Frustration of Contract: A Comparative Attempt at Consolidation
Author(s): Hans Smit
Source: Columbia Law Review , Mar., 1958, Vol. 58, No. 3 (Mar., 1958), pp. 287-315
Published by: Columbia Law Review Association, Inc.
Stable URL: https://www.jstor.org/stable/1119665
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COLUMBIA LAW REVIEW
Vol.
58
MARCH,
1958
No.
3
FRUSTRATION OF CONTRACT: A COMPARATIVE
ATTEMPT AT CONSOLIDATION
HANS SMIT*
The problem of frustration of contract concerns the effect of supervening
circumstances, unforeseen at the time of contracting, upon rights and
duties arising from a contractual arrangement.' Traditionally, it arises
when unforeseen occurrences, subsequent to the date of the contract, render
performance either legally or physically impossible, or excessively difficult,
impracticable or expensive, or destroy the known utility which the stipulated performance had to either party.2 Although it is realized that the two
are related,3 a distinction, followed here, is sometimes made between frustration caused by strict impossibility and frustration resulting from other
factors, the former being described as impossibility and the latter as frustration.4
* LL.B., University of Amsterdam, 1946; LL.M., 1949; A.M., Columbia University,
1953. Member of the Bar of the Supreme Court of the Netherlands. Member of the Class
of 1958, Columbia Law School, and of the Board of Editors of the Columbia Law Review.
1. In most of the legal systems to be reviewed statutory provisions exist which cover
some specific instances of frustration, typically frustration caused by war circumstances.
See also note 9 infra. No attempt has been made to establish the relevance of such provisions
to the more general problems discussed here and raised by frustration in areas not covered
by such statutes.
2. It has been stated that frustration of purpose, as to which see note 4 infra, can be
present only if the purpose of both parties or the common purpose is destroyed. Hirji
Mulji v. Cheong Yue S.S. Co., [1926] A.C. 497, 507; cf. 6 CORBIN, CONTRACTS ? 1353
(1951). However, in most, if not all, situations in which frustration of purpose has been
found present, clearly the purpose of only one of the parties to the contract was frustrated.
See, e.g., Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Ltd., [1943] A.C.
32 (1942); Krell v. Henry, [1903] 2 K.B. 740. Accordingly, the description of the circumstances in which frustration of purpose may be found, set forth here, seems more appropriate.
See also RESTATEMENT, CONTRACTS ? 288 (1932).
3. See, e.g., Autry v. Republic Productions, Inc., 30 Cal. 2d 144, 180 P.2d 888 (1947);
Lloyd v. Murphy, 25 Cal. 2d 48, 153 P.2d 47 (1944); cf. RESTATEMENT, CONTRACTS ?? 288,
454 (1932).
4. In the United States a distinction has also been made between frustration of per-
formance and frustration of purpose, the former describing cases in which performance has
become either impossible or excessively difficult or expensive, and the latter denoting cases
in which the known purpose for which either party entered into the contract has been
destroyed. For this distinction see, e.g., Earn Line S.S. Co. v. Sutherland S.S. Co., 254
Fed. 126 (S.D.N.Y. 1918), aff'd sub nom. The Claveresk, 264 Fed. 276 (2d Cir. 1920);
6 CORBIN, CONTRACTS ? 1344 (1950); Patterson, Constructive Conditions in Contracts, 42
COLUM. L. REV. 903, 943 (1942); cf. RESTATEMENT, CONTRACTS ?? 288, 454, 460, 461 (1932).
The distinction between strict impossibility and frustration is most prominent in the civil
law systems to be discussed. In those systems specific statutory provisions discharge the
promisor in the event of strict impossibility. BURGERLICHES GESETZBUCH ? 275 (1956);
BURGERLIJK WETBOEK arts. 1280, 1480 (Fruin 1947); CODE CIVIL arts. 1147, 1302 (53d
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288 COLUMBIA LAW REVIEW [Vol. 58
The more baffling problems have arisen from attempts to determine
the effect of unforeseen events which fail to result in strict impossibility.
A large number of theories has been advanced, in the United States as well
as abroad, but none has yet been generally accepted. Legal writings are
increasingly abundant, but legal thinking confused and the law uncertain.
The conflict with the express terms of the contract, assumed by virtually
all theories advanced, still seems the main source of difficulties. Pacta
sunt servanda (contracts must be observed) is so axiomatic a rule that any
doctrine, purporting or seeming to encroach upon it and to offer relief
from an express promise, meets with resistance, distrust, and often with
rejection. This attitude is reinforced by the fact that none of the theories
proposing to permit deviation from express terms of the contract seems to
offer a sharply defined and predictable standard by which the permissibility
of such deviation can be judged.
It is the purpose of this brief review to show that all problems of frustra-
tion can and should adequately be solved by application of well established
rules governing interpretation and performance of contracts, and that resort
to revolutionary theories authorizing deviation from express contractual
provisions is unwarranted.
Various reasons have prompted a comparative approach.5 First, the
basic rules pertaining to the problem appear to be identical and comparison
of solutions should, therefore, afford deeper insight. Second, in the several
legal systems to be considered, the learning, although in different stages
of evolution, has in fact developed along similar lines and, especially where
it has gone beyond doctrines advocated in the United States, establishes a
pattern pointing directly to the analysis here to be proposed. Finally,
establishment of the identity of the rules governing frustration under systems
to a large extent representative of common law and civil law jurisdictions
may, by supporting claims of a universally recognized principle,6 contribute
towards the correct analysis of a problem which remains of prime importance
in the international field as well.7
ed., Dalloz 1954); CODE DES OBLIGATIONS ? 119 (8th ed., Rossel 1957) (Switzerland).
The results of frustration are, however, generally not provided for. To make comparison
meaningful, only the results of frustration will be discussed here.
5. For another comparative attempt in this area, see Drachsler, Frustration of Contract:
Comparative Law Aspects of Remedies in Cases of Supervening Illegality, 3 N.Y.L. FORUM
50 (1957).
6. General principles of law recognized by civilized nations are explicitly recognized
as a source of international law by STAT. INT'L CT. JUST. art. 38, 1 1 (c). See SORENSEN, LES
SOURCES DU DROIT INTERNATIONAL 40, 122-23 (1946). Such principles have also been
recognized as a source of international law by tribunals possessing no explicit authority
to do so. Id. at 15; see, generally, LAUTERPACHT, PRIVATE LAW SOURCES AND ANALOGIES
OF INTERNATIONAL LAW 67-71 (1927).
7. On the frustration problem in international law, see, e.g., CRANDALL, TREATIES
?? 180-81 (2d ed. 1916); 5 HACKWORTH, DIGEST OF INTERNATIONAL LAW 356 (1943);
2 HYDE, INTERNATIONAL LAW ?? 541-45 (2d ed. 1945); OPPENHEIM, INTERNATIONAL LAW
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1958] FRUSTRATION OF CONTRACT 289
I. Swiss LAW
Swiss authorities show an intense interest in the problem of frustration.
Prolific study has produced many theories attempting explanation.8 Since
no general statutory provision specifically directs itself at the problem,9
the theories evolved have endeavored to seek shelter under either the
presumed intention of the parties or statutory provisions establishing an
allegedly applicable principle.10 A short review of the more important of
these theories is pertinent.'1
A. The Doctrine of the Clausula Rebus Sic Stantibus
According to this doctrine every contract must be presumed to be
subject to the condition that it will be binding only if no change occurs in
the circumstances prevailing at the time of contracting."2 It has been
generally rejected'3 on the ground that the presumption of such a tacit
condition is by no means always warranted and, in fact, is in most cases a
pure fiction, not based on any rule of law.
B. The Doctrine of the "Geschdftsgrundlage" (Foundation of the Contract)
This theory, first developed by Oertmann, a prominent German scholar,
is based on the premise that every contract is conditioned upon the continued
existence of those facts which, in the contemplation of the parties, are
necessary for its performance.'4 As soon as the foundation, constituted
? 539 (8th ed., Lauterpacht 1955); VERDROSS, VOLKERRECHT 142 (2d ed. 1950); Burckhardt,
La Clausula Rebus Sic Stantibus en Droit International, 14 REVUE DE DROIT INTERNATIONAL
ET DE LAGISLATION COMPARAE (3d ser.) 1 (France 1933).
8. For a short summary, see Deschenaux, La Revision des Contrats en Droit Suisse,
30 J. COMP. LEG. & INT'L L. (3d ser.) 55 (1948).
9. Swiss law has regulated the effect of certain specific types of changed circumstances.
The pertinent statutory provisions are collected in the 1942 reports to the Swiss Lawyers'
Association. See Deschenaux, La Revision des Contrats par le Juge, 61 ZEITSCHRIFT FiUR
SCHWEIZERISCHES RECHT (Neue Folge) 509a, 524a-27a (Switzerland 1942); Merz, Die
Revision der Vertrdge durch den Richter, 61 ZEITSCHRIFT FUR SCHWEIZERISCHES RECHT
(Neue Folge) 393a, 426a-34a (Switzerland 1942).
10. See Deschenaux, supra note 9, at 529a.
11. The scope of this article does not permit exhaustive review of all theories advanced.
However, an attempt has been made to draw into discussion all those doctrines which have
had some more important impact on the developments in this area.
12. This doctrine is mentioned principally because it is one of the oldest frustration
theories advanced in virtually all legal systems here discussed and, apparently, still retains
considerable strength in international law. See note 7 supra; Deschenaux, supra note 9,
at 529a-31a; Siegwart, Der Einfluss verdnderter Verhdltnisse auf laufende Vertrdge nach der
Praxis der Schweizerischen Gerichte seit dem Kriege, in HOMMAGE DE LA FACULTA DE DROIT
ET DE L'UNIVERSITA DE FRIBOURG A LA SOCIAT, SUISSE DES JURISTES 77, 133 (1924).
13. See, e.g., Rogenmoser v. Tiefengrund A.-G., Bundesgericht (I. Zivilabteilung),
Oct. 10, 1933, 59 (II.) Entscheidungen des Schweizerischen Bundesgerichtes [hereinafter
S.B.G.] 372; Segessemann & Cie v. Dreyfus Freres & Cie, Bundesgericht (Ire Section
civile), May 4, 1922, 48 (II.) S.B.G. 242; Michael Weniger-Weiher-Legat v. Wirth, Bundesgericht (II. Zivilabteilung), Sept. 10, 1919, 45 (II.) S.B.G. 386. See also Deschenaux,
supra note 9, at 531a; Siegwart, supra note 12, at 133.
14. Oertmann, Geschdftsgrundlage, in 2 HANDWbRTERBUCH DER RECHTSWISSENSCHAFT
80;3 (1927).
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290 COLUMBIA LAW REVIEW [Vol. 58
by such facts, is disturbed, the express provisions of the contract are no
longer effective. Although always in conjunction with one of the other
theories to be discussed, this doctrine has been repeatedly relied on by the
Bundesgericht.15 The main objections advanced against it have been that
it fails to explain why, in the absence of any supporting rule of law or
pertinent agreement, such contemplated facts may be held to constitute a
requirement for the continued existence of the contract, and further, that
it cannot explain why, as is generally conceded, not every minor disturbance
of that foundation results in the ineffectiveness of express contractual
provisions. 16
C. The Doctrine of the "Grundlagenirrtum" (AMistake)
According to sections 23 through 27 of the Code of Obligations, the
promisor who, at the time the promise was made, erred with respect to the
existence of those qualities of the subject matter of the contract or the existence of those circumstances which constituted the essential reason for his
entering into the contract is relieved from his obligations if the promisee
knew or reasonably should have known of his reliance on the existence of
such qualities or circumstances. The Bundesgericht has also resorted to
these sections in an attempt to derive therefrom a general principle, supporting the theory of the foundation of the contract.'7 Its endeavors in that
direction have, however, met with severe criticism.18 It is settled Swiss law
that these provisions do not apply to a mistake as to expected future qualities
or circumstances within the known anticipation of the promisor.19 Con-
sequently, extending the scope of the doctrine of mistake to uncontemplated
contingencies seems a fortiori unwarranted.20 The Bundesgericht has indicated its susceptibility to this criticism by expressly rejecting this approach.21 However, in a more recent decision it was again specifically
resorted to.22
D. The Doctrine of Practical Impossibility
This doctrine, another of the objective theories, is premised on the
assumption that impossibility from a physical point of view, which according
15. See, e.g., Rogenmoser v. Tiefengrund A.-G., Bundesgericht (I. Zivilabteilung),
Oct. 10, 1933, 59 (II.) S.B.G. 372. The Bundesgericht is the highest Swiss Federal tribunal.
