Contracts in UK Law

There are certain contracts expressed by the law to be contracts of the utmost good faith where material facts must be disclosed; if not the contract is voidable. Apart from special fiduciary relationships contracts for partnership and contracts of insurance are the leading instances. In such cases the duty does not arise out of contract; the duty of a person proposing an insurance arises before a contract is made; so of an intending partner.

If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

That decision is entirely consistent both with the nature of a deposit and with the general approach of the law to repudiation and renunciation of contracts. Since the payment of a deposit at the executory stage of the contract is an earnest (or guarantee) of further performance, it is no surprise that a failure to pay the deposit on time is taken to demonstrate that the buyer is unwilling to perform the contract as a whole.

No contracts are made in a vacuum: there is always a setting in which they have to be placed. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

The general presumption is that the parties have expressed every material term which they intended should govern their agreement, whether oral or in writing. But it is well recognised that there may be cases where obviously some term must be implied if the intention of the parties is not to be defeated, some term of which it can be predicated that "it goes without saying", some term not expressed but necessary to give to the transaction such business efficacy as the parties must have intended.

So perhaps it would be simpler to say at the outset that frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.