Information about Frustration Of Purpose

Contract Law
Part of the common law series
Contract
Contract formation
Offer and acceptance  · Mailbox rule
Mirror image rule  · Invitation to treat
Firm offer  · Consideration
Defenses against formation
Lack of capacity to contract
Duress  · Undue influence
Illusory promise  · Statute of frauds
Non est factum
Contract interpretation
Parol evidence rule
Contract of adhesion
Integration clause
Contra proferentem
Excuses for non-performance
Mistake  · Misrepresentation
Frustration of purpose  · Impossibility
Impracticability  · Illegality
Unclean hands  · Unconscionability
Accord and satisfaction
Rights of third parties
Privity of contract
Assignment  · Delegation
Novation  · Third party beneficiary
Breach of contract
Anticipatory repudiation  · Cover
Exclusion clause  · Efficient breach
Fundamental breach
Remedies
Specific performance
Liquidated damages
Penal damages  · Rescission
Quasi-contractual obligations
Promissory estoppel
Quantum meruit
Subsets: Conflict of law Commercial law
Other areas of the common law
Tort law  · Property law
Wills and trusts
Criminal law  · Evidence

In the law of contracts, frustration of purpose is a defense to an action for non-performance based on the occurrence of an unforeseen event which undermines a party's principal purpose for entering into a contract. Despite frequently arising as a result of government action, any third party (or even nature) can frustrate a contracting party's primary purpose for entering into the contract.

Frustration of purpose is often confused with the related doctrine of impossibility, which is closely related. The distinction between the two is that impossibility concerns the duties specified in the contract, whereas frustration of purpose concerns the reason a party entered into the contract. For example, say Jane enters into a lease with Bobby because she wants to open a Chinese-food restaurant. If the government enacts a regulation which makes it illegal to rent the property or if the property is destroyed, then it is impossible for Bobby to perform the contract. If the government enacts a regulation which makes it illegal to run a restaurant on the property or people suddenly abandon eating Chinese food, then Jane's primary purpose for entering into the lease has been frustrated. In the second scenario, the parties could still carry out their obligations under the contract, but one of them has no longer has a reason to.

The Restatement of Contracts, Second § 265 defines frustration of purpose:

Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or circumstances [of the contract] indicate the contrary.

A circumstance is not deemed to be a "basic assumption on which the contract is made" unless the change in circumstances could not have been reasonably foreseen at the time the contract was made. As a result, it is rarely invoked successfully. Successful invocations usually come in waves during times of substantial tumult, such as after the passage of Prohibition, when bars and taverns no longer had a reason for their leases, or during major wars, when demand for many consumer goods and services drops far below normal.

If successfully invoked, the contract is terminated, and the parties are left as they are at the time of the litigation.

The leading case in English law on the subject is the famous 1903 case of Krell v. Henry, which concerned a party who had rented a room for the purpose of watching the coronation procession of Edward VII. When the king fell ill, the coronation was indefinitely postponed. The buyer refused to pay for the room; the innkeeper sued for breach of contract and the buyer counter-sued for the return of his deposit. The court determined that the cancellation of the coronation was unforeseeable by the parties, and terminated the contract, leaving the parties as they were: the buyer lost his 1/3 deposit and the innkeeper lost the rest of the rent.

This concept is also called commercial frustration.