16. See, generally, KEGEL, Rupp, & ZWEIGERT, DIE EINWIRKUNG DES KRIEGES AUF
VERTRAGE IN DER RECHTSPRECHUNG DEUTSCHLANDS, FRANKREICHS, ENGLANDS UND DER
VEREINIGTEN STAATEN VON AMERIKA 99-113 (1941).
17. See, e.g., Rogenmoser v. Tiefengrund A.-G., Bundesgericht (I. Zivilabteilung),
Oct. 10, 1933, 59(II.) S.B.G. 372, 377.
18. Deschenaux, supra note 9, at 535a-36a; Merz, supra note 9, at 419a-22a.
19. REICHEL, VERTRAGSRiUCKTRITT WEGEN VERANDERTER UMSTANDE 18 (1933).
20. Ibid.
21. Hilni & Cie v. Baugenossenschaft Stampfenbach, Bundesgericht (I. Zivilabteilung),
July 14, 1921, 47(II.) S.B.G. 314.
22. Rogenmoser v. Tiefengrund A.-G., Bundesgericht (I. Zivilabteilung), Oct. 10,
1933, 59(II.) S.B.G. 372, 377.
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19581 FRUSTRATION OF CONTRACT 291
to section 119 of the Code of Obligations discharges the promisor, should be
assimilated with impossibility from an economic point of view. The latter
impossibility is considered present when the promisor, in order to perform
his obligations, would have to incur exorbitant expense.23 In support of this
theory the argument is made that compliance with the terms of the contract
would, from an economic point of view, lead to a performance completely
different from that contemplated at the time of contracting,24 and that,
therefore, performance of the contemplated obligation is impossible.25 The
critics of this theory, which also has been resorted to by the Bundesgericht,26
have pointed out that section 119 of the Code of Obligations does not
warrant the broad interpretation on which the doctrine rests,27 and that,
furthermore, it is of minimum practical value, since, in making exorbitant
expense the criterion, it merely shifts the problem. In the determination of
what expense may be considered exorbitant, recourse must necessarily be
taken to other standards.28
E. The Doctrine of Financial Ruin
This theory is ordinarily invoked in combination with, and in support
of, the doctrine of economic impossibility.29 Under that doctrine, performarice is considered economically impossible and the contract discharged, if
performance by the promisor would ruin him financially.30 There seems
to be no statutory basis for this arbitrary test and the Bundesgericht, after
initially having applied it on a number of occasions, has rejected it in its
more recent decisions.3'
23. On the doctrine generally, see 1 OSER-SCHONENBERGER, DAS OBLIGATIONENRECHT
? 119 (2d ed. 1929); 2 VON TUHR, ALLGEMEINER TEIL DES SCHWEIZERISCHEN OBLIGATIONENRECHTS 613 (2d ed., Siegwart 1942); Hedemann, Richterliche Umgestaltung laufender Vertrage,
17 SCHWEIZERISCHE JURISTEN-ZEITUNG 305-07 (Switzerland 1921); Siegwart, supra note
12, at 153.
24. See, e.g., Bourne & Co. v. Weberei T6sstal A.-G., Bundesgericht (I. Zivilabteilung),
Sept. 15, 1921, 47(11.) S.B.G. 391.
25. See authorities cited note 23 supra.
26. See, e.g., Segessemann & Cie v. Dreyfus Freres & Cie, Bundesgericht (lre Section
civile), May 4, 1922, 48(11.) S.B.G. 242; Bourne & Co. v. Weberei T6sstal A.-G., Bundesgericht (I. Zivilabteilung), Sept. 15, 1921, 47(11.) S.B.G. 391.
27. See, e.g., Deschenaux, supra note 9, at 536a-39a, and authorities cited there.
28. This was, apparently, also realized by the Bundesgericht, which simultaneously
resorted to other theories. See, e.g., Segessemann & Cie v. Dreyfus Freres & Cie, Bundesgericht (lre section civile), May 4, 1922, 48(11.) S.B.G. 242 (theories of the Unzumutbarkeit
and economic impossibility); Bourne & Co. v. Weberei T6sstal A.-G., Bundesgericht
(I. Zivilabteilung), Sept. 15, 1921, 47(11.) S.B.G. 391 (theory of the Unzumutbarkeit);
Mlichael Weniger-Weiher-Legat v. Wirth, Bundesgericht (II. Zivilabteilung), Sept. 10,
1919, 45(11.) S.B.G. 386 (theory of financial ruin).
29. See, e.g., Vereinigte Luzerner Brauereien A.G. v. Windlin, Bundesgericht (I.
Zivilabteilung), July 1, 1924, 50(11.) S.B.G. 256; Michael Weniger-Weiher-Legat v. Wirth,
supra note 28.
30. See authorities cited note 7 supra; cf. Fick, Die 'Clausula" und die "Aufwertung"
nach Schweizerischem Recht, 44 ZEITSCHRIFT FiUR SCHWEIZERISCHES RECHT (Neue Folge)
153-74 (Switzerland 1925). See also Deschenaux, supra note 9, at 589a-91a.
31. See, e.g., Rogenmoser v. Tiefengrund A.-G., Bundesgericht (I. Zivilabteilung),
Cct. 10, 1933, 59(II.) S.B.G. 372.
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292 COLUMBIA LAW REVIEW [Vol. 58
F. The Doctrine of "A usbeutung" (Exploitation)
Section 21 of the Code of Obligations provides that, if there exists
a manifest disproportion between rights and duties of parties to a contract,
the promisor may, if the promisee has induced him into entering into the
contract by exploiting his predicament, inexperience, or straitened cir-
cumstances, avoid it within one year after the date of contracting. Conced-
ing that this provision is not directly applicable when the disproportion
between rights and duties is caused by events subsequent to the date of
the contract, the Bundesgericht, relying on what it considered the underlying principle, has invoked this theory in holding that, when subsequent
events have created a manifest disproportion between rights and duties
arising from the contract, the provisions of the contract are no longer
effective. In these circumstances the promisee's insisting on performance
pursuant to the terms of the contract would constitute usurious exploita-
tion.32 Criticism of this theory has been founded mainly on the inapplicability of section 21 in the frustration situation.33
G. The Doctrine of Unjust Enrichment
This theory relies on sections 62-67 of the Code of Obligations, which
deny legal protection to unjust enrichment. The promisee who tries to
benefit by the change in circumstances would, under this theory, endeavor
to effect an unjust enrichment which is to be denied legal sanction.34 The
doctrine has been met with what would seem the correct objection that
unjust enrichment is present only if a benefit is obtained to which the acquirer had no legal right, while in the frustration situation it is assumed that
the contract explicitly gives the party benefited a legal right to perform-
ance.35 Furthermore, the doctrine does not consider any minor benefit
to be unjust enrichment and must, therefore, call in aid other standards
for the purpose of determining what benefit can be qualified as unjust.36
H. The Doctrine of the " Unzumutbarkeit" (Nonimputability)
This doctrine furnishes the standard which the Bundesgericht has
almost invariably used in conjunction with any of the other theories it has
32. Rogenmoser v. Teifengrund A.-G., supra note 31. In support of this doctrine, see
REICHEL, op. cit. supra note 19, at 18.
33. Deschenaux, supra note 9, at 539a; Merz, supra note 9, at 453a; Simonius, La
Revision des Contrats par le Juge, in TRAVAUX DE LA SEMAINE INTERNATIONALE DE DROIT
173, 180 (Paris 1937).
34. In support of this theory, see Muller, Die Einwirkung der Wahrung auf die Privat-
rechtlichen Verhdltnisse, 43 ZEITSCHRIFT FiUR SCHWEIZERISCHES RECHT (Neue Folge)
95a-131a (Switzerland 1924).
35. Deschenaux, supra note 9, at 541a-42a.
36. Its proponents resort for this purpose to the bona fides principle. Fick, supra
note 30, at 195; Muller, supra note 34, at 134a; cf. Deschenaux, supra note 9, at 542a.
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1958] FRUSTRATION OF CONTRACT 293
endorsed: the contract is discharged if the promisee would act unreasonably
and in violation of accepted standards of fair dealing in requiring the
promisor to perform in accordance with the words of the contract.37 It
seeks its statutory basis in section 2 of the Swiss Civil Code which provides
that good faith must be observed in the exercise of rights and the performance
of duties. Apart from the fact that this doctrine apparently assumes that
good faith, or objective standards of fair dealing, can authorize deviation
from explicit contractual provisions,38 the principal criticism to which it
is susceptible is that it furnishes only a very nebulous criterion for determin-
ing when such deviation is proper.39 This is, undoubtedly, one of the reasons
which has prompted the Bundesgericht never to rely on it exclusively.40
I. The Doctrine of "Abbus de Droit" (Abuse of Right)
Section 2 of the Civil Code provides that misuse of rights enjoys no
protection. This section has also been called upon to provide legal justifica-
tion for deviation from the express terms of the contract when frustration
occurs. A promisee who would require the promisor to perform although
the changed situation has rendered performance excessively difficult or
expensive would be guilty of abuse of right and, therefore, not be protected.4
The main difficulty with this doctrine is that, while, under settled Swiss law,
misuse of right is present only when the promisee requires performance
in which he has no interest and from which he can derive no benefit,42
the promisee in the frustration situation would ordinarily be highly benefited
by performance.
J. The Doctrine of the "Lfckenausfullende Auslegung" (the Gap Filling
Doctrine)
Proper understanding of this theory, which has recently gained con-
siderable ascendance,43 requires some elaboration on the law of construction
of contracts and related principles.
37. See, e.g., Rogenmoser v. Teifengrund A.-G., Bundesgericht (I. Zivilabteilung),
Oct. 10, 1933, 59(11.) S.B.G. 372; Bourne & Co. v. Weberei T6sstal A.-G., Bundesgericht
(I. Zivilabteilung), Sept. 15, 1921, 47(11.) S.B.G. 391.
38. This aspect of the doctrine has failed to receive much attention. It would seem,
however, that the logic and reasonableness of this rule, established in German, Netherlands,
and French law, also support the assumption of its correctness under Swiss law.
39. Cf. 1 VON TUHR, ALLGEMEINER TEIL DES SCHWEIZERISCHEN OBLIGATIONENRECHTS
274 (2d ed., Siegwart 1942).
40. The Bundesgericht has, in almost all its decisions, applied the bona fides principle
in conjunction with other theories. See, e.g., Rogenmoser v. Tiefengrund A.-G., Bundesgericht (I. Zivilabteilung), Oct. 10, 1933, 59(II.) S.B.G. 372 (theories of Ausbeutung and
Geschaiftsgrundlage); Segessemann & Cie v. Dreyfus Freres & Cie, Bundesgericht (lre
section civile), May 4, 1922, 48(11.) S.B.G. 242 (theory of financial ruin). See also cases
cited note 28 supra.
41. Simonius, supra note 33, at 177.
42. See, e.g., TUOR, DAS SCHWEIZERISCHE ZIVILGESETZBUcH 44-48 (6th ed. 1953).
43. See Fick, supra note 30, at 168-72, and cases cited notes 60-62 infra.
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294 COLUMBIA LAW REVIEW [Vol. 58
The law of construction of contracts.44 The Swiss Code of Obligations
specifically provides that actual mutual intent determines the form as well
as the content of a contract,45 and further, that a manifestation of mutual
assent, either explicit or implicit, is essential to the formation of a contract.46
Nevertheless, actual intent is not always decisive.47 The promisor is re-
sponsible for his utterances and mode of expression.48 It is well settled that
the promisee may interpret the promisor's manifestation of intent in the
manner in which a normal, reasonable person in the same circumstances
would construe it.49 The promisor must assume that, in the absence of
circumstances warranting a different assumption, his expressions shall be
understood as having been made by a normal, reasonable person. Accord-
ingly, reliance on an actual intention not adequately expressed affords no
possibility of escape from duties reasonably assumed to derive from an
intent which was manifested.50 Actual intent at variance with a reasonable
interpretation of the promisor's declarations may be relevant only if known
by the promisee.5" In determining what meaning a normal, reasonable
person would have attached to the promisor's declarations all circumstances
existing at the time the contract was made should be taken into account.
