Understanding Frustration of Purpose in Contract Law

Key Takeaways

• Frustration of purpose discharges contractual obligations when an unforeseen event destroys the contract's foundational reason.
• It differs from impossibility and impracticability, which focus on duties, not the contract’s underlying purpose.
• Courts require a high threshold: the event must substantially frustrate the principal purpose and be unforeseeable and not the fault of the party.
• The doctrine may apply even if performance remains possible.
• Force majeure clauses may preclude or overlap with frustration of purpose.
• Courts may still enforce contracts if the risk was foreseeable or assumed.

A frustration of purpose occurs when an unforeseen circumstance arises and a party to a contract is unable to fulfill his or her obligations. An individual with an obligation under an agreement could be excused from the contract for various reasons. When excusing yourself from an agreement, you must prove the following:

• Impracticability
• Improbability
• Frustration of purpose

While an agreement may allow for getting out of an agreement, it is more often stated, but it is not usually understood. When a party to an agreement either breaches or terminates a contract for one of the aforementioned reasons, the opposite party may have no legal standing to file a civil suit that seeks damages.

Purpose of Contract

If an essential goal of a contract is hampered, the duty of each party’s goals and performance gets relieved, even if a performance does not fall under impossibility. Be aware of the following attributes:

• A party’s primary reason in making the contract has been heavily hampered by an unforeseen circumstance.
• Non-occurrence of an event was an essential assumption in which the agreement was forged.
• The party never expressly assumed risk of such an occurrence.

To apply a principle of frustration, all parties must be aware of the purpose of the agreement in place. A defense that’s used in failing to complete the functions outlined in an agreement happen when an abrupt circumstance prevents that person from fulfilling his or her obligations. Frustration of purpose is in place for this reason. Instead of a duty, the agreement is rendered nullified because of circumstances beyond the control of any party.

Unlike impracticability and impossibility, which both involve duties, a frustration of purpose pertains to the reasons for the agreement.

• Example: Sam leases a shop from Jim to sell exotic animals, and the lease is a term of five years. After a year into the business, a law was passed outlawing the sale of exotic animals in the U.S. Sam may be excused from the remaining two years of the agreement because Jim was aware of Sam’s sole aim to offer exotic animals for sale. Because of the ban, Sam no longer has a purpose in operating the business, unless he wishes to find another venture. On the flip side, Jim may also end the agreement and offer the property to another renter.
• Example: John Smith enters into an agreement to buy commercial land for renting purposes. During the pending sale, the building becomes condemned and labeled as unsafe by officials. Mr. Smith can back away from the agreement with no obligation.

In most cases, however, non-performance with an agreement is no excuse.

If a seller assumes the risk of loss from destruction or damage, then non-performance would be a more likely excuse. With that, if the buyer carries the risk of loss, performance would not be excused.

• Example: If Bob agrees to sell Will 200 bushels of corn, and Bob’s crops get destroyed, Bob must stil sell the corn to Will. He may need to get the corn elsewhere to complete the sale.

Requirements for Frustration of Purpose

For a party to successfully invoke the doctrine of frustration of purpose, courts typically require the following three elements:

1. Substantial Frustration: The principal purpose of the contract must be substantially frustrated—not merely made less profitable or inconvenient.
2. Unforeseen Event: The frustrating event must have been truly unforeseeable at the time of contracting.
3. No Fault of the Party: The party seeking relief must not have caused or assumed the risk of the event.

It is important to distinguish that performance may still be technically possible—but the fundamental purpose of the agreement is destroyed. The event must strike at the core reason both parties entered the contract.

For example, renting a rooftop venue for a solar eclipse viewing may be frustrated if a government lockdown prohibits all public gatherings, nullifying the core reason for the rental.

When Frustration of Purpose Does Not Apply

Courts are generally cautious in applying this doctrine and may reject a frustration of purpose defense under the following conditions:

• The event was foreseeable: If the risk was reasonably anticipated or provided for in the contract, frustration of purpose will not apply.
• Partial loss of purpose: If only a secondary or incidental purpose is frustrated, the contract is usually still enforceable.
• Self-inflicted frustration: If the party’s own actions caused or contributed to the frustration, the doctrine won’t excuse performance.
• Force majeure clause governs: A force majeure clause may cover the event, preventing a frustration claim from succeeding.

