What Is Frustration Of Purpose in Contracts?

Frustration of purpose occurs when an unforeseen event undermines the principal purpose of a contract, thus excusing performance. This doctrine allows a party to terminate the contract without liability if the primary objective becomes impossible to achieve.

Frustration of purpose is a legal doctrine in contract law that relieves parties from performing their contractual obligations when a significant event occurs that completely frustrates the contract's main purpose. For the doctrine to apply, the purpose must be so central to the contract that if it is thwarted, it negates the value of the contract for the frustrated party. Courts analyze whether the parties had a shared understanding of the contract's purpose and whether the frustrating event was unforeseen.

The seminal case explaining this doctrine is 1) Krell v. Henry (1903), where a lease of a room to view a royal coronation was deemed frustrated when the coronation was canceled. The court held that the purpose of entering into the lease was inseparable from the event, thereby excusing the tenant from payment. Similarly, in 2) Tatum v. Houghton (1944), a contract for the sale of cornerstone stones was frustrated when the cornerstone ended up not being used for its intended purposes due to the building not being constructed.

However, not every change in circumstances leads to frustration. The event causing frustration must be unforeseen and must arise after the contract formation. Additionally, if the frustrating event was a risk assumed by one of the parties, the doctrine will not apply, as seen in 3) BNY Trust Company of New Jersey v. New York City (2009), where the court denied frustration because the risk was expressly contemplated by the parties.

In contrast, cases like 4) The Sea Angel (2007) emphasize that mere difficulty in performance or financial hardship does not constitute frustration of purpose. This distinction is critical for discerning cases where relief can be granted versus those where parties must perform despite changes in circumstances. Thus, the judicial approach relies heavily on the objective intent of the parties and the specific language of the contract when evaluating whether frustration exists.

• 1Krell v. Henry (1903) - foundational case establishing frustration of purpose.
• 2Tatum v. Houghton (1944) - highlights shared purpose in contracts.
• 3BNY Trust Company of New Jersey v. New York City (2009) - emphasizes risk allocation.
• 4The Sea Angel (2007) - clarifies that significant hardship is not enough for frustration.

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