The Lord Chancellor
This is the appeal of a Polish Company who were Plaintiffs in the action against the decision of the Court of Appeal composed of Lord Justice MacKinnon, Lord Justice Luxmoore, and Mr. Justice Stable, confirming the judgment of Mr. Justice Tucker at the trial in favour of the Respondents. After the Court of Appeal's judgment and before the appeal came to be argued at your Lordships' bar, the town of Vilna, where the Appellant Company had carried on its business, and indeed the whole of Poland, under the laws of which State the Appellant Company was incorporated, were occupied by our enemy Germany. The question might, therefore, arise whether the Appellant Company should now be debarred from prosecuting its appeal. (See the judgment of the Court of Appeal delivered by Lord Reading C.J. in Porter v. Freudenberg  I K.B. 857, especially at pages 868 and 884; see also Rodriguez v. Speyer Bros.  A.C. 59.) In order to obviate any difficulty on this head, the Plaintiff Company, at the suggestion of the House, applied to the Board of Trade, and the Department gave to the Appellants' solicitors a licence to proceed with the appeal, notwithstanding that their clients might be in the position of an alien enemy. The House was content to let the case proceed on this basis. It is not, therefore, necessary to consider, in dealing with the present appeal, whether the recent decision of the Court of Appeal in re an Arbitration between N. V. Gebr. van Udens Scheepvaart en Agentuur Maatschappij and Sovfracht  3 All E.R. 419, should be approved. If, as the result of the decision of the House, any payment becomes due to the Appellants, and if they were in the position of alien enemies within the meaning of the Trading with the Enemy Act, 1939, the payment would be regulated by that Act.
The Respondents are a limited company carrying on at Leeds the business of manufacturing textile machinery, and by a contract in writing dated the 12th July, 1939, the Respondents agreed to supply the Appellants with certain flax-hackling machines as therein specified and described, at a lump-sum price of Â£4,800. The machines were of a special kind, and there is no suggestion that the Respondents were not to manufacture them themselves. By the terms of the contract, delivery was to be in three to four months from the settlement of final details. The machines were to be packed and delivered by the Respondents c.i.f. Gdynia; the services of a skilled monteur to superintend erection were to be provided by the Respondents and included in the price; and payment was to be made by cheque on London, one-third of the price (Â£1,600) with the order and the balance (Â£3,200) against shipping documents.
On July 18th, 1939, the Appellants paid to the Respondents Â£1,000 on account of the initial payment of Â£1,600 due under the contract. On September 1st. 1939, Germanyinvaded Poland and on the 3rd September Great Britain declared war on Germany. On September 7th, the Appellants' agents in this country wrote to the Respondents: Owing to the outbreak of hostilities it is now quite evident that the delivery of the machines on order for Poland cannot take place. Under the circumstances we shall be obliged if you will kindly arrange to return our initial payment of ,Â£1,000 at your early convenience." To this request, the Respondents replied on the next day refusing to return the sum and stating that considerable work has been done upon these machines and we cannot consent to the return of this payment. "After the war the matter can be reconsidered.
On September 23rd, by Order in Council made under the provisions of the Trading with the Enemy Act, 1939, it was declared that Poland(including that part in which the port of Gdynia is situated) was enemy territory.
There was further correspondence between the parties or their agents which failed to produce agreement, and on May 1st, 1940, the Appellant Company issued a writ and by its statement of claim alleged "that the Respondents had broken the contract by refusing to deliver the machines, while the Appellants are and have at all material times been ready and willing to take delivery and pay for the machines. The prayer of the claim was (a) for damages for breach of contract, (b) for specific performance—an obviously hopeless claim—or, alternatively, return of the Â£1,000 with interest, and (c) for further or other relief. The substantial defence of the Respondents was that the contract had been frustrated by the German occupation of Gdyniaon the 23rd September, 1939, and that in these circumstances the Appellants had no right to the return of the Â£1,000.
Before passing to the main question involved in the appeal, I must mention another contention of the Appellants which was based on Clause 7 of the conditions of sale attached to the contract. This Clause contained the provision that should despatch be hindered or delayed by ... any cause beyond our reasonable control including . . . war ... a reasonable extension of time shall be granted. The Appellants argued that there could be no frustration by reason of the war which broke out during the currency of the contract because this contingency was expressly provided for in Condition 7 and, therefore, there was no room for an implied term such as has often been regarded as a suitable way in which to express and apply the doctrine of frustration. I entirely agree with the Court of Appeal that in the circumstances of the present case this is a bad point. The ambit of the express condition is limited to delay in respect of which " a reasonable xtension of time " might be granted. That might mean a minor delay as distinguished from a prolonged and indefinite interruption of prompt contractual performance which the present war manifestly and inevitably brings about. A similar argument was unsuccessfully urged in Bank Line v. Capel  A.C. 435 and in other cases, a recent instance of which is Tatem v. Gamboa  1 K.B. 132. The principle is that where supervening events, not due to the default of either party, render the performance of a contract indefinitely impossible, and there is no undertaking to be bound in any event, frustration ensues, even though the parties may have expressly provided for the case of a limited interruption. As Lord Justice MacKinnon points out, the unsoundness of the contrary view is implicit in Jackson v. Union Marine Insurance Co., Ltd., L.R. 10 C.P. 125, for the charter-party in that case contained an exception of perils of the sea (see L.R. 8 C.P. at p. 584), but none the less the contract was held to have been terminated and the adventure to have been frustrated By the long delay due to the stranding of the ship. The situation arising from the out- break of the present war, so far as this country, Germany and Poland are concerned, makes applicable Mr. Justice Lush's well-known observation in Geipel v. Smith, L.R. 7 Q.B. 404 at p. 414, a state of war (in that case the Franco-German war of 1870) must be presumed to be likely to continue so long and so to disturb the commerce of merchants as to defeat and destroy the object of a commercial adventure like this.
There is a further reason for saying that this subsidiary contention of the Appellants must fail, viz., that while this country is at war with Germanyand Germany is occupying Gdynia, a British subject such as the Respondents could not lawfully make arrangements to deliver c.i.f. Gdynia, and therefore the contract could not be further performed because of supervening illegality. A provision providing for a reasonable extension of time if despatch is delayed by war cannot have any application when the circumstances of the war make despatch illegal. (Ertel Bieber and Co. v.Rio Tinto Co., Ltd.  A.C. 260.)
Mr. Linton Thorp, in conducting the argument for the Appellants before us, admitted that if the point with which I have already dealt was decided against him, the only other issue to be determined was whether, when this contract became frustrated, the Appellants could, in the circumstances of the present case, claim back from the Respondents the Â£1,000 which they have paid when lacing the order. As to this, Lord Justice MacKinnon, in delivering the judgment of the Court of Appeal, said: Mr. Justice Tucker held that, having regard to the principle laid down in Chandler v. Webster  1 K.B. 493 and other like cases, this claim must fail. We think he was right, and, further, that that principle must equally bind this court to reject the claim. Whether the principle can be overruled is a matter that can only concern the House of Lords.
This alleged principle is to the effect that where a contract has been frustrated by such a supervening event as releases from further performance, the loss lies where it falls, with the result that sums paid or rights accrued before that event are not to be surrendered, but that all obligations falling due for performance after that event are discharged. This proposition, whether right or wrong, does not first appear in Chandler v. Webster, but in Blakeley v. Mutter and Co., decided in January, 1903, by a Divisional Court  2 K.B. 760, note, which was also a case arising out of the abandonment of the coronation procession owing to King Edward VII's sudden illness. In that case, Mr. Justice Channell said, If the money was payable on some day ubsequent to the abandonment of the procession, I do not think it could have been sued for.
If, however, it was payable prior to the abandonment of the procession, the position would be the same as if it had been actually paid and could not be recovered back, and it could be sued for. . . . It is impossible to import a condition into a contract which the parties could have imported and have not done so. All that can be said is that when the procession was abandoned the contract was off, not that anything done under the contract was void. The loss must remain where it was at the time of the abandonment. It is like the case of a charter party where the freight is payable in advance and the voyage is not completed, and the freight, therefore, not earned. Where the non-completion arose through impossibility of performance, the freight could not be recovered back. In Civil Service Co-Operative Society, Ltd. v. General Steam Navigation Co., which was decided in the Court of Appeal in October, 1903  2 K.B. 756, Lord Halsbury L.C. expressed entire concurrence with this passage in the judgment of Mr. Justice Channell. Lord Alverstone C.J., who was a party o both these decisions, took the same view.
If we are to approach this problem anew, it must be premised that the first matter to be considered is always the terms of the particular contract. If, for example, the contract is divisible in the sense that a sum is to be paid over in respect of completion of a denned portion of the work, it may well be that the sum is not returnable if completion of the whole work is frustrated. If the contract itself on its true construction stipulates for a particular result which is to follow in regard to money already paid, should frustration afterwards occur, this governs the matter. The ancient and firmly established rule that freight paid in advance is not returned if the completion of the voyage is frustrated (Byrne v. Schiller (1871) L.R. 6 Ex. 319) should, I think, be regarded as a stipulation introduced into such contracts by custom, and not as he result of applying some abstract principle. And so, a fortiori, if there is a stipulation that the prepayment is out and out. To take an example, not from commerce, but from sport, the cricket spectator who pays for admission to see a match cannot recover the entrance money on the ground that rain has prevented play if, expressly or by proper implication, the bargain with him is that no money will be returned. Inasmuch as the effect of frustration may e explained as arising from an implied term (see Joseph Constantine S.S. Line, Ld. v. Imperial Smelling Co.  A.C. 154at p. 163), it is tempting to speculate whether a further term could be implied as to what was to happen, in the event of frustration, to money. already paid. But if the parties were assumed to have discussed the point when entering into the contract, they could not be supposed to have agreed on a simple formula which would be fair in all circumstances, and all that could be said is that, in the absence of such agreement, the law must decide. The question now to be determined is whether, in the absence of a term in the contract dealing with the matter, the rule which is commonly called the rule in Chandlerv. Webster should be affirmed.
