ruled that this cause of action suc-
ceeded in respect of the casks which at the time of the fire had
not been filled up to the prescribed quantity. A simple illustra-
tion of the same result is an agreement to buy a horse, the price
to be paid down, but the horse not to be delivered and the
property not to pass until the horse has been shod. If the horse
dies before the shoeing, the price can Unquestionably be recovered
as for a total failure of consideration, notwithstanding that the
promise to deliver was given. This is the case of a contract de certo
corpore where the cerium corpus perishes after the contract is
made; but, as Lord Justice Vaughan Williams’ judgment in Krell
v. Henry [1903] 2 K.B. 740 explained, the same doctrine applies
” to cases where the event which renders the contract incapable
” of performance is the cessation or non-existence of an express
” condition or state of things, going to the root of the contract,
” and essential to its performance.” I can see no valid reason
why the right to recover pre-paid money should not equally arise
on frustration arising from supervening circumstances as it arises
on frustration from destruction of a particular subject-matter.
The conclusion is that the rule in Chandler v. Webster is wrong,
and that the Appellants can recover their £1,000.
While this result obviates the harshness with which the previous
view in some instances treated the party who had made a pre-
payment, it cannot be regarded as dealing fairly between the parties
in all cases, and must sometimes have the result of leaving the
recipient who has to return the money at a grave disadvantage.
He may have incurred expenses, in connection with the partial
carrying out of the contract, which are equivalent, or more than
equivalent, to the money which he prudently stipulated should
be prepaid, but which he now has to return for reasons which are
no fault of his. He may have to repay the money, though he has
executed almost the whole of the contractual work, which will be
left on his hands. These results follow from the fact that the
English common law does not undertake to apportion a prepaid
sum in such circumstances—contrast the provision, now contained
in s. 40 of the Partnership Act, 1894, for apportioning a premium
if a partnership is prematurely dissolved. It must be for the legisla-
ture to decide whether provision should be made for an equitable
apportionment of prepaid monies which have to be returned by the
recipient in view of the frustration of the contract in respect of
which they were paid.
I move that the Appeal be allowed, and that judgment be
entered for the Appellants. The precise provisions with regard to
subsidiary matters we might consider after the other Opinions have
been delivered.
Lord
Chancellor.
Lord
Atkin.
Lord
Russell of
Killowen.
Lord
Macmillan.
Lord
Wright.
Lord
Roche.
Lord
Porter.
[8]
FIBROSA SPOLKA AKCYJNA
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LIMITED.
Lord Atkin
MY LORDS,
For the reasons given by the Lord Chancellor I agree that the
Appellant fails on all his points except that arising out of the frus-
tration of the contract. I have no doubt that the contract in this
case came to an end before the time for complete performance
had arrived by reason of the arising of a state of war which caused
an indefinite delay not contemplated by the parties, and eventu-
ally the legal impossibility of delivering the goods at a port occupied
by the enemy. In other words, to use a short phrase of frequent
occurrence since the beginning of the last war, the commercial
adventure was frustrated. The legal effects of ” frustration ” are
not in dispute. They were not determined for the first time either
by the cases which arose on the postponement of the coronation
of Edward VII, or by reason of the last war. It is very necessary
to remember that, as pointed out by Vaughan-Williams L.J. in
Krell v. Henry, 1903, 2 K.B., at p. 748, the principle of law is the
same whether the performance of the contract becomes impossible
by the cessation of existence of a thing which is the subject of the
contract (an obligation de certo corpore) or by the cessation or
non-existence of an express condition or state of things going to
the root of the contract and essential to its performance. And it is
well settled that when a contract which is still executory on one
or both sides is subject to frustration the law is that when the event
happens the parties are excused from further performance, but
have to give effect to rights under the contract already accrued
before the happening of the event. A. sells a horse to B. for £50,
delivery to be made in a month, the price to be paid forthwith, but
the property not to pass till delivery, and B. to pay A. each week an
agreed sum for keep of the horse during the month. The horse
dies in a fortnight. A. is excused from delivery and B. from taking
delivery; B. is bound to pay the sum due for the fortnight during
which the horse was kept. But what is the position as to the £50,
the price paid in advance? This is in simple terms the problem
in the present case. The answer that I venture to think would
occur to most people, whether laymen or lawyers, would be that
the buyer ought to get his money back, having had nothing for it;
and the lawyer would support the claim by saying that it is money
had and received to the use of the buyer, being money paid on a
consideration which has wholly failed. But that is not the answer
which was given in similar cases in the coronation cases, and it
is those decisions that come up for review in the present case.
The question arose in the neatest form in the case of Chandler v.
Webster, 1904, I K.B. 493, where the leading judgment was given
in the Court of Appeal by Collins M.R., a master of the common
law, whose opinion the profession have always rightly held in
the greatest respect. In that case the Plaintiff had hired a room
to view the coronation procession on Thursday, June 26, 1902,
On June 10 he wrote to the Defendant: ‘ I beg to confirm my
” purchase of the first floor room of the Electric Lighting Board
” at 7, Pall Mall to view the procession on Thursday, June 26, for
” the sum of £141 15s. 0d., which amount is now due. I shall be
” obliged if you will take the room on sale, and I authorise you
[9] 2
” to sell separate seats in the room, for which I will erect a stand.”
It became the subject of controversy whether, in view of certain
other terms arranged between the parties, the whole sum became
due before the procession became impossible; but the Courts
decided, as was clearly the case, that it did so become due. It may
be noted that the Defendant had nothing to do under the contract
but allow the Plaintiff the use of the room. On June 19 the Plaintiff
paid the Defendant £100 on account of the price of the room, but.
had not paid the balance at the time the procession was abandoned.
The Plaintiff claimed the return of the £100 on a total failure of
consideration; the Defendant counterclaimed for the balance of
£41 15s. 0d. Collins M.R., at p. 499, dealing with the contention
that there had been a total failure of consideration, after stating
that it raised a question of some difficulty, stated that the principle
on which it has been dealt with is that which was applied in Taylor
v. Caldwell, viz. that where the contract has become impossible
in the circumstances there stated ” it remains a perfectly good
” contract up to that point, and everything previously done in
” pursuance of it must be treated as rightly done; but the parties
” are both discharged from further performance of it.” So far the
statement is unassailable. But the Master of the Rolls proceeds:
‘ If the effect were that the contract were wiped out altogether,
” no doubt the result would be that money paid under it would
” have to be repaid as on a failure of consideration. But that is
” not the effect of the doctrine: it only releases the parties from
” further performance of the contract. Therefore ” (the italics are
mine) ” the doctrine of failure of consideration does not apply.”
It seems plain that the Master of the Rolls is not repelling the
claim for money had and received on the ground that the doctrine
as to impossibility of performance itself, as part of its content, ex-
cludes the claim. The case of Taylor v. Caldwell (1863), 3 B. & S.
826, the principle of which he is expressly applying, had nothing
to do with money had and received. The claim was for damages
in costs of advertisements, etc., for concerts for which the
Defendants had agreed to let their hall at the Surrey Gardens, a
contract which it was impossible to perform because the hall was
destroyed by fire after the contract. The Master of the Rolls there
is applying the common law rule as’ to money had and received
to a case of a contract where all that had happened was that in
law both parties were released from further performance. And
in those circumstances he seems to say: the doctrine of failure of
consideration only applies where the contract is wiped out
altogether: in this case it is not: the parties are only discharged
from further performance: therefore the claim for money had and
received must fail.
My Lords, the difficulty which this decision causes me is to
understand how this great lawyer came to the conclusion that the
claim for money paid on a consideration which wholly failed could
only be made where the contract was wiped out altogether: and
I have sought for some construction of his words which stopped
short of that absolute statement, but I can find none. I know of
no authority for the proposition. It is true that where a party
is in a position to rescind a contract he may be able to sue for
money which he has paid under the contract now rescinded: but
there are numerous cases where there has been no question of
rescission where such an action has lain. I may refer to Giles v.
Edward (1797), 7 T.R. 181, where a contract to deliver wood was
prevented by the Defendant preventing performance by not loading
all the wood. Rugg v. Minett (1809), 11 East 210, where the buyer
had paid part or the purchase price on a sale of turpentine in
casks, where the property in some casks had passed while in seller’s
warehouse, but in some had not, and the purchaser was entitled
to recover for money had and received the proportion properly
3 [10]
attributable to the casks in which the property had not passed;
Nockels v. Crosby (1825), 3 B. & C. 814; Wilson v. Church (1879),
13 Ch.D. i; (1880), 5 A.C. 177; Johnson v. Goslett (1857) 3 C.B.N.S.
569, and Ashpitel v. Sercombe (1855), 5 Ex. 147, in all of which the
Plaintiff had put up money for an adventure which was eventu-
ally abandoned by the promoters, Devaux v. Conolly (1849),
8 C.B. 640, where there had been an over-payment in respect of
goods delivered. In none of these cases was it suggested that the
contract was ” wiped out altogether “; indeed, in other cases where
it is suggested that the contract was ” rescinded,” all that is meant
is that the party was entitled to treat himself as no longer bound
to perform and to recover what he himself has paid.
