To understand the frustration of contract definition, you first need to understand what the freedom of contract concept is. Freedom of contract is the cornerstone of free-market libertarianism. This is a concept which requires that contracts be based on mutual agreement and free choice. Due to unforeseen circumstances that prevent parties to meet or achieve its objectives, such as accidents, sickness, change of law or so forth, a frustration of contract excuses nonperformance and legally terminates the contract. It also relieves the parties of their obligations.

However, frustration of contract is not acceptable in all circumstances nor in all types of contracts. It is acceptable when the law finds it unfair to force a party to comply with the contract terms due to events that are outside of or beyond their control. Therefore, the contract is considered frustrated for all purposes.

What Was the Initial Concept of Frustration of Contract?

Initially, the concept defining the principle of frustration in contract law was the idea that frustration of contract could be used as an excuse only if the change in circumstance could not have been reasonably foreseen at the contract start, therefore allowing a provision or contingency to be provided for the occurrence of such circumstance.

Its first use can be dated back to 1863, in the case of Taylor vs. Caldwell II. The case involved an opera house being rented/under contract for concert use. The venue experienced a devastating fire. The very thing on which the contract depended, the opera house, existed no longer, so the Court held the contract was frustrated.

Not until 1903, in the case of Krell vs. Henry, was the doctrine given the name frustration of contract. In this case, the leasing of an apartment in London by Plaintiff Krell to C.S. Henry, the defendant, is the focus. Henry planned to view a procession of royalty from the apartment. The procession was ultimately canceled, and Henry wouldn't pay Krell the balance owed on the lease agreement. Henry was excused from performance after the Court supported that the foundation of the contract was the procession, therefore making the contact frustrated.

In another example, the principle provided a more objective approach and extended further in Liverpool City Council v. Irwin [1976] 2 All ER 39, which involved tenants, Mr. and Mrs. Irwin. A vandalism incident caused damages, including improper lighting, plumbing issues, and nonfunctioning lifts, at the tower block, in which the Irwin's paid rent.

After conducting a rent strike and refusing to pay rent, Liverpool City Council sought to evict the tenants, but the tenants claimed the council failed to keep the common parts of the tower block in decent repair. The judge found in the tenants' favor and awarded nominal damages on the basis that the Court could imply that there was an obligation to take reasonable care to maintain the towers.

Is Frustration of Contract Controversial?

This has become a controversial issue in contract law in regard to the approach of a term being implied only where it is necessary to do so or where it is reasonable to do so. In addition, there remains confusion in whether the term was implied by fact or law. Frustration of contract is often referred to as frustration of purpose.

When Can Frustration of Contract Be Used?

A variety of situations may call for the application of frustration of contract, but the body of case law illustrates there are distinctive circumstances where the doctrine is applied.

  • Impossible to perform: Frustration of contract arises when a party or parties find it impossible to meet obligations. Note, this is not limited to physical impossibilities.
  • Circumstances Change: An intrusion or occurrence of an unexpected, unforeseen event, beyond the control of either party, that makes meeting the obligations impossible, would give a reason for the court to declare frustration of contract on the ground of subsequent impossibility.
  • Loss of object: If the very thing on which the contract depended or if the foundation on which the contract was based, ceases to exit, then the contract is considered frustrated.

Worth noting, the change in circumstance is not the only event that invokes a frustration of contract. A radical change in obligations as found in the terms of the contract may ultimately prompt the application of the doctrine.

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