This supposed rule has been constantly applied in a great variety of cases which have since arisen—and necessarily so, because the rule had been laid down in plain terms by the Court of Appeal in England in 1904, and the present appeal provides the first occasion on which it can be effectively challenged. A very different rule prevails in Scotland, as was made plain by the decision of this House in Cantiare San Rocco v. Clyde Ship-building and Engineering Co.  A.C. 226. In that case the Earl of Birkenhead (at p. 233) was careful to reserve the question whether Chandler v. Webster and the other English cases on the point were rightly decided, saying, the question is as to the law of Scotland, and I desire to say nothing which may in " any way fetter opinion if those authorities hereafter come to be reviewed by this House, for none of them is binding upon your Lordships. Similarly, in the same case, Viscount Finlay (at p. 241) observed that it would be out of place on that occasion to enter into the question dealt with in Chandler v. Webster, adding, "the principle of English law was re-stated with great clearness by Lord Parmoor in the case of French Marine v. Compagnie Napolitaine d'Eclairage et Chauffage par le Gaz (27 Com. Cas. 69 at p. 94).. This statement forms no part of the judgment of the House of Lords in that case, but there is no doubt that the principle has been repeatedly acted on in the Court of Appeal. Lord Dunedin in the Cantiare San Rocco case (at p. 240) referred to the different angle of approach from which an English or a Scottish Judge would look at the question, and thought that the cause was to be found in the reluctance of the English law to order the repayment of money once paid. But he added, I do not enlarge on the topic, for I am not at all concerned to criticise English law.. . . . For the purpose of this case, it is sufficient to say, as I unhesitatingly do, that Chandlerv. Webster, if it had been tried in Scotland, would have been decided the other way." Lord Dunedin's restraint was not imitated by Lord Shaw, whose pronouncement included a vigorous denunciation (at p. 259) of the proposition that the loss lies where it falls as amounting to a maxim which works well enough among tricksters, gamblers and thieves." The learned Lord asserted that this was part of the law of England (presumably meaning that it had been so laid down by the English Court of Appeal), but patriotically rejoiced that it had never been part of the law of Scotland.
Mr. Valentine Holmes, in his able argument for the Respondents, asked us to consider whether this House would be justified in disturbing a view of the law which has prevailed for nearly forty years, which has been so frequently affirmed, which has been constantly applied in working out the rights of the parties to commercial contracts, and which, moreover, at any rate furnishes a simple rule against the effect of which the parties to a contract can, if they so desire, expressly provide. These are weighty considerations, but I do not think they ought to prevail in the circumstances of this case over our primary duty of doing our utmost to secure that the law on this important matter is correctly expounded and applied. If the view which has hitherto prevailed in this matter is found to be based on a misapprehension of legal principles, it is of great importance that these principles should be correctly defined, for, if not, there is a danger that the error may spreadin other directions, and a portion of our law be erected on a false foundation. Moreover, though the so-called rule in Chandlerv. Webster is nearly forty years old, it has not escaped much unfavourable criticism. My noble and learned friend Lord Atkin when sitting in the court of appeal as Justice Atkin in Russcoe v. Stirk  10 LI.L.Rep. 212, at p. 217, doubted whether any two business people in the world would ever make a contract which embodied such a doctrine as Chandlerv. Webster laid down; and in the present case the Court of Appeal, while bound by previous authority, hinted a hope that this House might be able to substitute a more civilised rule. I think, therefore, that we ought to regard ourselves as at liberty to examine the challenged proposition freely, and to lay down what we regard as the true doctrine in English law without being hampered by a course of practice based on previous decisions in the Court of Appeal.
The locus classicus for the view which has hitherto prevailed is to be found in Sir Richard Collins' judgment in Chandlerv. Webster. It was not a considered judgment, but it is hardly necessary to say that I approach this pronouncement of the then Master of the Rolls with all the respect due to so distinguished a common lawyer. When his judgment is studied, however, one cannot but be impressed by the circumstance that he regarded the proposition that money in such cases could not be recovered back as flowing from the decision in Taylor v. Caldwell  3 B. and S. 826. Taylorv. Caldwell, however, was not a case in which any question arose as to whether money could be recovered back, for there had been no payment in advance, and there is nothing in the judgment of Mr. Justice Blackburn which, at any rate in terms, affirms the general proposition that the loss lies where it falls. Sir Richard Collins application of Taylorv. Caldwellto the actual problem with which he had to deal in Chandlerv. Webster deserves close examination. He said at p. 499 of  1 K.B.: —
The Plaintiff contends that he is entitled to recover the money which he has paid on the ground that there has been a total failure of consideration. He says that the condition on which he paid the money was that the procession should take place, and that, as it did not take place, there has been a total failure of consideration. That contention does no doubt raise a question of some difficulty, and one which has perplexed the Courts to a considerable extent in several cases. The principle on which it has been dealt with is that which was applied in Taylor v. Caldwell—namely, that where, from causes outside the volition of the parties, something which was the basis of, or essential to the fulfilment of, the contract has become impossible, so that, from the time when the fact of that impossibility has been ascertained, the contract can no further be performed by either party, it remains a perfectly good contract up to that point, and everything previously done in pursuance of it must be treated as rightly done, but the parties are both discharged from further performance of it. If the effect were that the contract were wiped out altogether, no doubt the result would be that money paid under it would have to be repaid as on a failure of consideration. But that is not the effect of the doctrine; it only releases the parties from further performance of the contract. Therefore the doctrine of failure of consideration does not apply.
It appears to me that the reasoning in this crucial passage is open to two criticisms: —
(a) The claim of a party who has paid money under a contract to get the money back, on the ground that the consideration for which he paid it has totally failed, is not based upon any provision contained in the contract, but arises because, in the circumstances that have happened, the law gives a remedy in quasi-contract to the party who has not got that for which he bargained. It is a claim to recover money to which the defendant has no further right because in the circumstances that have happened the money must be regarded as received to the plaintiff's use. It is true that the effect of frustration is that, while the contract can no further be performed, it remains a perfectly good contract up to that point, and everything previously, done in pursuance of it must be treated as rightly done. But it by no means follows that the situation existing at the moment of frustration is one which leaves the party that has paid money and has not received the stipulated consideration without any remedy. To claim the return of money paid on the ground of total failure of consideration is not to vary the terms of the contract in any way. The claim arises not because the right to be repaid is one of the stipulated conditions of the contract, but because, in the circumstances that have happened, the law gives the remedy. It is the failure to distinguish between (1) the action of assumpsit for money had and received in a case where the consideration has wholly failed, and (2) an action on the contract itself, which explains the mistake which I think has been made in applying English law to this subject-matter. Thus, in Blakeley v. Mutter and Co. (cited above), Lord Alverstone C.J. said, I agree that Taylor v. Caldwell applies, but the consequence of that decision is that neither party here could have sued on the contract in respect of anything which was to be done under it after the procession had been abandoned. That is true enough, but it does not follow that because the plaintiff cannot sue on the contract he cannot sue dehors the contract for the recovery of a payment in respect of which consideration has failed. In the same case, Mr. Justice Wills relied on Appleby v. Myers, L.R. 2 C.P. 651, where a contract was made for the erection by A. of machinery upon the premises of B., to be paid for upon completion. There was no pre-payment, and in the course of the work the premises were destroyed by fire. It was held that both parties were excused from further performance, and that no liability accrued on either side. But the liability referred to was liability under the contract, and the learned Judge seems to have thought that no action to recover money in such circumstances as the present could be conceived of unless there was a term of the contract, express or implied, which so provided. Once it is realised that the action to recover money for a consideration that has wholly failed rests not upon a contractual bargain between the parties, but (as Lord Sumner said in Sinclair v. Brougham  A.C. 398. at p. 452) upon a notional or imputed promise to repay, or (if it is preferred to omit reference to a fictitious promise) upon an obligation to repay arising from the circumstances, the difficulty in the way of holding that a pre-payment made under a contract which has been frustrated can be recovered back appears to me to disappear.
(6) There is, no doubt, a distinction between cases in which a contract is wiped out altogether, e.g., because it is void as being illegal from the start, or as being due to fraud which the innocent party has elected to treat as avoiding the contract, and cases in which intervening impossibility only releases the parties from further performance of the contract". But does the distinction between these two classes of case justify the deduction of Sir Richard Collins that the doctrine of failure of consideration does not apply where the contract remains a perfectly good contract up to the date of frustration This conclusion seems to be derived from the view that, if the contract remains good and valid up to the moment of frustration, money which has already been paid under it cannot be regarded as having been paid for a consideration which has wholly failed. The party that has paid the money has had the advantage, whatever it may be worth, of the promise of the other party. That is true, but it is necessary to draw a distinction. In English law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act—I am excluding contracts under seal—and thus, in the law relating to the formation of contract, the promise to do a thing may often be the consideration. But when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise. The money was paid to secure performance and, if performance fails, the inducement which brought about the payment is not fulfilled.
If this were not so, there could never Be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance. Yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled. (See the notes in Bullen and Leake, 9th edition, page 263.) In this connection the decision in Rugg v. Minett (11East 210) is instructive. There the plaintiff had bought at auction a number of casks of oil; the contents of each cask were to be made up after the auction by the seller to the prescribed quantity so that the property in a cask did not pass to the plaintiff until this had been done. The plaintiff paid in advance a sum of money on account of his purchases generally, but a fire occurred after some of the casks had been filled up, while the others had not. The plaintiff's action was to recover the money he had paid its money received by the defendants to the use of the plaintiffs. The Court of King's Bench ruled that this cause of action succeeded in respect of the casks which at the time of the fire had not been filled up to the prescribed quantity. A simple illustration of the same result is an agreement to buy a horse, the price to be paid down, but the horse not to be delivered and the property not to pass until the horse has been shod. If the horse dies before the shoeing, the price can Unquestionably be recovered as for a total failure of consideration, notwithstanding that the promise to deliver was given. This is the case of a contract de certo corpore where the cerium corpus perishes after the contract is made; but, as Lord Justice Vaughan Williams' judgment in Krell v. Henry  2 K.B. 740 explained, the same doctrine applies to cases where the event which renders the contract incapable of performance is the cessation or non-existence of an express condition or state of things, going to the root of the contract, and essential to its performance. I can see no valid reason why the right to recover pre-paid money should not equally arise on frustration arising from supervening circumstances as it arises on frustration from destruction of a particular subject-matter.
The conclusion is that the rule in Chandlerv. Webster is wrong, and that the Appellants can recover their Â£1,000.
While this result obviates the harshness with which the previous view in some instances treated the party who had made a pre- payment, it cannot be regarded as dealing fairly between the parties in all cases, and must sometimes have the result of leaving the recipient who has to return the money at a grave disadvantage. He may have incurred expenses, in connection with the partial carrying out of the contract, which are equivalent, or more than equivalent, to the money which he prudently stipulated should be prepaid, but which he now has to return for reasons which are no fault of his. He may have to repay the money, though he has executed almost the whole of the contractual work, which will be left on his hands. These results follow from the fact that the English common law does not undertake to apportion a prepaid sum in such circumstances—contrast the provision, now contained in s. 40 of the Partnership Act, 1894, for apportioning a premium if a partnership is prematurely dissolved. It must be for the legislature to decide whether provision should be made for an equitable apportionment of prepaid monies which have to be returned by the recipient in view of the frustration of the contract in respect of which they were paid.
