Frankland v Frankland

An option under a contract may create a right capable of surviving termination, even though its exercise depends on a future contingency. The question is one of contractual construction, particularly the effect of any saving provision governing rights and obligations after termination. Recitals form part of the agreed contractual language and may be used to identify the transaction’s purpose where the operative clause is not clear. A payment contingency outside the parties’ control need not prevent a right from arising before termination. Where the parties’ rights and obligations are governed by the contract, the same facts do not ordinarily give rise to a separate claim in unjust enrichment.

The claimant appealed against the judgment of Mrs Recorder McAllister in the County Court at Central London, which dismissed his claim concerning a cross-option agreement between the parties, who were brothers and shareholders in a family company. The agreement linked put and call options over their shares to life and critical illness policies.

The company ceased trading after the claimant was diagnosed with a critical illness but before the insurance payment was made. The agreement therefore terminated under its terms. The claimant later sought to exercise the put option and recover the policy proceeds. The central issues were whether the right to exercise the option survived termination under clause 8.2 and, if not, whether the respondent’s retention of the money constituted unjust enrichment.

1. The appeal was allowed. The claimant acquired a contractual right to exercise the put option when the relevant shareholder was diagnosed with a critical illness, subject to the subsequent insurance payment contingency. That right survived termination under clause 8.2.

2. Clause 8.2 distinguished between rights and obligations which ceased on termination and provisions which were expressly or impliedly intended to continue. Its language did not identify the boundary between those categories. The clause 2 options were capable of falling within the saving provision.

3. Recitals are part of the contractual language agreed by the parties. Where the scope of an operative clause is unclear, they may be considered in identifying the purpose of the transaction. The recitals showed that insurance proceeds were intended to fund the purchase of the leaving shareholder’s shares.

4. Clauses 2.1 to 2.5 were to be read as a unified scheme. The death or critical-illness event triggered the obligation to pursue the insurance claim, while payment under the policy was a contingency which had to occur before the put option could be exercised. The fact that the option-holder was not obliged to exercise the option did not prevent the option from being a right.

5. The authorities on contractual rights surviving termination established only that survival depended on the contract’s terms. The decisive question was the true construction of this agreement, not whether the option could be categorised as an unconditional right. The unjust-enrichment claim failed because the parties’ rights and obligations were governed by the agreement and there was no failure of basis or total failure of consideration.

The judgment below was set aside and the appeal allowed.

1. High Court (Chancery Division): The appeal from the County Court was allowed. The contractual right to exercise the option survived termination.
2. County Court at Central London: Mrs Recorder McAllister dismissed the claimant’s claim and found for the defendant.