After Frustration: Three Cheers for Chandler v. Webster

Table of ContentsI. Introduction 1134II. The English Cases 1 137A. Taylor v. Caldwell 1 137B. The Coronation Cases 1 140C. Fibrosa and the Frustrated Contracts Act 1 143D. B.P. Exploration Co. (Libya) v. Hunt (No. 2) 1 148E. From Taylor v. Caldwell to Guns N' Roses 1156III. Coming to America 1159IV. Concluding Remarks 11681. IntroductionWhen Edward VII's appendicitis caused the postponement of his Coronation processions the postponement was only temporary, but its impact on contract doctrine was enduring. A number of disputes involving contracts for viewing the processions reached the House of Lords, which held that the purpose of those contracts had been frustrated and that any obligations due following the postponement were excused. What of obligations that arose before the frustrating event? Following Taylor ? Caldwell, ] the Law Lords let the losses lie where they fell. Absent any language to the contrary, no expenses incurred in reliance prior to the frustrating event would be shifted to the other party. The additional wrinkle added by the coronation cases, notably Chandler v. Webster,2 was that there would be no restitution for any payments made prior to the frustrating event. If something had been done (or was owing) prior to the frustrating event, it would not be undone by the occurrence of that event. That stood as law in England for forty years despite frequent criticism. The critics finally won when Chandler v. Webster was overturned by Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Ltd.3While the demise of Chandler v. Webster has met with widespread approval,4 I will argue that this was a mistake. It provided a nice, clean default rule - award neither restitution nor reliance. It is administratively simple and, I believe, it corresponds reasonably well with what sophisticated parties actually do. Or, at least, try to do, since courts will on occasion read the parties' resolution out of the contract and substitute some alternative remedy. In Fibrosa, the Lords recognized the restitution claim, but explicitly refused to recognize any reliance interests. The Lords encouraged Parliament to rectify this. It did so with the Law Reform (Frustrated Contracts) Act,5 which would recognize some claims in reliance. American courts have generally favored awarding restitution and on occasion have recognized reliance expenses as well.6The central problem arises from the fact that the performance of the contracting parties does not necessarily coincide. The seller incurs costs (reliance) and the buyer makes payments (restitution) over time. Payments might be front-loaded or back-loaded. The phasing of performance is not dictated by nature; the parties can determine the appropriate phasing of their performance. Consider a simple example to which we will return a number of times. Smith promises to paint Brown's factory for $100,000, a fire destroys the factory after Smith has incurred costs of $30,000 and received progress payments of $20,000. Should Brown get back any of his $20,000? Should Smith be compensated for any of the costs that he has incurred? Leave aside for the moment that their contract would normally deal with such a contingency. My default rule (Chandler) would be to leave things alone. No restitution for Brown and no reliance for Smith. The American and post-Fibrosa English default rule would return Brown's $20,000, and, maybe, require that Brown compensate Smith for at least some of his costs incurred in reliance. …