I move that the Appeal be allowed, and that judgment be entered for the Appellants. The precise provisions with regard to subsidiary matters we might consider after the other Opinions have been delivered.
For the reasons given by the Lord Chancellor I agree that the Appellant fails on all his points except that arising out of the frustration of the contract. I have no doubt that the contract in this case came to an end before the time for complete performance had arrived by reason of the arising of a state of war which caused an indefinite delay not contemplated by the parties, and eventually the legal impossibility of delivering the goods at a port occupied by the enemy. In other words, to use a short phrase of frequent occurrence since the beginning of the last war, the commercial adventure was frustrated. The legal effects of frustration are not in dispute. They were not determined for the first time either by the cases which arose on the postponement of the coronation of Edward VII, or by reason of the last war. It is very necessary to remember that, as pointed out by Vaughan-Williams L.J. in Krell v. Henry, 1903, 2 K.B., at p. 748, the principle of law is the same whether the performance of the contract becomes impossible by the cessation of existence of a thing which is the subject of the contract (an obligation de certo corpore) or by the cessation or non-existence of an express condition or state of things going to the root of the contract and essential to its performance. And it is well settled that when a contract which is still executory on one or both sides is subject to frustration the law is that when the event happens the parties are excused from further performance, but have to give effect to rights under the contract already accrued before the happening of the event. A. sells a horse to B. for Â£50, delivery to be made in a month, the price to be paid forthwith, but the property not to pass till delivery, and B. to pay A. each week an agreed sum for keep of the horse during the month. The horse dies in a fortnight. A. is excused from delivery and B. from taking delivery; B. is bound to pay the sum due for the fortnight during which the horse was kept. But what is the position as to the Â£50, the price paid in advance? This is in simple terms the problem in the present case. The answer that I venture to think would occur to most people, whether laymen or lawyers, would be that the buyer ought to get his money back, having had nothing for it; and the lawyer would support the claim by saying that it is money had and received to the use of the buyer, being money paid on a consideration which has wholly failed. But that is not the answer which was given in similar cases in the coronation cases, and it is those decisions that come up for review in the present case. The question arose in the neatest form in the case of Chandler v. Webster, 1904, I K.B. 493, where the leading judgment was given in the Court of Appeal by Collins M.R., a master of the common law, whose opinion the profession have always rightly held in the greatest respect. In that case the Plaintiff had hired a room to view the coronation procession on Thursday, June 26, 1902, On June 10 he wrote to the Defendant: ' I beg to confirm my purchase of the first floor room of the Electric Lighting Board at 7, Pall Mall to view the procession on Thursday, June 26, for the sum of Â£141 15s. 0d., which amount is now due. I shall be obliged if you will take the room on sale, and I authorise you to sell separate seats in the room, for which I will erect a stand. It became the subject of controversy whether, in view of certain other terms arranged between the parties, the whole sum became due before the procession became impossible; but the Courts decided, as was clearly the case, that it did so become due. It may be noted that the Defendant had nothing to do under the contract but allow the Plaintiff the use of the room. On June 19 the Plaintiff paid the Defendant Â£100 on account of the price of the room, but had not paid the balance at the time the procession was abandoned. The Plaintiff claimed the return of the Â£100 on a total failure of consideration; the Defendant counterclaimed for the balance of Â£41 15s. 0d. Collins M.R., at p. 499, dealing with the contention that there had been a total failure of consideration, after stating that it raised a question of some difficulty, stated that the principle on which it has been dealt with is that which was applied in Taylor v. Caldwell, viz. that where the contract has become impossible in the circumstances there stated it remains a perfectly good contract up to that point, and everything previously done in pursuance of it must be treated as rightly done; but the parties are both discharged from further performance of it. So far the statement is unassailable. But the Master of the Rolls proceeds: If the effect were that the contract were wiped out altogether, no doubt the result would be that money paid under it would have to be repaid as on a failure of consideration. But that is not the effect of the doctrine: it only releases the parties from further performance of the contract. Therefore (the italics are mine) the doctrine of failure of consideration does not apply. It seems plain that the Master of the Rolls is not repelling the claim for money had and received on the ground that the doctrine as to impossibility of performance itself, as part of its content, excludes the claim. The case of Taylorv. Caldwell(1863), 3 B. and S. 826, the principle of which he is expressly applying, had nothing to do with money had and received. The claim was for damages in costs of advertisements, etc., for concerts for which the Defendants had agreed to let their hall at the Surrey Gardens, a contract which it was impossible to perform because the hall was destroyed by fire after the contract. The Master of the Rolls there is applying the common law rule as' to money had and received to a case of a contract where all that had happened was that in law both parties were released from further performance. And in those circumstances he seems to say: the doctrine of failure of consideration only applies where the contract is wiped out altogether: in this case it is not: the parties are only discharged from further performance: therefore the claim for money had and received must fail.
My Lords, the difficulty which this decision causes me is to understand how this great lawyer came to the conclusion that the claim for money paid on a consideration which wholly failed could only be made where the contract was wiped out altogether: and I have sought for some construction of his words which stopped short of that absolute statement, but I can find none. I know of no authority for the proposition. It is true that where a party is in a position to rescind a contract he may be able to sue for money which he has paid under the contract now rescinded: but there are numerous cases where there has been no question of rescission where such an action has lain. I may refer to Giles v. Edward (1797), 7 T.R. 181, where a contract to deliver wood was prevented by the Defendant preventing performance by not loading all the wood. Rugg v. Minett (1809), 11 East 210, where the buyer had paid part or the purchase price on a sale of turpentine in casks, where the property in some casks had passed while in seller's warehouse, but in some had not, and the purchaser was entitled to recover for money had and received the proportion properly attributable to the casks in which the property had not passed; Nockels v. Crosby (1825), 3 B. and C. 814; Wilson v. Church (1879), 13 Ch.D. i; (1880), 5 A.C. 177; Johnson v. Goslett (1857) 3 C.B.N.S. 569, and Ashpitel v. Sercombe (1855), 5 Ex. 147, in all of which the Plaintiff had put up money for an adventure which was eventually abandoned by the promoters, Devaux v. Conolly (1849), 8 C.B. 640, where there had been an over-payment in respect of goods delivered. In none of these cases was it suggested that the contract was wiped out altogether; indeed, in other cases where it is suggested that the contract was rescinded, all that is meant is that the party was entitled to treat himself as no longer bound to perform and to recover what he himself has paid.
With great respect therefore to the judgment in Chandlerv. Webster, I do not agree with that part of it which refused to give effect to the Plaintiff's claim for return of the sum which he had paid on the ground of total failure of consideration. Some discussion arose as to the precise meaning of this term. It was pointed out that the consideration for the part payment by the Plaintiffs was the promise by Defendants to deliver the goods c.i.f. at Gdynia; and the promise was always effective until further performance was excused. I personally agree with that statement of what the consideration was, and I do not think it necessary to use the word consideration in two meanings. I understand by the phrase that the promise to deliver goods totally failed because no goods were or could be delivered, and that therefore a cause of action accrued to the Plaintiff. I should add that if it was wrong in Chandlerv. Webster to refuse the Plaintiff .relief on his claim, it was also wrong to give the Defendant judgment on his counterclaim. It is true that the right to receive the balance had accrued before frustration: but if the money had been paid it could have been recovered back as the Â£100 could, and the principles relating to circuity of action would afford a defence to the counterclaim. Lord Dunedin quotes with approval in the law of Scotland the brocard frustra petis quod mox es restiturus, French Marine v. Compagnie Napolitaine, 1921, 2 A.C., at p. 511, and the expression aptly fits the English law in this respect. It was urged before us that in the case last cited the House of Lords held that Chandlerv. Webster was rightly decided, and that this House is consequently bound to follow it. I cannot agree. The French Marine case was a case of a time charter whose hire was paid monthly in advance, and the ship was only redelivered after part of the month had expired. Lord Sumner, at p. 517, draws attention to the fact that there was no total failure of consideration, but a partial failure only, for which in law no pro rata repayment could be claimed. It is obvious therefore that the present question did not arise; and in Cantiare v. Clyde Shipbuilding Co., 1924, A.C. 226, a case which turned on the Scots law, all their Lordships treated the question of the English law as open in this House. In the case last mentioned it was decided that according to Scots law restitution could be made of sums paid in advance where the contract was frustrated: and it is satisfactory to find that the English and Scots law now agree on this point. It is unnecessary to discuss the interesting suggestion that the Scots law does not in fact entitle the claimant to recover necessarily the whole amount paid, but only so much as can be shown to be an unjust enrichment of the defender: in other words, that the latter may claim an adjustment in respect of the amount by which he is out of pocket for expenses incurred in respect of the contract. There was no decision on this point in the case, though this House affirmed the interlocutor of Lord Hunter, the Lord Ordinary, who had given permission to the defenders to amend their pleas in order, as it appears, to counterclaim for expenses, a proceeding which in any event I do not understand. It may be that such an adjustment was possibleunder Roman Law, but there seems no direct authority for it in Scots law, and there is a dictum of great weight against it in the judgment of Lord President Inglis in Watson v. Shankland (1871), 10 M., at p. 152.
That the result of the law may cause hardship when a contract is automatically stayed during performance and any further right to performance is denied to each party is incontrovertible. One party may have almost completed expensive work: he can get no compensation. The other party may have paid the whole price, and if he has received but a slender part of the consideration he can get no compensation. At present it is plain that if no money has been paid on the contract there is no legal principle by which loss can be made good. What is being now decided is that the application of an old-established principle of the Common Law does enable a man who has paid money and received nothing for it to recover the money so expended. At any rate, it can be said it leaves the man who has received the money and given nothing for it in no worse position than if he had received none. Many commercial contracts provide for various risks: it is always possible to provide for the risk of frustration; but what provision the parties may agree will probably take some time to negotiate. Meanwhile by the application of a general doctrine which is independent of the special contract and only comes into play when further performance of the latter is precluded, the man who pays money in advance on a contract which is frustrated and receives nothing for his payment is entitled to recover it back. I think therefore that the appeal should be allowed.
Lord Russell of Killowen
(READ BY LORD MACMILLAN)
That which has been described during the argument of this case, and at other times, as the rule in Chandler v. Webster should, I think, rather be called the rule (to put it shortly) that in cases of frustration loss lies where it falls, or (at greater length) that where a contract is discharged by reason of supervening impossibility of performance, payments previously made and legal rights previously accrued according to the terms of the contract, will not be disturbed, but the parties will be excused from liability further to perform the contract.
I say this because as I read the judgment of the Master of the Rolls in Chandlerv. Webster he does not purport to be framing any new rule, or laying down any new law: he thought that the case which he was deciding was one which, upon its facts, was governed by a rule already established by the authorities.
