First Principles of Business Law

Question 4.

Assuming that a court would decide that the contract between Sunny and Tyler has been frustrated by the changed circumstances, what is the effect of frustration on the contract?

 (a) If the contract is treated as frustrated, neither Sunny nor Tyler remain contractually bound to do anything, and Sunny can keep the advance payment she received from Tyler.

(b) If the contract is treated as frustrated, neither Sunny nor Tyler remain contractually bound to do anything, but the law gives Tyler the right to recover the advance payment he made to Sunny, for which he has received nothing in return.

(c) If the contract is treated as frustrated, it becomes void ab intitio and the parties must be put back in their pre-contractual position. This means that Sunny must return the advance payment she received from Tyler.

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