With great respect therefore to the judgment in Chandler v.
Webster, I do not agree with that part of it which refused to give
effect to the Plaintiff’s claim for return of the sum which he had
paid on the ground of total failure of consideration. Some dis-
cussion arose as to the precise meaning of this term. It was pointed
out that the consideration for the part payment by the Plaintiffs
was the promise by Defendants to deliver the goods c.i.f. at
Gdynia; and the promise was always effective until further per-
formance was excused. I personally agree with that statement
of what the consideration was, and I do not think it necessary
to use the word “consideration” in two meanings. I understand
by the phrase that the promise to deliver goods totally failed
because no goods were or could be delivered, and that therefore a
cause of action accrued to the Plaintiff. I should add that if it
was wrong in Chandler v. Webster to refuse the Plaintiff .relief
on his claim, it was also wrong to give the Defendant judgment
on his counterclaim. It is true that the right to receive the balance
had accrued before frustration: but if the money had been paid
it could have been recovered back as the £100 could, and the
principles relating to circuity of action would afford a defence to
the counterclaim. Lord Dunedin quotes with approval in the
law of Scotland the brocard frustra petis quod mox es restiturus,
French Marine v. Compagnie Napolitaine, 1921, 2 A.C., at p. 511,
and the expression aptly fits the English law in this respect. It
was urged before us that in the case last cited the House of Lords
held that Chandler v. Webster was rightly decided, and that this
House is consequently bound to follow it. I cannot agree. The
French Marine case was a case of a time charter whose hire was
paid monthly in advance, and the ship was only redelivered after
part of the month had expired. Lord Sumner, at p. 517, draws
attention to the fact that there was no total failure of consideration,
but a partial failure only, for which in law no pro rata repayment
could be claimed. It is obvious therefore that the present question
did not arise; and in Cantiare v. Clyde Shipbuilding Co., 1924,
A.C. 226, a case which turned on the Scots law, all their Lordships
treated the question of the English law as open in this House. In
the case last mentioned it was decided that according to Scots law
restitution could be made of sums paid in advance where the con-
tract was frustrated: and it is satisfactory to find that the English
and Scots law now agree on this point. It is unnecessary to discuss
the interesting suggestion that the Scots law does not in fact entitle
the claimant to recover necessarily the whole amount paid, but
only so much as can be shown to be an unjust enrichment of the
defender: in other words, that the latter may claim an adjustment
in respect of the amount by which he is out of pocket for expenses
incurred in respect of the contract. There was no decision on this
point in the case, though this House affirmed the interlocutor of
Lord Hunter, the Lord Ordinary, who had given permission to
the defenders to amend their pleas in order, as it appears, to
counterclaim for expenses, a proceeding which in any event I do
not understand. It may be that such an adjustment was possible
[11] 4
under Roman Law, but there seems no direct authority for it in
Scots law, and there is a dictum of great weight against it in the
judgment of Lord President Inglis in Watson v. Shankland (1871),
10 M., at p. 152.
That the result of the law may cause hardship when a contract
is automatically stayed during performance and any further right
to performance is denied to each party is incontrovertible. One
party may have almost completed expensive work: he can get
no compensation. The other party may have paid the whole price,
and if he has received but a slender part of the consideration he
can get no compensation. At present it is plain that if no money
has been paid on the contract there is no legal principle by which
loss can be made good. What is being now decided is that the
application of an old-established principle of the Common Law
does enable a man who has paid money and received nothing
for it to recover the money so expended. At any rate, it can be
said it leaves the man who has received the money and given
nothing for it in no worse position than if he had received none.
Many commercial contracts provide for various risks: it is always
possible to provide for the risk of frustration; but what provision
the parties may agree will probably take some time to negotiate.
Meanwhile by the application of a general doctrine which is in-
dependent of the special contract and only comes into play when
further performance of the latter is precluded, the man who pays
money in advance on a contract which is frustrated and receives
nothing for his payment is entitled to recover it back. I think
therefore that the appeal should be allowed.
[12]
Lord
Chancellor
Lord Atkin
Lord
Russell of
Killowen
Lord
Macmillan
Lord
Wright
Lord
Roche
Lord
Porter
FIBROSA SPOLKA AKCYJNA
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LIMITED.
Lord Russell of Killowen
(READ BY LORD MACMILLAN)
my lords,
That which has been described during the argument of this case,
and at other times, as ” the rule in Chandler v. Webster ” should, I
think, rather be called the rule (to put it shortly) that in cases of
frustration loss lies where it falls, or (at greater length) that where
a contract is discharged by reason of supervening impossibility of
performance, payments previously made and legal rights previously
accrued according to the terms of the contract, will not be disturbed,
but the parties will be excused from liability further to perform the
contract.
I say this because as I read the judgment of the Master of the
Rolls in Chandler v. Webster he does not purport to be framing
any new rule, or laying down any new law: he thought that the
case which he was deciding was one which, upon its facts, was
governed by a rule already established by the authorities.
In Scotland the consequence of frustration is not that loss lies
where it falls. The Scots law derives from the Roman law a
different view, founded on the doctrine of restitutio, which has no
place in English law, and which it is not open to us to import into
the law of England. We must examine the rule as it exists in the
law of England, and determine whether the Appellants are entitled
to be repaid the £1,000. If Chandler v. Webster was rightly de-
cided, they would clearly not be so entitled.
It is to be observed that the doubt as to the correctness of the
rule only arises in cases in which one of the parties to the contract
has paid over to the other party the whole or part of the money
payable by him as the consideration for what he is to receive as the
consideration moving from the other party. If no such money has
been paid the rule must apply; for I know no principle of English
law which would enable either party to a contract which has been
frustrated to receive from the other compensation for any expense,
or indemnity from any liability, already incurred in performing the
contract. Nor could moneys paid before frustration be recovered
if the person making the payment has received some part of the
consideration moving from the other party for which the payment
was made. In such a case the rule would still apply.
But I am of opinion that this appeal should succeed because
of another aspect of the matter.
In the present case the Appellants, before frustration, paid in
advance a part of the price of the machines. We heard an elaborate
argument as to what was the exact consideration moving from the
Respondents for that part of the contract which stipulated for
payment of part of the price in advance. I am not aware of any
justification for splitting up the consideration in this way, and
assigning a consideration for each separate provision of a contract.
Under the contract here in question the consideration moving from
the Respondents was either the delivery of the machines at Gdynia,
or the promise to deliver the machines at Gdynia. I think that the
delivery was the consideration; but in whichever way the con-
sideration is viewed, it is clear that no part of the consideration
[13] 2
for which part of the price of the machines was paid ever reached
the Appellants. There was a total failure of the consideration for
which the money was paid.
In those circumstances, why should the Appellants not be
entitled to recover back the money paid, as money had and received
to their use, on the ground that it was paid for a consideration
which has wholly failed ? I can see no reason why the ordinary
law, applicable in such a case, should not apply. In such a case
the person who made the payment is entitled to recover the money
paid That is a right which in no way depends upon the continued
existence of the frustrated contract. It arises from the fact that
the impossibility of performance has caused a total failure of the
consideration for which the money was paid.
In his judgment in Chandler v. Webster the Master of the Rolls
states that the right to recover moneys paid for a consideration
which has failed only arises where the contract is ” wiped out
” altogether,” by which expression I understand him to mean is
void ab initio. This is clearly a misapprehension on the part of the
learned judge. The money was recoverable under the common
indebitatus count, as money received for the use of the Plaintiff.
The right so to recover money paid for a consideration that had
failed did not depend on the contract being void ab initio. There
are many such cases in the books in which the contract has not
been void ab initio, but the money paid for a consideration which
has failed has been held recoverable. Thus, as one example, money
paid as a deposit on a contract of sale which has been defeated
by the fulfilment of a condition is recoverable (Wright v. Newton,
2 CM. & R. 124).
It was submitted by the Respondents, but without argument,
that money paid for a consideration which had failed was recover-
able only when the failure was due to the fault of the other party to
the contract. But, on the authorities, this submission is clearly ill-
founded.
Chandler v. Webster was accordingly, in my opinion, wrongly
decided. The money paid was recoverable, as having been paid
for a consideration which had failed.
The rule that on frustration the loss lies where it falls cannot
apply in respect of moneys paid in advance when the consideration
moving from the payee for the payment has wholly failed, so as
to deprive the payer of his right to recover moneys so paid as
moneys received to his use; but as I understand the grounds upon
which we are prepared to allow this appeal, the rule will (unless
altered by legislation) apply in all other respects.
A7
[14]
Lord
Chancellor
Lord
Atkin
Lord
Russell of
Killowen
Lord
Macmillan
Lord
Wright
Lord
Roche
Lord
Porter
FIBROSA SPOLKA AKCYJNA
v.