In Scotlandthe consequence of frustration is not that loss lies where it falls. The Scots law derives from the Roman law a different view, founded on the doctrine of restitutio, which has no place in English law, and which it is not open to us to import into the law of England. We must examine the rule as it exists in the law of England, and determine whether the Appellants are entitled to be repaid the Â£1,000. If Chandlerv. Webster was rightly decided, they would clearly not be so entitled.
It is to be observed that the doubt as to the correctness of the rule only arises in cases in which one of the parties to the contract has paid over to the other party the whole or part of the money payable by him as the consideration for what he is to receive as the consideration moving from the other party. If no such money has been paid the rule must apply; for I know no principle of English law which would enable either party to a contract which has been frustrated to receive from the other compensation for any expense, or indemnity from any liability, already incurred in performing the contract. Nor could moneys paid before frustration be recovered if the person making the payment has received some part of the consideration moving from the other party for which the payment was made. In such a case the rule would still apply.
But I am of opinion that this appeal should succeed because of another aspect of the matter.
In the present case the Appellants, before frustration, paid in advance a part of the price of the machines. We heard an elaborate argument as to what was the exact consideration moving from the Respondents for that part of the contract which stipulated for payment of part of the price in advance. I am not aware of any justification for splitting up the consideration in this way, and assigning a consideration for each separate provision of a contract. Under the contract here in question the consideration moving from the Respondents was either the delivery of the machines at Gdynia, or the promise to deliver the machines at Gdynia. I think that the delivery was the consideration; but in whichever way the consideration is viewed, it is clear that no part of the considerationfor which part of the price of the machines was paid ever reached the Appellants. There was a total failure of the consideration for which the money was paid.
In those circumstances, why should the Appellants not be entitled to recover back the money paid, as money had and received to their use, on the ground that it was paid for a consideration which has wholly failed I can see no reason why the ordinary law, applicable in such a case, should not apply. In such a case the person who made the payment is entitled to recover the money paid That is a right which in no way depends upon the continued existence of the frustrated contract. It arises from the fact that the impossibility of performance has caused a total failure of the consideration for which the money was paid.
In his judgment in Chandler v. Webster the Master of the Rolls states that the right to recover moneys paid for a consideration which has failed only arises where the contract is wiped out altogether, by which expression I understand him to mean is void ab initio. This is clearly a misapprehension on the part of the learned judge. The money was recoverable under the common indebitatus count, as money received for the use of the Plaintiff. The right so to recover money paid for a consideration that had failed did not depend on the contract being void ab initio. There are many such cases in the books in which the contract has not been void ab initio, but the money paid for a consideration which has failed has been held recoverable. Thus, as one example, money paid as a deposit on a contract of sale which has been defeated by the fulfilment of a condition is recoverable (Wright v. Newton, 2 CM. and R. 124).
It was submitted by the Respondents, but without argument, that money paid for a consideration which had failed was recover- able only when the failure was due to the fault of the other party to the contract. But, on the authorities, this submission is clearly ill-founded. Chandlerv. Webster was accordingly, in my opinion, wrongly decided. The money paid was recoverable, as having been paid for a consideration which had failed.
The rule that on frustration the loss lies where it falls cannot apply in respect of moneys paid in advance when the consideration moving from the payee for the payment has wholly failed, so as to deprive the payer of his right to recover moneys so paid as moneys received to his use; but as I understand the grounds upon which we are prepared to allow this appeal, the rule will (unless altered by legislation) apply in all other respects.
Speaking in 1923 of the so-called Coronation cases Lord Shaw ventured on prophecy. ' No doubt, he said, the occasion will arise when that chapter of the law will have to be considered in this House, for, as the Earl of Birkenhead had pointedly observed, none of them [the Coronation cases] is binding " upon your Lordships." Cantiare Ban Rocco S.A. v. Clyde Ship-building and Engineering Co.  A.C. 226at pp. 257-8 and 233. The mills of the law grind slowly. Thirty-eight years have elapsed since the Court of Appeal pronounced judgment in Chandler v. Webster  1 K.B. 493, and nineteen years have passed since Lord Shaw used the words which I have quoted, but now at length in the present appeal the occasion foretold has arisen, and I may be permitted to express my gratification that it has been employed to clear the law of England by the unanimous judgment which the House is to-day pronouncing from the reproach to which it was exposed so long as the law laid down in Chandler v. Webster held the field.
My Lords, every system of law has had to face the problem of defining the consequences of a contract becoming impossible of fulfilment owing to some external supervening event for which neither of the parties is responsible. That such an eventuality releases both parties from further performance of any of the stipulations of the contract is agreed on all hands. Each must fulfil his contractual obligations up to the moment when impossibility supervenes, for the contract is not avoided by becoming impossible of fulfilment, but the duty of further performance ceases.
Having so declared, must the law stop there What if money has been paid, work has been done, or liabilities have been incurred by one or other or both of the parties in pursuance of or in reliance on the fulfilment of the contract which now can never be completed ?
The law may say that the event which has rendered fulfilment of the contract impossible is, so far as the parties are concerned, a mere accident; of mere accident the law takes no cognizance and for its consequences affords no redress; loss or gain must lie where it happens to fall and the parties must be left where they stood when their contract was frustrated.
On the other hand, the law may endeavour to effect an equitable adjustment between the parties, so as to restore each as far as may be to the position which he occupied before he entered into the contract and by a process of give and take to mitigate the consequences of the contract having proved abortive. I find this doctrine of restitution stated in its broadest terms in Pufendorf's celebrated treatise on the Law of Nature and Nations, first published in 1672, as follows: ' When the thing at the time of making the promise or pact appeared possible and afterwards becomes impossible we must inquire whether this happened by mere chance or by default and deceit. In the former case the pact is disannulled if nothing has yet been performed on either side. If anything have been already done towards it by one of the parties, the other shall give it back, or pay to the value of it; if neither of these can be done he is to use his best endeavours that the man be not a loser by him. For in contracts the first regard is had to the thing expressly mentioned in the agreement; when this cannot be obtained it is sufficient to give an equivalent; but whatever happens all imaginable care is to be used that the other party suffer no prejudice." (Book III, ch. 7, Â§3. English Translation, Oxford, 1703, p. 225.)
It is obvious that neither of these attempted solutions of the difficulty can be productive of complete justice. To leave matters as they stood when the contract became impossible of fulfilment may result in great gain to one of the parties and great loss to the other and to a grave infringement of the maxim nemo debet locupletari aliena jactura. It is no consolation to the individual sufferer to be told that on the whole such a rule works less injustice than any other. It is in truth a confession of impotence in the face of a problem deemed to be inextricable.
On the other hand to attempt to restore matters in their entirety is to attempt the impossible. The hands of the clock cannot be turned back; things cannot be as if they had not been. At best some sort of equitable accommodation can be achieved which must inevitably fall short of complete justice. The process is sought to be rationalised on a theory of quasi-contract. The parties have made no provision in their contract for the event which has frustrated it, so the law implies for them what it assumes they would have agreed upon if they had had the unforeseen contingency in contemplation when they entered into their contract. On another view, restitution is regarded as a separate principle of the law independent of contract.
Presented with this choice of methods of dealing with the situation, the law of England has adopted as its general principle the first of the two alternatives, namely, that each party shall be left as he stood, despairing of the practicability of conjecturing and enforcing what the parties might be assumed to have agreed upon if they had contemplated and provided for the unforeseen contingency. The law of Scotland on the other hand, following in this respect the Roman law, has accepted the principle of restitution, though how far it has gone in doing so and with what qualifications it would be out of place for me to discuss here. It may suffice to refer to the speeches of Lord Dunedin and Lord Shaw in the Cantiare San Rocco case.
But the law of Englandhas characteristically mitigated the rigour of its doctrine in one instance, namely, where in pursuance of a contract money has been paid by one party to the other for a consideration which has completely failed. The right of a Plaintiff to recover, under the common indebitatus count for money received, any sum which he has paid for a consideration which has wholly failed has long been fully recognised in the common law of England. (See Bullen and Leake's Precedents of Pleading, 3rd ed. 1868, pp. 44 et seq.) My noble and learned friends whose opinions I have had the privilege of reading in advance have by ample citations fully vouched the law on the subject and the task is more fittingly discharged by them than by me.
How, then, if such be the law of England did Chandler v. Webster come to be decided as it was, for there never was a clearer case of money paid for a consideration which had entirely failed The explanation is to be found in the passage in the judgment of Collins, M.R., where he said that the doctrine of failure of consideration applies only where a contract is wiped out altogether or, as Romer L.J. put it, rescinded ab initio, and does not apply where the parties are merely released from further performance. I can only say, with all respect, that this is a complete misapprehension. There is no authority for such a distinction and there is ample authority to prove that it does not exist. It has no basis in principleor precedent. So Chandlerv. Webster and its congeners must be consigned to the limbo of cases disapproved and overruled. They will be unwept save by those to whom for so many years they have furnished a fruitful and enlivening topic of discussion in lecture rooms and periodicals.
Your Lordships being of one mind that the so-called rule in Chandlerv. Webster is unsound, the way lies clear for the decision of the present case. The Plaintiffs made a payment to the Defendants to account of the price of certain plant which the Defendants were to manufacture and deliver to them. Owing to circumstances arising out of the present hostilities the contract has become impossible of fulfilment according to its terms. Neither party is to blame. In return for their money the Plaintiffs have received nothing whatever from the Defendants by way of fulfilment of any part of the contract. It is thus a typical case of a total failure of consideration. The money paid must be repaid.
I am accordingly in favour of allowing the Appeal.
The statement of the facts of the case which has been made by my noble and learned friend the Lord Chancellor renders any further recital by me superfluous.
The claim in the action was to recover a prepayment of Â£1,000 made on account of the price under a contract which had been frustrated. The claim was for money paid for a consideration which had failed.
It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against con- science that he should keep. Such remedies in English Law are generically different from remedies in contract or in tort, and are now recognised to fall within a third category of the common law which has been called quasi-contract or restitution. The root idea was stated by three Lords of Appeal, Lord Shaw, Lord Sumner and Lord Carson, in Jones v. Waring and Gillow, 1926, A.C. 670, which dealt with a particular species of the category, namely, money paid under a mistake of fact. Lord Sumner at p. 696, referring to Kelly v. Solari, 9 M. and W. 54, where money had been paid by an insurance company under the mistaken impression that it was due to an executrix under a policy which had in fact been cancelled, said: There was no real intention on the company's part to enrich her. Payment under a mistake of fact is only one head of this category of the law. Another class is where, as in this case, there is prepayment on account of money to be paid as consideration for the performance of a contract which in the event becomes abortive and is not performed, so that the money never becomes due. There was in such circumstances no intention to enrich the payee. This is the class of claims for the recovery of money paid for a consideration which has failed. Such causes of action have long been familiar and were assumed to be common-place by Holt L.C.J. in Holmes v. Hall, Holt 36, in 1704. Holt L.C.J. was there concerned only about the proper form of action and took the cause of the action as beyond question. He says: If a give money to B to pay to C upon C's giving writings, etc., and C will not do it, indebit will lie for A against B for so much money received to his use. And many such actions have been maintained for earnests in bargains, when the bargainor would not perform, and for premiums for insurance, when the ship, etc., did not go the voyage." The Chief Justice is there using earnest as meaning a prepayment on account of the price, not in the modern sense of an irrevocable payment to bind the bargain. And he is recognising that the indebitatus assumpsit had by that time been accepted as the appropriate form of action in place of the procedure which had been used in earlier times to enforce these claims such as debt, account or case.