Only one restriction applies: no consideration may be given to circumstances
of which either party neither was aware nor reasonably should have been
aware.52 The usual or plain meaning of the words used is one of the aids
of interpretation, but is by no means decisive.53 Swiss authorities show an
acute awareness of the proposition that words are only symbols used to
express thoughts and intentions, and derive their meaning from the context
in which they are used.54 Liberal interpretation has denigratingly been
described as ensuing from primitive concepts.55 If it is, or should be, clear
to a reasonable promisee that, in the context of the surrounding circumstances, the literal meaning of the words used does not express the actual
44. See, generally, PIOTET, LA FORMATION DU CONTRAT 1-61 (1956).
45. CODE DES OBLIGATIONS ? 18 (8th ed., Rossel 1957).
46. Id. ? 1.
47. Id. ? 18.
48. See, e.g., 5 EGGER, ESCHER, HAAB, & OSER, KOMMENTAR ZUM SCHWEIZERISCHEN
ZIVILGESETZBUCH 36-38, 122-25 (2d ed. 1929).
49. Witwe Vogel v. Kinder Vogel, Bundesgericht (II. Zivilabteilung), Sept. 29, 1915,
41(II.) S.B.G. 553; EGGER, ESCHER, HAAB, & OSER, op. cit. supra note 48, at 36-38; Merz,
supra note 9, at 405a; Oftinger, Einige grundsdtzliche Betrachtungen iuber die Auslegung und
Ergdnzung der Verkehrsgeschdfte, 58 ZEITSCHRIFT FiUR SCHWEIZERISCHES RECHT (Neue
Folge) 178, 187-89 (Switzerland 1939).
50. See authorities cited note 49 supra.
51. Oftinger, supra note 49, at 189.
52. Id. at 194-96, and authorities cited.
53. CODE DES OBLIGATIONS ? 18 (8th ed., Rossel 1957).
54. EGGER, ESCHER, HAAB, & OSER, op. cit. supra note 48, at 123; Oftinger, supra
note 49, at 183.
55. Ibid.
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1958] FRUSTRATION OF CONTRACT 295
intent of the promisor, the plain meaning becomes irrelevant in the proper
construction of the promisor's obligations.56
The role of good faith. Contracts must be performed in good faith."7
This requirement is generally interpreted to impose upon parties to a contract
the duty to act in accordance with objective standards of reasonableness
rather than the duty to act in subjective good faith.58 In the determination
of what is reasonable all circumstances prevailing in the situation under
consideration should be taken into account.59 The principle of bona fides
shows its pervasive importance to Swiss contract law particularly when
circumstances occur not covered by pertinent contractual provisions. Application of the principle then results in supplementation of the contract with
provisions originating from notions of reasonableness. In this context, Swiss
authorities have adopted a standard which is assumed to take into account
all relevant circumstances and to lead to an equitable determination in each
individual case. The answer to the question of what the parties, if they had
made pertinent provisions, would, at the time of contracting, have agreed
upon provides the reasonable provisions with which the contract is to be
supplemented .60
The proper analysis: synthesis. The importance of these rules to the
problem of frustration seems clear. Inasmuch as, in the typical case of
frustration, the supervening events were neither foreseen nor reasonably
foreseeable, the terms of the contract cannot be interpreted to continue
their applicability in the changed situation, even though, upon their face,
they might seem to do so.61 Since, therefore, the contract shows a gap,
the rights and duties of the parties must be determined in accordance with
objective standards of reasonableness and fair dealing.62 It would seem
that this approach has a valid claim to exclusive recognition. All other
doctrines here discussed appear to labor under the unwarranted assumption
that the contractual provisions, unless obviated under the purportedly
applicable theory, remain applicable after the unforeseen events have
occurred. The Bundesgericht has consistently moved towards acceptance
of the gap filling analysis and recognized its applicability.63 However, the
56. Ibid.
57. CODE CIVIL ? 2 (8th ed., Rossel 1957).
58. TUOR, op. cit. supra note 42, at 41-43.
59. Oftinger, supra note 49, at 194, 197.
60. Elektrizitatswerke des Kantons Zurich v. Renold, Bundesgericht (I. Zivilabteilung),
Sept. 19, 1922, 48(11.) S.B.G. 366; Huini & Cie v. Baugenossenschaft Stampfenbach,
Bundesgericht (I. Zivilabteilung), July 14, 1921, 47(11.) S.B.G. 314; Brasserie de St-Jean v.
Dame Hinderberger, Bundesgericht (lre Section civile), July 3, 1919, 45(11.) S.B.G. 351;
TUOR, op. cit. supra note 42, at 42-43; Oftinger, supra note 49, at 197-206.
61. Accord, Rogenmoser v. Tiefengrund A.-G., Bundesgericht (I. Zivilabteilung),
Oct. 10, 1933, 59(11.) S.B.G. 372; Hulni & Cie v. Baugenossenschaft Stampfenbach, supra
note 60.
62. Rogenmoser v. Tiefengrund A.-G., supra note 61.
63. See cases cited notes 60-62 supra.
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296 COLUMBIA LAW REVIEW [Vol. 58
Bundesgericht, while applying that doctrine, nevertheless continues resort-
ing to some of the other theories discussed.64 In one of the leading recent
cases it does not only purport to fill gaps, but bases its decision also on the
theories of mistake and exploitation.65 An explanation for this phenomenon
may be that these other theories may have suggested to the Bundesgericht
a more certain standard than that provided by good faith alone by which
to judge how drastic the change must be.
The process of implementation has resulted not only in findings that
the party invoking frustration is under no further obligation, but also and
importantly in findings of obligations at variance with the words of the
contract. The Bundesgericht has not failed to recognize that proper applica-
tion of the doctrine cannot always result in a finding of no further obligation,
but that reasonableness may require more refined adjustment.66
In implementing the contract in accordance with the gap filling doctrine,
the Bundesgericht has asked itself what the parties, taking into account all
circumstances under which the contract was concluded, would have agreed
upon at the time of contracting, if at that time they had foreseen the change
in circumstances.67 The suggestion may be made that the use of a slightly
different formula is more in line with established Swiss law. Inasmuch as
bona fides requires supplementation of the contract with those provisions
upon which the parties would presumably have agreed at the time of con-
tracting, the contract should, in a frustration case, not be supplemented with
the provisions they would have agreed upon if they had foreseen the changed
events, but with the provisions upon which they would presumably have
agreed if they had taken into account the risk or the possibility that the
changed circumstances might occur.68
II. GERMAN LAW
A. Some of the Theories Advanced
After the more elaborate discussion of the several doctrines propagated
under Swiss law, briefer reference to analogous theories advocated under
German law seems appropriate.69 The German Reichsgericht,70 like the
64. See cases cited note 40 supra.
65. Rogenmoser v. Tiefengrund A.-G., Bundesgericht (I. Zivilabteilung), Oct. 10,
1933, 59(11.) S.B.G. 372.
66. See, e.g., Rogenmoser v. Tiefengrund A.-G., supra note 65; Bourne & Co. v. Weberei
T6sstal A.-G., Bundesgericht (I. Zivilabteilung), Sept. 15, 1921, 47(11.) S.B.G. 391; Deschenaux, La Revision des Contrats en Droit Suisse, 30 J. COMP. LEG. & INT'L L. (3d ser.)
55, 65-66 (1948).
67. See cases cited note 60 supra.
68. This is the formula which is applied by the German Reichsgericht and which has
also found acceptance in England. See notes 90, 158 infra.
69. For a summary, see Cohn, Frustration of Contract in German Law, 28 J. COMP.
LEG. & INT'L L. (3d ser.) 15 (1946). See also note 11 supra.
70. The Reichsgericht is the pre-war name of the highest German judicial tribunal.
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1958] FRUSTRATION OF CONTRACT 297
Swiss Bundesgericht, has shown a predilection for assorted doctrines.
After having initially relied on the theory of economic impossibility7l and
also on that of financial ruin,72 it later resorted to the doctrine of the Geschaftsgrundlage,73 adopting almost literally the definition conceived by
that doctrine's originator, Oertmann.74 However, in virtually all cases it
has also invoked the provisions of sections 157 and 242 of the German
Civil Code which provide that contracts must be interpreted and performed
in good faith.75 The theory of the Unzumutbarkeit78 does, in fact, feature in
most of the Reichsgericht's decisions.77
B. The Gap Filling Doctrine
Even more prominent, and certainly now prevailing, however, is the
gap filling theory. Since this theory correlates closely with the German law
on construction of contracts, a brief discussion of that law seems apposite.
The law of construction of contracts. The basic rules in this area corre-
spond with those of Swiss law.78 Unless inadequately expressed, actual
mutual intent is determinative of the contents of the contract. A manifestation of intent warrants that interpretation which a normal and reasonable
person in the given circumstances would attach to it.79 Reliance by the
71. See, e.g., S. B. v. Bremer Rolandmuhle, Reichsgericht (II. Zivilsenat), Feb. 23,
1904, 57 Entscheidungen des Reichsgerichts in Zivilsachen [hereinafter R.G.Z.] 116, 119.
72. See, e.g., S. F. v. St., Reichsgericht (III. Zivilsenat), Oct. 22, 1920, 100 R.G.Z.
134, 136-37.
73. See text at notes 14-16 supra. In connection with the doctrine of the Gescheftsgrundlage mention should also be made of the doctrines of the Voraussetzung and the
Aequivalenz, both of which appear to have been absorbed by the doctrine of the Geschaftsgrundlage. The doctrine of the Voraussetzung implies in frustration cases an unentwickelte
Bedingung (literally, undeveloped condition) and shows great similarity to that of the implied
condition, on which see text at notes 127-29, 161-65 infra. On this doctrine generally, see
WINDSCHEID, DIE LEHRE DES ROMISCHEN RECHTS VON DER VORAUSSETZUNG (1850);
Deschenaux, supra note 9, at 531a. According to the doctrine of the Aequivalenz which,
on occasion, has also been endorsed by the second senate of the Reichsgericht, legally relevant
frustration occurs when performance by the promisor would no longer be the equivalent,
as contemplated by the parties at the time of contracting, of the performance of the promisee's promise. Marseiwerke G.m.b.H. v. H., Reichsgericht (II. Zivilsenat), Nov. 29, 1921,
103 R.G.Z. 177, 179; 2 STAUDINGER, KOMMENTAR zuM BiURGERLICHEN GESETZBUCH
46-48 (9th ed. 1930). See also LARENZ, GESCHAFTSGRUNDLAGE UND VERTRAGSERFULLUNG
(1951).
74. Z. AG. v. O., Reichsgericht (V. Zivilsenat), July 3, 1939, 94 J. A. Seufferts Archiv
fur Entscheidungen der obersten Gerichte in den deutschen Staaten [hereinafter Seufferts
Archiv] 9 (1940); S. W. v. K., Reichsgericht (II. Zivilsenat), Feb. 3, 1922, 103 R.G.Z.
329.
75. See, e.g., St. v. R., Reichsgericht (V. Zivilsenat), Nov. 28, 1923, 107 R.G.Z. 78,
87-88; S. W. v. K., supra note 74.
76. See text at notes 37-40 supra
77. See, e.g., Marseiwerke G.m.b.H. v. H., Reichsgericht (II. Zivilsenat), Nov. 29,
1921, 103 R.G.Z. 177, and cases cited note 75 supra.
78. See, e.g., S. J. H. v. R., Reichsgericht (I. Zivilsenat), March 8, 1919, 95 R.G.Z.
122, 124; see, generally, 1 DENECKE & OEGG, DAS BIURGERLICHE GESETZBUCH ?? 116-57
(10th ed. 1955); LEHMANN, ALLGEMEINER TEIL DES BUORGERLICHEN GESETZBUCHES ? 24
(7th ed. 1952); SOERGEL, BURGERLICHES GESETZBUCH ?? 116-57 (8th ed. 1952); 1 STAUDINGER, KOMMENTAR ZUM BURGERLICHEN GESETZBUCH ?? 116-57 (llth ed., Brandl &
CGoing 1957).