FAIRBAIRN LAWSON COMBE BARBOUR LIMITED
Lord Macmillan
MY LORDS,
Speaking in 1923 of the so-called ” Coronation cases ” Lord
Shaw ventured on prophecy. ‘ No doubt,” he said, ” the occasion
” will arise when that chapter of the law will have to be considered
” in this House,” for, as the Earl of Birkenhead had pointedly
observed, ” none of them ” [the ” Coronation cases “] ” is binding
” upon your Lordships.” Cantiare Ban Rocco S.A. v. Clyde Ship-
building and Engineering Co. [1924] AC 226 at pp. 257-8 and
233. The mills of the law grind slowly. Thirty-eight years have
elapsed since the Court of Appeal pronounced judgment in
Chandler v. Webster [1904] 1 K.B. 493, and nineteen years have
passed since Lord Shaw used the words which I have quoted, but
now at length in the present appeal the occasion foretold has arisen,
and I may be permitted to express my gratification that it has
been employed to clear the law of England by the unanimous
judgment which the House is to-day pronouncing from the re-
proach to which it was exposed so long as the law laid down in
Chandler v. Webster held the field.
My Lords, every system of law has had to face the problem of
defining the consequences of a contract becoming impossible of
fulfilment owing to some external supervening event for which
neither of the parties is responsible. That such an eventuality
releases both parties from further performance of any of the stipu-
lations of the contract is agreed on all hands. Each must fulfil his
contractual obligations up to the moment when impossibility super-
venes, for the contract is not avoided by becoming impossible of
fulfilment, but the duty of further performance ceases.
Having so declared, must the law stop there ? What if money
has been paid, work has been done, or liabilities have been incurred
by one or other or both of the parties in pursuance of or in reliance
on the fulfilment of the contract which now can never be com-
pleted ?
The law may say that the event which has rendered fulfilment
of the contract impossible is, so far as the parties are concerned, a
mere accident; of mere accident the law takes no cognizance and
for its consequences affords no redress; loss or gain must lie where
it happens to fall and the parties must be left where they stood
when their contract was frustrated.
On the other hand, the law may endeavour to effect an equitable
adjustment between the parties, so as to restore each as far as may
be to the position which he occupied before he entered into the
contract and by a process of give and take to mitigate the conse-
quences of the contract having proved abortive. I find this
doctrine of restitution stated in its broadest terms in Pufendorf’s
celebrated treatise on the Law of Nature and Nations, first pub-
lished in 1672, as follows: ‘ When the thing at the time of making
” the promise or pact appeared possible and afterwards becomes
” impossible we must inquire whether this happened by mere
” chance or by default and deceit. In the former case the pact is
” disannulled if nothing has yet been performed on either side. If
” anything have been already done towards it by one of the parties,
” the other shall give it back, or pay to the value of it; if neither of
[15] 2
” these can be done he is to use his best endeavours that the man be
” not a loser by him. For in contracts the first regard is had to
” the thing expressly mentioned in the agreement; when this can-
” not be obtained it is sufficient to give an equivalent; but whatever
” happens all imaginable care is to be used that the other party
” suffer no prejudice.” (Book III, ch. 7, §3. English Translation,
Oxford, 1703, p. 225.)
It is obvious that neither of these attempted solutions of the
difficulty can be productive of complete justice. To leave matters
as they stood when the contract became impossible of fulfilment
may result in great gain to one of the parties and great loss to the
other and to a grave infringement of the maxim nemo debet
locupletari aliena jactura. It is no consolation to the individual
sufferer to be told that on the whole such a rule works less injustice
than any other. It is in truth a confession of impotence in the face
of a problem deemed to be inextricable.
On the other hand to attempt to restore matters in their entirety
is to attempt the impossible. The hands of the clock cannot be
turned back; things cannot be as if they had not been. At best
some sort of equitable accommodation can be achieved which must
inevitably fall short of complete justice. The process is sought to
be rationalised on a theory of quasi-contract. The parties have
made no provision in their contract for the event which has frus-
trated it, so the law implies for them what it assumes they would
have agreed upon if they had had the unforeseen contingency in
contemplation when they entered into their contract. On another
view, restitution is regarded as a separate principle of the law in-
dependent of contract.
Presented with this choice of methods of dealing with the situa-
tion, the law of England has adopted as its general principle the
first of the two alternatives, namely, that each party shall be left
as he stood, despairing of the practicability of conjecturing and
enforcing what the parties might be assumed to have agreed upon
if they had contemplated and provided for the unforeseen contin-
gency. The law of Scotland on the other hand, following in this
respect the Roman law, has accepted the principle of restitution,
though how far it has gone in doing so and with what qualifica-
tions it would be out of place for me to discuss here. It may suffice
to refer to the speeches of Lord Dunedin and Lord Shaw in the
Cantiare San Rocco case.
But the law of England has characteristically mitigated the
rigour of its doctrine in one instance, namely, where in pursuance
of a contract money has been paid by one party to the other for a
consideration which has completely failed. The right of a Plaintiff
to recover, under the common indebitatus count for money
received, any sum which he has paid for a consideration which has
wholly failed has long been fully recognised in the common law of
England. (See Bullen and Leake’s Precedents of Pleading, 3rd
ed. 1868, pp. 44 et seq.) My noble and learned friends whose
opinions I have had the privilege of reading in advance have by
ample citations fully vouched the law on the subject and the task is
more fittingly discharged by them than by me.
How, then, if such be the law of England did Chandler v.
Webster come to be decided as it was, for there never was a clearer
case of money paid for a consideration which had entirely failed ?
The explanation is to be found in the passage in the judgment of
Collins, M.R., where he said that the doctrine of failure of con-
sideration applies only where a contract is ” wiped out altogether ‘
or, as Romer L.J. put it, ” rescinded ab initio,” and does not apply
where the parties are merely released from further performance. I
can only say, with all respect, that this is a complete misapprehen-
sion. There is no authority for such a distinction and there is ample
authority to prove that it does not exist. It has no basis in principle
3 [16]
or precedent. So Chandler v. Webster and its congeners must be
consigned to the limbo of cases disapproved and overruled. They
will be unwept save by those to whom for so many years they have
furnished a fruitful and enlivening topic of discussion in lecture
rooms and periodicals.
Your Lordships being of one mind that the so-called rule in
Chandler v. Webster is unsound, the way lies clear for the decision
of the present case. The Plaintiffs made a payment to the
Defendants to account of the price of certain plant which the
Defendants were to manufacture and deliver to them. Owing to
circumstances arising out of the present hostilities the contract
has become impossible of fulfilment according to its terms. Neither
party is to blame. In return for their money the Plaintiffs have
received nothing whatever from the Defendants by way of fulfil-
ment of any part of the contract. It is thus a typical case of a total
failure of consideration. The money paid must be repaid.
I am accordingly in favour of allowing the Appeal.
Lord
Chancellor
Lord
Atkin
Lord
Russell of
Killowen
Lord
Macmillan
Lord
Wright
Lord
Roche
Lord
Porter
[17]
FIBROSA SPOLKA AKCYJNA
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LIMITED.
Lord Wright
MY LORDS,
The statement of the facts of the case which has been made by
my noble and learned friend the Lord Chancellor renders any
further recital by me superfluous.
The claim in the action was to recover a prepayment of £1,000
made on account of the price under a contract which had been
frustrated. The claim was for money paid for a consideration
which had failed.
It is clear that any civilised system of law is bound to provide
remedies for cases of what has been called unjust enrichment
or unjust benefit, that is to prevent a man from retaining the money
of or some benefit derived from another which it is against con-
science that he should keep. Such remedies in English Law are
generically different from remedies in contract or in tort, and are
now recognised to fall within a third category of the common law
which has been called quasi-contract or restitution. The root idea
was stated by three Lords of Appeal, Lord Shaw, Lord Sumner
and Lord Carson, in Jones v. Waring & Gillow, 1926, A.C. 670,
which dealt with a particular species of the category, namely,
money paid under a mistake of fact. Lord Sumner at p. 696,
referring to Kelly v. Solari, 9 M. & W.” 54, where money had been
paid by an insurance company under the mistaken impression that
it was due to an executrix under a policy which had in fact been
cancelled, said: ” There was no real intention on the company’s
” part to enrich her.” Payment under a mistake of fact is only one
head of this category of the law. Another class is where, as in this
case, there is prepayment on account of money to be paid as con-
sideration for the performance of a contract which in the event
becomes abortive and is not performed, so that the money never
becomes due. There was in such circumstances no intention to
enrich the payee. This is the class of claims for the recovery of
money paid for a consideration which has failed. Such causes of
action have long been familiar and were assumed to be common-
place by Holt L.C.J. in Holmes v. Hall, Holt 36, in 1704. Holt
L.C.J. was there concerned only about the proper form of action
and took the cause of the action as beyond question. He says: ” If
” A give money to B to pay to C upon C’s giving writings, etc., and
” C will not do it, indebit will lie for A against B for so much money
” received to his use. And many such actions have been main-
” tained for earnests in bargains, when the bargainor would not
” perform, and for premiums for insurance, when the ship, etc.,
” did not go the voyage.” The Chief Justice is there using
” earnest” as meaning a prepayment on account of the price, not
in the modern sense of an irrevocable payment to bind the bargain.
And he is recognising that the indebitatus assumpsit had by that
time been accepted as the appropriate form of action in place of the
procedure which had been used in earlier times to enforce these
claims such as debt, account or case.
