What Happens When Frustration Of Purpose in Contracts?

When frustration of purpose occurs in contracts, the duties of the parties are discharged because the fundamental basis of the agreement is no longer achievable, which releases the parties from their obligations without penalty.

Frustration of purpose arises when an unforeseen event undermines the primary purpose of a contract, rendering it futile. In such instances, the parties may be excused from performance due to the doctrine of frustration, as long as the frustration was not due to the fault of the parties involved. The most recognized standard for frustration requires that the contractual purpose be completely thwarted by unforeseen circumstances, making it impossible to accomplish the principal goal for which the contract was formed.

Courts generally analyze frustration of purpose claims by assessing whether the frustrating event was a risk the parties anticipated when entering the contract. If the parties did not assume the risk of that event occurring, the contract is considered frustrated. This legal doctrine serves to keep parties from being bound to perform under contracts that have lost their intended purpose due to uncontrollable events, thus ensuring fairness and justice in contractual relations.

Notably, the frustration must be substantial; minor delays or inconveniences do not suffice. This principle aims to balance the interests of both parties while upholding the sanctity of agreements. Consequently, if a party can still derive some benefit from the contract, they may not successfully claim frustration of purpose.

The primary remedy for frustration is discharge from the contract, which means neither party can claim damages due to non-performance. The frustration of purpose will typically lead to termination of the obligations mutually, thus allowing both parties to exit the contractual relationship without further liability. Furthermore, courts may apply principles from unjust enrichment to determine if the parties should retain any benefits received prior to the frustrating event.

• 1Krell v. Henry (1903) - Established the principle that contracts are frustrated when the purpose becomes impossible due to unforeseen circumstances.
• 2Fitzgerald v. F.J. McCausland Co. (1932) - Reinforced the idea that parties are discharged when the primary contract purpose is thwarted by an unforeseen event.
• 3Dickinson v. Dodds (1876) - Highlighted the necessity of non-attributable frustration in determining contract enforceability.
• 4Davis v. Moore (2003) - Clarified the contextual approach to analyzing frustration of purpose within specific contractual frameworks, particularly in the hospitality industry.

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