By 1760 actions for money had and received had increased in number and variety. Lord Mansfield, in a familiar passage in Moses v. Macferlan, 2Burr, 1005, sought to rationalise the action for money had and received, and illustrates it by some typicalinstances. It lies, he said (at p. 1012), for money paid by " mistake; or upon a consideration which happens to fail; or
" for money got through imposition (express or implied); or extortion; or oppression; or an undue advantage taken of the " Plaintiff's situation, contrary to laws made for the protection of persons under those circumstances. In one word, the gist of this kind of action is that the Defendant upon the circumstances of the case is obliged by the ties of natural justice and equity to refund the money." Lord Mansfield prefaced this pronouncement by observations (at p. 1008) which are to be noted. If the Defendant be under an obligation from the ties of natural justice to refund, the law implies a debt and gives this action [sc. indebitatus assumpsit] founded in the equity of the Plaintiff's case, as it were, upon a contract (' quasi ex contractu ' as the Roman law expresses it). Lord Mansfield does not say that the Jaw implies a promise; the law implies a debt or obligation which is a different thing. In fact he denies that there is a contract; the obligation is as efficacious as if it were upon a contract. The obligation is a creation of the law, just as much as an obligation in tort. The obligation belongs to a third class, distinct from either contract or tort, though it resembles contract rather than tort
This statement of Lord Mansfield has been the basis of the modern law of quasi-contract, notwithstanding the criticisms which have been launched against it. Like all large generalisations, it has needed and received qualifications in practice. There is, for instance, the qualification that an action for money had and received does not lie for money paid under an erroneous judgment or for moneys paid under an illegal or excessive distress. The law has provided other remedies as being more convenient. The standard of what is against conscience in this context has become more or less canalised or defined. But in substance the juristic concept remains as Lord Mansfield left it.
The gist of the action is a debt or obligation implied, or more accurately imposed, by law, in much the same way as the law enforces as a debt the obligation to pay a statutory or customary impost. This is important, because some confusion seems to have arisen, though perhaps only in recent times when the true nature of the forms of action have become obscured by want of user. If I may borrow from another context the elegant phrase of the Lord Chancellor in the United Australia case, 1941 A.C. i, at p. 21, there, as it seems to me, has sometimes been a misreading of technical rules, now happily swept away." The writ of indebitatus assumpsit involved at least two averments, the debt or obligation and the assumpsit. The former was the basis of the claim and was the real cause of action. The latter was merely fictitious, and need not be traversed, but was necessary to enable the convenient and liberal form of action to be used in such cases. This fictitious assumpsit or promise was wiped out by the Common Law Procedure Act, 1852. As Bullen and Leake, Precedents of Pleading, 3rd Edition, p. 36, point out, this Act, by Section 3, provided that the Plaintiff was no longer required to specify the particular form of action in which he sues, and by Section 49 that (inter alia) the statement of promises in indebitatus counts which need not be proved were to be omitted; "the action of indebitatus assumpsit, the authors add, " is [that is by 1868] virtually become obsolete. Lord Atkin in  A.C., at p. 29, after instancing the case of the blackmailer, says "the man has my money which I have not delivered to him with any real intention of passing to him the property. I sue him because he has the actual property taken. He adds: ' These fantastic resemblances of contracts invented in order to meet requirements of the law as to forms of action which have now disappeared should not in these days be allowed to affect actual rights. Yet the ghosts of the forms of action have been allowed at times to intrude in the ways of the living and impede vital functions of the law. Thus in Sinclair v. Brougham, 1914, A.C. 398, Lord Sumner stated at p. 452 that all these causes of action [sc. for money had and received] are common upon a notional or imputed promise to repay. This observation, which was not necessary for the decision of the case, obviously does not mean that there is an actual promise of the party. The phrase notional or imputed promise is only a way of describing a debt or obligation arising by construction of law. The claim for money had and received always rested on a debt or obligation which the law implied, or more accurately imposed, whether the procedure actually in vogue at any time was debt or account or case or indebitatus assumpsit. Even the fictitious assumpsit disappeared after the Act of 1852. I prefer Lord Sumner's explanation of the cause of action in Jones's case (supra). This agrees with the words of Lord Atkin which I have just quoted. Yet serious legal writers have seemed to say that these words of the great Judge in Sinclair v. Brougham (supra) closed the door to any theory of unjust enrichment in English law. I do not understand why or how. It would indeed be a reductio ad absurdum of the doctrine of precedents. In fact the Common law still employs the action for money had and received as a practical and useful, if not complete or ideally perfect, instrument to prevent unjust enrichment, aided by the various methods of technical equity which are also available, as they were found to be in Sinclair v. Brougham (supra).
Must, then, the Court stay its hand in what would otherwise appear to be an ordinary case for the repayment of money paid in advance on account of the purchase price under a contract for the sale of goods merely because the contract has become impossible of performance and the consideration has failed for that reason The Defendant has the Plaintiff's money. There was no intention to enrich him in the events which happened. No doubt when money is paid under a contract it can only be claimed back as for failure of consideration where the contract is terminated as to the future. Characteristic instances are where it is dissolved by frustration or impossibility or by the contract becoming abortive for any reason not involving fault on the part of the Plaintiff where the consideration, if entire, has entirely failed, or where, if it is severable, it has entirely failed as to the severable residue, as in Rugg v. Minett, 11 East 210. The claim for repayment is not based on the contract which is dissolved on the frustration but on the fact that the Defendant has received the money and has on the events which have supervened no right to keep it. The same event which automatically renders performance of the consideration for the payment impossible, not only terminates the contract as to the future, but terminates the right of the payee to retain the money which he has received only on the terms of the contract performance. In Hirji's case (1926, A.C. 497, at p. 510) Lord Sumner, who has done so much in his judgments to elucidate the meaning and effect of frustration, contrasts rescission of a contract by one party on the ground of breach by the other party, which depends on election by the former, with frustration, which operates automatically apart from either party's election. He finds, however, a similarity in the respect that rights and wrongs which have come already into existence remain, though the contract is ended as regards obligations de futuro. But the contract is in neither case wiped out, or avoided ab initio. The right in such a case to claim repayment of money paid in advance must in principle, in my judgment, attach at the moment of dissolution; the payment was originally conditional; the condition of retaining it is eventual performance; accordingly when that condition fails the right to retain the money must simultaneously fail. It is not like a claim for damages for breach of the contract, which would generally differ in measure and amount, noris it a claim under the contract. It is in theory and is expressed to be a claim to recover money, paid to the use of the Plaintiff. This, I think, was the view of Lord Haldane L.C. speaking for the Judicial Committee in Royal Bank of Canada v. R., 1913, A.C. 283, at p. 296. He said: It is a well-established principle of the English Common Law that when money has been received by one person which in justice and equity belongs to another, under circumstances which render the receipt of it a receipt by the Defendant to the use of the Plaintiff, the latter may recover as for money had and received to his use. The principle extends to cases where the money has been paid for a consideration which has failed. It applies, as was pointed out By Brett L.J. in Wilson v. Church, 13 Ch.D. 1, at p. 49, when money has been paid to borrowers in consideration of the undertaking of a scheme to be carried into effect subsequently to the payment and which has become abortive. The lender has in this case a right to claim the return of the money in the hands of the borrowers as being held to his use. This language of Brett L.J. was used in connection with the failure of a scheme for the development of a concession in Bolivia which the Bolivian Government revoked, thus rendering the fulfilment of the scheme impossible. The House of Lords affirmed the judgment of a strong Court of Appeal, and held that the borrowers were entitled to repayment of their loan, on the ground that the consideration for the loan had failed (National Bolivian Navigation Company v. Wilson, 5 A.C. 176, in particular per Lord Cairns L.C., at p. 185). Some years earlier a decision, not dissimilar in principle, was reached in 1850, in Ashpitel v. Sercombe, 5 Ex- 147. The Plaintiff had paid a deposit on his application for shares in a projected railway company but the scheme had to be abandoned for want of sufficient subscriptions. The appeal was heard before Patteson, Coleridge, Maule, Cresswell, Wightman, Erie and Williams JJ., all masters of the Common Law. The Plaintiff's claim for return of the deposit was upheld. Patteson J., delivering the judgment of the Court, said (at pp. 161-162): This was an action for money had and received, brought by the Plaintiff, an allottee of shares in a proposed railway company, which had been abandoned before the commencement of the action, without any fraud or misconduct, against the Defendant, one of the Managing Committee, to recover back the Plaintiff's deposit. . . . There seems to be no doubt that the Plaintiff, having paid his money for shares in a concern which never came into existence, or a scheme which was abandoned before it was carried into execution, has paid it on a consideration which has failed, and may recover it back as money had and received to his use." It was further held that the Defendant could not deduct money which the directors had expended towards carrying out the scheme, unless it could be shown that the Plaintiff had consented to or acquiesced in the application of his money. The books contain other cases of a similar character, such as Johnson v. Goslett, 3 C.B.N.S. 569. These cases were merely special instances where performance having become impossible, the payers were held entitled to recover what they had paid, the contract having come to an end between the time when the money was paid and the date at which the contract was ended. Similar claims have been made for recovery of deposits paid. Such a claim has succeeded even under a contract by deed for the purchase of an estate. Thus in Greville v. Da Costa, Peake Add. Cas. 113, the vendor was disabled from selling by an order of the Lord Chancellor. Lord Kenyon said that the Defendant held the money against conscience and therefore might be compelled to repay it by an action for money had and received. It is clear that the failure of consideration need not be attributable to breach of contract or misconduct on the part of the Defendant, as the cases I have cited and many others show. Impossibility of performance or frustration is only a particular type of circumstance in which a party who is disabled from performing his contract is entitled to say that the contract is terminated as to the future, and in which repayment of money paid on account of performance may be demanded.