By 1760 actions for money had and received had increased in
number and variety. Lord Mansfield, in a familiar passage in
Moses v. Macferlan, 2 Burr, 1005, sought to rationalise the action
for money had and received, and illustrates it by some typical
2 [18]
instances. “It lies,” he said (at p. 1012), “for money paid by
” mistake; or upon a consideration which happens to fail; or
” for money got through imposition (express or implied); or extor-
” tion; or oppression; or an undue advantage taken of the
” Plaintiff’s situation, contrary to laws made for the protection of
” persons under those circumstances. In one word, the gist of this
” kind of action is that the Defendant upon the circumstances of
” the case is obliged by the ties of natural justice and equity to
” refund the money.” Lord Mansfield prefaced this pronouncement
by observations (at p. 1008) which are to be noted. ” If the
” Defendant be under an obligation from the ties of natural justice
” to refund, the law implies a debt and gives this action [sc. indebi-
” tatus assumpsit] founded in the equity of the Plaintiff’s case, as it
” were, upon a contract (‘ quasi ex contractu ‘ as the Roman law ex-
” presses it).” Lord Mansfield does not say that the Jaw implies a
promise; the law implies a debt or obligation which is a different
thing. In fact he denies that there is a contract; the obligation is as
efficacious as if it were upon a contract. The obligation is a creation
of the law, just as much as an obligation in tort. The obligation
belongs to a third class, distinct from either contract or tort, though
it resembles contract rather than tort
This statement of Lord Mansfield has been the basis of the
modern law of quasi-contract, notwithstanding the criticisms which
have been launched against it. Like all large generalisations, it
has needed and received qualifications in practice. There is, for
instance, the qualification that an action for money had and re-
ceived does not lie for money paid under an erroneous judgment
or for moneys paid under an illegal or excessive distress. The law
has provided other remedies as being more convenient. The
standard of what is against conscience in this context has become
more or less canalised or defined. But in substance the juristic
concept remains as Lord Mansfield left it.
The gist of the action is a debt or obligation implied, or more
accurately imposed, by law, in much the same way as the law
enforces as a debt the obligation to pay a statutory or customary
impost. This is important, because some confusion seems to have
arisen, though perhaps only in recent times when the true nature
of the forms of action have become obscured by want of user. If
I may borrow from another context the elegant phrase of the Lord
Chancellor in the United Australia case, 1941 A.C. i, at p. 21, there,
as it seems to me, has sometimes been ” a misreading of technical
” rules, now happily swept away.” The writ of indebitatus
assumpsit involved at least two averments, the debt or obligation
and the assumpsit. The former was the basis of the claim and was
the real cause of action. The latter was merely fictitious, and need
not be traversed, but was necessary to enable the convenient and
liberal form of action to be used in such cases. This fictitious
assumpsit or promise was wiped out by the Common Law Pro-
cedure Act, 1852. As Bullen & Leake, ” Precedents of Pleading,”
3rd Edition, p. 36, point out, this Act, by Section 3, provided that
the Plaintiff was no longer required to specify the particular form
of action in which he sues, and by Section 49 that (inter alia) the
statement of promises in indebitatus counts which need not be
proved were to be omitted; “the action of indebitatus assumpsit,”
the authors add, ” is [that is by 1868] virtually become obsolete.”
Lord Atkin in [1941] A.C., at p. 29, after instancing the case of the
blackmailer, says “the man has my money which I have not
” delivered to him with any real intention of passing to him the
” property. I sue him because he has the actual property taken.”
He adds: ‘ These fantastic resemblances of contracts invented in
” order to meet requirements of the law as to forms of action which
” have now disappeared should not in these days be allowed to
” affect actual rights.” Yet the ghosts of the forms of action have
[19] 3
been allowed at. times to intrude in the ways of the living and
impede vital functions of the law. Thus in Sinclair v. Brougham,
1914, A.C. 398, Lord Sumner stated at p. 452 that “all these
” causes of action [sc. for money had and received] are common
” upon a notional or imputed promise to repay.” This observation,
which was not necessary for the decision of the case, obviously
does not mean that there is an actual promise of the party. The
phrase ” notional or imputed promise ” is only a way of describing
a debt or obligation arising by construction of law. The claim for
money had and received always rested on a debt or obligation
which the law implied, or more accurately imposed, whether the
procedure actually in vogue at any time was debt or account or
case or indebitatus assumpsit. Even the fictitious assumpsit dis-
appeared after the Act of 1852. I prefer Lord Sumner’s explanation
of the cause of action in Jones’s case (supra). This agrees with the
words of Lord Atkin which I have just quoted. Yet serious legal
writers have seemed to say that these words of the great Judge in
Sinclair v. Brougham (supra) closed the door to any theory of
unjust enrichment in English law. I do not understand why or how.
It would indeed be a reductio ad absurdum of the doctrine of pre-
cedents. In fact the Common law still employs the action for money
had and received as a practical and useful, if not complete or ideally
perfect, instrument to prevent unjust enrichment, aided by the
various methods of technical equity which are also available, as
they were found to be in Sinclair v. Brougham (supra).
Must, then, the Court stay its hand in what would otherwise
appear to be an ordinary case for the repayment of money paid
in advance on account of the purchase price under a contract for
the sale of goods merely because the contract has become im-
possible of performance and the consideration has failed for that
reason ? The Defendant has the Plaintiff’s money. There was no
intention to enrich him in the events which happened. No doubt
when money is paid under a contract it can only be claimed back
as for failure of consideration where the contract is terminated as
to the future. Characteristic instances are where it is dissolved by
frustration or impossibility or by the contract becoming abortive
for any reason not involving fault on the part of the Plaintiff where
the consideration, if entire, has entirely failed, or where, if it is
severable, it has entirely failed as to the severable residue, as in
Rugg v. Minett, 11 East 210. The claim for repayment is not based
on the contract which is dissolved on the frustration but on the fact
that the Defendant has received the money and has on the events
which have supervened no right to keep it. The same event which
automatically renders performance of the consideration for the pay-
ment impossible, not only terminates the contract as to the future,
but terminates the right of the payee to retain the money which he
has received only on the terms of the contract performance. In
Hirji’s case (1926, A.C. 497, at p. 510) Lord Sumner, who has done
so much in his judgments to elucidate the meaning and effect of
frustration, contrasts rescission of a contract by one party on the
ground of breach by the other party, which depends on election by
the former, with frustration, which operates automatically apart
from either party’s election. He finds, however, a similarity in the
respect that rights and wrongs which have come already into exist-
ence remain, though the contract is ended as regards obligations
de futuro. But the contract is in neither case wiped out, or avoided
ab initio. The right in such a case to claim repayment of money
paid in advance must in principle, in my judgment, attach at the
moment of dissolution; the payment was originally conditional; the
condition of retaining it is eventual performance; accordingly when
that condition fails the right to retain the money must simul-
taneously fail. It is not like a claim for damages for breach of the
contract, which would generally differ in measure and amount, nor
4 [20]
is it a claim under the contract. It is in theory and is expressed
to be a claim to recover money, paid to the use of the Plaintiff.
This, I think, was the view of Lord Haldane L.C. speaking for
the Judicial Committee in Royal Bank of Canada v. R., 1913,
A.C. 283, at p. 296. He said: ” It is a well-established principle
” of the English Common Law that when money has been received
” by one person which in justice and equity belongs to another,
” under circumstances which render the receipt of it a receipt by the
” Defendant to the use of the Plaintiff, the latter may recover as for
” money had and received to his use.” The principle extends to
cases where the money has been paid for a consideration which has
failed. It applies, as was pointed out By Brett L.J. in Wilson v.
Church, 13 Ch.D. 1, at p. 49, when money has been paid to
borrowers in consideration of the undertaking of a scheme to be
carried into effect subsequently to the payment and which has
become abortive. The lender has in this case a right to claim the
return of the money in the hands of the borrowers as being held
to his use. This language of Brett L.J. was used in connection
with the failure of a scheme for the development of a concession
in Bolivia which the Bolivian Government revoked, thus render-
ing the fulfilment of the scheme impossible. The House of Lords
affirmed the judgment of a strong Court of Appeal, and held that
the borrowers were entitled to repayment of their loan, on the
ground that the consideration for the loan had failed (National
Bolivian Navigation Company v. Wilson, 5 A.C. 176, in particular
per Lord Cairns L.C., at p. 185). Some years earlier a decision,
not dissimilar in principle, was reached in 1850, in Ashpitel v.
Sercombe, 5 Ex- 147. The Plaintiff had paid a deposit on his
application for shares in a projected railway company but the
scheme had to be abandoned for want of sufficient subscriptions.
The appeal was heard before Patteson, Coleridge, Maule, Cresswell,
Wightman, Erie and Williams JJ., all masters of the Common
Law. The Plaintiff’s claim for return of the deposit was upheld.
Patteson J., delivering the judgment of the Court, said (at pp.
