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Failure of Consideration
Last updated: 06-Oct-2014

Per Lord Wright in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour, Ltd [1943] AC 32 at pp.64-65:

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. …

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, nor is it a claim under the contract. It is in theory and is expressed to be a claim to recover money, received 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. Reg. [1913] A. C. 283, 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.

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