79. P. v. Verkaufsstelle des Reichs-Landbundes, Reichsgericht (I. Zivilsenat), March
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298 COLUMBIA LAW REVIEW [Vol. 58
promisor on actual intent rather than on the reasonable interpretation of
its manifestation is therefore foreclosed, unless the promisee knew the
promisor's actual intent.80 Proper construction of the contract always requires that all circumstances under which it was concluded be taken into
account.8' While one of the factors to be considered is the plain meaning
of the words used, the Civil Code explicitly provides that it not be considered
decisive.82
The role of good faith. If, upon proper interpretation, a contract shows
a gap, it must be supplemented in accordance with good faith. Sections
157 and 242 of the Civil Code have consistently been construed so to
provide.3 Here again, good faith is synonymous with socially accepted
standards of reasonableness and fair dealing.84 The formula used to attain
reasonable implementation is also familiar. The criterion is what the parties
to the contract would have done at the time of contracting.85 However,
application of sections 157 and 242 of the Civil Code can never justify deviation from properly construed contractual terms. The Reichsgericht has
consistently and unambiguously so held.86
The proper analysis: synthesis. Compliance with these rules supports
the correctness of the gap filling doctrine. Clearly, if the subsequent events
were not foreseeable, a manifestation of intent cannot reasonably be interpreted to express a willingness to be bound also in the unexpected situation.87
The Reichsgericht, while somewhat perfunctorily continuing to refer on
occasion to the doctrine of the Geschiftsgrundlage,88 has, in more recent
cases, articulated its awareness that the gap filling doctrine establishes the
correct approach.9 In proceeding under that doctrine the Reichsgericht has
21, 1923, 78 Seufferts Archiv 102 (1924); 1 ENNECCERUS, LEHRBUCH DES BiURGERLICHEN
RECHTS [ALLGEMEINER TEIL DES BiURGERLICHEN RECHTS] ?? 205-06 (14th ed., Nipperdey
1955); LEHMANN, op. cit. supra note 78, at 190-95.
80. 1 ENNECCERUS, op. cit. supra note 79, at 635-39; LEHMANN, op. cit. supra note 78,
at 190-95; 1 STAUDINGER, op. cit. supra note 78, at ?? 116-17.
81. See authorities cited note 80 supra.
82. BIURGERLICHES GESETZBUCH ? 133 (1956); see 1 DENECKE & OEGG, op. cit. supra
note 78, ? 133; 1 ENNECCERUS, op. cit. supra note 79; LEHMANN, op. cit. supra note 78,
at 190-96.
83. See, e.g., S. v. H., Reichsgericht (III. Zivilsenat), March 12, 1918, 92 R.G.Z.
318; 1 DENECKE & OEGG, op. cit. supra note 78, ?? 157, 242; LEHMANN, op. cit. supra note
78, at 196-99; 1 LEONHARD, ALLGEMEINES SCHULDRECHT DES BURGERLICHEN GESETZBUCHES
?? 26-29 (1929).
84. See authorities cited note 83 supra.
85. 1 DENECKE & OEGG, op. cit. supra note 78, ?? 157, 242; LEHMANN, op. cit. supra
note 78, at 197; 1 STAUDINGER, op. cit. supra note 78, ? 133.
86. See, e.g., Firma B. v. Deutsche Steinsaltz-Syndikatsgesellschaft m.b.H., Reichsge-
richt (II. Zivilsenat), May 20, 1930, 129 R.G.Z. 80, 88.
87. Accord, H.-Draht- und Kabelwerke v. Elektrizitats-AG. vorm. Sch. & Co., Reichsgericht (III. Zivilsenat), Oct. 15, 1918, 94 R.G.Z. 45; Fr. & Co. G.m.b.H. v. G. & Co.,
Reichsgericht (II. Zivilsenat), March 27, 1917, 90 R.G.Z. 102.
88. See, e.g., R. v. B., Reichsgericht (VI. Zivilsenat), Jan. 30, 1928, 119 R.G.Z. 133;
G. v. H., Reichsgericht (V. Zivilsenat), Feb. 10, 1926, 112 R.G.Z. 329; cf. KEGEL, RupP,
& ZWEIGERT, op. cit. supra note 16, at 101.
89. See, e.g., B. v. L. & Co., Reichsgericht (Vereinigte Zivilsenate), March 31, 1925,
110 R.G.Z. 371; St. v. R., Reichsgericht (V. Zivilsenat), Nov. 28, 1923. 107 R.G.Z. 78.
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1958] FRUSTRATION OF CONTRACT 299
applied a formula for implementation consistent with its interpretation of
sections 157 and 242 of the Civil Code: the court should supplement the
contract with those provisions upon which the parties would presumably
have agreed if, at the time of contracting, they had foreseen the possibility
of occurrence of the changed circumstances.90 Consistent application of
the gap filling theory has led the Reichsgericht to what would seem the
irnescapable conclusion that the occurrence of unforeseen events does not
irnvariably require that the contract be considered at an end, but that such
occurrence may, in proper cases, necessitate supplementation with provi-
sions creating different rights and duties. The Reichsgericht has not shunned
its duty in such cases to define equitable provisions under which the contractual relationship continues. Most famous are the so-called Aufwertungs-
falle, in which the Reichsgericht, rather than declaring the contract at an
end, increased the amounts specified in the contract.9
III. NETHERLANDS LAW
A. The Problem
Although the problem of frustration is well-known, Netherlands authorities have shown considerable restraint in the formulation of theories.92
Indeed, it would seem that only two theories have succeeded in gaining some
recognition. The first permits modification of the terms of the agreement
where reasonably required by the changed situation.93 It has been repeatedly
rejected94 by the Hoge Raad.95
13. The Gap Filling Doctrine
The second theory is the gap filling doctrine. Proper understanding
thereof again requires consideration of some basic principles of contract law.
The law of construction of contracts. It is well settled that the intention
of the parties is determinative of the contents of the contract.96 However,
90. S. v. H., Reichsgericht (III. Zivilsenat), March 12, 1918, 92 R.G.Z. 318.
91. See cases cited note 89 supra.
92. See, generally, 3 ASSER, HANDLEIDING TOT DE BEOEFENING VAN HET NEDERLANDS
BURGERLIJK RECHT 307 (Rutten ed. 1952).
93. 3 ASSER, op. cit. supra note 92, at 31, 303; 1 HOFMANN, HET NEDERLANDS VERBINTENISSENRECHT 344-47 (7th ed., Van Opstall 1948); 1 VAN BRAKEL, LEERBOEK VAN
HET NEDERLANDSCHE VERBINTENISSENRECHT (Deel III) ?? 376-80 (1937).
94. See, e.g., A. J. Stallinga & Co. v. Pardon, Hoge Raad (Burgerlijke Kamer), Feb. 24,
1938, [1938] Nederlandsche Jurisprudentie [hereinafter N.J.] No. 952; N.V. Vereenigde
Nederlandsche Rubberfabrieken v. Wilhelmi, Hoge Raad (Burgerlijke Kamer), April 2,
1936, [19361 N.J. No. 417; Van Dijken v. N.V. "American Petroleum Company," Hoge
Raad (Burgerlijke Kamer), Jan. 2, 1936, [19361 N.J. No. 416; Van Ierssel v. Grootenboer,
Hoge Raad (Burgerlijke Kamer), Nov. 10, 1932, [19321 N.J. 1729, Weekblad van bet
Recht [hereinafter W.] 12533; Zelverder v. N.V. Hees & Co.'s Muziekinstrumentenhandel,
March 26, 1931, 11931] N.J. 669, W. 12308; Van Loben Sels v. Staat der Nederlanden,
Hoge Raad (Burgerlijke Kamer), April 16, 1925, [1925] N.J. 649, W. 11377.
95. The Hoge Raad is the highest court of the Netherlands.
96. 3 ASSER, op. cit. supra note 92, at 279, 290; 1 VAN BRAKEL, LEERBOEK VAN HET
NEDERLANDSCHE VERBINTENISSENRECHT (Deel III) ?? 283-91 (1937).
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300 COLUMBIA LAW REVIEW [Vol. 58
it is also generally recognized that the intention must be expressed and that
the manifestation of intent should be construed in the manner in which
a normal, reasonable person, finding himself in the same circumstances as
the promisee, would construe it.97 Accordingly, as under Swiss and German
law, actual intent, not reasonably manifested, is relevant only if in fact
known by the promisee.98
In determining what interpretation a reasonable promisee would have
given to the promisor's manifestation of intent all circumstances existing
at the time the promise was made and reasonably known to either party
should be drawn into consideration.99 However, section 1378 of the Civil
Code provides that the court may not by way of interpretation set aside the
plain meaning of the words of the contract. This provision, which on its
face seems to render decisive the plain meaning of the words used, has given
rise to considerable misunderstanding. Time and again, the Hoge Raad
has reversed decisions by lower courts which, on the ground that it would
be unreasonable or against good faith to require strict compliance, purported
to effect a modification of the express terms of the contract.100 These decisions have frequently been alleged to establish the Hoge Raad failure to
recognize the legal relevance of any frustration.10' The view that they do
not support that proposition has, however, steadily been gaining ground.102
Under established case law, the Hoge Raad, which reviews only on questions
of law, considers the correct interpretation of a contract a non-reviewable
question of fact. In all cases allegedly rejecting the legal relevance of
frustration, the Hoge Raad was faced with the difficulty that the lower courts
had first interpreted the contract to contain explicitly applicable provisions,
only to proceed thereafter to modification of such provisions on grounds of
reasonableness. Inasmuch as it is settled law that section 1374 of the Civil
Code, providing that contracts be executed reasonably, does not authorize
97. Ling v. Naamloze Vennootschap Heeren- en Kinderkleedingmagazijnen, voorheen
Gebroeders Bervoets, Hoge Raad (Burgerlijke Kamer), Nov. 25, 1927, [1928] N.J. 11
W. 11774; Van Kuyk v. Vis, Hoge Raad (Burgerlijke Kamer), June 15, 1928, [19281 N.
1626, W. 11856; Hengstenvereeniging "de Eendracht" v. Eerste Nederlandsche Onderling
Paarden- en Veeverzekering Maatschappij, Hoge Raad (Burgerlijke Kamer), Feb. 9,
1923, [1923] N.J. 676, W. 11039.
98. See authorities cited notes 96-97 supra.
99. See, e.g., Bregstein, Moet den Rechter de Bevoegdheid Toekomen Verbintenissen
uit Overeenkomst op Bepaalde Gronden, Zooals de Goede Trouw, te Wijzigen? Zoo ja, in Welke
Gevallen en in Hoeverre, in PRAEADVIES VOOR DE NEDERLANDSCHE JURISTEN-VEREENIGING
1, 50 (1936).
100. See cases cited note 94 supra.
101. See, e.g., 3 ASSER, op. cit. supra note 92, at 307; cf. Bregstein, supra note 99, at 42.
102. See, e.g., Bregstein, supra note 99, at 17, 45; Meyers, Behoort Verandering in de
Feiteljke Omstandigheden, Waaronder een Overeenkomst is Gesloten, Invloed te Hebben op
haar Voortbestaan?, in PRAEADVIES VOOR DE NEDERLANDSCHE JURISTEN-VEREENIGING 85,
105 (1918). Meyers explicitly points out that, in implementation, the true test is not what
the parties would have done if they had foreseen the change in events, but what they would
have done if they had taken into account the possibility of its occurrence.
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1958] FRUSTRATION OF CONTRACT 301
modification, but only supplementation, it would seem that the Hoge
Raad had no other alternative but to decide the way it did. If, however,
the lower courts had interpreted the contracts to show a gap and to require
reasonable supplementation, it seems warranted to assume that they would
have been upheld by the Hoge Raad.'03
The only real problem, therefore, is whether section 1378 of the Civil
Code requires the lower courts to heed only the plain meaning of the words
of the contract. It has been effectively argued, and it now seems well
recognized, that words always derive their meaning from the context in
which they are used and, therefore, are never clear on their face.104 In that
view, the section loses all significance for purposes of interpretation and does
not prevent a court from resorting in all circumstances to aids of interpretation other than the usual meaning of the words used.'05
The role of good faith. As indicated, sections 1374 and 1375 of the Civil
Code require judicial implementation, in accordance with reasonableness,
of contracts showing gaps.106 However, these provisions do not authorize
miodification of express contractual terms on equitable grounds. The Hoge
Raad has consistently so held.'07
The proper analysis: synthesis. It would therefore seem that the gap
filling doctrine, under Netherlands law as well, is exclusively applicable in
the frustration situation. Eminent authorities, at least one of which advo-
cates application of the formula also applied by the German Reichsgericht,108
propound that view.'09 It is clear that, under the gap filling doctrine,
equitable adjustment short of discharge may be proper.