161-162): ” This was an action for money had and received,
” brought by the Plaintiff, an allottee of shares in a proposed rail-
” way company, which had been abandoned before the commence-
” ment of the action, without any fraud or misconduct, against
” the Defendant, one of the Managing Committee, to recover back
” the Plaintiff’s deposit. . . . There seems to be no doubt that
” the Plaintiff, having paid his money for shares in a concern which
” never came into existence, or a scheme which was abandoned
” before it was carried into execution, has paid it on a consideration
” which has failed, and may recover it back as money had and
” received to his use.” It was further held that the Defendant
could not deduct money which the directors had expended towards
carrying out the scheme, unless it could be shown that the Plaintiff
had consented to or acquiesced in the application of his money. The
books contain other cases of a similar character, such as Johnson
v. Goslett, 3 C.B.N.S. 569. These cases were merely special instances
where performance having become impossible, the payers were held
entitled to recover what they had paid, the contract having come to
an end between the time when the money was paid and the date
at which the contract was ended. Similar claims have been made
for recovery of deposits paid. Such a claim has succeeded even
under a contract by deed for the purchase of an estate. Thus in
Greville v. Da Costa, Peake Add. Cas. 113, the vendor was dis-
abled from selling by an order of the Lord Chancellor. Lord
Kenyon said that the Defendant held the money against conscience
and therefore might be compelled to repay it by an action for
money had and received. It is clear that the failure of considera-
tion need not be attributable to breach of contract or misconduct
on the part of the Defendant, as the cases I have cited and many
others show. Impossibility of performance or frustration is only
[21] 5
a particular type of circumstance in which a party who is disabled
from performing his contract is entitled to say that the contract is
terminated as to the future, and in which repayment of money paid
on account of performance may be demanded.
These principles, however, only apply where the payment is
not of such a character that by the express or implied terms of the
contract it is irrecoverable even though the consideration fails. The
contract may exclude the repayment. An illustration of this is
afforded by advance freight which by English law is not recover-
able if the delivery of the goods is prevented by the act of God, perils
of the seas or other excepted cause, which excludes an action of
damages. In Allison v. Bristol Marine Insurance Co., 1 A.C. 209,
253, Lord Selborne stated it to be ” the peculiar rule of English
” mercantile law that an advance on account of freight to be earned
” is, in the absence of any stipulation to the contrary, an irrevocable
” payment at the risk of the shipper of the goods “. So indeed the
law had been laid down by Sanders L.C.J. in Anon. 2 Shower 283
in 1682 and has remained ever since. I may also refer to Byrne v.
Schiller, L.R. 6 Ex. 319. The irrecoverable nature of the payment
is there determined by custom or law, unless the contract provides
for the contrary. In other cases likewise a particular contract may
effectively make a prepayment irrecoverable. In the present case
the payment is not made irrecoverable by any custom or rule of law
or by any express or implied terms of the contract. It was paid
on account of the price; it was not paid out-and-out for the sign-
ing of the contract. When the sellers were disabled to perform
the contract by the shipment to Gdynia becoming illegal, the
ordinary rules of law and the authorities to which I have referred
show that the sum of £1,000 paid in advance of the price was
recoverable by the Appellants In the present action.
The Court below have held themselves bound to reach the
contrary decision only on the authority of certain cases, generally
known as the Coronation cases, in particular Blakeley v. Muller,
reported in a note to Civil Service Co-operative Society v. General
Steam Navigation Company, 1903, 2 K.B. 756, and Chandler v.
Webster, 1904, 1 K.B. 493. These cases dealt with agreements
for the hiring of rooms from which to view the procession on the
coronation of King Edward VII. It had been held in Krell v.
Henry, 1903, 2 K.B. 740, that the mere use of the rooms on the
appointed day was only part of the consideration for the agreed
payment, and that an essential part of the consideration was the
opportunity of viewing the procession. That was the object or
basis of the contract in contemplation of both parties. When
the procession could not take place, the contract, it was held, be-
came abortive or was frustrated. There was no decision in that
case on whether money paid in advance was recoverable. In
Blakeley v. Muller (supra) the prepayment had fallen due before
the frustration supervened. A Divisional Court held that the hirer,
who had paid in advance, could not recover back the money. They
did not discuss the principles or authorities to which I have referred
on the right to recover money paid for a consideration which has
failed. I take the ratio decidendi from the judgment of Channell J.,
because in the next case of that type, the Civil Service Co-operative
Society (supra), Lord Halsbury, sitting in the Court of Appeal,
quoted a long passage from it and added that he concurred with
every word of it. The reasoning of Channell J., as I understand
his judgment, was that the loss must remain where it was at the
time of the abandonment, because it was impossible to import
into a contract a condition which the parties might have imported
but had not, and that under Taylor v. Caldwell, 3 B. & S. 826, and
Appleby and Myers, L.R. 2, C.P. 651 (cases of impossibility), all that
was said was that the parties were excused from further perform-
ance, not that anything that was done under the contract was void.
6 [22]
In the former case, the claim was for damages, in the latter it was
on a quantum meruit for partial performance of an entire con-
sideration. Each claim failed. Neither was a claim for money
had and received. Channell J. instanced the case of advance
freight under the charter-party. I have already explained that rule,
which in Lord Selborne’s view is peculiar. I have also explained
my view that the right to repayment of advance payments as
money had and received to the Plaintiff’s use is not a claim under
the contract or for further performance of the contract or for
damages, but a claim outside the contract. The ground of the claim
is that the contract has been dissolved as to future performance
and hence that the consideration has failed. The Court of Appeal,
however, dismissed the claim for the money, following Blakeley v.
Mutter (supra). When shortly afterwards the same question on
similar facts again came before a differently constituted Court of
Appeal, in Chandler v. Webster (supra), Collins M.R. discussed
the matter more elaborately, but he still ignored the principles and
authorities upon the action for money had and received to which
I have referred, though the claim was to recover as on a total
failure of consideration; he indeed discusses the case from that
point of view loc. cit. at p. 499. The hirer was claiming to recover
what he had paid in advance and was resisting a counterclaim for
the balance which was by the contract payable before the date
when the procession became impossible. He ought, in my opinion,
to have succeeded on both issues, but by the judgment of the
Court of Appeal he failed on both. The reasoning of the Master
of the Rolls may, I think, fairly be summarised to be that im-
possibility through the fault of neither party leaves the parties
where they were but relieves them from further performance; that
it is only if the contract is wiped out altogether that money paid
under it would have to be repaid as on a failure of consideration,
but that the only effect of impossibility is to release the parties
from further performance; the rule, he said, is arbitrary, but it is
really impossible to work or adjust with any exactitude what the
rights of the parties in the event should be. I hesitate to criticise
the ruling of so great a lawyer as the Master of the Rolls. But I
cannot concur in these propositions. I need scarcely repeat my
reasons for doing so, which are apparent from what I have already
said. The claim for money had and received is not, in my opinion,
a claim for further performance of the contract; it is a claim outside
the contract. If the parties are left where they are, one feature of
the position is that the one who has received the prepayment is left
in possession of a sum of money which belongs to the other; the
frustration does not change the property in the money; nor
is the contract wiped out altogether, but only the future perform-
ance. I may add that the difficulty emphasised by the Master of
the Rolls that such a claim involves constructing a hypothetical
contract by supposing what terms the parties would have arrived
at if they, contemplated the future impossibility does not arise. But
I do not think that this way of envisaging the matter accords with
the true position. In my opinion the contract is automatically
terminated as to the future because at that date its further per-
formance becomes impossible in fact, under circumstances which
involve no liability for damages for the failure on either party.
When the Court holds a contract to be thus terminated, it is simply
giving appropriate effect to the circumstances of the case, including
the actual contract and its meaning as applied to the event. It is this
view which is involved in Lord Sumner s phrase in Hirji (supra], at
p. 510. “It” [sc. the doctrine of frustration] “is really a device
” by which the rules as to absolute contracts are reconciled with a
” special exception which justice demands.” He combines with
this a reference to what has been generally accepted by English
Law, that the rule is explained in theory as a condition or term
of the contract implied by the law ab initio. No one who reads
[23] 7
the reported cases can ignore how inveterate is this theory or
explanation in English law. I do not see any objection to this
mode of expression so long as it is understood that what
is implied is what the Court thinks the parties ought to
have agreed on the basis of what is fair and reasonable, not what
as individuals they would or might have agreed. ” It is,” said
Lord Sumner, “irrespective of the individuals concerned, their
” temperaments and failings, their interest and circumstances”.
The Court is thus taken to assume the r61e of the reasonable man,
and decides what the reasonable man would regard as just on the
facts of the case. The hypothetical ” reasonable man ” is personified
by the Court itself. It is the Court which decides. The position is
thus somewhat like the position in the cases in which the Court
imports a term in a contract on the basis of what is reasonable. As
frustration is automatic, so equally the claim for money had and
received here follows automatically.
Chandler v. Webster (supra) has bound subsequent Courts of
Appeal. Mr. Holmes has contended that it was accepted by this
House as good law in the French Marine case, 1921, 2 A.C. 494, and
was not open to review by your Lordships. The most obvious and
shortest answer to that argument is that in Cantiare San Rocco y.
Clyde Shipbuilding Co., 1924, A.C. 226, Lord Birkenhead loc. cit.
at p. 233, observed of Chandler v. Webster (supra] that none of
the relevant authorities on the law of England on this question was
binding on the House. Lord Atkinson agreed, and Lord Shaw
indicated that the question of English Law was open in this House.
