In a certain sentence of treaties, the parties to the negotiation must behave with the utmost fidelity (or “uberrima fides”) by revealing all the essential facts. In one of the earliest cases, Carter v Boehm,[274] Mr. Carter purchased an insurance policy for losses incurred at a British East India Company naval fortress in Sumatra, but did not tell his insurer Boehm that the fort was built solely to withstand attacks by the inhabitants and that the French were likely to invade. Lord Mansfield felt that the policy was not valid. As insurance is a speculative contract and the particular facts “most often knowingly of the insured,” Mr. Carter excludes “hiding what he knows in private.” The same policy has been extended for the sale of shares in a company. Thus, the developer and later director of a mining company from Guano to Erlanger against New Sombrero Phosphate Co[275] did not disclose that he had paid the mineral rights to The Island of Sombrero half of what he had subsequently assessed. The House of Lords found that the purchasers of the shares had a right to their money despite a delay in exercising a right. Lord Blackburn also stated that the fact that the guano cannot be put back in the ground is not an obstacle to resignation. The counter-constitution (i.e. both parties returned what they had received) when they could be achieved essentially in their monetary equivalent were sufficient.
However, apart from insurance, partnerships, guarantees, fiduciary relationships, shares, a wide range of regulated securities[276] and consumer credit contracts,[277] the obligation for negotiating parties to disclose essential facts does not extend to most contracts. Although there is an obligation to correct the previous false allegations[278] in Smith v Hughes, it was found that the general obligation was simply not to make active misrepresentations. Early common law cases held that the performance of a contract should always take place. Whatever difficulties the contracting parties faced, they were absolutely responsible for their obligations. [218] In the 19th century, the courts developed a doctrine that contracts that were impossible to comply would be frustrated and would automatically end. In Taylor v Caldwell, Blackburn J found that when Surrey Gardens Music Hall burned down unexpectedly, the owners did not have to pay compensation to the company that had rented it for an extravagant performance because it was not indebted to any of the parties. One hypothesis that underlies all contracts (a “pre-condition case”) is that they can be executed. People would not normally be under contract to do something they knew would be impossible. Beyond the physical impossibility, the frustration might be that a treaty would become illegal, for example, when a war broke out and the government banned trade with a country at war,[219] or perhaps if the whole purpose of an agreement was destroyed by another event, such as renting a space to attend a cancelled coronation parade.
[220] But a contract is thwarted not only because a subsequent event makes the implementation of the agreement more difficult than expected, such as at Davis Contractors Ltd/Fareham UDC, where a developer unfortunately had to spend more time and money on work than he would be paid for due to an unforeseen shortage of labour and supplies.