IV. FRENCH LAW
A. Some of the Theories Advanced
The statement that frustration110 has been held legally relevant only
by the Conseil d'Etat, the highest administrative tribunal, and legally
103. De Zwitserse Maatschappij van Verzekering tegen Ongevallen (Schweizerische
Unfallversicherungsgesellschaft) v. N. V. Rederij Koppe, Hoge Raad (Burgerlijke Kamer),
May 20, 1949, [1950] N.J. No. 72. In this case the Hoge Raad upheld the lower court's
decision based on the finding that a clause in an insurance policy, providing for forfeiture
of all claims under the policy after the premiums due under it have remained unpaid for
fourteen days, meant that claims would be forfeited under that clause only when such
forfeiture, all circumstances taken into account, would be reasonable. See also the annotation by Houwing under the decision.
104. See authorities cited note 102 supra.
105. See authorities cited note 102 supra.
106. See, e.g., Bregstein, supra note 99, at 45, and authorities cited; authorities cited
note 94 supra.
107. See cases cited note 94 supra.
108. Meyers, supra note 102, at 105.
109. Bregstein, supra note 99, at 45; cf. 3 ASSER, op. cit. supra note 92, at 306.
110. The frustration problem is generally referred to in French legal writings as that
of the imprwvision.
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302 COLUMBIA LAW REVIEW [Vol. 58
irrelevant by the Cour de Cassation, the highest court of ordinary jurisdiction, is traditional with French authorities."' However, close analysis of
the decisions of both tribunals would seem to render the correctness of that
statement subject to considerable doubt.
The Cour de Cassation has, indeed, rejected virtually all of the theories
advanced by French authors in support of recognition of the legal relevance
of frustration."2 The theories of erreur (mistake), of enrichissement sans
cause (unjust enrichment), of impossibilitg economique (practical impos-
sibility), of abus de droit (abuse of right), and that authorizing modification
on the ground of good faith, all have been unambiguously dismissed.113
B. The Gap Filling Doctrine
The same is not true, however, of the gap filling doctrine, which has
been applied under the decisions of both the Cour de Cassation and the
Conseil d'Etat. A brief review of some fundamental principles of French
contract law will show the doctrine's applicability.
The law of construction of contracts. The basic French rules correspond
with those of Swiss and German law.114 French law, unlike Netherlands law,
does not have a statutory provision seemingly exalting plain meaning to a
status of decisiveness.115 Some question has been raised as to whether
reasonable reliance on manifested intent, where the actual intent is different,
binds the promisor in accordance with the expressed intent,116 but it seems
settled that such reliance does, indeed, create a contractual relation deter-
mined by the promisor's manifested intent.'17
111. See, e.g., David, Frustration of Contract in French Law, 28 J. CoMP. LEG. & INT'L
L. (3d ser.) 11, 13 (1946); cf. Smith, Impossibility of Performance as an Excuse in French
Law: The Doctrine of Force Majeure, 45 YALE L.J. 452 (1936).
112. Societe anonyme des Verreries de Carmaux v. Compagnie des Mines de Graissessac, Cour de Cassation (Ch. civ.), Nov. 15, 1933, [1934] Receuil de la Gazette des Tribunaux I. 17; Devaye v. Ardisson, Cour de Cassation (Ch. civ.), Oct. 18, 1926, [1927]
Dalloz Jurisprudence I. 101; Bacou v. Saint-Pe, Cour de Cassation (Ch. civ.), June 6,
1921, [1921] Dalloz Jurisprudence I. 73; De Gallifet v. Commune de Pelisanne, Cour de
Cassation (Ch. civ.), March 6, 1876, [1876] Dalloz Jurisprudence I. 193; 6 DEMOGUE,
TRAITA DES OBLIGATIONS EN GANARAL No. 632 (1931); 2 JOSSERAND, COURS DE DROIT
CIVIL POSITIF FRANVAIS No. 404 (3d ed. 1939); 6 PLANIOL & RIPERT, TRAITE PRATIQUE
DE DROIT CIVIL FRANgAIS No. 394 (2d ed., Esmein 1952); 2 RIPERT & BOULANGER, TRAITA
DE DROIT CIVIL No. 472 (1957); Lalou, La Revision des Contrats par le Juge, in TRAVAUX
DE LA SEMAINE INTERNATIONALE DE DROIT 49-53 (Paris 1937).
113. See authorities cited note 112 supra.
114. See, e.g., 4 AUBRY & RAU, COURS DE DROIT CIVIL FRANgAIS ?? 340-43, 347
(6th ed., Bartin 1942); 1 DEMOGUE, TRATTA DES OBLIGATIONS EN GfNARAL Nos. 27-32
158, 173 (1923); 2 JOSSERAND, op. cit. supra note 112, Nos. 13-16, 41-54, 238-42; 2 RIPERT
& BOULANGER, TRAITA DE DROIT CIVIL Nos. 32-63, 130-43, 450-67 (1957).
115. See authorities cited note 114 supra.
116. Some authors are willing to construe only a cause of action in tort for compensatory
damages caused by reliance on an inadequately expressed intention. See 6 PLANIOL &
RIPERT, op. cit. supra note 112, No. 103; cf. 1 BONNECASE, PRACIS DE DROIT CIVIL Nos.
134-37 (1934).
117. According to 1 DEMOGUE, op. cit. supra note 114, at 99, this is the result to whic
French case law has come. See also 6 PLANIOL & RIPERT, op. cit. supra note 112, No. 103.
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1958] FRUSTRATION OF CONTRACT 303
The role of good faith. The tenet of good faith also pervades the French
law of contracts.'18 Section 1135 of the Civil Code articulates its role: a
contract not only requires compliance with its express provisions, but also
with the dictates of reasonableness. The section authorizes supplementation
of contract,119 but not modification. The Cour de Cassation has insistently
so held.120
The proper analysis: synthesis. The correctness of the gap filling doctrine
would seem to emanate necessarily from the rules here exposed. In fact, the
technical limitations on the scope of its review would seem the only reason
for the inability of the Cour de Cassation to apply the doctrine itself. As
in the Netherlands, interpretation of contracts is within the exclusive
province of the trier of fact and, therefore, not reviewable by the Cour de
Cassation.121 If, however, the lower court limits the applicability of contractual terms to foreseen events and supplements them only in accordance
with reasonableness, it uses a construction explicitly approved by the Cour
de Cassation.122 The fact that the Conseil d'Etat reviews the interpretation
of contracts as well affords a reasonable explanation for the sharp conflict
usually seen between its holdings and those of the Cour de Cassation.
Its decisions show that, in considering the effect of unforeseen events,
the Conseil d'Etat follows the gap filling procedure.'23 Consistent with that
procedure, the Conseil d'Etat has held that unforeseen events may require
equitable adjustment of the rights and duties of the parties short of discharge. 124
V. ENGLISH LAW
The problems arising when unforeseen circumstances disturb the initial
harmony between contractual rights and duties have received extensive
118. See, e.g., 6 DEMOGUE, op. cit. supra note 112, Nos. 3, 31-32; 2 JOSSERAND, op. cit.
supra note 112, Nos. 246-47; 6 PLANIOL & RIPERT, op. cit. supra note 112, Nos. 103, 374-75.
119. See, e.g., 6 PLANIOL & RIPERT, op. cit. supra note 112, No. 374; 2 RIPERT &
BOULANGER, op. cit. supra note 114, Nos. 452-60.
120. See cases cited note 112 supra.
121. 2 RIPERT & BOULANGER, op. cit. supra note 114, No. 459; cf. Pages v. Societe
toulousaine d'electricite, Cour de Cassation (Ch. civ.), April 3, 1901, [1903] Sirey Receuil
General I. 474.
122. It would seem that this is what occurred in the case cited at note 121 supra.
There, certain changes made in the building by the lessee subsequent to the commencement
of the lease resulted in an increase in the premium under a policy taken out by the lessor.
The latter sued the lessee for the difference. The lessee defended on the grounds that the
contract specified the amount of the rent and that changed circumstances could not authorize
modification of an explicit contractual provision. The lower court interpreted the contract
to contain a provision to pay the difference and the Cour de Cassation upheld the decision.
123. See, especially, the famous case of Compagnie generale d'eclairage de Bordeaux
v. Ville de Bordeaux, Conseil d'etat, March 30, 1916, [19161 Dalloz Jurisprudence III. 25,
and the opinion of the commissaire du Gouvernement, id. at 30. See further 6 DEMOGUE,
op. cit. supra note 112, No. 633; 2 WAHL, LE DROIT CIVIL ET COMMERCIAL DE LA GUERRE
Nos. 1015-21 (1918).
124. See cases cited by 6 PLANIOL & RIPERT, op. cit. supra note 112, No. 392.
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304 COLUMBIA LAW REVIEW [Vol. 58
consideration.125 Putting a heavy tax on the ingenuity of legal thinking,
they have, in England as elsewhere, resulted in a number of theories.126
A. The Doctrine of the Implied Condition
According to this doctrine, a condition is implied in every contract
effecting its discharge if the occurrence of unforeseen events terminates the
existence of those circumstances on which, in the contemplation of the
parties, the continued effectiveness of the contract was dependent.'27 The
theory has enjoyed extensive judicial recognition, is probably now prevailing,128 and has coalesced with the doctrine of the foundation of the contract,
from which the condition it implies derives its substance.'29
B. The Doctrine of the Foundation of the Contract
This theory's absorption of the doctrine of the implied term is apparent
from the test it applies. The court may infer from the nature of the contract
and the surrounding circumstances whether, in the contemplation of the
parties, the continued existence of the conditions prevailing at the time of
contracting was the foundation of their contract and therefore a condition
on which it is dependent.'30 This test has found repeated judicial applica125. See, e.g., GOTTSCHALK, IMPOSSIBILITY OF PERFORMANCE IN CONTRACT (1938);
MCELROY & WILLIAMS, IMPOSSIBILITY OF PERFORMANCE (1941); MACKINNON, EFFECT OF
WAR ON CONTRACT (1917); MCNAIR, LEGAL EFFECTS OF WAR (3d ed. 1948); ROGERS,
EFFECT OF WAR ON CONTRACTS (1940); TROTTER, LAW OF CONTRACT DURING AND AFTER
WAR (4th ed. 1940); WEBBER, EFFECT OF WAR ON CONTRACTS 403-706 (2d ed. 1946);
WRIGHT, LEGAL ESSAYS 252, 254-62 (1939); Gow, Some Observations on Frustration, 3 INT'L
& COmP. L.Q. 291 (1954); McElroy & Williams, The Coronation Cases I, 4 MODERN L. REV.
241 (1941), The Coronation Cases II, 5 MODERN L. REV. 1 (1941); McNair, Frustration of
Contract by War, 56 L.Q. REV. 173 (1940); Wade, The Principle of Impossibility in Contract,
56 L.Q. REV. 519 (1940).
126. The theories advanced under English law have greatly influenced, if not completely shaped, American developments. On the other hand, some of the American doctrines
have had some impact on English legal thinking. Accordingly, discussion of some of the
theories only under English law and of others only under American law rests upon a somewhat arbitrary choice which by no means warrants the conclusion that discussion under
either of these legal systems excludes a doctrine's relevance under the other.
127. For statements of the condition, see Joseph Constantine S.S. Line, Ltd. v. Imperial
Smelting Corp., Ltd., [1942] A.C. 154; Hirji Mulji v. Cheong Yue S.S. Co., [1926] A.C.
497 (P.C.); Bank Line, Ltd. v. Arthur Capel and Co., [1919] A.C. 435; Metropolitan Water
Bd. v. Dick, Kerr and Co., [1918] A.C. 119; F. A. Tamplin S.S. Co. v. Anglo-Mexican
Petroleum Products Co., [19161 2 A.C. 397; Horlock v. Beal, [19161 1 A.C. 486.
128. See cases cited note 127 supra; cf. GOTTSCHALK, op. cit. supra note 125, at 28-36;
MCELROY & WILLIAMS, IMPOSSIBILITY OF PERFORMANCE 61-72 (1941); POLLOCK, PRINCIPLES
OF CONTRACT 225 (12th ed., Winfield 1946).