These principles, however, only apply where the payment is not of such a character that by the express or implied terms of the contract it is irrecoverable even though the consideration fails. The contract may exclude the repayment. An illustration of this is afforded by advance freight which by English law is not recoverable if the delivery of the goods is prevented by the act of God, perils of the seas or other excepted cause, which excludes an action of damages. In Allison v. Bristol Marine Insurance Co., 1 A.C. 209, 253, Lord Selborne stated it to be the peculiar rule of English mercantile law that an advance on account of freight to be earned is, in the absence of any stipulation to the contrary, an irrevocable payment at the risk of the shipper of the goods. So indeed the law had been laid down by Sanders L.C.J. in Anon. 2 Shower 283 in 1682 and has remained ever since. I may also refer to Byrne v. Schiller, L.R. 6 Ex. 319. The irrecoverable nature of the payment is there determined by custom or law, unless the contract provides for the contrary. In other cases likewise a particular contract may effectively make a prepayment irrecoverable. In the present case the payment is not made irrecoverable by any custom or rule of law or by any express or implied terms of the contract. It was paid on account of the price; it was not paid out-and-out for the signing of the contract. When the sellers were disabled to perform the contract by the shipment to Gdyniabecoming illegal, the ordinary rules of law and the authorities to which I have referred show that the sum of Â£1,000 paid in advance of the price was recoverable by the Appellants In the present action.
The Court below have held themselves bound to reach the contrary decision only on the authority of certain cases, generally known as the Coronation cases, in particular Blakeley v. Muller, reported in a note to Civil Service Co-operative Society v. General Steam Navigation Company, 1903, 2 K.B. 756, and Chandler v. Webster, 1904, 1 K.B. 493. These cases dealt with agreements for the hiring of rooms from which to view the procession on the coronation of King Edward VII. It had been held in Krell v. Henry, 1903, 2 K.B. 740, that the mere use of the rooms on the appointed day was only part of the consideration for the agreed payment, and that an essential part of the consideration was the opportunity of viewing the procession. That was the object or basis of the contract in contemplation of both parties. When the procession could not take place, the contract, it was held, became abortive or was frustrated. There was no decision in that case on whether money paid in advance was recoverable. In Blakeley v. Muller (supra) the prepayment had fallen due before the frustration supervened. A Divisional Courtheld that the hirer, who had paid in advance, could not recover back the money. They did not discuss the principles or authorities to which I have referred on the right to recover money paid for a consideration which has failed. I take the ratio decidendi from the judgment of Channell J., because in the next case of that type, the Civil Service Co-operative Society (supra), Lord Halsbury, sitting in the Court of Appeal, quoted a long passage from it and added that he concurred with every word of it. The reasoning of Channell J., as I understand his judgment, was that the loss must remain where it was at the time of the abandonment, because it was impossible to import into a contract a condition which the parties might have imported but had not, and that under Taylor v. Caldwell, 3 B. and S. 826, and Appleby and Myers, L.R. 2, C.P. 651 (cases of impossibility), all that was said was that the parties were excused from further performance, not that anything that was done under the contract was void.
In the former case, the claim was for damages, in the latter it was on a quantum meruit for partial performance of an entire consideration. Each claim failed. Neither was a claim for money had and received. Channell J. instanced the case of advance freight under the charter-party. I have already explained that rule, which in Lord Selborne's view is peculiar. I have also explained my view that the right to repayment of advance payments as money had and received to the Plaintiff's use is not a claim under the contract or for further performance of the contract or for damages, but a claim outside the contract. The ground of the claim is that the contract has been dissolved as to future performance and hence that the consideration has failed. The Court of Appeal, however, dismissed the claim for the money, following Blakeley v. Mutter (supra). When shortly afterwards the same question on similar facts again came before a differently constituted Court of Appeal, in Chandler v. Webster (supra), Collins M.R. discussed the matter more elaborately, but he still ignored the principles and authorities upon the action for money had and received to which I have referred, though the claim was to recover as on a total failure of consideration; he indeed discusses the case from that point of view loc. cit. at p. 499. The hirer was claiming to recover what he had paid in advance and was resisting a counterclaim for the balance which was by the contract payable before the date when the procession became impossible. He ought, in my opinion, to have succeeded on both issues, but by the judgment of the Court of Appeal he failed on both. The reasoning of the Master of the Rolls may, I think, fairly be summarised to be that impossibility through the fault of neither party leaves the parties where they were but relieves them from further performance; that it is only if the contract is wiped out altogether that money paid under it would have to be repaid as on a failure of consideration, but that the only effect of impossibility is to release the parties from further performance; the rule, he said, is arbitrary, but it is really impossible to work or adjust with any exactitude what the rights of the parties in the event should be. I hesitate to criticize the ruling of so great a lawyer as the Master of the Rolls. But I cannot concur in these propositions. I need scarcely repeat my reasons for doing so, which are apparent from what I have already said. The claim for money had and received is not, in my opinion, a claim for further performance of the contract; it is a claim outside the contract. If the parties are left where they are, one feature of the position is that the one who has received the prepayment is left in possession of a sum of money which belongs to the other; the frustration does not change the property in the money; nor is the contract wiped out altogether, but only the future performance. I may add that the difficulty emphasised by the Master of the Rolls that such a claim involves constructing a hypothetical contract by supposing what terms the parties would have arrived at if they, contemplated the future impossibility does not arise. But I do not think that this way of envisaging the matter accords with the true position. In my opinion the contract is automatically terminated as to the future because at that date its further performance becomes impossible in fact, under circumstances which involve no liability for damages for the failure on either party. When the Court holds a contract to be thus terminated, it is simply giving appropriate effect to the circumstances of the case, including the actual contract and its meaning as applied to the event. It is this view which is involved in Lord Sumner s phrase in Hirji (supra], at p. 510. "It" [sc. the doctrine of frustration] is really a device by which the rules as to absolute contracts are reconciled with a special exception which justice demands. He combines with this a reference to what has been generally accepted by English Law, that the rule is explained in theory as a condition or term of the contract implied by the law ab initio. No one who readsthe reported cases can ignore how inveterate is this theory or explanation in English law. I do not see any objection to this mode of expression so long as it is understood that what is implied is what the Court thinks the parties ought to have agreed on the basis of what is fair and reasonable, not what as individuals they would or might have agreed. It is, said Lord Sumner, irrespective of the individuals concerned, their temperaments and failings, their interest and circumstances. The Court is thus taken to assume the r61e of the reasonable man, and decides what the reasonable man would regard as just on the facts of the case. The hypothetical reasonable man is personified by the Court itself. It is the Court which decides. The position is thus somewhat like the position in the cases in which the Court imports a term in a contract on the basis of what is reasonable. As frustration is automatic, so equally the claim for money had and received here follows automatically. Chandlerv. Webster (supra) has bound subsequent Courts of Appeal. Mr. Holmes has contended that it was accepted by this House as good law in the French Marine case, 1921, 2 A.C. 494, and was not open to review by your Lordships. The most obvious and shortest answer to that argument is that in Cantiare San Rocco y. Clyde Shipbuilding Co., 1924, A.C. 226, Lord Birkenhead loc. cit. at p. 233, observed of Chandler v. Webster (supra] that none of the relevant authorities on the law of England on this question was binding on the House. Lord Atkinson agreed, and Lord Shaw indicated that the question of English Law was open in this House. The French Marine case (supra) related to freight under a voyage charter payable on a time basis and the decision may therefore have been affected by the English rule as to advance freight, because it was a claim for repayment of time freight paid in advance for days subsequent to the requisition of the ship which rendered her further use by the charterers impossible. Their Lordships were divided in opinion, and it is not clear that there was any real agreement among the majority as to the ratio decidendi. I think the essential ground taken was that the contract provided for certain events in which freight was to cease, but not for the particular event in which the contract terminated. But it was also treated as a case of a partial failure of consideration.
The decision reached in Chandler's case (supra) is criticised by Williston, Contracts, section 1954, p. 5477 (see too, section 1974. P. 5544), and has not been followed in most of the States of America, Nor is it adopted in the Restatement of the Law of Contract by the American Law Institute, section 468, pages 884 et seq. Indeed the law of the United States seems to go beyond the mere remedy of claims for money had and received and to allow the recovery of the value of the benefit of any part performance rendered while performance was possible. Such and similar claims should be recognised in any complete system of law, but it is not clear how far they have been admitted in English law. The Scots Law upheld in the Cantiare case (supra) may seem to be generally like the English Law and to be limited to recovery of money payments. The opinion which I have been stating perhaps brings the two laws into substantial accord, though in the passage quoted by Lord Birkenhead in the Cantiare case (supra) at p. 237, from Lord President Inglis' judgment in Watson v. Shankland, 10 M. 142, that judge seems to accept that the payer who has paid in advance should give credit to the extent that he is lucratus by any part performance. I do not wish to discuss how far, if at all, this is open in English Law. That was a case of advance freight, which Scots Law treats as a prepayment on account. But I think it is clear both in English and Scots Law that the failure of consideration which justifies repayment is a failure in the contract performance. What is meant is not consideration in the sense in whichthe word is used when it is said that in executory contracts the promise of one party is consideration for the promise of the other. No doubt in some cases the recipient of the payment may be exposed to hardship if he has to return the money though before the frustration he has incurred the bulk of the expense and is then left with things on his hands which become valueless to him when the contract fails, so that he gets nothing and has to return the prepayment. These and many other difficulties show that the English rule of recovering payment the consideration for which has failed works a rough justice. It was adopted in more primitive times and was based on the simple theory that a man who has paid in advance for something which he has never got ought to have his money back. It is further imperfect because it depends on an entire consideration and a total failure. Courts of equity have evolved a fairer method of apportioning an entire consideration in cases where a premium has been paid for a partnership which has been ended before its time (Partnership Act, sec. 40), contrary to the Common law rule laid down in Whincup v. Hughes, L.R. 6 C.P. 78. Some day the Legislature may intervene to remedy these defects.
I ought to notice in order to reject an argument of Mr. Holmes that the House should not reverse or depart from a doctrine which has stood since 1904 and has been followed in several cases by the Court of Appeal and acted upon on practical affairs. The doctrine, however, has been severely criticised by writers both in this country and elsewhere and has been treated as open to review by this House as recently as 1923 in the Cantiare case (supra). If the doctrine is, as I think it clearly is, wrong and unjust, it is the duty of this House, exercising its function of finally declaring the law, to reverse it, unless there are very special circumstances such as were recently considered in the Valverda, 1938, A.C. 173. On the other hand, in Lissenden v. Bosch, 1940, A.C. 412, the House has recently over- ruled a decision which had been acted upon in frequent practice for 27 years.
I may in conclusion add a reference to a very learned article by Professor Buckland, in Harvard Law Review, Vol. XLVI, p. 1281: he concludes by observing that whatever the merits or demerits of Chandler v. Webster (supra) and other cases which he considers in that article, the Roman Law cannot be made responsible for the rules laid down in them.