The French Marine case (supra) related to freight under a voyage
charter payable on a time basis and the decision may therefore
have been affected by the English rule as to advance freight,
because it was a claim for repayment of time freight paid in
advance for days subsequent to the requisition of the ship which
rendered her further use by the charterers impossible. Their Lord-
ships were divided in opinion, and it is not clear that there was any
real agreement among the majority as to the ratio decidendi. I
think the essential ground taken was that the contract provided for
certain events in which freight was to cease, but not for the
particular event in which the contract terminated. But it was also
treated as a case of a partial failure of consideration.
The decision reached in Chandler’s case (supra) is criticised by
Williston, Contracts, section 1954, p. 5477 (see too, section 1974.
P. 5544), and has not been followed in most of the States of America,
Nor is it adopted in the Restatement of the Law of Contract by the
American Law Institute, section 468, pages 884 et seq. Indeed
the law of the United States seems to go beyond the mere remedy
of claims for money had and received and to allow the recovery
of the value of the benefit of any part performance rendered while
performance was possible. Such and similar claims should be
recognised in any complete system of law, but it is not clear how
far they have been admitted in English law. The Scots Law upheld
in the Cantiare case (supra) may seem to be generally like the
English Law and to be limited to recovery of money payments.
The opinion which I have been stating perhaps brings the two
laws into substantial accord, though in the passage quoted by Lord
Birkenhead in the Cantiare case (supra) at p. 237, from Lord
President Inglis’ judgment in Watson v. Shankland, 10 M. 142,
that judge seems to accept that the payer who has paid in advance
should give credit to the extent that he is lucratus by any part
performance. I do not wish to discuss how far, if at all, this is
open in English Law. That was a case of advance freight, which
Scots Law treats as a prepayment on account. But I think it is
clear both in English and Scots Law that the failure of considera-
tion which justifies repayment is a failure in the contract perform-
ance. What is meant is not consideration in the sense in which
8 [24]
the word is used when it is said that in executory contracts the
promise of one party is consideration for the promise of the other.
No doubt in some cases the recipient of the payment may be
exposed to hardship if he has to return the money though before
the frustration he has incurred the bulk of the expense and is then
left with things on his hands which become valueless to him when
the contract fails, so that he gets nothing and has to return the
prepayment. These and many other difficulties show that the
English rule of recovering payment the consideration for which has
failed works a rough justice. It was adopted in more primitive
times and was based on the simple theory that a man who has paid
in advance for something which he has never got ought to have his
money back. It is further imperfect because it depends on an
entire consideration and a total failure. Courts of equity have
evolved a fairer method of apportioning an entire consideration
in cases where a premium has been paid for a partnership which
has been ended before its time (Partnership Act, sec. 40), contrary
to the Common law rule laid down in Whincup v. Hughes, L.R. 6
C.P. 78. Some day the Legislature may intervene to remedy these
defects.
I ought to notice in order to reject an argument of Mr. Holmes
that the House should not reverse or depart from a doctrine which
has stood since 1904 and has been followed in several cases by the
Court of Appeal and acted upon on practical affairs. The doctrine,
however, has been severely criticised by writers both in this country
and elsewhere and has been treated as open to review by this House
as recently as 1923 in the Cantiare case (supra). If the doctrine is,
as I think it clearly is, wrong and unjust, it is the duty of this
House, exercising its function of finally declaring the law, to reverse
it, unless there are very special circumstances such as were recently
considered in the Valverda, 1938, A.C. 173. On the other hand,
in Lissenden v. Bosch, 1940, A.C. 412, the House has recently over-
ruled a decision which had been acted upon in frequent practice
for 27 years.
I may in conclusion add a reference to a very learned article by
Professor Buckland, in Harvard Law Review, Vol. XLVI, p. 1281:
he concludes by observing that whatever the merits or demerits of
Chandler v. Webster (supra) and other cases which he considers
in that article, the Roman Law cannot be made responsible for the
rules laid down in them.
In ray judgment the Appeal should be allowed.
[25]
Lord
Chancellor
Lord
Atkin
Lord
Russell of
Killowen
Lord
Macmillan
Lord
Wright.
Lord
Roche.
Lord
Porter
FIBROSA SPOLKA AKCYJNA
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LIMITED
Lord Roche
MY LORDS,
I also am of opinion that this Appeal should be allowed and that
judgment should be entered for the Appellants for the amount of
their claim in the action.
The contents of the relevant documents and the facts of the case
have been so fully set out by the Lord Chancellor that it is unneces-
sary that I should add anything to his recital. But having regard
to the importance of the principles involved I think it right to state
concisely the reasons for my conclusion.
I have no doubt that this case is one of frustration of the contract
and falls within the doctrine applicable to such cases. An alternative
case made by the Appellants that the contract was merely suspended
and whilst suspended was repudiated by the Respondents is, I think,
without foundation. The claim of the Appellants, therefore, must
be and is a claim to recover the £1,000 in dispute as money had and
received to their use as paid upon a consideration which has wholly
failed. The Courts below have held themselves bound by authority
to decide against this claim. The principal authority for the sup-
posed binding rule of law is the case of Chandler v. Webster (L.K.
1904 1 K.B. 493) which, it is contended, lays down the rule that on
the occurrence of an event which frustrates the performance of the
contract the loss lies where it falls and that money paid by one party
to the contract to the other party is to be retained by the party in
whose hands it is. Taken in their broad and natural sense, the
much criticised sentences in the judgment of Collins M.R. in
Chandler v. Webster (supra at p. 499) ending ‘Therefore the
” doctrine of failure of consideration does not apply ” certainly sup-
port a conclusion in favour of the rule contended for. Taken in
that sense the proposition is, in my judgment, erroneous in law and
unsupported by any authority binding upon this House. It is, how-
ever, not unimportant to observe the context in which the criticised
sentences occur. The learned Master of the Rolls was contrasting
the case of contracts avoided ab initio where the Courts of England
have power to decree restitution and the case of contracts
frustrated but subsisting nevertheless up to the moment of frustra-
tion. In the latter case it is, I think, true that the law of England,
differing in this respect from the civil law and the law of Scotland,
does not provide for the exercise of any power by the Courts to
decree restitution or repetition on similar or analogous lines to
those exercised where contracts are avoided a b initio—see Cantiare
San Rocco S.A. v. Clyde Shipbuilding and Engineering Coy. (1924,
App. Cas. 226). It is to be observed that whilst the law of England
was not directly in question in that case, Lord Birkenhead stated
in express terms that the Coronation cases were open to review
in this House and were not binding upon your Lordships.
The question therefore is whether, although the Courts of Eng-
land have not, as was rightly held in Chandler v. Webster, a power
to decree restitution in the sense above discussed, the matter is
concluded against the Appellants. The case made by the Appellants
2 [26]
is that no such doctrine of restitution is necessary to entitle them
to succeed in this action. They contend that they are entitled to be
repaid their money because of the operation of ordinary and
accepted rules of law applicable upon a total failure of considera-
tion. In my opinion that contention is right. The true rule, I
think, is that in cases of frustration the loss does lie where it falls,
but that this means where it falls Raving regard to the terms of
the contract between the parties. If under a contract payments
have been made which have been variously described as absolute
or final or out-and-out payments, then they are not recoverable by
the party who made them. Payments of freight in advance are
payments of this nature. Whatever the origin of the rule as to
advance freight, under decisions now centuries old and long acted
upon in commerce the rule itself that such payments of freight
are final and irrecoverable payments is beyond question. In the
case of French Marine v. Compagnie Napolitaine, 1921, 2 App.
Cas. 494, the majority judgments in this House applied the same
rule to a payment of hire under a time charter-party by reason
of the terms of the charter-party itself (see per Lord Dunedin, at
p. 513, and per Lord Sumner, at p. 519). It is, I think, not un-
important to observe that in the case of Chandler v. Webster
(supra) Mathew L.J. based his judgment on this ground of finality
in the payment (see 1904, I K.B., at p. 502), and I am disposed
to think that the Master of the Rolls, at p. 497 of the report, is
presenting a similar view of the facts and I am the more disposed
so to think because he, for one of the judges concerned, was a
supreme master of the common law, and unlikely on another
view of the facts to have expressed himself as he did. Similar
views on the facts are expressed in others of the Coronation cases
by some of the judges (see Civil Service Co-operative Society v.
General Steam Navigation Coy., 1903, 2 K.B. 756, at pp. 762 and
764), where the payments in question were said to be comparable
to payments of freight in advance. It is, in my judgment, un-
necessary and unfruitful to consider whether, on this ground, those
cases were or were not rightly decided on the facts and documents
in question, but if the payments under discussion were properly
to be regarded as final or out-and-out payments, then in my judg-
ment the conclusion properly followed that they were not recover-
able. It is not possible to say of such payments that the considera-
tion for their payment has wholly failed.
The converse case remains to be considered. It is, I think, a well
settled rule of English law that, subject always to special provisions
in a contract, payments on account of a purchase price are recover-
able if the consideration for which that price is being paid wholly
fails (see Ockenden v. Henly, E.B. & E. 485, at p. 492). Looking
at the terms of the contract in the case now under consideration,
I cannot doubt that the sum sued for was of this provisional nature.