129. See, e.g., GOTTSCHALK, op. cit. supra note 125, at 30; POLLOCK, op. cit. supra
note 128, at 226. In Joseph Constantine S.S. Line, Ltd. v. Imperial Smelting Corp., Ltd.,
[19421 A.C. 154, 171, Lord Simon apparently still saw a distinction between the doctrine
of the implied term and that of the foundation of the contract, because he stated the former
to provide the more satisfactory basis for legal recognition of frustration. McNair, Frustration of Contract by War, 56 L.Q. REV. 173, 178-79 (1940), however, states correctly that the
theories, as applied, have coalesced.
130. See authorities cited note 127 supra.
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1958] FRUSTRATION OF CONTRACT 305
tion.131 The doctrines however, seem open to serious criticism.132 First,
they fail to explain on what grounds the implication of any condition is
permissible.'33 Second, they fail to provide any justification for the propriety of the particular condition they imply.134 Third, the test they apply
is so vague and speculative as to create serious dangers of confusion.13"
C. The Doctrine of Common Mistake
When persons entering into a contract assume the existence of certain
fundamental facts, they may be relieved from their contract if their assumption proves false.136 Attempts have been made to apply this doctrine of
common mistake to frustration cases. Lord Haldane has indicated that he
is not unfavorably inclined towards such attempts,'37 but the doctrine has
failed to gain full judicial recognition. The doctrine would in fact seem
inapplicable in the frustration area since, under settled English law, it does
not cover mistakes as to circumstances subsequent to the time of contracting.l38
D. The Doctrine of the Reasonable Third Party
According to Winfield, the originator of this "rather different line of
approach,"'39 the test to be applied in frustration cases is whether any
reasonable third party would consider the subsequent circumstances to
alter the obligation of one or both of the parties to such an extent as to
make the contract no longer capable of being enforced.140 The doctrine
seems identical with those, in the legal systems thus far discussed, which
advocate modification of the terms of the agreement on considerations of
reasonableness.141 It would seem that the doctrine is open to the objections
that a court may never modify the terms of a contract to accord with its
own notions of reasonableness142 and that, moreover, it misconceives the
significance of the words of the contract. 143
131. See cases cited note 127 supra; McNair, supra note 129, at 176.
132. See, e.g., POLLOCK, op. cit. supra note 128, at 225 ("inherent superficiality");
Gow, supra note 125, at 302-04.
133. Cf. MCELROY & WILLIAMS, IMPOSSIBILITY OF PERFORMANCE 61-62 (1941).
134. Id. at 63.
135. Id. at 62.
136. POLLOCK, op. cit. supra note 128, at 226.
137. In Bank Line, Ltd. v. Arthur Capel and Co., [1919] A.C. 435, 444-45, he stated
that it does not matter whether the problem is treated as one of construction or as one of
common mistake.
138. See Joseph Constantine S.S., Ltd. v. Imperial Smelting Corp., [1942] A.C. 154,
186 (Wright, L.J.); cf. POLLOCK, op. cit. supra note 128, at 227.
139. Ibid.
140. Ibid.
141. See text at notes 37-40, 76-77, 93-95 infra.
142. The sanctity of contracts is generally recognized. See, e.g., MCELROY & WILLIAMS,
op. cit. supra note 133, at 63. It is, however, frequently assumed that in the frustration
area it cannot be maintained absolutely. Ibid.
143. See text following note 147 infra.
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306 COLUMBIA LAW REVIEW [Vol. 58
E. The Gap Filling Doctrine
Ever since the gap filling tiheory was urged by Lord Sumner in Bank
Line, Ltd. v. Arthur Capel and Co.,144 it has vied for exclusive judicial recognition with the doctrine of the foundation of the contract.'45 It would seem
that under English law as well, the gap filling theory is ascending to a position
of greater prominence, and that recognition of the impact of proper rules
of construction in this area will make its eventual full indorsement uniavoidable. 146
The law of construction of contracts. The objective theory of contracts
also prevails in English law: the reasonable interpretation of the promisor's
utterances is decisive of his obligations and the promnisee's rights, unless
the promisee knew the actual intent. The words used are not entitled to
exclusive consideration. The circumstances, existing and known or reason-
ably known to both parties at the time of the promise, require equal attenltion. The crucial factor is always the actual intention of the parties.'47
The role of good faith. Apart from an occasional pronouncement to
the effect that in every contract there is an implied covenant to do all that
is reasonably necessary to carry it out,148 the role of socially accepted standards of fair dealing as supplementary of express contractual provisions has
apparently received limited consideration.'49 Where the problem has been
considered, however, the conclusion was reached that the law does implement contracts and, in doing so, imputes to the parties what they, as fair
dealers, presumably would have done.'50 The applicable principle thus
appears to be identical with that applied itn the civil law systems here
reviewed. I51
The proper analysis: synthesis. The consistency of the gap filling doctrine
with accepted rules of contractual construction is apparent. Its exclusive
recognition would serve to eliminate much of the confusion still existing in
144. [1919] A.C. 435, 453. It may, perhaps, be argued that Taylor v. Caldwell, 3 B.
& S. 826, 122 Eng. Rep. 309 (K.B. 1863), is also in accord with the gap filling doctrine.
Blackburn, J., explicitly stated that the condition implied was implied by law, and his
opinion does not indicate that he considered that condition to modify the terms of the agree-
ment.
145. See, e.g., Denny, Mott & Dickson, Ltd. v. James B. Fraser & Co., [1944] A.C.
265; W. J. Tatem, Ltd. v. Gamboa, [1939] 1 K.B. 132 (1938); cf. Gow, supra note 125,
at 291-94.
146. Cf. POLLOCK, op. cit. supra note 128, at 227-28; Gow, supra note 125; Wright,
supra note 125.
147. See, generally, CHESHIRE & FIFOOT, THE LAW OF CONTRACT 98-120 (4th ed. 1956);
POLLOCK, op. cit. supra note 128, at 193-95.
148. See, e.g., Harrison v. Walker, [1919] 2 K.B. 453, 458-59; E. Clemens Horst Co.
v. Biddell Bros., [1912] A.C. 18 (1911).
149. Cf. Gow, supra note 125, at 294.
150. See, e.g., Bank Line, Ltd. v. Arthur Capel and Co., [1919] A.C. 435, 453, 459
(1918); cf. Metropolitan Water Bd. v. Dick, Kerr and Co., [1918] A.C. 119, 131 (Atkinson,
L.J.) (parties as reasonable men would not have intended contract to be binding under such
unreasonable circumstances).
151. See text at notes 60, 85, 89, 106 supra.
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1958] FRUSTRATION OF CONTRACT 307
this area.152 It would show the incorrectness of the assumption, still generally
made, that frustration always necessarily results in discharge rather than in
equitable adjustment of the rights and duties of the parties.'53 It would
reveal that the decision in Fibrosa Spolka Akcyjna v. Fairbairn Lawson
Combe Barbouir, Ltd.,154 repealing the notorious rule of Chandler v. Webster'55
that the risk lies where it falls, and the even more far-reaching provisions
of the Frustrated Contract Act, allowing, in certain cases, equitable adjust-
ment short of discharge,'56 are the doctrine's logical concomitants. It would
permit the abolition of the use of completely fictitious implied conditions157
and clearly show when frustration arises. Finally, where the contract, upon
proper construction, shows a gap, it would warrant supplementation by
application of a formula which, apparently, has appealed strongly to judicial
authorities: the court shall add those provisions upon which the parties would
presumably have agreed, if they had thought of the possibility of occurrence
of the pertinent unanticipated circumstances.158
VI. AMERICAN LAW
The problem of frustration has also attracted considerable attention
in the United States. A kaleidoscopic array of theories has emerged from
abundant sources.'59 Nevertheless, considerable confusion still exists and
152. As to the still prevailing confusion, see, e.g., MCELROY & WILLIAMS, op. cit.
supra note 133, at 62. Even those who recognize the applicability of principles of objective
law frequently assume that the objective law requires deviation from agreed-on contractual
provisions. See, e.g., id. at 63; POLLOCK, Op. cit. supra note 128, at 227; Gow, supra note 125.
But see, for the correct approach, WEBBER, EFFECT OF WAR ON CONTRACTS 405, 433-34
(2d ed. 1946).
153. Lord Simon, in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour,
Ltd., [19431 A.C. 32, 49 (1942), assumed that English common law does not authorize such
adj ustment. He regarded it tempting to speculate whether, upon a finding of frustration,
a further term to repay the consideration prepaid could not be implied. Unfortunately, he
did not realize his speculation to be on solid legal ground. The House of Lords suggested
that the aspects of such equitable adjustment should be dealt with by the legislature. See
POLLOCK, op. cit. supra note 128, at 248. Pursuance of Lord Simon's line of thinking might
have obviated the necessity for the Law Reform (Frustrated Contracts) Act, 1943, 6 & 7
Geo. 6, c. 40. On this act, see McNair, The Law Reform (Frustrated Contracts) Act, 1943,
60 L.Q. REv. 160 (1943). Under the act, which does not define legally relevant frustration,
the resolution of the problem of making an equitable adjustment is left to the courts anyhow.
Frustrated Contracts Act, 1943, 6 & 7 Geo. 6, c. 40, ?? 1(2), (3).
154. [1943] A.C. 32 (1942).
155. [1904] 1 K.B. 493. On this case, see, e.g., POLLOCK, op. cit. supra note 128, at
247-48.
156. 1943, 6 & 7 Geo. 6, c. 40; see note 153 supra.
157. For the fictitious character of the implied condition, see, e.g., MCELROY & WILLIAMS, op. cit. supra note 133, at 62.
158. See, e.g., Hirji Mulji v. Cheong Yue S.S. Co., [1926] A.C. 497 (P.C.); Bank Line,
Ltd. v. Arthur Capel and Co., [1919] A.C. 435, 459; Taylor v. Caldwell, 3 B. & S. 826,
122 Eng. Rep. 309 (K.B. 1863). For a correct formulation of this "double fiction of personality and circumstance," see Gow, supra note 125, at 304.
159. See, generally, 6,CORBIN, CONTRACTS ?? 1320-72 (1951); 6 WILLISTON, CONTRACT
?? 1931-79 (rev. ed. 1938); Conlen, The Doctrine of Frustration as Applied to Contracts, 70
U. PA. L. REV. 87 (1922); Corbin, Frustration of Contract in the United States of America, 29
J.. COmP. LEG. & INT'L L. (3d ser.) 1 (1947); Page, The Development of the Doctrine of Impossibility of Performance, 18 MICH. L. REV. 589 (1920); Patterson, Constructive Conditions
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308 COLUMBIA LAW REVIEW [Vol. 58
the law is uncertain. Reconsideration of some of the theories advanced'60
and analysis of the frustration problem in the context of established,principles
of contract law seems propitious.
A. The Doctrine of the Implied Term or the Foundation of the Contract
This doctrine, received from English law'6' and embodied in the Re-
statement,162 has found judicial acceptance as well as rejection.163 It would
seem that its failure to advance any legal justification for the implication
of a condition has contributed substantially toward the still prevailing
misunderstanding.164 Implication of fictitious conditions, where not based
on a rule of law, seems incompatible with responsible administration of
justice. Furthermore, the determination, required by the Restatement, of
whether, in the contemplation of the parties, the continued existence of certain facts was necessary for the performance of a promise in a bargain,
demands an unrealistic appraisal and necessarily leads to difficulties. Ordinarily, the promisee may not be assumed to have viewed as necessary the
continued existence of the circumstances, the change in which makes the
promisor's duties more burdensome. In fact, according to a reasonable
assunmption, he would have considered the existence of those circumstances
completely unnecessary.165 The doctrine would, therefore, seem to leave
the whole problem to the whim of the court without providing a standard
affording even a minimal degree of certainty and predictability.
in Contracts, 42 COLUM. L. REV. 903, 943 (1942); Patterson, The Apportionment of Business
Risks Through Legal Devices, 24 COLUM. L. REV. 335, 348 (1924); Woodward, Impossibility
of Performance, as an Excuse for Breach of Contract, 1 COLUM. L. REV. 529 (1901); Note,
The Fetish of Impossibility in the Law of Contracts, 53 COLUM. L. REV. 94 (1953); Comment,
Supervening Impossibility of Performance as a Defense, 5 FORDHAM L. REV. 322 (1936);
Comment, Contracts-Impracticability of Performance as an Excuse for Breach of Contract,
46 MICH. L. REV. 224 (1947); Comment, Impossibility and the Doctrine of Frustration of
the Commercial Object, 34 YALE L.J. 91 (1924).