For instance, if a concert is canceled due to expected bad weather and the parties included a weather-related force majeure clause, a frustration claim would be precluded by the specific contract language.

Impossible Circumstances

Impossibility refers to a certain duty under an agreement that has become impossible to complete under reasonable instances.

• Example: Jim pays Allen $3,000 to paint his home in April, but the house gets destroyed in a fire in March before final payment is made. This would legally excuse Jim from the agreement because it is not possible for the home to get a paint job, since it no longer exists. Allen cannot seek damages in court since the issue falls under a doctrine of impossibility.

Another example would be if Jim, who owns three apple orchards, enters into an agreement with a business that promises to offer them one thousand bushes annually. The agreement determines that all apples will be Granny Smith variety from the northern part of the fields. Due to a hard winter, however, the trees failed to produce. Because of the weather, Jim is excused from the contract because the winter was beyond his control.

Impracticability Cases

Impracticability occurs when a certain duty in a contract has become too expensive or difficult to execute. The court uses such determinations in the following instances:

• Occurrences where an unforeseen condition or circumstance takes place.
• Unforeseen instance must render an assignment difficult or too expensive to finish.
• Extreme expenses or difficulties were not anticipated by any party to the agreement.

For instance, Jim’s business signs a contract to remove all gravel from a certain area. However, the survey reveals that much of the gravel is underwater and would be more costly on Jim’s part to remove. Therefore, the business can claim impracticability because the cost to remove the gravel will be far greater than what was initially discussed.

Frustration of Purpose vs. Impossibility vs. Impracticability

While all three doctrines may excuse contract performance, they serve different legal functions:

A key difference is that frustration of purpose does not require performance to be impossible—just meaningless in light of the unforeseen change in circumstances.

Notable Case Law on Frustration of Purpose

Here are some notable cases that illustrate the court’s approach to frustration of purpose:

• Krell v. Henry (1903) – A leading English case where a room was rented to view a coronation parade that was later canceled. The court ruled the contract was frustrated because the sole purpose no longer existed.
• Chase Precast Corp. v. John J. Paonessa Co., Inc. – The court excused performance when the state canceled a highway project, eliminating the buyer’s need for median barriers.
• Restatement (Second) of Contracts § 265 – This restatement outlines the modern U.S. standard and has been cited in many cases, reinforcing that frustration must be substantial, unforeseeable, and not the fault of the party claiming it.

These cases show that courts focus on whether the fundamental reason for the contract’s existence was destroyed by the intervening event.

Practical Contract Drafting Tips

To minimize disputes related to frustration of purpose, businesses and individuals should consider the following during contract drafting:

• Include a force majeure clause that lists specific events (e.g., pandemics, government actions, natural disasters).
• Clarify assumptions and purposes within the contract if one party’s reason for entering is critical.
• Allocate risk explicitly, especially for volatile industries or long-term contracts.
• Plan for contingencies and outline steps in the event of cancellation or disruption.

These proactive measures help reduce ambiguity and clarify when relief from performance may be justified.

Frequently Asked Questions

1. What is frustration of purpose in contract law?
   Frustration of purpose occurs when an unforeseen event destroys the fundamental reason for entering a contract, rendering it essentially worthless to one party.
2. How is frustration of purpose different from impossibility?
   Frustration relates to the purpose of the contract, while impossibility concerns whether a party can perform the contract duties.
3. Can I claim frustration of purpose if the contract becomes less profitable?
   No. Courts generally require that the purpose of the contract be completely undermined—not merely less advantageous.
4. What kind of events qualify as frustrating a contract’s purpose?
   Qualifying events include government shutdowns, cancellations of public events, or new laws that make the original purpose illegal—if they were truly unforeseeable.
5. Can a force majeure clause prevent a frustration of purpose claim?
   Yes. If the contract includes a force majeure clause that governs the event in question, courts may enforce that clause instead of applying the frustration doctrine.

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