It was a part of a lump sum price, and when it was paid it was
no more than a payment on account of the price. Its payment
had advantages for the Respondents in affording some security
that the Appellants would implement their contract and take up
the documents and pay the balance of the price, and it may be
that it had other advantages in providing finance for the manu-
facture of the machines. But if no machines or documents of title
were delivered to the Appellants, as was the actual case, then in
my opinion the consideration for the price, including the payment
on account,, wholly failed and the payment so made is recover-
able. It was contended by the Respondents’ counsel that unless
there is to be found some default on the part of the recipient of
such a payment as is now in question the consideration cannot be
said to have wholly failed merely because the frustration of the
contract produced a result which, had it been due to some default,
would have amounted to a failure of consideration. I find no
[27] 3
authority to support this contention, which seems appropriate to
an action for damages, but foreign to the action for money had
and received. In the case of Rugg v. Minett, n East 210, the
Court seems to have proceeded on a principle contrary to that
contended for when it allowed under this money count payments
on account for unappropriated goods destroyed by accidental fire
(see p. 219 of the Report). There is no suggestion in that Report
of any default on the part of the sellers.
For these reasons I am of opinion that the Appellants arc
entitled to suceed.
My Lords, I only desire to add that I am conscious that a
conclusion relegating parties in cases of frustration to their con-
tracts may not work out a completely just solution in the pecuniary
sense. It happens that in this case it will do so, for the Appel-
lants, who did not get the goods or the documents, will get their
money back, and the Respondents have had the machines, which,
so far as completed, were said by the Respondents themselves
to be realisable without loss. In other cases it might turn out other-
wise, and the application of the rules of the civil law or of Scots
law might work greater justice, but I do not understand that
even those rules would cover the whole ground so as to effect an
ideally just distribution of the burden of loss due to the frustra-
tion of contracts. But at least, or so it seems to me, the rule now
to be laid down by this House is not only more agreeable to the
law of England, but is more consistent with justice than the rule
upon which the Courts below felt impelled to base their decision.
At all events, parties to contracts will know that as the law stands
the contract between them is the matter of crucial or final import-
ance, and that if, as may very well be the case in time of war or
impending war, frustration of their contracts is to be apprehended,
they may make what contracts they think fit to provide in that
event for the adjustment of the position between them.
Lord
Chancellor
Lord
Atkin
Lord
Russell
of Killowen
Lord
Macmillan
Lord
Wright
Lord
Roche
Lord
Porter
[28]
FIBROSA SPOLKA AKCYJNA
v.
FAIRBAIRN LAWSON COMBE BARBOUR, LIMITED
Lord Porter
MY LORDS,
The task imposed on your Lordships is said to be a reconsidera-
tion of what has been described as the rule in Chandler v. Webster
(1904) 1 K.B. 493. That rule has been variously stated by saying
that in a case where a contract is frustrated (1) the loss lies where
it falls, and (2) one who has paid money in advance under a con-
tract which provides for the making of such payment cannot
recover that money if the contract is afterwards frustrated.
Whether either or both principles are to be found in Chandler v.
Webster (supra) need not be determined for the moment: the vital
question is are they in fact accurate statements of the law ? The
question has given rise to much controversy, and it has been con-
tended on the one hand that in case of total failure of consideration
the sum paid should be recoverable upon the ordinary principles
applicable in English Law, and on the other that the law is not
so wanting in ingenuity as to be unable to apply the principles
which are said to find favour in the Scottish Courts and are dis-
cussed in Cantiare San Rocco S.A. v. Clyde Shipbuilding Coy.
(1924) AC 226; a decision which is alleged to determine that on
some principle of restitution the payer can get back at least an
equitable proportion of the sum which he has paid, though exactly
what proportion and upon what principle does not, I think, appear.
It may perhaps be advisable to dispose of the second contention
at once. I can find no warranty for its application in English
Law. Under that system money had and received to the Plaintiff’s
use can undoubtedly be recovered in cases where the considera-
tion has wholly failed, but unless the contract is divisible into
separate parts it is the whole money, not part of it, which can be
recovered. If a divisible part of the contract has wholly failed
and part of the consideration can be attributed to that part, that
portion of the money so paid can be recovered, but unless this be
so there is no room for restitution under a claim in indebitatus
assumpsit. A partial failure of consideration gives rise to no claim
for recovery of £>art of what has been paid.
Indeed the contrary has not been contended. What has been
said is that the doctrine of frustration depends upon the implica-
tion of an implied term. Reasonable persons, it is said, would
not have had in mind the event which befell, but if they had they
would have unhesitatingly said, “In that event all further
” obligation of performance on either side is at an end.”
So far and no further it is acknowledged the law of
this country has gone. But, it is urged, a system of juris-
prudence which is astute enough to devise such a term is capable
of adding to it the proviso that in such a case some equitable pro-
portion of any sum paid in advance shall be recoverable when the
contract becomes impossible of performance. It might be desirable
that the law should make some such provision. Indeed the Law
Revision Committee has so recommended. But without an Act of
Parliament it is difficult to determine what sum shall be recoverable
and upon what principles. This difficulty is envisaged by Collins
M.R. in Chandler v. Webster (supra) at p. 500 and is apparent from
a perusal of the Report of the Committee. But however desirable
the result, I can see no way by which in accordance with English
authority or principle a right to recover some equitable sum can
be implied.
[29] 2
The only other suggestion made to your Lordships on behalf
of the Appellants, and indeed, as I think, the only argument open
to them, is that the money which they have paid is recoverable as
on a consideration which has wholly failed. With that aspect
proceed to deal, merely prefacing my remarks by observing that
whether, one adopts the principle that money so paid is recoverable
or irrecoverable one may be found to have treated one side or the
other with considerable harshness. A contractor stipulates for
payment in advance of the whole price of an article which he is to
supply and has done nothing when the contract is frustrated,
he keeps the whole, perhaps if he keeps any part of the money paid
in advance, the buyer is hardly treated. On the other hand he
may have done the whole of the work upon an article useless to
anyone except the purchaser, but not delivered it, and if the buyer
can recover his advance the whole loss will fall upon the seller,
and in that case the seller is as hardly treated as the buyer would
be in the other. Moreover, the closely analogous case of a supplier
who has obtained no advance but though he has done all the work
has not delivered the goods and therefore is not able to demand
payment, is left unredressed in England, as indeed it is in Scotland.
It is possible to say that the seller in such a case who has been
prudent enough to stipulate for a payment in advance should reap
the advantage of his foresight, but to do so is to speculate as to the
object for which the advance was obtained, not to ascertain what
his legal remedies are upon the facts as known. In these circum-
stances I see nothing for it but to neglect considerations of hard-
ship in individual cases and to consider only abstract principles of
law.
The doctrine that money payable in advance, under a con-
tract which is afterwards frustrated, is irrecoverable is not of old
standing. It began, I think, with the so-called coronation cases.
It is true that in Appleby v. Myers (1867) L.R. 2 C.P. 651 at p. 659
Blackburn J. says of the destruction of the premises, ” it is a mis-
” fortune equally affecting both parties; excusing both from further
” performance of the contract but giving a cause of action to
” neither.” But this was said in a case where no question of money
paid in advance arose and has reference only to the facts of that
case.
Of the other cases quoted to us which were decided about the
same period, Stubbs v. Holywell Pty. (1867) L.R. 2 Exch. 31,
Whincup v. Hughes (1871) L.R. 6 C’.P. 78 and Anglo-Egyptian
Navigation Coy. v. Rennie (1875) L.R. 10 C.P. 271 are, I think,
cases where the consideration was partly performed. In the last-
mentioned case, penman J. in delivering the judgment of the Court
was careful to point out that the contract was substantially a con-
tract for work and labour: and much work and labour had un-
doubtedly taken place before further performance of the contract
became impossible.
It is true, however, that advance freight by long custom cannot
be recovered though the goods shipped are never delivered. Byrne
v. Schiller (1871) L.R. 6 Ex. 319 and Allison v. Bristol Insurance
Company (1875) 1 App. Cas. 209 so declare. The decision was
reached with regret. In the former case Cockburn C.J.
says he thinks the rule founded on erroneous principle
and anything but satisfactory, and Montague Smith J.
regards it as the result of an implied term. In the latter
Lord Hatherley says, ” We must remember that from a very early
” period, as long ago, it was said during the argument, as the time
” of Charles II.—at all events for a very long time—it has been
” settled in our maritime law that prepaid freight cannot be
” recovered back “, and all their Lordships seem to have been in-
fluenced by the fact that it was the practice for the merchant to
insure prepaid freight and indeed of the shipowner to make an
allowance for that purpose. This may be the principle applied in
French Marine v. Compagnie Napolitaine (1921) 2 A.C. 494 by the
3 [30]
majority of the House, or it may be that the grounds of that decision
are to be found in the words of Lord Sumner at p. 517, ” Here there
” was no total failure of consideration but a partial failure only, for
” which in law no pro rata repayment could be claimed.” On either
view it is not decisive of the present case.