160. Here again, no claim is made that all theories which have been advanced have
been discussed exhaustively. For a somewhat different alignment of theories, see Patterson,
Constructive Conditions in Contracts, 42 COLUM. L. REV. 903, 943-49 (1942).
161. Corbin, supra note 159, at 3-4.
162. RESTATEMENT, CONTRACTS ?? 288, 454, 460-61 (1932).
163. For judicial acceptance, see City of Vernon v. Los Angeles, 45 Cal. 2d 710, 290
P.2d 841 (1955); Autry v. Republic Productions, Inc., 30 Cal. 2d 144, 180 P.2d 888 (1947);
Clark v. Fitzgerald, 197 Misc. 355, 93 N.Y.S.2d 768 (Sup. Ct. 1949); 119 Fifth Avenue,
Inc. v. Taiyo Trading Co., 190 Misc. 123, 73 N.Y.S.2d 774 (Sup. Ct. 1947), aff'd mem.,
275 App. Div. 695, 87 N.Y.S.2d 430 (Ist Dep't 1949); Paddock v. Mason, 187 Va. 809,
48 S.E.2d 199 (1948); Housing Authority v. East Tennessee Light & Power Co., 183 Va.
64, 31 S.E.2d 273 (1944).
For rejection, see Red Jacket Oil & Gas Co. v. United Fuel Gas Co., 146 F.2d 645 (4th
Cir. 1944); Megan v. Updike Grain Corp., 94 F.2d 551 (8th Cir. 1938); Anderson, Frustration
of Contract-A Rejected Doctrine, 3 DE PAUL L. REV. 1 (1953); Note, 6 DE PAUL L. REV. 289
(1957).
164. For criticism of the doctrine, see 6 CORBIN, CONTRACTS ? 1322 n.19 (1951);
Corbin, supra note 159, at 4.
165. Ibid.
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1958] FRUSTRATION OF CONTRACT 309
B. The View that Frustration is Legally Irrelevant
The resistance against introduction of the apparently arbitrarily chosen
and vague test of the Restatement has led at least one writer166 to the assertion
that frustration is legally irrelevant, and that the Restatement test has, with
the exception of some distinguishable cases, never been accepted by a state
court of last resort.'67 However, this position seems untenable since, as
consideration of rules of contract construction will show, the frustration
problem necessarily becomes legally relevant when events occur not covered
by the contract.'88 Furthermore, there seems reasonable ground to assume
that the Restatement test has been accepted in the highest echelons of
state judiciaries.'69
C. 7ihe Conflicting Policies Doctrine
The conflict of authorities, apparently not reconcilable under any
encompassing rationale, has stimulated the view that in every frustration
case the court weighs competing policies, determined by the facts of the
individual case, instead of applying a general doctrine covering all frustration
cases.170 It offers little, if any, assistance to commendable efforts to bring
some certainty and predictability in this area of the law.
D. The Doctrine of Failure of Consideration
The proponents of the theory of failure of consideration do not contend
that it is able to provide a solution in all frustration cases. In fact, the
theory limits its purported applicability to those cases in which the promisor,
whose performance is excused by frustration, nevertheless demands that
the promisee perform. In such situations, the doctrine holds the promisee
discharged because the consideration for his promise has failed rather than
because of any doctrine of frustration."7' Inasmuch as its applicability
depends upon a prior finding of frustration under some other theory,172 this
doctrine does not seem particularly helpful. Moreover. oroper construction
166. Anderson, Frustration of Contract-A Rejected Doctrine, 3 DE PAUL L. REV.
1 (1953); Note, 6 DE PAUL L. REV. 289 (1957).
167. Anderson, supra note 166, at 1-6.
168. See text following note 200 infra.
169. See, e.g., Autry v. Republic Productions, Inc., 30 Cal. 2d 144, 180 P.2d 888
(1947); Local 1140, United Elec. Workers v. United Elec. Workers, 232 Minn. 217, 45
N.W.2d 408 (1950).
170. 6 CORBIN, CONTRACTS ? 1322, at 256 (1951) ("We can not lay down one simple
anid all-controlling rule . . . . The problem is that of allocating, in the most generally satisfactory way, the risks of harm and disappointment that result from supervening events");
Note, The Fetish of Impossibility in the Law of Contracts, 53 COLUM. L. REV. 94 (1953);
cf. Lloyd v. Murphy, 25 Cal. 2d 48, 153 P.2d 47 (1944).
171. 6 CORBIN, CONTRACTS ? 1322, at 255 (1951); id. ? 1363, at 422. For that approach
under English law, see MCELROY & WILLIAMS, IMPOSSIBILITY OF PERFORMANCE xxxviii-xl
(1941).
172. That is conceded. See 6 CORBIN, CONTRACTS ? 1363 (1951); MCELROY & WILLIAMS, op. cit. supra note 171, at xxxviii.
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310 COLUMBIA LAW REVIEW [Vol. 58
of a promise requires that it not be interpreted to be applicable to unforeseen
circumstances.'73 It is difficult to ascertain what relevance failure of con-
sideration can have in a situation in which the promise does not purport
to be effective. Failure of consideration for a non-existent promise can
hardly be a proper explanation for certain of the results flowing from a
finding of legally relevant frustration.
E. The Gap Filling Doctrine
The inroads effected by the gap filling theory upon the doctrine of the
foundation of the contract in England"74 are not reflected in American
judicial authority. Where frustration has been recognized in the United
States, the doctrine of the foundation of the contract, sometimes in conjunction with that of impracticability,175 has almost invariably been invoked as
furnishing a legal basis for such recognition. 176 In some few instances,
additional reference has also been made to a judicial duty to apportion
risks.'77 In determining whether the gap filling theory has a place in Amercan law, consideration of the rules of construction of contracts is essential.
The rules of construction of contracts. In interpreting contracts, the
quest is always for the common intention of the parties.178 However, the
mutual assent must be manifested; mere unexpressed intention creates no
contract.179 Problems arise when there is a variation between actual intent
and a reasonable interpretation of its purported manifestation. Although it
is generally accepted that the promisee may rely on the manifestation,'80
different standards of interpretation181 have been advocated and applied
173. See text following note 200 infra.
174. See notes 144-46 supra.
175. This doctrine, in assimilating absolute and practical impossibility, is similar to
that of the same name developed under Swiss, German, and French law. See notes 23-28,
71, 113 supra and text. For American cases applying the doctrine, see, e.g., City of Vernon
v. City of Los Angeles, 45 Cal. 2d 710, 290 P.2d 841 (1955); West v. Peoples First Nat'l
Bank & Trust Co., 378 Pa. 275, 106 A.2d 427 (1954).
176. See cases cited note 163 supra.
177. See, e.g., Lloyd v. Murphy, 25 Cal. 2d 48, 153 P.2d 47 (1944).
178. See, e.g., Crown Iron Works Co. v. Commissioner, 245 F.2d 357 (8th Cir. 1957);
Katz Drug Co. v. Kansas City Power & Light Co., 303 S.W.2d 672 (Mo. 1957); Cutter
Laboratories, Inc. v. R. W. Ogle & Co., 151 Cal. App. 2d 410, 311 P.2d 627 (1957); Tessmar
v. Grosner, 23 N.J. 193, 128 A.2d 467 (1957); United States Fire Ins. Co. v. Phil-Mar
Corp., 166 Ohio St. 85, 139 N.E.2d 330 (1956); S. P. Dunham & Co. v. 26 East State Street
Realty Co., 134 N.J. Eq. 237, 35 A.2d 40 (Ch. 1943); Cameron v. International Alliance
of Theatrical Stage Employees, 119 N.J. Eq. 577, 183 Atl. 157 (Ct. Err. & App.), cert.
denied, 298 U.S. 659 (1936). On interpretation of contracts generally, see 3 CORBIN,
CONTRACTS ?? 532-60 (1951); 3 WILLISTON, CONTRACTS ?? 601-47 (rev. ed. 1936).
179. RESTATEMENT, CONTRACTS ?? 19, 20 (1932). There are many cases to that effect.
See, e.g., Chicago Land Clearance Comm'n v. Jones, 13 Ill. App. 2d 554, 142 N.E.2d 800
(1957).
180. See, e.g., The Kronprinzessin Cecilie, 244 U.S. 12 (1917); Brant v. California
Dairies, Inc., 4 Cal. 2d 128, 48 P.2d 13 (1935).
181. RESTATEMENT, CONTRACTS ? 227 (1932) gives an acceptable definition of the term
"standard of interpretation": "A standard of interpretation is the test applied by the law
to words and to other manifestations of intention in order to determine the meaning to be
given to them."
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1958] FRUSTRATION OF CONTRACT 311
to determine the meaning of the manifestation on which the promisor may
rely.
Often judicially enunciated is the view that, where the meaning of
the words used is clear and unambiguous, there is no room for interpretation. 82 For making plain meaning the sole criterion, this view has been
severely criticized on what would seem the correct ground that words are
symbols of expression which are never plain and clear by themselves but
always derive their meaning from the context in which they are uttered."8
More enlightened authorities, recognizing the fallacy of the rule's basic
premise, hold that the meaning of words is never clear until explained by
the circumstances surrounding their utterance.'84 Moreover, many authorities, although apparently favoring the rule, seem to refer to it merely in
order to create an additional peg on which to hang the result of their inter-
pretative labors.'85 Reasonable understanding of the nature of language
would seem to warrant the rule's immediate rejection.'86 This is a conclusion
reached by all legal systems here reviewed.
A second standard of interpretation, embodied in the Restatement, has
also been judicially applied'87 and relates only to integrated contracts.188
According to this standard the words used have that meaning which would
have been attached to them by a reasonably intelligent person acquainted
with all surrounding circumstances known to the parties except their oral
statements. Under that standard, the actual intention of the parties becomes
relevant only if such reasonably intelligent person would consider the words
182. See, e.g., American Sumatra Tobacco Corp. v. Willis, 170 F.2d 215 (5th Cir.
1948); Henrietta Mills, Inc. v. Commissioner, 52 F.2d 931 (4th Cir. 1931); Shipley v. Pitts-
burgh & L.E.R.R., 83 F. Supp. 722 (W.D. Pa. 1949); Weber v. Crown Cent. Petroleum
Corp., 214 Md. 115, 132 A.2d 857 (1957); cf. 3 CORBIN, CONTRACTS ? 535 (1951), noting
that many printed pages of hundreds of such statements in any digest are almost wholly
wasted. Some states have statutory provisions which seem to make decisive the plain
meaning of the words used. See, e.g., CAL. CIV. CODES ?? 1638, 1639 (1945); MONT. REV.
CODES ANN. ?? 13-704, 13-705 (1947); 15 OKLA. STAT. ANN. ?? 154, 155 (1937). However,
these provisions are qualified by others to such an extent that they seem to have no inde-
penclent significance. See CAL. CIV. CODE ?? 1644, 1645, 1647, 1648 (1945); MONT. REV.
CODES ANN. ?? 13-710, 13-711, 13-713, 13-714 (1947); 15 OKLA. STAT. ANN. ?? 160, 161,
163,164 (1937).
183. See, e.g., 3 CORBIN, CONTRACTS ? 535, especially at 14-15 nn.16, 17 (1951).
184. See, e.g., Crown Iron Works Co. v. Commissioner, 245 F.2d 357 (8th Cir. 1957);
Buckley v. Buckley, 114 Conn. 403, 133 A.2d 604 (1957); Cutter Laboratories, Inc. v.
R. W. Ogle & Co., 151 Cal. App. 2d 410, 311 P.2d 627 (1957); Newark Publishers' Ass'n
v. Newark Typographical Union, 22 N.J. 419, 126 A.2d 348 (1956); Cameron v. International Alliance of Theatrical Stage Employees, 119 N.J. Eq. 577, 183 Atl. 157 (Ct. Err.
& App.), cert. denied, 298 U.S. 659 (1936). See also 3 CORBIN, CONTRACTS ?? 535-36, 542
(1951) (especially ? 536, at 23-24 nn.24-25).
