United Kingdom House of Lords Decisions

2 [2]

[3] 3

4 [4]

at 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 con-
tract, 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 Chandler v. Webster
should be affirmed.

[5] 5

in other directions, and a portion of our law be erected on a false
foundation. Moreover, though the so-called rule in Chandler v.
Webster is nearly forty years old, it has not escaped much un-
favourable criticism. My noble and learned friend Lord Atkin
when sitting in the court of appeal as Justice Atkin in
Russcoe v. Stirk [1922] 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 Chandler v. 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 Chandler v.
Webster. It was not a considered judgment, but it is hardly neces-
sary 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 [1863] 3 B. & S. 826.
Taylor v. 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 Taylor v. Caldwell to the actual problem
with which he had to deal in Chandler v. Webster deserves close
examination. He said at p. 499 of [1904] 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 per-
" fectly good contract up to that point, and everything pre-
" viously done in pursuance of it must be treated as rightly
" done, but the parties are both discharged from further per-
" formance 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

20330 A 3

6 [6]

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 considera-
tion 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 con-
sideration 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 & 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 con-
" tract 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 [1914] 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 dis-
tinction 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

[7] 7

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 in-
ducement which brought about the payment is not fulfilled.

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.

Lord
Chancellor.

Lord
Atkin.

Lord
Russell of
Killowen.

Lord
Macmillan.

Lord
Wright.

Lord
Roche.

Lord
Porter.

[8]

FIBROSA SPOLKA AKCYJNA

v.
FAIRBAIRN LAWSON COMBE BARBOUR, LIMITED.

Lord Atkin

MY LORDS,

For the reasons given by the Lord Chancellor I agree that the
Appellant fails on all his points except that arising out of the frus-
tration 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 eventu-
ally 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 £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 £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 £141 15s. 0d., which amount is now due. I shall be
" obliged if you will take the room on sale, and I authorise you

[9] 2

" 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 £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 £100 on a total failure of
consideration; the Defendant counterclaimed for the balance of
£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, ex-
cludes the claim. The case of Taylor v. Caldwell (1863), 3 B. & 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

3 [10]

attributable to the casks in which the property had not passed;
Nockels v. Crosby (1825), 3 B. & 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 eventu-
ally 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.

[11] 4

under 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.

[12]

I say this because as I read the judgment of the Master of the
Rolls in Chandler v. 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.

[13] 2

for 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. & 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.

Chandler v. 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.

[14]

3 [16]

or precedent. So Chandler v. 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
Chandler v. 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 fulfil-
ment 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.

Lord
Chancellor

Lord
Atkin

Lord

Russell of
Killowen

Lord

Macmillan

Lord
Wright

Lord
Roche

Lord
Porter

[17]

FIBROSA SPOLKA AKCYJNA

v.
FAIRBAIRN LAWSON COMBE BARBOUR, LIMITED.

Lord Wright

MY LORDS,

2 [18]

instances. "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 extor-
" tion; 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. indebi-
" tatus assumpsit] founded in the equity of the Plaintiff's case, as it
" were, upon a contract (' quasi ex contractu ' as the Roman law ex-
" presses 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 re-
ceived 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 Pro-
cedure Act, 1852. As Bullen & 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 [1941] 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

[19] 3

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 dis-
appeared 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 pre-
cedents. 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).

4 [20]

is 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 render-
ing 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 rail-
" way company, which had been abandoned before the commence-
" ment 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 dis-
abled 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 considera-
tion 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

[21] 5

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.

6 [22]

[23] 7

the 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.

Chandler v. 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 Lord-
ships 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.

8 [24]

the 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.

[25]

2 [26]

is 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 considera-
tion. 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 un-
important 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, un-
necessary 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 judg-
ment the conclusion properly followed that they were not recover-
able. It is not possible to say of such payments that the considera-
tion 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 recover-
able if the consideration for which that price is being paid wholly
fails (see Ockenden v. Henly, E.B. & 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 manu-
facture 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 recover-
able. 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

[27] 3

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 suceed.

My Lords, I only desire to add that I am conscious that a
conclusion relegating parties in cases of frustration to their con-
tracts may not work out a completely just solution in the pecuniary
sense. It happens that in this case it will do so, for the Appel-
lants, 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 other-
wise, 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 frustra-
tion 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 import-
ance, 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.

Lord
Chancellor

Lord
Atkin

Lord
Russell
of Killowen

Lord

Macmillan

Lord
Wright

Lord
Roche

Lord
Porter

[28]

FIBROSA SPOLKA AKCYJNA

v.
FAIRBAIRN LAWSON COMBE BARBOUR, LIMITED

Lord Porter

MY LORDS,

3 [30]

majority 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.

[31] 4