If I am right in supposing that cases of advance freight form
a class by themselves and that the other cases referred to are
examples of a partial failure of consideration, the doctrine that
money paid in advance in pursuance of the terms of a contract
which is afterwards frustrated cannot be recovered originates, if
it originates at all, with the coronation cases. They were conveni-
ently tabulated by Mr. Holmes in the course of his argument.
Clark v. Lindsay and Griffith v. Brymer (both reported in 19
T.L.R. at pp. 202 and 434 respectively) may be disregarded, since
in each case the contract was entered into under a mistake of
fact as to the state of the King’s health at the time when they
were made and therefore both were void ab initio. Blakeley v.
Muller (1903) 2 K.B. p. 760 (note) and Lumsden v. Barton, 19
T.L.R. 53 may, I think, be regarded as instances of contracts
partially performed, though the former seems to contain language
applicable to contracts wholly unperformed. Krell v. Henry (1903)
2 K.B. 740 merely decided that money not due when the frustra-
tion took place was not in law payable, but Civil Service Co-
operative Society v. General Steam Navigation Coy. (1903) 2 K.B.
756 and Chandler v. Webster (1904)1 K.B. 493 are authorities
for the general proposition that money paid in advance under
the terms of a frustrated contract cannot be recovered. In Blakeley
v. Muller (supra] at p. 761 Wills J. founded his decision on Appleby
v. Myers [supra] and said: ” The argument for the Plaintiffs must
” be that the contract was rescinded ab initio “, and Channel! J.
relied upon the analogy of advance freight and added: ” All that
” can be said is that when the procession was abandoned, the con-
” tract was off, not that anything done under the contract was void.
” The loss must remain where it was at the time of the abandon-
” ment.” I quote from his judgment because it was adopted by
Lord Halsbury, sitting in the Court of Appeal, in Civil Service Co-
operative Society v. General Steam Navigation Coy. (supra) and
is, I think, the foundation of the decision in Chandler v. Webster
(supra). In the latter case the leading judgment was delivered by
Collins M.R. who, in relying upon Taylor v. Caldwell (supra), says
” where “, owing to frustration, ” the contract can no further be
” performed by either party it remains a perfectly good contract up
” to that point and everything previously done in pursuance of it
“must be treated as rightly done, but the parties are both dis-
” charged from further performance of it. If the effect were that
” the contract were wiped out altogether no doubt the result would
1 be that money paid under it would have to be repaid as on a
” failure of consideration. But that is not the effect of the doctrine;
” it only releases the parties from further performance of the con-
‘ tract. Therefore the doctrine of failure of consideration does not
‘ apply “. To the same effect Romer LJ. says at p. 501: ” Except
‘ in cases where the contract can be treated as rescinded ab initio,
‘ any payment previously made and any legal right previously
‘accrued according to the terms of the agreement will not be
‘ disturbed “.
The doctrine as so stated appears to be confined to the termina-
tion of contracts by excusable impossibility and to enunciate a
feature peculiar to such cases. I know of no authority other than
the so-called coronation cases and those which have followed them
in which such a doctrine is promulgated, and except the statements
contained in those cases, weighty and formidable though they be, I
can find no principle to support it.
It is not, I think, accurate to say in general—nor did the
Respondents’ advocates seek to support such a statement—that
[31] 4
money had and received can only be recovered as upon a con-
sideration which failed in cases where the contract is void ab initio.
The true view is, I think, expressed by Brett LJ. (as he then was)
in Wilson v. Church (1879) 13 Ch.D. 1 at p. 49, a case in which he
refused to find fraud. His words are: ” The principle of law seems
” to me to be identical with what it would be if the money were paid
” to the borrowers for a consideration which is to be accomplished
” after the payment of the money, and by the most ordinary prin-
” ciple of law, where money is paid for a consideration which is
” to be performed after the payment, if that consideration wholly
” fails, the money becomes money in the hands of the borrowers
” held to the use and for the benefit of the lenders, and must be
” returned “. The decision in that case was affirmed in your Lord-
ships’ House under the title National Bolivian Navigation Coy. v.
Wilson (1880) 5 App. Cas. 176, and the language of Brett L.J. was
approved by Lord Haldane L.C. in Royal Bank of Canada v. Rex
(1913) AC 283 at p. 296. It may be urged that these were cases
of borrowed money and that there was fault though not fraud in
the borrower. I do not think that the decision turned upon so
narrow a ground, but in truth the principle may be illustrated
by the law Which is now codified in Sects. 6 and 7 of the Sale of
Goods Act and was formerly illustrated by Rugg v. Minett (1809)
ii East 210. The two sections deal with two cases of impossibility
arising in the cases of the sale of ascertained goods. The first
section treats of a case where the goods have perished before the
agreement for sale is made and is an example of a contract void
ao initio. Clark v. Lindsay and Griffith v. Brymer (supra) are
illustrations of the same doctrine translated from the sphere where
the tangible subject matter of the contract perished to that where
supervening impossibility prevented the achievement of the object
with which the contract was entered into. The second section, on
the other hand, treats of a contract validly made and continuing in
existence until the goods perish. It is not void ab initio, but further
performance is excused after the destruction has taken place.
Yet the price is returnable because the consideration for the whole
or the part undelivered has wholly failed, as the Section says
” without fault on either side “.
This is, I think, the rule generally applicable, but it is not
always so. There are cases where the payer pays not for the per-
formance of the receiver’s promise but for the promise itself—not
for the doing of something but for the chance that it may be done.
This, I think, was Mathew L.J.’s view in Chandler v. Webster,
when he says, at p. 502, ” I think the payment of the £100 by the
” Plaintiff was intended to be a final payment in pursuance of the
” contract, and I do not think such a payment can be recovered
” back “.
The Respondents relied upon this statement and maintained
that the present, like the Coronation cases, was an instance of a
final payment which could not be recovered.
They also contended that no recovery was possible except in
cases where the contractor who has received the money in advance
was in fault in some way.
I can find no authority for the second argument, and it is, I
think, contrary to the views expressed by the Court of Exchequer
in Knowles v. Bovill (1870), 22 L.T. 70. It is true that in the
majority of cases the consideration fails because one party or the
other fails to carry out his contract. But it is not the breach but
the failure of consideration which enables money paid in advance
to be recovered.
The question whether the payment of the £1,000 in advance
in the present case was a “final payment” or not depends on
no general principle of law but upon the wording of the contract
in this particular case.
5 [32]
To my mind, clearly it was not. The contract was for the
sale of machines c.i.f. Gdynia. It is true that there was an addi
tional provision for the services of a skilled monteur, but in my
view the contract would have been substantially fulfilled by ship-
ping the goods to Gdynia and furnishing the requisite documents
against payment of the balance of the price, though a failure to
provide a monteur might have given rise to a claim for damages.
The price was a lump sum price to be paid in two portions,
viz. one-third with the order, balance against shipping documents.
But the sum payable in advance was part of the lump sum price
payable for the completed articles. The goods remained the
property and at the risk of the sellers until the documents were
presented and taken up. The case seems to me to come exactly
within the principle of Sect. 7 of the Sale of Goods Act, and had
they been destroyed by enemy action I cannot doubt but that the
advance portion of the price would have been recoverable.
That the inability of the sellers to implement their contract
was due to supervening illegality and not to destruction of the
subject matter appears to me to make the Plaintiffs’ claim at least
no weaker. Whether it strengthens it has not been discussed and
is unnecessary to be determined.
Having regard to these considerations, in my view the dicta of
Collins M.R. in Chandler v. Webster (supra) cannot be supported,
and I think the decision itself is wrong, unless it can be said that in
that, as in some of the other cases, there was some partial perform-
ance which I have not been able to discover in the report of the
case. The error, as I see it, in the dicta which have been used is in
imagining that the statement ” the loss lies where it falls ” is con-
clusive of the matter. I think it is true to say that the loss lies
where it falls, but that expression only means that the rights of
the parties are to be determined at the moment when impossibility
of further performance supervenes. If at that moment the party
who has advanced money is by the ordinary rules of the Common
Law entitled to say that the consideration has now wholly failed, he
can, in my view, enforce the rights given by those rules and recover
the money.
The other arguments on behalf of the Appellants I need not
discuss. I agree with all your Lordships in thinking that they fail.
If I thought that the question had been concluded by any
decision in your Lordships’ House I would, of course, follow that
authority, but it plainly is open to review. In support of this
opinion I need only refer to the observations of Lord Birkenhead
in Cantiare San Rocco (supra], at p. 233.
I would allow the Appeal.
The Lord Chancellor :
Mr. Linton Thorp, before I put the Questions from the Wool-
sack, the House would like to know whether you have any
observations to make on the subject of interest on the £1,000. The
House notices that your Statement of Claim claimed the £1,000
with interest. The Question which is going to be put from the
Woolsack will decide that matter, so we thought it right to ask
whether you had anything to say about it.
Mr. Linton Thorp, K.C. (Counsel for the Appellants):
I am grateful to your Lordship. May I ask my clients, my
Lord ?
The Lord Chancellor:
Certainly.
(Counsel conferred with his clients.)
Mr. Linton Thorp:
My Lord, we do not ask for interest.
Source: https://www.bailii.org/