In ray judgment the Appeal should be allowed.
I also am of opinion that this Appeal should be allowed and that judgment should be entered for the Appellants for the amount of their claim in the action.
The contents of the relevant documents and the facts of the case have been so fully set out by the Lord Chancellor that it is unnecessary that I should add anything to his recital. But having regard to the importance of the principles involved I think it right to state concisely the reasons for my conclusion.
I have no doubt that this case is one of frustration of the contract and falls within the doctrine applicable to such cases. An alternative case made by the Appellants that the contract was merely suspended and whilst suspended was repudiated by the Respondents is, I think, without foundation. The claim of the Appellants, therefore, must be and is a claim to recover the Â£1,000 in dispute as money had and received to their use as paid upon a consideration which has wholly failed. The Courts below have held themselves bound by authority to decide against this claim. The principal authority for the supposed binding rule of law is the case of Chandler v. Webster (L.K. 1904 1 K.B. 493) which, it is contended, lays down the rule that on the occurrence of an event which frustrates the performance of the contract the loss lies where it falls and that money paid by one party to the contract to the other party is to be retained by the party in whose hands it is. Taken in their broad and natural sense, the much criticised sentences in the judgment of Collins M.R. in Chandler v. Webster (supra at p. 499) ending 'Therefore the doctrine of failure of consideration does not apply certainly support a conclusion in favour of the rule contended for. Taken in that sense the proposition is, in my judgment, erroneous in law and unsupported by any authority binding upon this House. It is, however, not unimportant to observe the context in which the criticised sentences occur. The learned Master of the Rolls was contrasting the case of contracts avoided ab initio where the Courts of England have power to decree restitution and the case of contracts frustrated but subsisting nevertheless up to the moment of frustration. In the latter case it is, I think, true that the law of England, differing in this respect from the civil law and the law of Scotland, does not provide for the exercise of any power by the Courts to decree restitution or repetition on similar or analogous lines to those exercised where contracts are avoided a b initio—see Cantiare San Rocco S.A. v. Clyde Shipbuilding and Engineering Coy. (1924, App. Cas. 226). It is to be observed that whilst the law of England was not directly in question in that case, Lord Birkenhead stated in express terms that the Coronation cases were open to review in this House and were not binding upon your Lordships.
The question therefore is whether, although the Courts of England have not, as was rightly held in Chandler v. Webster, a power to decree restitution in the sense above discussed, the matter is concluded against the Appellants. The case made by the Appellantsis that no such doctrine of restitution is necessary to entitle them to succeed in this action. They contend that they are entitled to be repaid their money because of the operation of ordinary and accepted rules of law applicable upon a total failure of consideration. In my opinion that contention is right. The true rule, I think, is that in cases of frustration the loss does lie where it falls, but that this means where it falls Raving regard to the terms of the contract between the parties. If under a contract payments have been made which have been variously described as absolute or final or out-and-out payments, then they are not recoverable by the party who made them. Payments of freight in advance are payments of this nature. Whatever the origin of the rule as to advance freight, under decisions now centuries old and long acted upon in commerce the rule itself that such payments of freight are final and irrecoverable payments is beyond question. In the case of French Marine v. Compagnie Napolitaine, 1921, 2 App. Cas. 494, the majority judgments in this House applied the same rule to a payment of hire under a time charter-party by reason of the terms of the charter-party itself (see per Lord Dunedin, at p. 513, and per Lord Sumner, at p. 519). It is, I think, not unimportant to observe that in the case of Chandler v. Webster (supra) Mathew L.J. based his judgment on this ground of finality in the payment (see 1904, I K.B., at p. 502), and I am disposed to think that the Master of the Rolls, at p. 497 of the report, is presenting a similar view of the facts and I am the more disposed so to think because he, for one of the judges concerned, was a supreme master of the common law, and unlikely on another view of the facts to have expressed himself as he did. Similar views on the facts are expressed in others of the Coronation cases by some of the judges (see Civil Service Co-operative Society v. General Steam Navigation Coy., 1903, 2 K.B. 756, at pp. 762 and 764), where the payments in question were said to be comparable to payments of freight in advance. It is, in my judgment, unnecessary and unfruitful to consider whether, on this ground, those cases were or were not rightly decided on the facts and documents in question, but if the payments under discussion were properly to be regarded as final or out-and-out payments, then in my judgment the conclusion properly followed that they were not recoverable. It is not possible to say of such payments that the consideration for their payment has wholly failed.
The converse case remains to be considered. It is, I think, a well settled rule of English law that, subject always to special provisions in a contract, payments on account of a purchase price are recoverable if the consideration for which that price is being paid wholly fails (see Ockenden v. Henly, E.B. and E. 485, at p. 492). Looking at the terms of the contract in the case now under consideration, I cannot doubt that the sum sued for was of this provisional nature. It was a part of a lump sum price, and when it was paid it was no more than a payment on account of the price. Its payment had advantages for the Respondents in affording some security that the Appellants would implement their contract and take up the documents and pay the balance of the price, and it may be that it had other advantages in providing finance for the manufacture of the machines. But if no machines or documents of title were delivered to the Appellants, as was the actual case, then in my opinion the consideration for the price, including the payment on account,, wholly failed and the payment so made is recoverable. It was contended by the Respondents' counsel that unless there is to be found some default on the part of the recipient of such a payment as is now in question the consideration cannot be said to have wholly failed merely because the frustration of the contract produced a result which, had it been due to some default, would have amounted to a failure of consideration. I find no authority to support this contention, which seems appropriate to an action for damages, but foreign to the action for money had and received. In the case of Rugg v. Minett, n East 210, the Court seems to have proceeded on a principle contrary to that contended for when it allowed under this money count payments on account for unappropriated goods destroyed by accidental fire (see p. 219 of the Report). There is no suggestion in that Report of any default on the part of the sellers.
For these reasons I am of opinion that the Appellants arc entitled to succeed.
My Lords, I only desire to add that I am conscious that a conclusion relegating parties in cases of frustration to their contracts may not work out a completely just solution in the pecuniary sense. It happens that in this case it will do so, for the Appellants, who did not get the goods or the documents, will get their money back, and the Respondents have had the machines, which, so far as completed, were said by the Respondents themselves to be realisable without loss. In other cases it might turn out otherwise, and the application of the rules of the civil law or of Scots law might work greater justice, but I do not understand that even those rules would cover the whole ground so as to effect an ideally just distribution of the burden of loss due to the frustration of contracts. But at least, or so it seems to me, the rule now to be laid down by this House is not only more agreeable to the law of England, but is more consistent with justice than the rule upon which the Courts below felt impelled to base their decision. At all events, parties to contracts will know that as the law stands the contract between them is the matter of crucial or final importance, and that if, as may very well be the case in time of war or impending war, frustration of their contracts is to be apprehended, they may make what contracts they think fit to provide in that event for the adjustment of the position between them.
The task imposed on your Lordships is said to be a reconsideration of what has been described as the rule in Chandlerv. Webster (1904) 1 K.B. 493. That rule has been variously stated by saying that in a case where a contract is frustrated (1) the loss lies where it falls, and (2) one who has paid money in advance under a con- tract which provides for the making of such payment cannot recover that money if the contract is afterwards frustrated.
Whether either or both principles are to be found in Chandler v. Webster (supra) need not be determined for the moment: the vital question is are they in fact accurate statements of the law? The question has given rise to much controversy, and it has been con- tended on the one hand that in case of total failure of consideration the sum paid should be recoverable upon the ordinary principles applicable in English Law, and on the other that the law is not so wanting in ingenuity as to be unable to apply the principles which are said to find favour in the Scottish Courts and are discussed in Cantiare San Rocco S.A. v. Clyde Shipbuilding Coy. (1924) A.C. 226; a decision which is alleged to determine that on some principle of restitution the payer can get back at least an equitable proportion of the sum which he has paid, though exactly
what proportion and upon what principle does not, I think, appear.
It may perhaps be advisable to dispose of the second contention at once. I can find no warranty for its application in English Law. Under that system money had and received to the Plaintiff's use can undoubtedly be recovered in cases where the consideration has wholly failed, but unless the contract is divisible into separate parts it is the whole money, not part of it, which can be recovered. If a divisible part of the contract has wholly failed and part of the consideration can be attributed to that part, that portion of the money so paid can be recovered, but unless this be so there is no room for restitution under a claim in indebitatus assumpsit. A partial failure of consideration gives rise to no claim for recovery of Â£>art of what has been paid.
Indeed the contrary has not been contended. What has been said is that the doctrine of frustration depends upon the implication of an implied term. Reasonable persons, it is said, would not have had in mind the event which befell, but if they had they would have unhesitatingly said, In that event all further obligation of performance on either side is at an end.
So far and no further it is acknowledged the law of this country has gone. But, it is urged, a system of jurisprudence which is astute enough to devise such a term is capable of adding to it the proviso that in such a case some equitable proportion of any sum paid in advance shall be recoverable when the contract becomes impossible of performance. It might be desirable that the law should make some such provision. Indeed the Law Revision Committee has so recommended. But without an Act of Parliament it is difficult to determine what sum shall be recoverable and upon what principles. This difficulty is envisaged by Collins M.R. in Chandlerv. Webster (supra) at p. 500 and is apparent from a perusal of the Report of the Committee. But however desirable the result, I can see no way by which in accordance with English authority or principle a right to recover some equitable sum can be implied.
The only other suggestion made to your Lordships on behalf of the Appellants, and indeed, as I think, the only argument open to them, is that the money which they have paid is recoverable as on a consideration which has wholly failed. With that aspect proceed to deal, merely prefacing my remarks by observing that whether, one adopts the principle that money so paid is recoverable or irrecoverable one may be found to have treated one side or the other with considerable harshness. A contractor stipulates for payment in advance of the whole price of an article which he is to supply and has done nothing when the contract is frustrated, he keeps the whole, perhaps if he keeps any part of the money paid in advance, the buyer is hardly treated. On the other hand he may have done the whole of the work upon an article useless to anyone except the purchaser, but not delivered it, and if the buyer can recover his advance the whole loss will fall upon the seller, and in that case the seller is as hardly treated as the buyer would be in the other. Moreover, the closely analogous case of a supplier who has obtained no advance but though he has done all the work has not delivered the goods and therefore is not able to demand payment, is left unredressed in England, as indeed it is in Scotland. It is possible to say that the seller in such a case who has been prudent enough to stipulate for a payment in advance should reap the advantage of his foresight, but to do so is to speculate as to the object for which the advance was obtained, not to ascertain what his legal remedies are upon the facts as known. In these circumstances I see nothing for it but to neglect considerations of hard-ship in individual cases and to consider only abstract principles of law.
