Another form of difficulty associated with the law of contract has to do with the doctrine of impossibility or frustration. What happens is you have an agreement which is entered into Time 1 which calls for a future performance and then before the performance becomes due but after the contract is formed, something happens which makes it impossible for performance to take place. The first case on this is a famous case called Taylor v. Caldwell, where there was a situation where there was a license to use a certain hall for the performance of some great gala and between the time of the formation of the contract and the time of the gala, the entire place burnt down. So performance was impossible. In the famous opinion Lord Blackburn said both sides are discharged under this agreement and his basic intuition in this particular case is since the fire was the fault of no one and each side is going to bear his loss, the question he had to ask is if you give yourself a remedy, is it going to improve the overall situation? And the answer is it’s not going to prevent the occurrence of the event because that was beyond the control of either party. And then in addition to that trying to figure out who pays what to whom is a hugely expensive situation. And the general rule in that case is since there is no abuse by either side, it’s usually cheaper to say that the entire contract is going to be called off rather than to try to figure out who was going to get what kind of remedy. So the position was unless the agreement provides otherwise, or when there is impossibility of performance because of the destruction of a thing in question, all future obligations are discharged. The doctrine of impossibility sometimes applies to cases where performance is possible but nonetheless pointless and the famous English case on this is Krell v. Henry where I agree to let you rooms on a certain day so that you could watch the coronation parade of King Edward. What happened was that the coronation parade was cancelled by virtue of the fact that the King was sick and now in effect if somebody has to pay the particular money in question, he is just going to get a room to look out over an ordinary street. It’s not worth the huge premium that you pay. Question is, is this particular transaction frustrated or is it not? Essentially what the judges decided is that since the object of the transaction could not possibly be performed, what they did is they discharged the obligation to make future payments but they did not allow the refund of the payment that was already made. Here, it’s extremely tricky because it turns out that if the parade was rescheduled for another day, what do you want to do under these circumstances? And the whole problem therefore is one of incomplete contracting. If the parties had made an agreement of what was to happen in the event of cancellation that would be respected. Trying to fill in the gaps is a somewhat artificial venture and the effort to save monies paid or kept monies not paid or not owed is a crude first approximation. It isn’t perfect. But nonetheless, the law on this particular point has shown some considerable degree of permanence.

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