Doctrine: Frustration of contract | Key principle: Commercial hardship is not frustration
On 9 July 1946, Davis Contractors Ltd entered into a formal agreement with Fareham Urban District Council to build 78 houses within eight months for £85,836. Due to significant shortages of skilled labour and building materials, the work was delayed and took twenty-two months to complete. The contractors incurred an actual cost of £115,233 14s. 0d., but were paid only the adjusted contract price of £94,424 17s. 9d.
The contractors claimed additional payment on a quantum meruit basis, arguing that the unexpected delays had frustrated the contract. They also argued that a preliminary letter dated 18 March 1946, which made their tender subject to adequate supplies of labour and materials, was an overriding condition of the contract.
Case Facts
| Point | Detail |
|---|---|
| Contract | Signed 9 July 1946: Davis Contractors to build 78 houses for Fareham UDC |
| Price / time | £85,836 / 8 months |
| What happened | Shortages of skilled labour and materials delayed the work to 22 months |
| Actual cost | £115,233 . 0d. |
| Amount paid | £94,424 . 9d. (adjusted contract price) |
Contractor’s Claim
- The contract was frustrated by the unexpected delays, so they should be paid on a quantum meruit basis.
- A preliminary letter of 18 March 1946, which made the tender subject to adequate labour and material supplies, was an overriding condition of the contract.
Issues
- Was the contract frustrated by the delay caused by labour and material shortages?
- Did the 18 March letter form part of the contract?
Judgment
The House of Lords unanimously dismissed the appeal. The contractors were bound by the original price and had no claim to extra payment.
- The March 18 letter: It was part of the preliminary negotiations and was never incorporated into the sealed agreement of 9 July.
- Frustration rejected: A shortage of labour and materials did not legally dissolve the contract.
- Onerous is not impossible: Disappointed expectations, or events that make a contract more burdensome, do not automatically amount to frustration.
- Same job, same obligation: The delays increased costs, but the building work remained exactly what was originally contemplated.
- Risk allocation: In a fixed-price contract, the contractor bears the risk that costs exceed expectations. Frustration cannot be used to rescue a party from an unprofitable bargain.
Observation of Lord Radcliffe
“It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for. If this is the law, the appellants’ case seems to be a long way from a case of frustration.”
Takeaway
This is a case of commercial hardship, not frustration. A contract is frustrated only when a supervening event makes performance radically different from what was agreed. Increased cost, delay or inconvenience alone is not enough.
Relevance: Indian law students can link this to Section 56 of the Indian Contract Act, 1872 and Satyabrata Ghose v Mugneeram Bangur & Co (AIR 1954 SC 44), which also holds that mere commercial hardship does not make a contract impossible to perform.
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