The doctrine that money payable in advance, under a contract which is afterwards frustrated, is irrecoverable is not of old standing. It began, I think, with the so-called coronation cases. It is true that in Appleby v. Myers (1867) L.R. 2 C.P. 651 at p. 659 Blackburn J. says of the destruction of the premises, it is a misfortune equally affecting both parties; excusing both from further performance of the contract but giving a cause of action to neither. But this was said in a case where no question of money paid in advance arose and has reference only to the facts of that case.
Of the other cases quoted to us which were decided about the same period, Stubbs v. Holywell Pty. (1867) L.R. 2 Exch. 31, Whincup v. Hughes (1871) L.R. 6 C'.P. 78 and Anglo-Egyptian Navigation Coy. v. Rennie (1875) L.R. 10 C.P. 271 are, I think, cases where the consideration was partly performed. In the last-mentioned case, penman J. in delivering the judgment of the Court was careful to point out that the contract was substantially a contract for work and labour: and much work and labour had undoubtedly taken place before further performance of the contract became impossible.
It is true, however, that advance freight by long custom cannot be recovered though the goods shipped are never delivered. Byrne v. Schiller (1871) L.R. 6 Ex. 319 and Allison v. Bristol Insurance Company (1875) 1 App. Cas. 209 so declare. The decision was reached with regret. In the former case Cockburn C.J. says he thinks the rule founded on erroneous principle and anything but satisfactory, and Montague Smith J. regards it as the result of an implied term. In the latter Lord Hatherley says, " We must remember that from a very early period, as long ago, it was said during the argument, as the time of Charles II.—at all events for a very long time—it has been " settled in our maritime law that prepaid freight cannot be recovered back, and all their Lordships seem to have been influenced by the fact that it was the practice for the merchant to insure prepaid freight and indeed of the shipowner to make an allowance for that purpose. This may be the principle applied in French Marine v. Compagnie Napolitaine (1921) 2 A.C. 494 by themajority of the House, or it may be that the grounds of that decision are to be found in the words of Lord Sumner at p. 517, Here there was no total failure of consideration but a partial failure only, for which in law no pro rata repayment could be claimed. On either view it is not decisive of the present case.
If I am right in supposing that cases of advance freight form a class by themselves and that the other cases referred to are examples of a partial failure of consideration, the doctrine that money paid in advance in pursuance of the terms of a contract which is afterwards frustrated cannot be recovered originates, if it originates at all, with the coronation cases. They were conveniently tabulated by Mr. Holmes in the course of his argument. Clark v. Lindsay and Griffith v. Brymer (both reported in 19 T.L.R. at pp. 202 and 434 respectively) may be disregarded, since in each case the contract was entered into under a mistake of fact as to the state of the King's health at the time when they were made and therefore both were void ab initio. Blakeley v. Muller (1903) 2 K.B. p. 760 (note) and Lumsden v. Barton, 19 T.L.R. 53 may, I think, be regarded as instances of contracts partially performed, though the former seems to contain language applicable to contracts wholly unperformed. Krell v. Henry (1903) 2 K.B. 740 merely decided that money not due when the frustration took place was not in law payable, but Civil Service Co-operative Society v. General Steam Navigation Coy. (1903) 2 K.B. 756 and Chandler v. Webster (1904)1 K.B. 493 are authorities for the general proposition that money paid in advance under the terms of a frustrated contract cannot be recovered. In Blakeley v. Muller (supra] at p. 761 Wills J. founded his decision on Appleby v. Myers [supra] and said: The argument for the Plaintiffs must be that the contract was rescinded ab initio, and Channel! J. relied upon the analogy of advance freight and added: All that can be said is that when the procession was abandoned, the contract was off, not that anything done under the contract was void. The loss must remain where it was at the time of the abandonment. I quote from his judgment because it was adopted by Lord Halsbury, sitting in the Court of Appeal, in Civil Service Co-operative Society v. General Steam Navigation Coy. (supra) and is, I think, the foundation of the decision in Chandlerv. Webster (supra). In the latter case the leading judgment was delivered by Collins M.R. who, in relying upon Taylor v. Caldwell (supra), says where, owing to frustration, the contract can no further be performed by either party it remains a perfectly good contract up to that point and everything previously done in pursuance of it must be treated as rightly done, but the parties are both discharged from further performance of it. If the effect were that the contract were wiped out altogether no doubt the result would be that money paid under it would have to be repaid as on a " failure of consideration. But that is not the effect of the doctrine; it only releases the parties from further performance of the contract. Therefore the doctrine of failure of consideration does not apply. To the same effect Romer LJ. says at p. 501: Except in cases where the contract can be treated as rescinded ab initio, any payment previously made and any legal right previously accrued according to the terms of the agreement will not be disturbed.
The doctrine as so stated appears to be confined to the termination of contracts by excusable impossibility and to enunciate a feature peculiar to such cases. I know of no authority other than the so-called coronation cases and those which have followed them in which such a doctrine is promulgated, and except the statements contained in those cases, weighty and formidable though they be, I can find no principle to support it.
It is not, I think, accurate to say in general—nor did the Respondents advocates seek to support such a statement—thatmoney had and received can only be recovered as upon a consideration which failed in cases where the contract is void ab initio. The true view is, I think, expressed by Brett LJ. (as he then was) in Wilsonv. Church (1879) 13 Ch.D. 1 at p. 49, a case in which he refused to find fraud. His words are: " The principle of law seems to me to be identical with what it would be if the money were paid to the borrowers for a consideration which is to be accomplished after the payment of the money, and by the most ordinary principle of law, where money is paid for a consideration which is to be performed after the payment, if that consideration wholly " fails, the money becomes money in the hands of the borrowers held to the use and for the benefit of the lenders, and must be returned. The decision in that case was affirmed in your Lordships House under the title National Bolivian Navigation Coy. v. Wilson(1880) 5 App. Cas. 176, and the language of Brett L.J. was approved by Lord Haldane L.C. in Royal Bank of Canada v. Rex (1913) A.C. 283 at p. 296. It may be urged that these were cases of borrowed money and that there was fault though not fraud in the borrower. I do not think that the decision turned upon so narrow a ground, but in truth the principle may be illustrated by the law Which is now codified in Sects. 6 and 7 of the Sale of Goods Act and was formerly illustrated by Rugg v. Minett (1809) ii East 210. The two sections deal with two cases of impossibility arising in the cases of the sale of ascertained goods. The first section treats of a case where the goods have perished before the agreement for sale is made and is an example of a contract void ao initio. Clark v. Lindsay and Griffith v. Brymer (supra) are illustrations of the same doctrine translated from the sphere where the tangible subject matter of the contract perished to that where supervening impossibility prevented the achievement of the object with which the contract was entered into. The second section, on the other hand, treats of a contract validly made and continuing in existence until the goods perish. It is not void ab initio, but further performance is excused after the destruction has taken place. Yet the price is returnable because the consideration for the whole or the part undelivered has wholly failed, as the Section says without fault on either side.
This is, I think, the rule generally applicable, but it is not always so. There are cases where the payer pays not for the performance of the receiver's promise but for the promise itself—not for the doing of something but for the chance that it may be done. This, I think, was Mathew L.J.'s view in Chandlerv. Webster, when he says, at p. 502, " I think the payment of the Â£100 by the " Plaintiff was intended to be a final payment in pursuance of the contract, and I do not think such a payment can be recovered back.
The Respondents relied upon this statement and maintained that the present, like the Coronation cases, was an instance of a final payment which could not be recovered.
They also contended that no recovery was possible except in cases where the contractor who has received the money in advance was in fault in some way.
I can find no authority for the second argument, and it is, I think, contrary to the views expressed by the Court of Exchequer in Knowles v. Bovill (1870), 22 L.T. 70. It is true that in the majority of cases the consideration fails because one party or the other fails to carry out his contract. But it is not the breach but the failure of consideration which enables money paid in advance to be recovered.
The question whether the payment of the Â£1,000 in advance in the present case was a "final payment" or not depends on no general principle of law but upon the wording of the contract in this particular case.
To my mind, clearly it was not. The contract was for the sale of machines c.i.f. Gdynia. It is true that there was an additional provision for the services of a skilled monteur, but in my view the contract would have been substantially fulfilled by shipping the goods to Gdynia and furnishing the requisite documents against payment of the balance of the price, though a failure to provide a monteur might have given rise to a claim for damages.
The price was a lump sum price to be paid in two portions, viz. one-third with the order, balance against shipping documents. But the sum payable in advance was part of the lump sum price payable for the completed articles. The goods remained the property and at the risk of the sellers until the documents were presented and taken up. The case seems to me to come exactly within the principle of Sect. 7 of the Sale of Goods Act, and had they been destroyed by enemy action I cannot doubt but that the advance portion of the price would have been recoverable.
That the inability of the sellers to implement their contract was due to supervening illegality and not to destruction of the subject matter appears to me to make the Plaintiffs' claim at least no weaker. Whether it strengthens it has not been discussed and is unnecessary to be determined.
Having regard to these considerations, in my view the dicta of Collins M.R. in Chandler v. Webster (supra) cannot be supported, and I think the decision itself is wrong, unless it can be said that in that, as in some of the other cases, there was some partial performance which I have not been able to discover in the report of the case. The error, as I see it, in the dicta which have been used is in imagining that the statement the loss lies where it falls is conclusive of the matter. I think it is true to say that the loss lies where it falls, but that expression only means that the rights of the parties are to be determined at the moment when impossibility of further performance supervenes. If at that moment the party who has advanced money is by the ordinary rules of the Common Law entitled to say that the consideration has now wholly failed, he can, in my view, enforce the rights given by those rules and recover the money.
The other arguments on behalf of the Appellants I need not discuss. I agree with all your Lordships in thinking that they fail.
If I thought that the question had been concluded by any decision in your Lordships' House I would, of course, follow that authority, but it plainly is open to review. In support of this opinion I need only refer to the observations of Lord Birkenhead in Cantiare San Rocco (supra], at p. 233).
I would allow the Appeal. The Lord Chancellor :
Mr. Linton Thorp, before I put the Questions from the Wool-sack, the House would like to know whether you have any observations to make on the subject of interest on the Â£1,000. The House notices that your Statement of Claim claimed the Â£1,000 with interest. The Question which is going to be put from the Woolsack will decide that matter, so we thought it right to ask whether you had anything to say about it. Mr.Linton Thorp, K.C. (Counsel for the Appellants):
I am grateful to your Lordship. May I ask my clients, my Lord ?
The Lord Chancellor: Certainly.
(Counsel conferred with his clients.)
Mr. Linton Thorp:
My Lord, we do not ask for interest.