185. See, e.g., Weber v. Crown Cent. Petroleum Corp., 214 Md. 115, 132 A.2d 857
(1957), where the court noted that even in the light of the surrounding circumstances the
words used would have no other meaning; cf. Hurst v. W. J. Lake & Co., 141 Ore. 306,
16 P.2d 627 (1932); 3 CORBIN, CONTRACTS ? 542 (1951).
186. See id. ?? 535-36, 542.
187. See, e.g., Weber v. Crown Cent. Petroleum Corp., 214 Md. 115, 132 A.2d 857
(1957); Carson v. Great Lakes Pipe Line Co., 238 Iowa 50, 25 N.W.2d 855 (1947).
188. RESTATEMENT, CONTRACTS ? 230 (1932).
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312 COLUMBIA LAW REVIEW [Vol.58
ambiguous.'89 This standard applies a completely arbitrary test, namely
that of integration, in excluding evidence of actual mutual intent. If,
while intending to agree on black, both parties write to agree on white,
there seems to be no justifiable reason for holding them to a contract on
white.'90 Neither does there seem to be reason for excluding consideration
by the reasonable person of oral statements made by the parties. Since such
statements will be used only to determine the exact meaning of the words
used in the writing, their consideration would not constitute a violation
of the parol evidence rule.'9' Authorities rejecting this standard'92 seem to
be supported by better reason.
According to the third and preferable standard, all surrounding circumstances, including oral statements, prevailing prior to or at the time of the
promise, may always be shown for the purpose of establishing the correct
meaning of the words used. The actual mutual intention of the parties is
decisive, but the promisee may attach to the promisor's words that meaning
which would be given to them by a reasonably intelligent person in the same
position as the promisee.'93 It would seem that this standard, by deviating
from the established and desirable principle that the intention of the
promisor should govern, only to the extent required by the protection of
reasonable reliance on the manifestation of the promisor's intent, strikes
the most equitable balance and thus accords with the standard universally
accepted in the legal systems here reviewed. It is supported by considerable
and eminent authority.194
The role of good faith. Although it is familiar dogma that courts will
not write a contract,'95 courts do imply covenants and conditions which do
not derive their existence from the intention of the parties.196 The recogni-
tion is gaining ground that, where constructive conditions of exchange and
of cooperation are implied, courts, instead of finding the intention of the
parties, apply considerations of equity and justice, and that supplementation
of a contract is by no means a novel judicial activity.197
189. Ibid.
190. See 3 CORBIN, CONTRACTS ? 539 (1951).
191. See id. ? 543.
192. See, e.g., Tessmar v. Grosner, 23 N.J. 193, 128 A.2d 467 (1957); Cameron v.
International Alliance of Theatrical Stage Employees, 119 N.J. Eq. 577, 183 Atl. 157
(Ct. Err. & App.), cert. denied, 298 U.S. 659 (1936); 3 CORBIN, CONTRACTS ? 543 (1951).
193. See, e.g., authorities cited note 192 supra. This is the standard applied by RESTATEMENT, CONTRACTS ? 233 (1932) to unintegrated agreements. See also 3 WILLISTON,
CONTRACTS ?? 603-629 (rev. ed. 1936).
194. See notes 192-93 supra.
195. See, e.g., Temple v. Clinton Trust Co., 1 N.J. 219, 62 A.2d 690 (1948); cf. 3 CORBIN,
CONTRACTS ? 541 (1951).
196. See, e.g., 6 WILLISTON, CONTRACTS ? 1937 (rev. ed. 1936); Corbin, Frustration of
Contract in the United States of America, 29 J. COMP. LEG. & INT'L L. (3d ser.) 1, 7 (1947).
See also Jacob & Youngs v. Kent, 230 N.Y. 239, 129 N.E. 889 (1921), in which Judge
Cardozo states that the question whether a condition is dependent is decided by "considerations partly of justice and partly of presumed intention."
197. See note 196 supra; 6 CORBIN, CONTRACTS ? 1331, at 284 (1950).
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1958] FRUSTRATION OF CONTRACT 313
The principle of bona fides is also well established in American law.
It is well settled that a covenant of good faith and fair dealing is implied in
every contract.'98 Where the provisions of the contract fall short, the parties
will be presumed to have intended the reasonable.199 Although the form of
an implied condition or covenant is traditionally used, it seems clear that
the courts supplement the contract in accordance with socially accepted
notions of fairness and reasonableness. The realization that this is exactly
what the courts are in fact also doing in the frustration cases is now slowly
breaking through.200
The proper analysis: synthesis. Where circumstances occur, neither
foreseen nor reasonably foreseeable at the time of the promise, it follows
frorn application of the proper standard of interpretation that the promise
may not reasonably be construed to express an intention to be bound also in
the unanticipated situation. Broad terms do not cover unforeseen contin-
gencies.201 Since, therefore, in regard to the unforeseen circumstances, the
contract shows a gap, supplementation with provisions ensuing from reason-
ableness is required.202 In the process of implementation the courts have
shown a tendency to let themselves be guided by what, in the light of all
relevant circumstances, the parties, if they had made pertinent provisions,
would presumably have done at the time of contracting.203 Sometimes the
test has been stated somewhat inaccurately to be what the parties would
have done if they had foreseen the unanticipated turn of events.204 Inasmuch
as the moment at which the contract was made is universally and reasonably
regarded as decisive, the better standard would seem to be what the parties
would have done, if they had taken into account the possibility and degree
of probability of the occurrence of the unanticipated events.205 This is
the test supported by the better authority in virtually all legal systems here
reviewed.
198. Manners v. Morosco, 252 U.S. 317 (1920); Marvin Drug Co. v. Couch, 134
S.W.2d 356 (Tex. Civ. App. 1939), 25 CORNELL L.Q. 615 (1940); Kirke La Shelle Co. v.
Paul Armstrong Co., 263 N.Y. 79, 188 N.E. 163 (1933), 19 CORNELL L.Q. 603 (1934), 18
MINN. L. REV. 744 (1934), 8 ST. JOHN's L. REv. 327 (1934); 3 WILLISTON, CONTRACTS
? 670 (rev. ed. 1936).
199. Jacob & Youngs v. Kent, 230 N.Y. 239, 129 N.E. 889 (1921); cf. Wood v. Lucy,
Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917).
200. 6 CORBIN, CONTRACTS ? 1331 (1950); WEBBER, EFFECT OF WAR ON CONTRACTS
414-15 (2d ed. 1946).
201. Accord, Chicago, M. & St. P. Ry. v. Hoyt, 149 U.S. 1 (1892); Cook Paint &
Varnish Co. v. Lydick-Barmann Co., 230 S.W.2d 581 (Tex. Civ. App. 1950); CAL. CIV.
CODE ? 1648; MONT. REV. CODES ANN. ? 13-714 (1947); 15 OKLA. STAT. ANN. ? 164 (1937);
Conlen, Intervening Impossibility of Performance as Affecting the Obligations of Contracts,
66 LJ. PA. L. REV. 28, 33 (1917).
202. See text following note 197 supra.
203. See, e.g., 119 Fifth Avenue, Inc. v. Taiyo Trading Co., 190 Misc. 123, 73 N.Y.S.2d
774 (Sup. Ct. 1947), aff'd mem., 275 App. Div. 695, 87 N.Y.S.2d 430 (1st Dep't 1949);
6 CORBIN, CONTRACTS ? 1331, at 283 (1950); Rabinowe, Impossibility as Excusing NonPerformance of Contracts, 3 N.Y.U. INTRA. L. REV. 62 (1947).
204. See, e.g., 119 Fifth Avenue, Inc. v. Taiyo Trading Co., supra note 203.
205. See English authorities cited notes 150, 158 supra.
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314 COLUMBIA LAW REVIEW [Vol.58
Proper analysis shows that the gap filling theory is applicable, and
that a frustration problem may arise even where the subsequent events were
foreseen. Unforeseeability ordinarily establishes that a promisor cannot
reasonably be presumed to have assumed the risk of occurrence of the unforeseen circumstances.206 However, the applicability of the gap filling doc-
trine ultimately hinges on whether or not proper interpretation of the
contract shows that the risk of the subsequent events, whether or not
foreseen, was assumed by the promisor. If it appears from the nature
of the contract as well as from the surrounding circumstances that, although
they were reasonably foreseeable, the promisor did not assume the risk of
the subsequent events, the contract shows a gap subject to supplementation
in accordance with rules of objective law.207 Conversely, if the contract,
properly construed, shows that the promisor assumed the risk of unantici-
pated events, the occurrence of such events does not excuse performance.
It is well settled that one can validly contract even to do the impossible.208
The purpose of this article is to stress the correct analysis rather than
to explore all ramifications of the consequences to which its application may
lead. One of these consequences should, however, here be mentioned. It
is clear that one of the more important advantages of the gap filling doctrine
is that, in showing the exact scope of the promisor's intended obligations,
it indicates when the subsequent events become relevant and when objective
law must be applied to provide the rights and duties of the parties. A
logical corollary of that advantage is that the courts will no longer be
required to make the arbitrary decision that the occurrence of events,
not in the contemplation of the parties at the timne of contracting, can le
only to discharge.209 The gap filling doctrine clearly warrants equitable
adjustment of the rights and duties of the parties short of discharge, if
prevailing notions of good faith and fair dealing so require.210 Fears that
206. See text preceding note 201 supra.
207. The English case of W. J. Tatem, Ltd. v. Gamboa, [1939] 1 K.B. 132 (1938),
is an appropriate illustration. In that case, concerning the question whether seizure of a
chartered ship during the Spanish civil war discharged the charterer from his duty to pay the
rent, the extremely high daily rate made it clear that, although seizure was clearly foresee-
able, the charterer's promise could not reasonably be construed to manifest an intent to
continue payment after seizure. The charterer was held discharged, the court making the
correct remark that it was implementing the contract. For further examples, see 6 WILLISTON, CONTRACTS ? 1952 (rev. ed. 1936); Patterson, Constructive Conditions in Contracts,
42 COLUM. L. REV. 903, 953 (1942).
208. See, e.g., Selby v. Battley, 149 Cal. App. 2d 659, 309 P.2d 120 (1957); Wade,
The Principle of Impossibility in Contract, 56 L.Q. REV. 519, 528 (1940).
209. Courts in England and the United States have traditionally assumed that the
occurrence of unforeseen events can, in the proper case, lead only to discharge. In the
United States, see, e.g., West Street Warehouse, Inc. v. American President Lines, 186
Misc. 238, 58 N.Y.S.2d 722 (Sup. Ct. 1945) (frustration kills the contract). For English
authorities, see note 153 supra.
210. Accord, Corbin, Frustration of Contract in the United States of America, 29 J.
COMP. LEG. & INT'L L. (3d ser.) 1, 7-8 (1947). Equitable adjustment is presently made
to some limited extent under RESTATEMENT, CONTRACTS ? 468(1) (1932), and RESTATEMENT,
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1958] FRUSTRATION OF CONTRACT 315
American courts will not be equipped to make such adjustments seem ill
founded.
VII. CONCLUSION
It is indeed remarkable that it is requiring such extensive time and
sustained effort for the age-old principle of pacta sunt servanda ex fide bona
to be recognized as providing a logical and satisfactory solution to the frustration problem. What would seem the inestimable advantage of the gap
filling doctrine is that it effectively and permanently eliminates the erroneous
assumption that recognition of the legal relevance of frustration requires
deviation from the express contractual terms. In all legal systems here
reviewed, that assumption has undoubtedly been the main impediment to
a proper understanding of the problem and has been responsible for most
of the confusion which has arisen. It has been the basic premise upon which,
unfortunately, too many students of the problem have built their theories.211
By eliminating this obstacle, the gap filling doctrine enables the courts to
do justice in each individual case without requiring performance of the
revolutionary task of deviating from the express contractual terms.
From the nature of the problems which arise when unforeseen events
occur some uncertainty necessarily ensues which the gap filling theory
cannot purport to avoid. The prevailing notions of justice and fair dealing
are never so clear as to require only automatic application. It would seem,
however, that this uncertainty is not necessarily greater than uncertainties
existing in other areas of the law. The courts can be trusted to perform the
familiar task of determining what is reasonable with accustomed fairness
and efficiency.212
RESTITUTION ? 108(c) (1937). See West v. Peoples First Nat'l Bank & Trust Co., 378 Pa.
275, 106 A.2d 427 (1954).
211. For still another example, see Zepos, Frustration of Contract in Comparative Law
and in the New Greek Civil Code of 1946, 11 MODERN L. REV. 36 (1948).
212. Accord, Corbin, supra note 210, at 8.
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